To better understand the factors that support or inhibit internally-focused change, we report the results of an inductive study of one firm's attempt to improve two of its core business processes.Our data suggest that the critical determinants of success in efforts to learn and improve are the interactions between managers' attributions regarding the cause of poor organizational performance and the physical structure of the workplace, particularly delays between investing in improvement and recognizing the rewards. Building on this observation, we propose a dynamic model capturing the mutual evolution of those attributions, managers' and workers' actions, and the production technology. We use the model to show how managers' beliefs about those that work for them, workers' beliefs about those who manage them, and the physical structure of the environment can coevolve to yield an organization characterized by conflict, mistrust, and control structures that prevent useful change of any type.• 1 Few ideas are more central to organizational theory than the notion that with time and experience organizations improve their existing capabilities. Theories ranging from those of March and colleagues (e.g., March and Simon 1958/93, Cyert and March 1963/92) to population ecology (Hannan and Freeman 1984) and punctuated equilibrium (Tushman and Romanelli 1985) rest on the premise that learning-by-doing and imitation enable organizations to improve the execution of their core tasks and processes. Studies show that organizations often experience sustained periods of improvement driven by both learning-by-doing and knowledge transferred from others (Argote 1999). Yet, despite its prevalence and theoretical centrality, a closer look suggests that the processes through which organizations achieve internally-focused change are more complex and problematic than the literature suggests.Consider Total Quality Management (TQM). Recent studies find that firms with serious TQM programs outperform their competitors (Easton and Jarrell 1998, Hendricks andSinghal 1996).Yet, most efforts to implement TQM fail. Easton and Jarrell (1998) found fewer than 10% of the Fortune 1000 had well-developed TQM programs, and Rigby (2001) reports that between 1993 and 1999 TQM fell from the third most commonly used business tool to 14 th in the US. TQM's efficacy is undeniable, but, paradoxically, it remains little used.The phenomenon of useful innovations that go unused is not limited to TQM. For example, after carefully documenting the utility of various human resource practices (Pfeffer 1998), Pfeffer and Sutton (2000) report that they remain little used. Similarly, Wheelwright and Clark (1995) lament the poor implementation record of best practices for product development. The inability of many organizations to use the knowledge embodied in administrative innovations like TQM and high performance human resource and product development practices is a central issue facing organizational theorists (Pfeffer 1997:202-203).The failure of organizati...