The Relationship Between Perceptions of Learning Organization Characteristics and Firm Performance

ABSTRACTInterest in organizational learning and the learning organization has steadily increased over the past decades. Organizational learning is increasingly being viewed as a means for long-term success however, there is little empirical evidence to support this view. This research was conducted to address this gap. The research was conducted in the U.S. and involved public pharmaceutical companies within one particular code in the North American Industry Classification System (NAICS) code. The study explored the relationship between a firms implementation of learning organization dimensions or characteristics and financial performance.The specific research hypotheses were:1. Firms that demonstrate above-average financial performance possess the seven dimensions of a learning organization to a greater extent than firms that demonstrate below-average financial performance.2. Firms that demonstrate above average improvement in financial performance possess the seven dimensions of a learning organization to a greater extent than firms that demonstrate below-average improvement in financial performance.The independent variable was the learning organization and the dependent variable was organizational performance. Both of these are latent variables measured by indicator variables. The indicator variables for learning organization are the seven dimensions of a learning organization, as defined by Marsick and Watskins (2003). These are: (a) create continuous learning opportunities; (b) promote inquiry and dialogue; (c) encourage collaboration and team learning; (d) provide strategic leadership for learning; (e) empower people toward a collective vision; (f) connect the organization to its environment; and (g) create systems to capture and share learning. Financial performance was measured using two profitability ratios (i.e. return on assets and return on sales); these ratios relate profit to some aspect of management performance such as using assets profitably, creating a return on owners investment and generating a profit on sales. Return on assets is calculated as net income divided by total assets and return on sales is calculated as net income divided by sales.Financial data for these two ratios were collected over an eleven year period, from 1995 to 2005. To evaluate the first hypothesis, the firms that were in the first quartile for overall average for both ROA and ROS were compared to firms that were in the fourth quartile for overall average for both ROA and ROS. To evaluate the second hypothesis, change in performance was evaluated and firms that were in the first quartile for improvement in both ROA and ROS were compared to firms that were in the fourth quartile for improvement in both ROA and ROS.The findings from this research give credence to the notion that a firms adoption and implementation of learning organization characteristics or dimensions is a means of continuous improvement in performance.