The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation by Ikujiro Nonaka & Hirot

1. The Knowledge-Creating Company:How Japanese Companies Create the Dynamics of InnovationbyIkujiro Nonaka &Hirotaki Takeuchi Stephanie McFarland April 5, 2005

2. Overview • Japanese companies as innovators • Knowledge creation & conversion • Enabling conditions • Case study of Japanese innovation • Hypertext organization • Different management structures

3. “Organizational knowledge creation is the key to the distinctive ways that Japanese companies innovate.” Organizational knowledge creation: “The capability to create new knowledge, disseminate it throughout the organization, and embody it in products, services, and systems.”

4. Japan in the Global Market • Uncertainty • World War II, Korean War, Vietnam War, economic crises (oil shocks, yen crisis) • Constant uphill battle • Arrived later than Western companies, didn’t have proven track records or “the usual encumbrances of success (complacency and arrogance)” • Continuous innovation • Uncertainty forced Japanese companies to look outward and convert external knowledge into internal knowledge

5. Eastern vs. Western Innovation • Japanese “see reality typically in the physical interaction with nature and other human beings” (Buddhism, Confucius) • Western Thought: More self-centered and focused on knowledge as explicit and quantifiable • Eastern Thought: Knowledge is more tacit than explicit — needs to be translated and converted in order for others to understand and benefit

6. Japanese Knowledge Conversion Four Modes: • Socialization: Informal social environments (Honda’s brainstorming camps) • Externalization: Use of metaphors, analogies, concepts, hypotheses, models (Honda’s “Automobile Evolution”) • Combination: Combining different bodies of explicit knowledge through documents, meetings, instant messaging (Asahi’s Super Dry Beer’s taste, richness concepts) • Internalization: Learning by doing (Matsushita’s reduction of work hours to increase individual creativity — explicit policy tried out for one month)

8. EnablingConditions “Provide the proper context for facilitating group activities as well as the creation and accumulation of knowledge at the individual level” Intention: Clear corporate vision Autonomy: Instilling sense of freedom Fluctuation and Creative Chaos: Evoking sense of crisis, stating ambiguous goals Redundancy: Intentional overlapping of info Requisite Variety: Internal diversity

9. Knowledge in Practice • Matsushita’s Home Bakery bread-making machine • Engineers worked as baking apprentices (socialization) • Creative chaos due to shift from household appliances to high-end products • Integration of different divisions (Rice Cooker, Heating and Rotation) created requisite variety • Home Bakery success led to Human Electrics Division

10. Hypertext Organization • Best knowledge-enabling corporate model is a synthesis • “Interconnected layers or contexts” • Business System Layer • Project Team Layer • Knowledge Base Layer

11. Hypertext Organization

12. Management Structures • Western tends to be either top-down or bottom-up • Japanese companies excel at middle-up-down management structures • Management model affects who plays what roles in knowledge work, where knowledge is stored, how knowledge is shared • Best Western model of middle-up-down is U.S. military (task forces)

13. Conclusions • “The future belongs to companies that can take the best of the East and the West and start building a universal model to create new knowledge within their organizations” • “Nationalities will be of no relevance” • “Success in the new ‘knowledge society’ will be judged on the basis of knowledge-creating capabilities”