Crisis Construction and Organizational Learning : Capability Building in Catching-up at Hyundai Motor

Effective organizational beaming requires high absorptive capacity, which has two major elements: prior knowledge base and intensity of effort. Hyundai Motor Company, the most dynamic automobile producer in developing countries, pursued a strategy of independence in developing absorptive capacity. In its process of advancing from one phase to the next through the preparation for and acquisition, assimilation, and improvement of foreign technologies, Hyundai acquired migratory knowledge to expand its prior knowledge base and proactively constructed crises as a strategic means of intensifying its beaming effort. Unlike externally evoked crises, proactively constructed internal crises present a clew performance gap, shift beaming orientation from imitation to innovation, and increase the intensity of effort in organizational learning. Such crisis construction is an evocative and galvanizing device in the personal repertoires of proactive top managers. A similar process of opportunistic learning is also evident in other industries in Korea. (Organizational Learning; Absorptive Capacity; Crisis Construction; Knowledge; Catching-up; Hyundai Motor; Korea) Organizational learning and innovation have become crucially important subjects in management. Research on these subjects, however, is concentrated mainly in advanced countries (e.g., Argyris and Schon 1978, Dodgson 1993, Nonaka and Takeuchi 1995, Utterback 1994, von Hippel 1988). Despite the fact that many developing countries have made significant progress in industrial, educational, and technological development, research on learning, capability building, and innovation in those countries is scanty (e.g., Fransman and King 1984, Kim 1997, Kim and Kirn 1985). Models that capture organizational learning and technological change in developing countries are essential to understand the dynamic process of capability building in catching-up in such countries and to extend the theories developed in advanced countries. Understanding the catching-up process is also relevant and important to firins in advanced countries. Not all firrns can be pioneers of novel breakdiroughs, even in those countries. Most firms must invest in second-hand learning to remain competitive. Nevertheless, much less attention is paid to the imitative catching-up process than to the innovative pioneering process. For instance, ABI/Inform, a computerized business database, lists a total of 9,006 articles on the subject of innovation but only 145 on imitation (Schnaars 1994). A crisis is usually regarded as an unpopular, largely negative phenomenon in management. It can, however, be an appropriate metaphor for strategic and technological transformation. Several observers postulate that constructing and then resolving organizational crises can be an effective means of opportunistic learning (e.g., Nonaka 1988, Pitt 1990, Schon 1967, Weick 1988), but no one has clearly linked the construct variable to corresponding empirical evidence. The purpose of this article is to develop a model of organizational beaming in an imitative catching-up process, and at the same time a model of crisis construction and organizational learning, by empirically analysing the history of technological transformation at the Hyundai Motor Company (hereinafter Hyundai), the most dynamic automaker in developing countries, as a case in point. Despite the prediction that none of South Korea's automakers will survive the global shakeout of the 1990s, having been driven out or relegated to niche markets dependent on alliances with leading foreign car producers (Far Eastern Economic Review 1992), Hyundai is determined to become a leading automaker on its own. Unlike most other automobile companies in developing countries, Hyundai followed an explicit policy of maintaining full ownership of all of its 45 subsidiaries, entering the auto industry in 1967 as a latecomer without foreign equity participation. Hyundai has progressed remarkably since then. In quantitative terms, Hyundai increased its production more than tenfold every decade, from 614 cars in 1968, to 7,009 in 1973, to 103,888 in 1983, and to 1,134,611 in 1994, rapidly surpassing other automakers in Korea, and steadily ascending from being the sixteenth-largest producer in the world in 1991 to being the thirteenth largest in 1994. Hyundai is now the largest automobile producer in a developing country. It produced its one millionth car in January 1986, taking 18 years to reach that level of production in contrast to 29 years for Toyota and 43 years for Mazda (Hyun and Lee 1989). In qualitative terms, Hyundai began assembling a Ford compact car on a knockdown basis in 1967. It rapidly assimilated foreign technology and developed sufficient capability to unveil its own designs, Accent and Avante, in 1994 and 1995, respectively. The company thus eliminated the royalty payment on the foreign license and was able to export production and design technology abroad. Hyundai's rapid surge raises several research questions: (1) How did Hyundai acquire the technological capability to transform itself so expeditiously from imitative "learning by doing" to innovative "learning by research"? (2) How does learning in the catching-up process in a developing country differ from beaming in the pioneering process in advanced countries? (3) Why is crisis construction an effective mechanism for organizational learning? (4) Can Hyundai's learning model be emulated by other catching-up firms? (5) What are the implications of Hyundai's model for future research? The following section briefly reviews theories related to organizational learning and knowledge creation. Then Hyundai is analyzed as a case in point to illustrate how the Korean firm has expedited organizational learning and to answer the research questions. Crises and Organizational Learning Organizational learning, whether to imitate or to innovate, takes place at two levels: the individual and organizational. The prime actors in the process of organizational learning are individuals within the firm. Organizational learning is not, however, the simple sum of individual learning (Hedberg 1981); rather, it is the process whereby knowledge is created, is distributed across the organization, is communicated among organization members, has consensual validity, and is integrated into the strategy and management of the organization (Duncan and Weiss 1978). Individual learning is therefore an indispensable condition for organizational learning but cannot be the sufficient condition. Organizations learn only when individual insights and skills become embodied in organizational routines, practices, and beliefs (Attewell 1992). Only effective organizations can translate individual learning into organizational learning (Hedberg 1980, Kim 1993, Shrivastava 1983). Absorptive Capacity Organizational learning is a function of an organization's absorptive capacity. Absorptive capacity requires learning capability and develops problem-solving skills. Learning capability is the capacity to assimilate knowledge (for innovation), whereas problem-solving skills represent a capacity to create new knowledge (for innovation). Absorptive capacity has two important elements, prior knowledge base and intensity of effort (Cohen and Levinthal 1990). Prior knowledge base consists of individual units of knowledge available within the organization. Accumulated prior knowledge increases the ability to make sense of and to assimilate and use new knowledge. Relevant prior knowledge base comprises basic skills and general knowledge in the case of developing countries, but includes the most recent scientific and technological knowledge in the case of industrially advanced countries. Hence, prior knowledge base should be assessed in relation to task difficulty (Kim 1995). Intensity of effort represents the amount of energy expended by organizational members to solve problems. Exposure of a firm to relevant external knowledge is insufficient unless an effort is made to internalize it. Learning how to solve problems is usually accomplished through many practice trials involving related problems (Harlow 1959). Hence, considerable time and effort must be directed to learning how to solve problems before complex problems can be addressed. Such effort intensifies interaction among organizational members, thus facilitating knowledge conversion and creation at the organizational level. As shown in Figure 1, prior knowledge base and intensity of effort in the organization constitute a 2 X 2 matrix that indicates the level of absorptive capacity. When both are high (quadrant 1), absorptive capacity is high; when both are low (quadrant 4), absorptive capacity is low. Organizations with high prior knowledge in relation to task difficulty and low intensity of effort (quadrant 2) will gradually lose their absorptive capacity, moving rapidly down to quadrant 4, because their prior knowledge base will become obsolete as task-related technology moves along its trajectory. In contrast, organizations with low prior knowledge in relation to task difficulty and high intensity of effort (quadrant 3) will be able to acquire absorptive capacity, moving progressively to quadrant 1, as repeated efforts to learn and solve problems elevate the level of relevant prior knowledge (Kim 1995). Knowledge and Learning Many social scientists have attempted to delineate knowledge dimensions (Garud and Nayyar 1994, Kogut and Zander 1992, Polanyi 1966, Rogers 1983, Winter 1987). Polanyi's two dimensions, explicit and tacit, are the most widely accepted. Explicit knowledge is knowledge that is codified and transmittable in formal, systematic language. It therefore can be acquired in the form of books, technical specifications, and designs, or as embodied in machines. Tacit knowledge, in contrast, is so deeply rooted in the human mind and body that it is difficult to codify and communicate and can be expressed only th