Learning and Innovation in Uncertain Times: The Role of Organisational Systems and Managerial Perceptions of Uncertainty

Introduction

For many businesses around the world innovation has inevitably become the most important source of creating competitive advantage. Even though, over years, managers have improved business performance by becoming lean and optimising processes of producing and servicing, it is evident that reducing wastage and costs alone will not grow a business as does innovation (Tomkovick & Miller, 2000). Yet, the successful development of innovation relies on numerous managerial decisions along the innovation journey, each of which can bear significant risks. To mitigate risks and to make informed decisions for creating new and better products and services managers rely on a range of information sources. Where they lack relevant information and when they have a limited understanding managers will experience uncertainties, which in return may jeopardise the expected innovative outcome (Song & Montoya-Weiss, 2001; Cao, Zhao & Nagahira, 2010; Soliman, 2010).

A key reason for poor decision-making and subsequent low performance or even failure of innovation is how managers perceive and interpret environmental uncertainties (Capon, Farley, Lehmann & Hulbert, 1992; Song & Montoya-Weiss, 1998). Perceived environmental uncertainty is the inability of a manager to assess and predict any changes in regards to factors that are external to his/her organisation’s environment such as customers, suppliers and governments (Milliken, 1987; Dickson & Weaver, 1997). In this chapter we take a view at the intricacies of organizational learning and innovation in the face of perceived environmental uncertainty. As business environments become progressively turbulent organisations and their managers are under pressure to adapt to changes not only more frequently but also a lot quicker. Adapting to changes that are related to an organisation’s environment require that managers understand and learn how the environment is operating. Thus, the organisational ability to learn, create and use knowledge has become an important source for innovation. In what follows we review the literature on open systems, organisations and perceived environmental uncertainty to untangle some important implications for learning, knowledge transfer and subsequent innovation in organisations.