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Note To Entrepreneurs: Culture Eats Strategy for Breakfast It is an accepted fact that much of a learning organization's knowledge wealth is tacit knowledge, held by its employees.

By Arun Pereira

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The best of strategies are unlikely to succeed without the support of an appropriate organizational culture. As Peter Drucker said, culture eats strategy for breakfast.

Entrepreneurs who find initial success in the marketplace often emphasize that innovation is a priority for their fledgling company, and even point to specific strategies to ensure continuous innovation, to help prevent copycats and "second-but-better" products entering the market. Regardless of how clearly defined these innovation strategies are, they are unlikely to work, unless the entrepreneur builds an appropriate culture within the organization to facilitate and implement the strategies.

In the context of a strategy for continuous innovation in the case of start-ups, the entrepreneur must first establish a culture of learning within the organization, focusing on the kind of learning that comes from careful experimentation and risk taking. The start-up must become a "learning organization" as early as possible. A "learning organization" is one that continuously creates new knowledge from feedback and experimentation in the marketplace and disseminates the lessons learnt through the organization, and then draws on this knowledge to grow better with innovative technologies, products, and services.

It is an accepted fact that much of a learning organization's knowledge wealth is tacit knowledge, held by its employees. Unlike explicit knowledge, tacit knowledge is practical "know-how'' that comes with personal experience and this knowledge exists within employees. This is a cause for concern given that start-ups—particularly in their early years—are likely to experience substantial employee turnover. Thus, if there is significant employee churn, valuable knowledge and market insights can permanently exit the start-up with little warning, and may become a competitive weapon to be used against the start-up, in the future.

The challenge then, for start-ups, is to become an effective learning organization as quickly as possible, and to minimize tacit knowledge creation (that resides with employees), and encourage explicit knowledge creation (that resides within the firm). Further, start-ups must recognize that an effective learning organization recognizes that the learning from mistakes and failures are often richer and more valuable for innovations than the learning that comes from successes. Thus, entrepreneurs must recognize the importance of encouraging a climate of calculated risk taking among employees, without fear of failure. Ideally, there must be a systematic process to record and learn from failures and mistakes, as much as from successes. One example of acknowledging and recording mistakes within an organization is the initiative at the National Aeronautics and Space Administration (NASA) in the USA, called "My Best Mistake." Here employees are encouraged to volunteer their mistakes, and stories of lessons learnt are shared with everybody, removing the taboo of owning up to failures. In effect, what would have been tacit knowledge residing within individuals is converted into explicit knowledge for the organization. Such initiatives are more likely to be successful if they are introduced in the early stages of an organization, when habits and values take root. Thus start-ups are in a better position to set up such initiatives and establish a culture of learning, compared to established firms which may carry substantial legacy traditions and habits.

One challenge in building a learning organization is that most types of tacit knowledge cannot be easily made explicit—because tacit information is often context-specific and may be connected to cues and heuristics. For example (using a non-business scenario) it may be easy for a swimmer to make adjustments to his style of swimming depending on if he is in the calm waters of a pool versus the choppy waters of an ocean, based on tacit knowledge. However these actions and changes in swimming strategy are not easy to describe in words—that is, it is not east to convert tacit to explicit knowledge. One approach to address this challenge is to attempt to ensure that learning experiences in an organization are group-based, rather than individual based.

This means that even if an individual leaves the organization, the knowledge does not also leave with him or her. To be effective such groups or "communities of practice" must meet and interact often to ensure that the context and contextual cues of each experience are discussed and understood in detail—because it is the contextual relevance that makes it difficult to convert tacit knowledge to explicit knowledge.

Bottom line, entrepreneurs must be acutely aware of the importance of establishing a culture of learning early in the start-up so that market insight and knowledge generated are leveraged effectively for the benefit of the start-up. If not, the best of strategies are likely doomed to fail as they will lack a supporting culture for assimilation and action.

Arun Pereira

Executive Director, ISB - Centre for Learning and Management Practice

Arun Pereira, Ph.D  is faculty at the Indian School of Business (ISB), and Executive Director of the Centre for Learning and Management Practice at ISB.  Previously, he spent over 20 years in academia and consulting in the USA.  He has authored two books and various research articles, and has won multiple teaching awards.


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