The Knowledge-Creating Company:
How Japanese Companies
Create the Dynamics of Innovation
by
Ikujiro Nonaka
&
Hirotaki Takeuchi
Stephanie McFarland
April 5, 2005
Overview
 Japanese companies as innovators
 Knowledge creation & conversion
 Enabling conditions
 Case study of Japanese innovation
 Hypertext organization
 Different management structures
“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.”
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
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
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)
Enabling Conditions
“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
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
Hypertext Organization


1.
2.
3.
Best knowledge-enabling corporate
model is a synthesis
“Interconnected layers or contexts”
Business System Layer
Project Team Layer
Knowledge Base Layer
Hypertext Organization
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)
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 knowledgecreating capabilities”