Book Review: The Knowledge-Creating Company

By KitchenMickey (Parujee Akarasewi)

This book is a part of my presentation in UOKM class at University of Ottawa, This Book Review will mainly focus on the content extracted from the book.

The main author is  Ikujiro Nonaka he is Professor Emeritus of Hitotsubashi University Graduate School of International Corporate Strategy.He finished his  PhD and an MBA from the University of California at Berkeley and his B.S. in political science of Waseda University, Tokyo, Japan. He was selected to be The most influential persons on business thinking from WSJ and also Management Ideas and Gurus from Economist Magazine

Next the co-writer est Hirotaki Takeuchi, he is Professor in the Strategy Unit at Harvard Business School (Elective course). He finished his BA from International Christian University in Tokyo, Japan, and an MBA and PhD from the University of California, Berkeley. He is the

Winner of the 2012 Apgar Award for Innovation in Teaching for his role in developing the Harvard Business School IXP (Japan branch)

Now I think you all know  little more about the author, Let me give you the general idea about Japan in the Global Market who see the crisis as the opportunities.

After 1945 the end of world war 3, Japan was under Uncertainty condition apres avoir faillite de la bataille : From  World War II, Korean War 1950 (N and S by America) , Vietnam War 1955, economic crises  (oil shocks 1970, Japanese asset price bubble 1986 – 1991)

  • Difficulty in a competition with western companies because they Arrived later than Western companies,So they didn’t have proven track records or “the usual burden of success (satisfaction and pride)” and the last factor that you need to know about Japan during that time, ·      they keep Continue innovate more advance idea and knowledge. Because of the Uncertainty ,it has forced Japanese companies to look outward and convert external knowledge into internal knowledge.

Next let me tell you the differences between the Japanese VS the western innovation.

Japanese “see reality typically in the physical interaction with nature and other human beings” (Zen 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 for others to understand and benefit

For instance, using Matsushita’s development of the Home Bakery, they show how tacit knowledge can be converted to explicit knowledge: when the designers couldn’t perfect the dough kneading mechanism, a software programmer apprenticed herself with the master baker at Osaka International Hotel, gained a tacit understanding of kneading, and then conveyed this information to the engineers.

This book base on Polanyi’s philosophy. Polanyi’s interest in epistemology shows in appreciation of “role played by inherited practices” for knowledge, and also passing knowledge via apprenticeship, through observation and guidance of a master. This type of knowledge was called implicit. Implicit knowledge could be further divided into technical implicit knowledge, corresponding to know‐how, and cognitive implicit knowledge. The latter presents the wealth of beliefs, presumptions and experiences that are shared typically within a cultural group (nation, company, family, etc.) and are not commonly articulated as they are assumed to be familiar to all (all word processor users know what this symbol stands for). These types of implicit knowledge are functionally distinct from explicit knowledge.

Explicit knowledge refers to books, manuals, printed procedures and guides that express information clearly through language, images, sounds, or other means of communication. Explicit knowledge also refers to the type of information or knowledge that western management style has traditionally been involved with. For instance, Nonaka and Takeuchi mention Taylorism and rational management theory of Herbert Simon (1945, March & Simon, 1958) as examples of how explicit knowledge and procedures can be used to govern an organization.

we assume that a person has acquired implicit knowledge (procedural or understanding) through her efforts in research and development (R&D) for NPD. It is stated that “organizational knowledge creation is like a ‘derivative’ of new‐product development.” Or in other words, knowledge is created in the interactions of the front‐line employees.

Knowledge is defined as a meaningful, action‐ oriented commitment, which extends the traditional ‘justified true belief’ notion prevalent in Western thinking the spiral process starts at socialization where knowledge can be shared with another person through dialogue, observation, imitation or guidance.

All in all for this point, the experiences of the Japanese companies discussed below suggest a fresh way to think about managerial roles and responsibilities, organizational design, and business practices in the knowledge-creating company. It is an approach that puts knowledge creation exactly where it belongs: at the very center of a company’s human resources strategy.

Japanese Knowledge Conversion


Japanese Knowledge Conversion

  • Socialization: Informal social environments (Honda’s brainstorming camps)

The authors defined Brainstorming Camps as “informal meetings for detailed discussions to solve difficult problems in development projects” (Nonaka & Takeuchi, 1995, p. 63).

According to the authors, socialization activities for a company could also involve research or consultation of users, and they list tama dashi kai (Honda brainstorming boot camps) as one form of socialization. This means that in addition learning or transfer of knowledge, socialization boosts creation of knowledge through combined perspectives. Explicit knowledge appears after socialization in the externalization phase.

  • Externalization: Use of metaphors, analogies, concepts, hypotheses, models (Honda’s “Automobile Evolution”)

In 1978, top management at Honda inaugurated the development of a new-concept car with the slogan “Let’s gamble.” The phrase expressed senior executives’ conviction that Honda’s Civic and Accord models were becoming too familiar. Managers also realized that along with a new postwar generation entering the car market, a new generation of young product designers was coming of age with unconventional ideas about what made a good car

The business decision that followed from the “Let’s gamble” slogan was to form a new-product development team of young engineers and designers (the average age was 27). Top management charged the team with two—and only two—instructions: first, to come up with a product concept fundamentally different from anything the company had ever done before; and second, to make a car that was inexpensive but not cheap.

They asked the question on “How is the slogan “Theory of Automobile Evolution” a meaningful design concept for a new car?” And yet, this phrase led to the creation of the Honda City, Honda’s innovative urban car

The phrase described an ideal. In effect, it posed the question, If the automobile were an organism, how should it evolve? As team members argued and discussed what Watanabe’s slogan might possibly mean, they came up with an answer in the form of yet another slogan: “man-maximum, machine-minimum.” This captured the team’s belief that the ideal car should somehow transcend the traditional human-machine relationship. But that required challenging what Watanabe called “the reasoning of Detroit,” which had sacrificed comfort for appearance.

At this stage, the possibly vague metaphorical dialogue or non‐conceptual observations are turned into explicit knowledge that becomes external to the subject. For instance, in a computer database, service manual or visual assembly guide. After explicit knowledge has been created, it can be refined further.

Combination is a process of systematizing concepts into a knowledge system. This mode… involves combining different bodies of explicit knowledge. ” (p. 67) Nonaka and Takeuchi stress that different computer systems can play an important role in this process.

  • Combination: Combining different bodies of explicit knowledge through documents, meetings, instant messaging (Asahi’s Super Dry Beer’s taste, richness concepts)

Why is a beer can a useful analogy for a personal copier? Just such an analogy caused a fundamental breakthrough in the design of Canon’s revolutionary minicopier, a product that created the personal copier market and has led Canon’s successful migration from its stagnating camera business to the more lucrative field of office automation

  • Internalization: Learning by doing (Matsushita’s reduction of work hours to increase individual creativity — explicit policy tried out for one month)

In 1985, product developers at the Osaka-based Matsushita Electric Company were hard at work on a new home bread-making machine. But they were having trouble getting the machine to knead dough correctly. Despite their efforts, the crust of the bread was overcooked while the inside was hardly done at all. Employees exhaustively analyzed the problem. They even compared X-rays of dough kneaded by the machine and dough kneaded by professional bakers. But they were unable to obtain any meaningful data.

Also, It is the counterpart of socialization and refers to the successful transfer of knowledge to a person from a book or database to another person. Once the person gains the ability to utilize novel knowledge, this knowledge becomes successfully internalized. As example, the authors mention GE new NPD staff “re‐experiencing” customer difficulties from help center transcripts or “prototyping” 1,800 hours work time goal at Matsushita for one month.

This emphasizes that internalization goes beyond facts, into sharing feelings, experiences and know‐how and could this way be easily connected to numerous design approaches presently popular in interaction and product design thinking

The authors explain that these four modes of knowledge creation penetrate through the ideal organization. Even though the knowledge is created at the individual level, it should be passed on to other levels of organization (externalization) in order to be exploited widely (internalization and combination).

spiral model

spiral model

This process is depicted as a spiral model  as New knowledge that always begins with the individual. A brilliant researcher has an insight that leads to a new patent. A middle manager’s intuitive sense of market trends becomes the catalyst for an important new product concept. A shop-floor worker draws on years of experience to come up with a new process innovation. In each case,individual’s personal knowledge is transformed into organizational knowledge valuable to the company as a whole of knowledge creating organization shown on the following figure:

The organization needs to support the spiral process. The writers introduce five organizational enablers of knowledge creation.

These are

  1. Intention and commitment in the organization
  2. Autonomy at all levels (cross‐functionality, self‐organization))
  3. Fluctuation and creative chaos (breakdown of patterns and standards, reflection in action, cf. Schön [1983])
  4. Redundancy (internal overlaps and competition)
  5. Requisite variety (along Ashby, 1956; meeting external complexity with internal diversity, staff heterogeneity)

In this description of the organizational support, Nonaka and Takeuchi come closer to realizing their model in actual organizations. The five enablers mainly describe how the company R&D should be organized to ensure success in knowledge creation. They further go describe a five step model, which is somewhat a derivate from the rugby team metaphor (all players constantly moving and looking ways to turn the game for their team advantage) used to describe successful Japanese industry units

Hypertext Organization: it is the Best knowledge-enabling corporate model is a synthesis

Which Interconnected layers or contexts”

Nonaka (1994) has coined a new organisational architecture which combines the efficiency and stability of a hierarchical bureaucratic organisation with the flexibility of the flat, cross-functional task-force organisation. This new architecture is intended to combine the advantages these structures have on knowledge creation effectiveness. The Hypertext organisation consists of three layers.

  1. Business System Layer
  2. Project Team Layer
  3. Knowledge Base Layer

The bottom layer of the Hypertext organisation is known as the knowledge-base layer, in which tacit and explicit knowledge are embedded. This tacit knowledge can be associated with organisational culture and procedures, while the explicit knowledge has taken form in documents, filing systems, or digital databases. The layer on top of the knowledge-base is called the business-system layer. This is where routine operations are carried out in a hierarchical, bureaucratic organisation. This layer has all the characteristics of a top-down organisation. The top layer is known as the project-system layer. Multiple knowledge creating self-organising project teams make up this layer. The teams are loosely linked to facilitate an interconnectedness that improves the knowledge creation process. They share the same corporate vision that underlies the knowledge creation efforts.

Knowledge in Practice

  • Matsushita’s Home Bakery bread-making machine : Matsushita’s unique “twist dough” method and a product that in its first year set a record for sales of a new kitchen appliance.
  • 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

In the knowledge-creating company, all four of these patterns exist in dynamic interaction, a kind of spiral of knowledge. Think back to Matsushita’s Ikuko Tanaka:

  1. First, she learns the tacit secrets of the Osaka International Hotel baker (socialization).
  2. Next, she translates these secrets into explicit knowledge that she can communicate to her team members and others at Matsushita (articulation).
  3. The team then standardizes this knowledge, putting it together into a manual or workbook and embodying it in a product (combination)
  4. Finally, through the experience of creating a new product, Tanaka and her team members enrich their own tacit knowledge base (internalization). In particular, they come to understand in an extremely intuitive way that products like the home bread-making machine can provide genuine quality. That is, the machine must make bread that is as good as that of a professional baker.

In conclusion, Nonaka and Takeuchi are arguing that creating knowledge will become the key to sustaining a competitive advantage in the future. Because the competitive environment and  customer preferences changes constantly, knowledge perishes quickly. With The Knowledge-Creating Company, managers have at their fingertips years of insight from Japanese firms that reveal how to create knowledge continuously, and how to exploit it to make successful new products, services, and systems. So that 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 with success” and “Success in the new ‘knowledge society’ will be judged on the basis of knowledge-creating capabilities


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