Crisis Construction and Organizational Learning: Capability Building in Catching-up at Hyundai Motor
Authors: L. Kim
Publication Year: 1998
Journal: Organization Science
Categories: Organizational Change
Organizational learning and innovation are very important for the management of organizations. Markets are often divided in organizations that are true pioneers of novel breakthroughs and organizations that try to catch-up by assimilating technologies of competitors.
When facing crises organizations should try to realign their strategies and to transform their technologies in order to stay competitive. A crisis, however, can also be an opportunity for an organization, because it can benefit from the learning process that comes along with it, which will strengthen the organization. When an organization faces a crisis they must invest heavily in the acquisition of new tacit and explicit knowledge as well as in knowledge conversion activities to overcome the crisis in the shortest possible time.
Organizational learning takes place at the individual level and at the organizational level and is a process whereby knowledge is created and distributed. Learning within organizations is closely related to the absorptive capacity. The absorptive capacity of an organization is based on the knowledge that has already been gained and the intensity of effort, or energy, they are willing to give to solve problems. Knowledge is the most valuable asset within an organization, but the problem however is that knowledge is mostly dispersed over individuals within the organization. The accumulated prior knowledge can be leveraged to stimulate organizational learning.
Knowledge consists of two forms: explicit knowledge and tacit knowledge. Explicit knowledge is knowledge that is more formal and systematic, and therefore can be more easily shared with other people. Tacit knowledge is personal and hard to formalize, and therefore difficult to communicate with others. Tacit knowledge can be formed through learning-by-doing. Since tacit knowledge is hard to transfer through the organization it is also harder to transform it from individual knowledge to organizational knowledge. The SECI framework that Nonaka and Takeuchi developed in 1995, can guide this process by transferring tacit knowledge to explicit knowledge.
This research focuses on organizational learning in the catching-up process of Hyundai. The South-Korean car manufacturer Hyundai entered the auto industry in 1967 as a latecomer. Hyundai started with assembling a Ford compact car in 1967 and by looking at their competitors and assimilating their technologies it developed rapidly to the top largest car manufacturers in the world. By assimilating foreign technologies from other companies Hyundai was able to scale up their production and thereby they developed the capability to build their own designs. In this way Hyundai transformed their organization from imitative learning by doing, to innovative learning by research.
Through its beginning years Hyundai benefited from organizational learning by the construction of crises. In the first phase (1967) Hyundai created a crisis for its production members by setting an ambitious goal to acquire a production capability in the shortest possible time. Hyundai created an internal crisis to leverage its absorptive capacities in order to manufacture cars with the minimum of trial and error. The second phase (mid-1970s) where Hyundai benefited from organizational learning was when the Korean government imposed a crisis by making a radical policy change requiring the automobile industry to shift from assembly production of foreign cars on a CKD basis to the development of locally designed “Korean” cars. The government protected the expansion of Hyundai into the subcompact car market. In the third phase (early 1980s) Hyundai again took opportunity by constructing an internal crisis. After the second oil crisis Hyundai invested in developing a new model for the North American market. The objective was to acquire the absorptive capacity needed to develop the next generation car and triple the production capacity. By making an agreement with Mitsubishi Hyundai was able to increase their technical knowledge while competing directly in Mitsubishi’s own markets and thereby increasing their market share. In the fourth phase (early 1990s), foreign organizations were not willing to share their latest technologies, therefore Hyundai had to construct a new crisis and manufacture their own models that eventually took years of designing and testing. Hyundai is one of the most outstanding organizations that are able to construct crises in a proactive way to leverage opportunistic learning.
Interesting to see is that Hyundai from its start entered the adaptive cycle in the crisis quadrant, by creating their own crises to positively influence the creativity in the organization and thereby stimulating the organizational learning in the catching-up process. Hyundai took the crisis situation as starting point to develop an alternative way that would lead to sustainable growth.
Hyundai continuously tries to innovate by imitate pioneers in the market and by the acquisition of foreign technologies to thrive the organizational learning capabilities. Hyundai has been through several phases where they constructed their own crises in order to find new opportunities to innovate by developing alternative ways for growing their market share.
This article sheds new light on the adaptive cycle by taking a new starting point for growth and stability of an organization, starting from uncertain crisis situations and moving towards stabilizing the organization.
Hyundai starts the cycle by creating an internal crisis (quadrant 2) and then it will start looking for new combinations (quadrant 3) to stimulate their absorptive capacities. This could be the acquisition and improvement of several foreign technologies and they are combined to build a new product. When the new product is manufactured, an entrepreneurial mindset is needed to reposition the product in the market (quadrant 4). Eventually they are moving to a more stable phase (quadrant 1) to retain their market position and stimulate sustainable growth.