We are in the early stages of a global economic shift as companies face intensifying competition, an accelerating pace of change, and exponentially expanding opportunity all at the same time. Despite growing productivity, the average return on assets (ROA) for U.S. companies has fallen to almost one quarter of what it was in 1965, according to our research at Deloitte. What’s driving this erosion of performance? There are many factors, but one of the key ones is how quickly accelerating change increases the rate at which existing knowledge becomes obsolete.
The corporate world’s answer to this has been corporate training programs, mostly on e-learning platforms. In these programs, workers can learn on the job by watching on-demand video clips. In a rapidly changing world, this form of learning is no longer enough. If we narrowly focus learning on sharing existing knowledge through training programs, we’ll likely experience diminishing returns. It’s time for a new model.
The most powerful form of learning is the rapid and sustained creation of new knowledge by all workers as they address unseen problems and opportunities to create more value. This isn’t done in training rooms, this is done in the workplace, through action and reflection. Today, workers from the factory floor to retail staff confront new and unexpected situations that require new approaches that are not covered in the process manual or training materials. These should be seen as an opportunity for workers to learn by assessing the situation, improvising new approaches and then reflecting on the impact achieved.
When we talk about learning, we tend to focus on insight. But scalable learning is grounded in action — creating new knowledge about how to deliver value against ever-changing conditions and requirements in the real world. Take the California-based tomato processor, The Morning Star Company, which has grown annual volume, revenue, and profit by double-digit percentages for two decades in an industry which has been growing 1% year over year. The company gives frontline workers the latitude to identify new opportunities and problems and act on them in the form of developing new equipment, techniques, and processes.
For example, two summer workers in one of Morning Star’s processing plants noticed that the screens used to prepare tomatoes for processing were wearing out relatively quickly, costing time and money to replace. After experimenting, they came up with a way to extend the life of the screens and ended up scaling their solution throughout the processing plant, providing a greater than $1 million annual benefit. It’s important to note they did not just file a problem report. They took it upon themselves to test potential solutions and to help scale the most promising one.
This kind of learning is a form of improvisation: interpreting environment and conditions, then allocating and combining resources in novel and effective ways to create value. We found examples of this kind improvisation and learning in industries as diverse as agricultural products, oil and gas, medical diagnostics, and financial services.
In the past, economic value resided in knowledge stocks — acquiring proprietary knowledge, aggressively protecting it from others, and efficiently extracting the value of the knowledge stocks and delivering it to the marketplace. As knowledge stocks become obsolete at an accelerating rate, we need to expand our focus to knowledge flows: How can we participate in a broader range of more diverse knowledge flows so that we can refresh our knowledge stocks more rapidly? A key here is to connect with a broader range of expertise as we seek to address unseen problems and opportunities and focus on building long-term, trust-based relationships that can help participants to share challenges and opportunities they are facing and motivate them to work together to come up with better approaches.
Take the example of the SAP Community Network (SCN), an online platform that attracts more than 2 million monthly participants. This platform initially emerged to help application developers address coding issues by connecting with others who had confronted similar issues. Over time, the application developers began to develop more sustained relationships with others who shared their interests. Eventually, many of them started to come together to launch new application development projects. A key motivation for participation in this platform was the opportunity to learn faster by connecting with others with similar interests.
Another striking example is Li & Fung, a Chinese company that configures customized supply networks for apparel designers, drawing on a global network of more than 15,000 businesses. The company focuses on building relationships that can help participants in the network learn faster together by addressing shared performance issues. A modular approach to process management encourages experimentation and drives learning among participants within each module. Li & Fung also provides rapid feedback to participants, comparing their performance across a dynamic ecosystem, and hosts performance-improvement sessions that bring network members together to address specific challenges and opportunities. When we interviewed participants in the Li & Fung network and asked why they were part of the network, the common answer we got back was “because we learn faster as part of this network.”
Today’s institutions are built on a model of scalable efficiency, but in times of rapid change, factors that promote efficiency can limit an organization’s ability to learn faster. “Failure is not an option” may be the most revealing slogan of the culture of efficiency-driven organizations — and its Achilles’ heel. In fact, real learning in the form of creating new knowledge requires failure: If you’re not failing, you’re not learning fast enough.
While shifting to improvisational learning will ultimately require significant change throughout your company, you don’t need to make big changes to get started. The companies that have begun this journey already started by looking for small, but smartly targeted, initiatives that focus on parts of the business in greatest need of performance improvement. They were clear about the performance metrics that would indicate whether new value had been created. They then encouraged the workers to take initiative in addressing unseen problems and opportunities to create more value. They provided rapid feedback and opportunities for the workers to reflect on how they can increase impact.
The traditional form of learning is correctly viewed as an expense. Significant upfront investment must be made in training programs and training facilities and there’s the opportunity cost involved in taking workers out of their work environment so they can go to the training programs. Improvisational learning reverses the cost of learning because it requires very little expense up front and instead focuses workers on creating more and more value in the workplace. The company benefits from increasing value creation and the learning is actually a by-product of these efforts to create value.
Workers at all levels possess such creative potential — but they need to be provided with work environments that will help to draw it out and cultivate it.
This content was originally published here.