Leadership and Organizational Learning: Accounting for Variances in Small-Size
Business Enterprises
Carroll M. Graham and Fredrick M. Nafukho
University of Arkansas
This study’s primary purpose was to determine the relationship between leadership and the dependent
variable organizational learning readiness at three locations of a small-size business enterprise in the MidWestern United States. Surveys were acquired within an exploratory correlational research design and the
results indicated leadership explained a large degree of the variance in the dependent variable. The results
offer HRD practitioners targets for deficiency interventions within the systems and structures of small-size
businesses.
Keywords: Leadership, Organizational Learning, Small-Size Business
Over a decade ago, Adler and Cole (1993) stated, “a consensus is emerging that the hallmark of tomorrow’s most
effective organizations will be their capacity to learn” (p. 85). Based on the current interest in organizational
learning issues and the need to maintain a competitive edge in this hypercompetitive global economy, this point of
view has not diminished. Accordingly, a learn-in-order-to-grow philosophy has been adopted by aggressive
entrepreneurs and managers striving to stay abreast with the latest corporate strategies and business models. Also,
empirical evidence in studies of medium- and large-size enterprises reinforces the relationship of organizational
learning to innovation, competitive advantage, and financial performance (Ellinger, Ellinger, Yang, & Howton
2002; Khandekar & Sharma, 2005; López, Peón, & Ordás 2005). Thus, organizational learning and building a
learning organization are fundamental to establishing a competitive advantage, especially in today’s learningfocused enterprises reflecting a more emergent and flexible strategic vision (Ellinger, et al., 2002).
Often endogenous crises related to organizational learning deficiencies surface in organizations (Lucas &
ogilvie, 2006). Preventing or addressing crises is primarily the responsibility of leadership. In the case of bona-fide
learning organizations, this means transformational leadership. This type of leadership is visionary and is focused on
influencing change by demonstrating learning and teaching and communicating the importance of building learning
organization infrastructure. Learning organization leaders differ from transaction-focused leaders who are often
primarily concerned with task or job efficiency (James, 2003). Previous conceptual evidence of the association of
leadership and organizational learning is present in the literature (Senge, 1990b; Schein, 1993; Davenport & Prusak,
1998; Edmondson, 1999; and Lipshitz, Popper, & Friedman, 2002). However, missing within the literature is
sufficient empirical evidence of leadership’s effect on the dependent variable organizational learning readiness
within the context of small-size business enterprise. (Amitay, Popper, & Lipshitz, 2005; Popper & Lipshitz, 2000).
Thus, this study sought to partially fill this gap in the literature.
Problem Statement and Purpose
Previous research studies have enriched the understanding of organizational learning in medium- and large-size
business enterprises. However, a gap continues to exist regarding knowledge of key organizational learning
mechanisms or dimensions in the small-size business enterprise (those who employ less than 150 persons) and the
effect leadership has on achieving organizational learning readiness Considering the deficiencies within the learning
organization literature focusing on types of mechanisms or dimensions, and their perceived effectiveness among
stakeholders within small-size business enterprises, empirical research is warranted. Therefore, this study’s primary
purpose was to determine the relationship between leadership and organizational learning readiness at three
locations of a small-size business enterprise in the mid-Western United States.
Research Questions
The study is supported by the following research questions: (1) What are the related demographic statistics of the
Copyright © 2007 Carroll M. Graham & Fredrick M. Nafukho
participants involved in this study? (2) Which dimension (Culture, Leadership, Systems and Structures, and
Evaluation) is perceived by the respondents to more effectively facilitate organizational learning in day-to-day work
environments? (4) Which items on the survey indicate a diminished presence of organizational learning readiness?
(5) To what degree do respondents believe the effect of leadership explains and/or contributes to organizational
learning readiness in the small-size business enterprise? (6) What is the estimated relationship between the
independent variables Leadership, Systems and Structures, and Evaluation, and the dependent variable
Organizational Learning Readiness?
Theoretical Framework
Some scholars champion the belief that competitive advantage serves as the origin of most organizational learning
theory (De Geus, 1988; Stata, 1989). Organizations are stimulated to learn and innovate, especially as competing
organizations may replicate products and processes in an overnight fashion, thereby causing a loss of market shares
and threats to existing revenues (De Geus, 1988; Whipp & Pettigrew, 1991). W. Edwards Deming’s notion of a
system of profound knowledge necessary for the transformation of organizations also contributes to the phenomenon
of organizational learning. Closely tied to Deming’s contributions and the development of total quality management
systems is Senge’s (1990a) foundation theory. Senge confirmed Deming’s views and the total quality management
movement as integral to organizational learning and fundamental to improvement and business success (Senge,
1992). Senge’s theory on the learning organization served as an impelling force for others interested in exploring
organizational learning theory.
Literature Review
Scholars readily point out that “organizational learning,” is the result of specific strategies formed by the
organization to promote learning. Organizational learning is often perceived as occurring at a systems level. King
(2001) stated, “A learning organization may best be thought of as one that focuses on developing and using its
information and knowledge capabilities in order to create higher-valued information and knowledge, to change
behaviors, and to improve bottom-line results” (p. 14). Also, Dixon (1994) referred to organizational learning as
“the intentional use of learning processes at the individual, group and system level to continuously transform the
organization in a direction that is increasingly satisfying to its stakeholders” (p. 12).Though obviously related,
organizational learning is different from the “learning organization” and should not be referred to in a manner that
implies these terms are interchangeable (Marquardt, 1996; Swanson & Holton, 2001). Yeo (2005) is credited with
helping clarify the difference in the two concepts by stating “organizational learning is used to refer to the process of
learning while the idea of “learning organization” refers to a type of organization rather than a process” (p. 369).
Further, the learning organization is often considered the domain of the practitioner and focuses on how an
organization’s behavior should be changed to effect organizational learning. Whereas, organizational learning,
considered the domain of the academic, refers to the study of the learning processes (Örtenblad, 2001; Sun & Scott
2005; Tsang 1997).
Leadership, Culture, Evaluative Inquiry, and Systems and Structures
Leadership is a top-down process, ultimately influencing all organizational members to become not only
learners, but teachers as well. The leaders of learning organizations “model the openness, risk taking, and reflection
necessary for learning. They also communicate a compelling vision of the learning organization and provide the
empathy, support, and personal advocacy needed to lead others in that direction” (Cummings & Worley, 2001, p.
521). Popper & Lipshitz (2000) proposed that the role of transformational leaders in the context of organizational
learning should include centralizing the issue of organizational learning, building structural foundations to support
organization-wide learning, and to create a trusting culture where psychological safety ensures consistent learning.
Greenes (2006) and Yeo (2005) indicate learning organization leaders are adaptive, willing to unlearn old habits,
have the ability to rally employees with shared vision, and convicted to the philosophy of rewarding employees and
building systems and processes to facilitate continuous and collaborative learning.
The universally recognized mechanism “culture” is often targeted in research studies related to the learning
organization. Though evaluative inquiry serves as a catalyst for learning organization outcomes, it achieves this in
an orchestrated manner with the enterprises’ culture. Carleton (1997), Hoffman and Withers (1995), and Schein
(1996) indicate culture directly influences the quality of learning, interpretation of other’s behaviors, and
determination of subsequent behaviors. Often an organization’s culture strongly affects employee interaction,
organizational functioning, and ultimately influences all decision-making.
Evaluative inquiry, also referred to as evaluation in this study, is a concept that includes the coordination of
multidisciplinary teams, permeable boundaries, mental focus, innovation, commitment to orientation and results, and
cultivation of honorable relationships among peers. Evaluative inquiry is often referred to as an on-going process
where all employees are encouraged to continuously question the status quo (Preskill & Torres, 1999).
As utilized in this study, the “systems and structures of an organization mediate organization members’ ability
to interact, collaborate, and communicate with each other—and thus, the success of evaluative inquiry efforts”
(Preskill & Torres, 1999, p. 171). Marquardt (2002) emphasized that “organization-level learning is most conducive
to systems thinking and learning” (p. 222). Learning organizations characteristically exhibit systems and structures
that interact, emphasize teamwork, promote strong lateral relations, collaborate internally and externally to the firm,
and ultimately ensure evaluative inquiry success. The structure of a learning organization is “streamlined,
unbounded, and maximizes contact, and information flow” (Marquardt, 2002, p. 28) in a prescribed manner.
In summary, learning organizations benefit immensely from maximal use of appropriate organizational learning
mechanisms. Yet, for small-size business entrepreneurs knowing where to focus their resources, in terms of the
creation or reinforcement of learning mechanisms or dimensions, can be a confusing journey. Presently there is
limited empirical evidence indicating which learning mechanisms or dimensions provide the greatest benefit to
small-size business enterprises. Previous investigators articulated the need to identify and quantify the effect that
“learning mechanisms have in developing positive outcomes for organizations” (Shipton, Dawson, West, Patterson,
2002, p. 68). This investigation of organizational learning mechanisms in a small-size business enterprise partially
addresses this gap in the literature.
Research Methodology
An exploratory correlational research design was utilized in this study. Kerlinger (1986) indicates this design is
appropriate because it affords the best opportunity to determine if relationships of the selected dependent and
independent variables and selected demographic characteristics exist. This research design provides the opportunity
to describe the homogeneity or heterogeneity of various variables—or the extent to which variables are similar or
different from one another in the context of small-business enterprise.
Selection of Target Population and Nature of Business
Selection of the target population was based on the enterprise’s stability within the agricultural business sector,
including more than 10 years of consistent business activity, and employment numbers of less than 150. The target
population for this study consisted of all employees, including supervisors, managers, and administrators employed
at each of three business locations owned by a single agricultural sales and service enterprise.
Instrumentation
With permission these researchers modified and used a survey instrument previously developed and used to
gather data from eight heterogeneous organizations (Preskill, Martinez-Papponi, & Torres, 2001; Russ-Eft &
Preskill, 2001). During that study construct validity was established regarding the questions these researchers posed
in this study. For this study, a reliability coefficient determined a Cronbach’s Alpha Coefficient of .96, based on
standardized items. Thus, reinforcing the internal consistency reliability—the extent to which the items of the
modified instrument assessed common characteristics. The questionnaire sought answers to four demographic
questions (longevity, level of education, ethnicity, and gender). The remainder of the instrument has fifty-nine items
measured on a 5-point Likert scale (ranging from 1 = Strongly Disagree to 5 = Strongly Agree) accounting for the
extent to which they disagreed or agreed with each statement. These questions addressed organizational learning
issues related to four mechanisms or dimensions singularly and in an aggregated compilation: culture, leadership,
systems and structures, and evaluation.
Data Collection and Analysis
Prior to data collection, permission to initiate the study from the Institutional Review Board at the researchers’
institution was requested and subsequently established. Written permission to acquire data from the employees was
granted by the enterprise’s administrators. Surveys, including a letter explaining the purpose and significance of the
study, and a self-addressed stamped envelope were mailed to all employees by the researchers. Anonymity of the
respondents was assured and the initial mailing yielded a 41percent response rate, a second mailing three weeks later
yielded a 71percent response rate. Prior to data analysis all completed surveys were thoroughly examined for errors
and voids, coded, and organized for analysis using the Statistical Package for the Social Sciences (SPSS) computer
program. Descriptive, correlational, inferential, and hierarchical regression statistical tests were employed to address
the study’s purpose and research questions.
Results
Results of the study are presented according to the study’s research questions. Question one sought to determine the
related demographic statistics of the participants involved in this study. The data revealed that 75.6percent (n = 31)
of the respondents were male, non-management workers and attended high school. Fifty-six percent (N = 33) of the
respondents had been employed more than four years.
Question 2 sought to determine which dimension (culture, leadership, systems and structures, evaluation) is
perceived by the respondents to more effectively facilitate organizational learning in day-to-day work environments?
As shown in Table 1, respondents’ scores indicated the mechanism of evaluation, (M = 3.39, SD = .73) also referred
to as evaluative inquiry, facilitated organizational learning to a greater extent than did the other mechanisms.
Respondents’ scores indicated the mechanisms of leadership (M = 3.26, SD = .86) and culture (M = 3.25, SD = .51)
ranked second and third, respectively, as facilitators of organizational learning. Each of these mechanisms had
similar mean scores, however, the degree of dispersions for the mechanism of leadership, as indicated by the
minimum, maximum and standard deviations scores in Table 1, revealed a wider range of perception among the
respondents.
Table 1. Respondents’ perceptions of most effective organizational learning mechanism (N = 41)
Mechanism or Dimension
N
Minimum
Maximum
M
Evaluation
41
.00
5.00
3.39
Leadership
41
1.17
5.00
3.26
Culture
41
1.97
4.55
3.25
Systems & Structures
41
1.50
5.00
3.18
SD
.73
.86
.51
.75
Question 3 sought to determine which items in the survey indicated a stronger presence of organizational
learning readiness? Participants in the study responded to 59 items regarding their level of agreement or
disagreement, and in so doing, acknowledged the presence and strength of these essential items as facilitating
organizational learning readiness. The 59 items also represent the aforementioned four dimensions (mechanisms)
believed to explain organizational learning readiness in small-business enterprises.
To facilitate reporting of these findings, a scale was established by the researchers to guide the interpretation of
the responses to the individual items. This scale was developed to coincide with the following response categories:
< 1.50 = strongly disagree; 1.50 to 2.49 = disagree; 2.50 to 3.50 = neutral; 3.51 to 4.50 = agreed; and > 4.50 =
strongly agree. None of the 59 items received cumulative mean scores that qualified as disagreed, strongly disagreed
or strongly agreed.
As shown in Table 2, the respondents’ perceptions revealed seven items (3, 4, 10, 11, 22, 25, and 57) facilitated
organizational learning readiness more so than did other survey items. For example items 3 and 4 state, “Employees
respect each others perspectives and opinions” (M = 4.50, SD = .55), and “Employees ask each other for information
about work issues and activities” (M = 4.17, SD = .59) were considered two very strong indicators of organizational
learning readiness with minimal difference in measures of dispersion. Item 57, from the dimension of evaluation
was also perceived by the respondents as a strong indicator of organizational learning readiness, “Evaluation helps
(or would help) us provide better programs, process, products, and services.” However, as noted in Table 2, the
measures of dispersion (Min. = .00, Max. 5.00, SD = .87) were greater for this item than the other six items.
Table 2. Survey items indicating strong presence of organizational learning readiness (N = 41)
Item #
Item
N
Min.
3
Employees respect each others perspectives and opinions
41 2.00
4
Employees ask each other for information about work issues /activities 41 2.00
10
Employees operate from a spirit of competition vs. competition
41 1.00
11
Employees tend to work collaboratively with each other
41 1.00
22
Employees use data/information to inform their decision-making
41 2.00
25
I feel safe explaining why I think or feel the way I do about an issue
41 2.00
57
Evaluation helps (or would help) us provide better program/processes
41
.00
Max.
5.00
5.00
5.00
5.00
5.00
5.00
5.00
M
4.50
4.17
3.85
3.73
3.78
3.76
3.73
SD
.55
.59
.88
.90
.82
.73
.87
Question 4 sought to determine which items on the survey indicate a diminished presence of organizational
learning readiness and cause for concern for this enterprise’s three locations. The five items relate to elements within
one mechanism, systems and structures. Respondents’ scores on items 47-50 revealed employees concern for
insufficient recognition and/or rewards for experimenting with new ideas, helping each other learn, team learning,
and helping the enterprise solve problems. Respondents’ scores on item 42 reveal a concern for bureaucratic red tape
when trying to do something different. As compared to the responses on survey items that indicated a strong
presence of organizational learning readiness, the mean scores on survey items indicating a diminished presence of
organizational learning readiness are significantly less and the measures of dispersion greater. For example item 48
in Table 3 states, “The current reward or appraisal system recognizes, in some way, team learning and performance”
(M = 2.85, SD = 1.06).
Table 3. Survey items indicating a diminished presence of organizational learning readiness (N = 41)
Item #
Item
N
Min.
Max.
Employees are recognized or rewarded for helping each other learn
41
1.00
5.00
49
50
48
47
42
Employees are recognized or rewarded for experimenting with new ideas
The current reward or appraisal system recognizes, in some way, team
learning and performance
Employees are recognized/rewarded for helping solve business problems
There is little bureaucratic red tape when trying to do something different
M
SD
1.01
.93
41
1.00
5.00
2.68
2.93
41
1.00
5.00
2.85
1.06
41
41
1.00
1.00
5.00
5.00
2.93
2.93
1.03
1.08
The study’s primary research question, number 5, asked to what degree respondents believe the effect of
leadership explains and/or contributes to organizational learning readiness. To address this question and capture
additional useful knowledge these researchers developed a related question (#6) to determine the estimated
relationship between three independent variables leadership, systems and structures, and evaluation, and the
dependent variable organizational learning readiness. To assess the relationships between the model’s variables, and
address questions 5 and 6, two approaches were utilized. First, to determine the bivariate relationships among the
variables the resulting correlations were summarized in a simple correlation matrix as shown in Table 4. As the
coefficients in Table IV reveal, moderate to very strong associations (Davis, 1971) exist. Thus, there is a concern for
multicollinearity among the independent variables of the model. To address the potential of multicollinearity risks
prior to employing a hierarchical regression analysis, a statistical test, variance inflation factor (VIF), was
implemented (Mertler & Vannatta, 2002). The VIF for a given predictor “indicates whether there exists a strong
linear association between it and all remaining predictors” (Stevens, 1992, p. 136). The results of the VIF statistical
test revealed values that ranged between 1.3 and 3.5. According to Stevens (1992), values greater than 10 are
generally cause for concern. Thus, multicollinearity among the selected independent variables does not pose a threat
to the study’s results.
Table 4. Simple Correlation Matrix for Independent and Dependent Variables (N = 41)
Dimension
M
SD
1
2
3
1. Culture
3.25
.51
1.00
2. Leadership
3.26
.86
.83
1.00
3. Systems & Structures
3.18
.75
.79
.85
1.00
4. Evaluation
3.39
.72
.48
.51
.57
5. Organizational Learning Readiness
3.37
.60
.92
.94
.92
4
5
1.00
.66
1.00
Second, hierarchical regression analysis was employed to account for the variances in the dependent variable as
attributed to three of the independent variables (leadership, evaluation, and systems and structures) and to establish a
model that explains the phenomenon of organizational learning readiness in this context. Hierarchical regression
analysis allowed the researchers to examine the influence of the independent variables on the dependent variable in a
specific sequence and to summarize the results with a statistical mode. An additional advantage of the hierarchical
or sequential approach analysis is the power to control confounding variables that are often viewed as covariates to
the primary independent variable of theoretical importance. To determine an accurate set of predictors for the model,
these researchers relied on theory from previous research (Graham & Nafukho, 2005) and as a result deleted the
variable culture from the regression equation. Previous research indicated the variable culture encompassed multiple
constructs and captured information in a redundant manner similar to the other independent variables proposed for
this model.
In a planned sequence, the independent variables leadership, evaluation, and systems and structures were
entered into the hierarchical regression equation. The resulting model proved significant. To substantiate the
conceived theoretical model, Table 5, the ANOVA summary, reflects the degree to which the model predicts the
dependent variable, organizational learning readiness. As revealed in Table 5, the omnibus F (3, 39) = 325.77, p <
.001, strongly supports the model.
Table 5. Hierarchical Multiple Regression Analysis of Organizational Learning Readiness (N=41)
Source of Variation
df
MS
F
Regression
Between Groups
3
4.10
325.77
Residual
Within Groups
36
0.01
Total
39
*p < .001
p
.000*
The results in Table 6 reveal the coefficient of determination (R²) for the model was .96. This means that three
independent variables, combined, explained 96percent of the variance in the dependent variable organizational
learning readiness. Thus, the independent variable leadership was entered first and had a coefficient of determination
of .88, meaning that this independent variable accounted for 88 percent of the variance in the dependent variable.
This finding partially fills a gap in the literature (Amitay, et al., 2005; López, et al., 2005; Vera & Crossan, 2004).
Systems and Structures was entered next and had a coefficient of determination of .06, meaning that this
independent variable accounted for 6 percent of the variance in the dependent variable. The last variable entered
evaluation, had a coefficient of determination of .02 and accounted for 2 percent of the variance in the dependent
variable. Together, each of the three independent variables accounted for a total of 96 percent of the variance in the
dependent variable organizational learning readiness. The standardized beta coefficients shown in Table VI allow
for the comparison of the relative strength of the three independent variables in the model. The beta coefficients
parallel and reinforce the change in R².
Table 6. Summary of Hierarchical Regression Analysis for Variables Explaining Organizational Learning
Readiness
(N = 41)
Variable
Β
SE B
β
Step 1
Leadership
.381
.041
.547*
Step 2
Evaluation
.296
.051
.361*
Step 3
Systems & Structures
.138
.030
.177*
Note: Adjusted R² = .96; R² = .88 for Step 1; ∆R² = .06 for Step 2; ∆R² = 0.2 for Step 3. * p < .001
Conclusions, Discussion and Contributions to Human Resource Development
A statistically significant model exists that showed leadership, systems and structures, and evaluation were the major
variables explaining organizational learning readiness among the enterprise’s three locations. Also, within the
literature there existed a lack of empirical evidence that quantifies the immense effect leadership has on
organizational learning readiness in the small-size businesses enterprise. This empirical study partially fills that gap
in the literature. Based on the results of the hierarchical multiple regression analysis, and the perceptions of the
responding employees at each of the three locations, it is concluded that leadership explains 88 percent of the
variance in the dependent variable. In addition to this important finding, it is concluded that systems and structures
and evaluation explain 6 percent and 2 percent, respectively, of organizational learning readiness. Thus, the
combined effect of these three predictor variables explained 96 percent of the variance in the dependent variable
organizational learning readiness among the three locations, and each mechanism meaningfully and significantly
contributed to organizational learning readiness and human resource development. This contribution to HRD implies
that the mechanism of leadership bears a considerable degree of influence on organizational learning outcomes and
stakeholders should avoid minimizing or trivializing leadership’s role in facilitating organizational learning
readiness. These conclusions provide practical significance and imply that when leadership, including
administrators, managers, supervisors, subject matter experts, and teams fully endorse this mechanism’s importance,
and become proactive organizational learning leaders, organizational learning then becomes an effective tool for
solving performance problems and increasing revenues. Further, the conclusions imply that interventions should
include a strong emphasis on educating all employees of leadership’s importance in facilitating organizational
learning readiness in small-size business enterprise.
Though the prior regression model supports the conclusion that leadership explains or predicts a large
percentage of organizational-wide learning readiness among the enterprise’s three locations, we conclude that the
dimension evaluation, the ongoing process for investigating and understanding critical organization issues, was
perceived by the respondents as the single most important stimulus of organizational learning in daily work
activities. This implies that evaluation or evaluative inquiry is revered by the employees as a “situational activity”
that accelerates organizational learning within the context of their day-to-day work environments.
Based on the participants’ responses on individual survey items, these researchers conclude that a moderate-tostrong presence of organizational learning readiness exists among the enterprise’s three locations. Participants’ mean
scores on items within the dimension of culture and evaluation support this conclusion. This conclusion also implies
the respondents acknowledge and appreciate organizational learning successes within an environment comprised of
trust, collaboration, respect, psychological safety, and also a willingness to evaluate the status quo to improve
performance and achieve strategic goals (Marquardt, 2002).
Finally, it is concluded that a diminished presence of organizational learning readiness exists in the dimension
of systems and structures regarding rewards and recognition offered to employees for learning-associated activities.
Related to this conclusion, these researchers wish to point out that the data could be interpreted with additional
meaning. Based on respondents’ low mean scores on items within the dimension of systems and structures this
implies an absence of elements within the enterprise’s learning infrastructure that would ordinarily prompt learning.
This may also imply employees may have limited incentive to voluntarily capture and disseminate new knowledge
in some situations due to little recognition or compensation for efforts beyond their essential job duties.
Recommendations for Further Research
In conclusion, further research in small-size business enterprises should include studies investigating leadership
skills to determine if leaders demonstrate skill sets oriented towards both the transformational leadership and
transactional leadership qualities (e.g., James, 2003). Finally, research should be conducted related to the specific
elements (e.g., recognition and/or rewards) within the infrastructure of small-size enterprises that motivate
employees to learn, innovate, and share knowledge for the greater good of organizational learning.
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