The Knowledge-Creating Company

1. The Knowledge-Creating Company “Bread Maker”

2. Background • Japanese company based in Osaka • Founded in 1918 • Focused in household appliances • No Innovation, No Growth • Market maturity led to diminishing profits • Over 95% of Japanese households owned vacuum cleaners, refrigerators, washing machines, etc. • Rise of low cost competitors Matsushita Electric Co.

3. What is it? • 3-year corporate plan (1983 – 1986) • "Action, Cost reduction, Topical products, Initiative in marketing, Organizational reactivation, and New management strength.“ • The number 61 stood for the sixty-first year of Emperor Hirohito's era, or 1986. • Objectives • To improve Matsushita’s competitiveness in its core businesses through careful attention to cost and marketing and • to assemble the resources necessary to enter new markets. ACTION 61

4. New Corporate Slogan • Resulting from the new objectives. • Shift of focus from household appliances to high-tech and industrial products. • Led to a restructuring of the core business • Integration of 3 divisions • Rice-Cooker Division • Heating Appliances Division • Rotation Division • Cooking Appliances Division formed “Beyond Household Appliances”

5. A sense of Crisis & Chaos • Arose from the newly formed division • Differing backgrounds and knowledge created a communication-based hurdle • The Retreat • 13 middle-managers from various sections were sent to a 3-day retreat to discuss their present situation and future direction • Development of organizational intention Enabling Conditions of the Home Bakery

6. Cooking appliances should make meals simple to prepare but make them tasty and rich in nutrition. • Fully automated bread-making machine embodied many qualities that were appropriate to the division’s new objectives. • Division head Keimei Sano formed a team of employees from various divisions including Cooking Appliances Division along with a mechanical designer and a software developer. • Project leader Masao Torikoshi developed the product specification for the Home Bakery. “Easy & Rich”

7. Home Bakery Schematic

8. First prototype failed miserably • Crust was overcooked leaving the dough insided raw • Temperature drastically affected the end result (temperatures ranged from 5-35°C, when 27°C was ideal for fermentation.) • Differing electrical ratings across Japan made the motor run too fast or slow • The transfer of tacit knowledge • Ikuko Tanaka & Head Baker of Osaka International Hotel. First Attempt

9. Definition: personal knowledge that is hard to formalize and therefore difficult to articulate to others. • Rooted in action and in an individual’s commitment to a specific context. • i.e. a craft or profession, a particular technology or product market, or the activities of a work group or team. • the valuable and highly subjective insights and intuitions that are difficult to capture and share because people carry them in their heads. • Tanaka learns the baker’s tacit skills through observation, imitation, and practice. Tacit Knowledge

10. Being unable to articulate the kneading process, engineers were also brought to the hotel and allowed to knead and bake bread to improve their understanding of the process • “Twisting Stretch” & special rib design • Strength and speed of the propeller during the kneading process leading to the engineers adjusting the machine’s specification. • Worked with the engineers through trial and error until the end result was satisfactory and the Home Bakery produced fresh bread with the quality of a baker From Tacit to Explicit / Second Attempt

11. Change in project leadership occurred during this stage, but original team members attended meetings to share their tacit knowledge. • The biggest challenge in the commercialization stage was to reduce the overall cost so that the retail price would become less than 40,000 yen. • The major cost concern was over the cooler, which kept the yeast-laden dough from overfermenting in high temperatures. • Behind schedule • “Chumen” • Process of adding the yeast at a later time to prevent overfermenting of the dough • Decision to postpone release of the Home Bakery was extremely difficult, but well made as it was justified by the intention of “Easy & Rich” Commercialization Stage

12. Product Development Tasks Cycles of the Home Bakery

13. Matsushita's Home Bakery was introduced to the market in February 1987 at 36,000 yen and sold a record-setting 536,000 units in its first year. • Six months later, Matsushita began exporting Home Bakery to the United States, West Germany, and Hong Kong. Shipments were later expanded to Sweden, Thailand, Australia, and New Zealand. • One million units of the Home Bakery was sold by the time competitors released their version. • Home Bakery also brought the users' voices close to the engineers, which seemed like a breath of fresh air to the Cooking Appliances Division. • Inspired other divisions throughout Matsushita. Result

14. In 1986, the development process of the Home Bakery inspired Matsushita’s CEO to adopt "Human Electronics" as the umbrella or grand concept for entire company. • Electronics would enhance the satisfaction and happiness of consumers by providing "genuine" quality. • As a result, other divisions began following this concept as it spread by word-of-mouth and through this type of experience to create ideal electronic products that were well-suited for humans. Cross-Leveling the Knowledge

15. Successful Products • Mill-integrated coffee brewer (1987) • First of its kind in Japan • Induction Heating (IH) Rice Cooker (1988) • this new rice cooker has an induction heating system that achieved higher temperatures and allowed for more accurate control. • Priced at 59,000 yen ($480), it still sold very well and accounted for over 40% of rice cooker sales. • Gaoh large-screen TV aka “The One” in USA (1990) • With the knowledge gained from Home Bakery, by not sacrificing quality regardless of the scheduled release date, they provided products with real worth. • Gaoh sold more than one million units within 14 months of its introduction, which was equivalent to more than 10 percent of all domestic TV-set sales in Japan.

16. Conclusion • On January 10, 2008, the company announced that it would change its name to "Panasonic Corporation" (effective on October 1, 2008) , to reflect its global brand name "Panasonic". • “The secret of their success is their unique approach to managing the creation of new knowledge.” • i.e. like Honda, Canon, Matsushita, NEC, Sharp, and Kao • Tacit knowledge is gained through observation, immitation, and practice. • Four patterns that exist in knowledge-creating companies: • Socialization: learning of tacit knowledge • Articulation: translating tacit into explicit knowledge • Combination: embodying knowledge into a product • Internalization: enrich one’s own tacit knowledge through the entire experience.

17. Lessons Learned • Through a truer understanding of knowledge and how it’s transferred, its applications are endless. • Breakthroughs in innovation are often achieved through this endless process of reinvention • To secure a company’s future lies heavily in their ability to innovate. • Do not skimp on quality.

18. Sources • Ikujiro Nonaka and Hirotaka Takeuchi, “Chapter 4: Creating Knowledge in Practice,” in The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation, Oxford University Press, 1995. • The Knowledge-Creating Company, HBR article, Nov.-Dec. 1991. (republsihed in 2007) • http://en.wikipedia.org/wiki/Panasonic_Corporation