Learning, sense making, action, and firm performance: An empirical test of Choo\u27s theory of the knowing organization

This study investigates strategic action as the link between organizational learning and firm performance, empirically examining Choo\u27s (1998) theory of the knowing organization. Action is the lever by which learning is applied, and is a precondition for performance. Strategy, in turn, provides a guide for action and a goal for performance. Prior theoretical and empirical work in organizational learning and knowledge management has generally failed to incorporate strategy, action, or performance. Consequently, prior work has been limited in its ability to adequately describe the learning-performance relationship, lacking a governing mechanism. In contrast, knowledge-based theories of the firm, grounded in the strategy discipline, offer an explanatory approach connecting learning to firm performance by incorporating organizational sense making (strategy) and action. Choo\u27s (1998) theory of the “knowing organization” exemplifies the comprehensive model required by the strategy discipline. Choo\u27s theory links organizational performance to a three-part system of learning, sense making, and action. This study empirically tests Choo\u27s theory, surveying a random multi-industry sample of single-business, publicly-traded firms to measure the constructs of learning, sense making, and action, and to capture respondents\u27 perceptions of their firms\u27 performance. In addition to perceptual evidence from the survey, the hypothesis was also tested against objective financial data to triangulate the effects of the learning-sense making-action system. Factor analysis validated the questionnaire, and sequential linear regression was used to test the hypothesized influence of the learning-sense making-action system upon firm performance. Results support the hypothesized three-way interaction among organizational learning, sense making, and action for perceived profit margin, and a small but consistent effect of the three-way system is observed across other performance variables (though not achieving significance). The positive effect of increased learning on performance is enhanced by higher levels of both organizational action and sense making. Several future extensions of this study are identified, including theory development to refine expectations for specific performance dimensions over specific time periods, as well as alternate empirical approaches to overcome limitations of survey response rates