“The Knowledge-Creating Company” by Ikujiro Nonaka

In: Harvard Business Review on Knowledge Management. Harvard Business School Press, 1998. pp. 21-45

Summarized by: Harold Santiago
9 August 2001


Summary:
Part 1. What is a knowledge-creating company?
 
Companies that create new knowledge, disseminate it widely throughout the organization and quickly embody it in new technologies and products.

Companies whose sole business is continuous innovation.



Uncertainties in the business world
Abilities of Japanese Companies
(and other knowledge-creating companies)
   Shifting of markets

   Proliferation of technologies

   Increase in the number of competitors

   Products become obsolete almost overnight

   Create knew markets

   Dominate emergent technologies

   Quick response to customers

   Rapid development of new products


 

Knowledge is the one sure source
of lasting competitive advantage.


Concept of “knowledge” and “company”

According to Western Managers
(from F. Taylor to H. Simon)
According to Japanese Managers

The only useful knowledge is “hard” (quantifiable) data.
Formal and systematic codified procedures, universal principles.

“Soft” knowledge like slogans, metaphors and symbols can be used as indispensable tools for continuous innovation.
The company is a kind of machine for “information processing”. The company is not a machine but a living organism.
  • Like an individual, it has a collective sense of identity and purpose.
  • Organizational equivalent of self-knowledge is a shared understanding of:

  • – What the company stands for
    – Where it is going
    – What kind of world it wants to live in
    – How to make that world a reality

These concepts make Japanese companies
forerunners of knowledge-creation.



Part 2: The Spiral of Knowledge

 
Knowledge begins with the individual.

When an individual’s personal knowledge is transformed into organizational knowledge valuable to the company as a whole, knowledge is created.

Knowledge-creation begins at the center of a company’s human resource strategy.


Four basic patterns for knowledge-creation in any organization:

1. From Tacit to Tacit (Socialization) – when knowledge is acquired.

– An individual shares tacit knowledge, (non-formal) technical skills and know-how directly with another.
– The other individual learns tacit skills through observation, imitation and practice until it becomes a part of his tacit knowledge base.
But socialization is a limited form of knowledge creation.
Knowledge doesn’t become explicit and cannot be leveraged by the company as a whole.


2. From Explicit to Explicit (Combination) – When knowledge is standardized (and formalized).

– Acquired (communicable) knowledge is transcribed into standard (formal) knowledge usable within the
company.
– An individual combines discrete pieces of explicit knowledge into a new whole.


3. From Tacit to Explicit (Articulation) – when knowledge is translated (and communicated).

– Translation and conversion of tacit (non-formal) knowledge into (communicable) explicit knowledge.


4. From Explicit to Tacit (Internalization) – when knowledge is shared.

    – New (formal) knowledge is shared (communicated) through out an organization.
    – Other employees begin to internalize it resulting into the expansion, broadening and re-framing of their own tacit (non-formal) knowledge base.

      When tacit and explicit knowledge interact, something powerful happens.
    Articulation and internalization are critical stages in the spiral of knowledge.
    It requires active involvement of the self or the individual.

Once the pattern is complete, the spiral knowledge begins all over again but in a higher level.  Newly acquired knowledge can then be used to formulate equivalent quality standards. In this way, the organization’s knowledge base grows even broader.

 

Knowledge-creation is the process of making tacit knowledge explicit.

Matsushita Example

More than a year of studying the kneading technique of a master baker led Matsushita’s software developer and project engineers to come up with product specifications for a bread-making machine that set record sales for a kitchen appliance.

Part 3. From Metaphor to Model

  • Converting tacit to explicit knowledge is finding a way to express the inexpressible.
  • Creating new knowledge is not just a matter of mechanistically processing objective information. It depends on tapping the tacit and often highly subjective insights, intuitions and ideals of employees. Making this available for testing and use by the company as a whole.
  • Among Japanese Companies, managers use the store of figurative language and symbolism as management tools to articulate their intuition and insights.
  • Examples are slogans, analogies and metaphors playing prominent roles in product development.
It’s about ideas leading to other ideas which fuel innovation.



Converting tacit knowledge into explicit knowledge

Metaphor

  • It is a way for individuals grounded in different contexts and with different experiences to understand something intuitively through the use of imagination and symbols without the need for analysis or generalization.
  • Puts two different ideas in one phrase. Driven by intuition and link images that seem remote from each other at first glance.
  • First step in making the tacit explicit.


The Honda Example

The Honda Project Team, after being tasked of creating a new car design came up with the “Theory of Automobile Evolution” and “man maximum, machine minimum” slogans which led to the “Tall Boy” product-concept resulting into the Honda City, the company’s distinctive urban car.

Analogy

  • It is a more structured  process of reconciling contradictions and making distinctions.
  • Clarifies how different ideas is like and alike. Harmonizes contradictions in metaphor.
  • Intermediate step between pure imagination and logical thinking.


The Canon Example

The Canon Project Team, while discussing design problems of the disposable copier drum for their mini-copier over a couple of drinks, compared of one of the disposable aluminum beer cans with the proposed disposable copier drums. Speculations whether the process for making  aluminum beer cans could be applied to the manufacture of an aluminum copier drum enabled the team to come up with the process technology that could manufacture an aluminum copier drum at low cost.

Model

  • Final step in the knowledge-creation process.
  • More immediately conceivable than a metaphor or an analogy.
  • Resolves contradictions. Makes concept transferable through consistent and systematic logic.
  • The embodiment of the concept.


Part 4 - From Chaos to Concept: Managing the Knowledge-Creating Company

Metaphors, analogies, and models have direct implications on how a company designs its organization and define managerial roles and responsibilities within it.

The “HOW” of the Knowledge-Creating Company
–  the structures and practices that translate a company’s vision into innovative technologies and products.

REDUNDANCY

  • first step in managing the knowledge-creating company.
  • a conscious overlapping of company information, business and managerial activities, may seem unappealing ( with the connotation of unnecessary duplication and waste) but is important.
  • encourages frequent dialogue and communication thereby creating a “common cognitive ground” among employees, thus facilitating the transfer of tacit knowledge.
  • sharing overlapping information, help employees sense what others are struggling to articulate.
  • spreads new explicit knowledge through the organization (leads to internalization).
 
Japanese companies manage product development as an overlapping process: different functional divisions work together in a shared division of labor.

BUILDING REDUNDANCY

1. Internal Competition, e.g. Canon

  • organizes product-development teams based on the “principle of internal competition”.
  • competing groups within the team develop different approaches to the same project.
  • in looking at the project from different perspectives, the team develops the “best” approach.
In such an example, sharing responsibilities lead to the proliferation of information which help accelerate the organization’s ability to create and implement concepts.

2. Strategic Rotation, e.g. Kao

  • between areas of technology and between functions.
  • helps employees understand the business from a multiplicity of perspectives.
  • makes organizational knowledge more “fluid” and easier to put into practice.
  • employees are expected to hold at least 3 different jobs in any 10-year period.
  • researchers retire at an early age to transfer to other departments.


3. Free access to company information, e.g. Kao

  • information differentials prevent members of the organization to interact on equal terms which hinders the search for different interpretations of new knowledge.
  • top management does not allow any discrimination in access to information among employees.
 
In a knowledge-creating company, no one department or group of experts has the exclusive responsibility for creating new knowledge.

 
Everyone’s contribution (senior managers, middle managers, and frontline employees) is determined more by the importance of the information provided to the entire knowledge-creation system and less by their location in the organizational hierarchy.

Knowledge-creation is the product of a dynamic interaction among three roles:

a. Front line employees

– immersed in the day-to-day details of particular technologies, products and markets.
– more expert in the realities of a company’s business.
– deluged with highly specific information
– with difficulty in turning their gathered information into useful knowledge because of narrower perspective and losing sight of the broader concept.
– must know “What Is?” in the company.


Confusion created by inevitable discrepancies in meaning that occur in any organization might seem like a problem, when in fact, it can be a rich source of new knowledge – if a company knows how to manage it.

b. Middle managers (and Team Leaders)

– main job is to orient the chaos toward purposeful knowledge creation.
– provide employees with conceptual framework.
– serve as a bridge between the visionary ideals of the top and the chaotic market reality in the front-line of the business.
– mediate between “what is” and “what should be”
– remake reality according to the company’s vision
– “knowledge engineers” in the knowledge-creating company


They are the ones who synthesize tacit knowledge of both frontline employees and senior executives, made it explicit, incorporated it into new technologies and products.

c. Senior Managers

– give voice to a company’s future by articulating metaphors, symbols, and concepts that orient knowledge-creating activities of employees.
– ask the questions:  What are we trying to learn?  What do we need to know?
Where should we be going? Who are we?
– “romantics who go in quest of the ideal”
– must know “What ought to be?” in the company.


Providing sense of direction:

1. Umbrella Concepts

– grand concepts that identify the common features linking seemingly disparate activities or businesses into a coherent whole, e.g.
SHARP –  dedication to optoelectronics
NEC –  categorization of the company’s knowledge-base into C&C   (“computers & communication”)
KAO –  “surface active science”, referring to techniques for coating the surface area of materials.


2. Qualitative Criteria for Justification – company standards in giving value to the knowledge constantly being developed by the organization’s members.

In most companies, the measuring the value of new knowledge is economic

– increased efficiency
– lower cost
– improved ROI


In the knowledge-creating company, qualitative factors are equally important.

– Does the idea embody the company’s vision?
– Is it an expression of top management’s aspirations and strategic goals?
– Does it have potential to build the company’s organizational knowledge network?
 
Umbrella concepts and qualitative criteria are crucial in giving a company’s knowledge-creating activities a sense of direction but it has to be open-ended, susceptible to a variety of different and even conflicting interpretations.

 
It is conflict that pushes employees to question existing premises and make sense of their experience in a new way.

 
“When people’s rhythms are out of sync, quarrels occur and it’s hard to bring people together. Yet if a group’s rhythms are completely in unison from the beginning, it is also difficult to achieve good results.

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