Knowledge-Based Management
Synthesizing East and West
Ikujiro Nonaka
Professor, The Graduate School of International
Corporate Strategy
Hitotsubashi University
Xerox Distinguished Faculty Scholar
UC Berkeley
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Why Knowledge?
“Knowledge is the only meaningful resource today.”
Peter Drucker (1993)
Knowledge is one of the most important assets
of an organization for creating value and, hence,
maintaining sustainable competitive advantage.
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Characteristics of Knowledge
1. Increasing Return
2. Unlimited Usage
3. Unseparated Production and Consumption
4. Difficulties in Market Transaction
5. New Value by Re-categorization
6. Quickly Outdated
7. Created by Human Beings
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What is Knowledge?
In Western Epistemology:
“Justified True Belief”
The belief must be true,
and the truthfulness must be justified.
But what is truth?
“There are no whole truths; all truths are half-truths.”
(Whitehead, 1954)
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What is Knowledge?
Other aspects of Knowledge:
Multi-perspective
Context-specific, relational and dynamic
- created in social interactions
Aesthetic Values
- Endless pursuit of truth, goodness, and beauty
Hence, we define Knowledge as:
“A dynamic human process of justifying personal
belief towards the truth.”
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Simon’s Metaphor: A Man is an Ant
- Bounded Rationality or Cognitive Limits Direction to Home
A man, viewed as a behaving system, is quite simple.
The apparent complexity of his behavior over time is
largely a reflection of the complexity of the
environment in which he finds himself.
Simon, H.A.(1982) The Sciences of the Artificial.
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Views of Human Beings in
Knowledge-Creating Paradigm
All men by nature desire to know.
（Aristotle）
Man is a purposive animal.
（Nicholas Rescher）
Man exists in relationships.
（Kitaro Nishida）
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Two Types of Knowledge
Tacit Knowledge
Subjective and experiential
knowledge that can not
be expressed in words,
sentences, numbers, or
Formulas (Context-specific)
Cognitive Skills
beliefs
images
perspectives
mental models
Technical Skills
Explicit Knowledge
Objective and rational
knowledge that can be
expressed in words,
sentences, numbers, or
formulas (context-free)
Theoretical approach
Problem solving
Manuals
Database
craft
know-how
Dynamic Interaction
Analog-Digital Synthesis
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Tacit and Explicit Knowledge
“The strength of Japanese manufacturing industries are at
the technologies (based on) tacit knowledge. With the
progress in Information Technology (IT), tacit knowledge is
converted into explicit knowledge. Still, we need tacit
knowledge. To build a car, we have to build people.”
-Hiroshi Okuda, the chairman of Toyota
Without a firm-specific high quality tacit knowledge, a firm
cannot survive just by combining explicit knowledge through
outsourcing. A company needs to recognize a dispersed tacit
knowledge embedded in people, synthesize tacit and explicit
knowledge, and incorporate knowledge into key organizational
activities for continuous innovation.
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Reality has Duality
- Subjectivity and Objectivity Tacit
Insider sensitivity
Life world
Commitment
Here and now
Phenomenologist
Existentialist
Explicit
Outsider objectivity
Factual world
Detachment
There and then
Positivist
Spectator
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SECI Process
Sharing and creating
tacit knowledge
through direct
experience
Environment
I
I
Group
Individual
I
I
I
I
Tacit
Internalization
G
O
I
9. embodying explicit
knowledge through
action and reflection
10. Using simulation and
experiments
O I
E
E
Explicit
Combination
E
G
G Org. G
G
Explicit
I = Individual, G = Group, O = Organization, E = Environment
Explicit
Learning and
acquiring new tacit
knowledge in
practice
Externalization
Explicit
1.Perceiving the reality
as it is
2. Sensing and
Empathizing with
others and the
environment
3. Transferring of
tacit knowledge
Tacit
Socialization
Articulating tacit
knowledge through
dialogue and
reflection
4. articulating tacit
knowledge using
symbolic language
5. translating tacit
knowledge into a
concept or prototype
Systemizing and
applying explicit
knowledge and
information
6. gathering and
integrating explicit
knowledge
7. Breaking down the
concept and finding
relationship among
concepts
8. editing and
systemizing explicit
knowledge
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Basic Components of
Knowledge-creating Organization
Environment
Vision
（Ecosystem）
（What?）
Dialogue
（Why?）
Driving
Objectives
Practice
（How?）
Ba
（Shared Context）
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Knowledge Vision
Knowledge Vision
- Essential Questioning: “What do we exist for?”
“Where should we live?” (Existence and Domain)
“Why do we create knowledge?”
A vision that transcends the existing boundary. A vision that
can be accepted by and can inspire the people with various
contexts.
-Gives the firm an absolute, not a relative, value system.
“You do it because you want to do it, not because
everyone else is doing it.”
-A long-time view that goes beyond the arena of
competition. It is not a short-time view on efficiency in
knowledge utilization.
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Why do we create knowledge?:
A story of Honda
Honda was trying to develop the CVCC engine, which had
lower emission and higher fuel efficiency. Souichiro Honda,
the founder and then CEO of Honda one day told his
engineers that the engine would finally give Honda the
opportunity to beat Big 3.
The engineers looked at Mr. Honda, and said, “Please, don’t
say such a thing. We are not doing this to beat other guys.
We are doing this for our children.”
Mr. Honda was ashamed of himself, and said that he realized
that he had become too old, and decided to retire.
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Driving Objective
It is a concept, goal, or codes of conduct to
synchronize vision, dialogue, and practice. By
pursuing it relentlessly, contradictions are
created and synthesized to create high quality
of knowledge.
Seven-Eleven Japan: Cut opportunity losses
Eisai: Knowledge Creation
Canon: Cash Flow
Suzuki: 1cc=1000 Yen
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Dialogue
- Dialectic in Thought 1. Dialectic
Truth is dynamic and is developed through the dynamic process
of thesis, antithesis and synthesis.
2. Existential Context
A theme is created by sharing deep thoughts and beliefs.
3. Nature of Time, Continuity and Contents
It is not about whether it exists or not, it is a question of the
process of how it comes into being. The process productively
examines the contents rather than form through denial.
“Human is mortal. Socrates is a human. Socrates is mortal”
So what? No new meaning can be created. For example, if one
asks,
”What does it mean to be mortal?” we might reach a new
conclusion,
“Socrates as a thought is immortal”
4. Open Thought
Beyond the recognition of one’s self-fallibility, conflict with
others serves as a catalyst to reach a higher level of
understanding.
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Practice
- Dialectic in Action Practice as Kata (Creative Routine)
- Creative Routine: Continuous spiral of tacit and
explicit knowledge until it becomes the second
nature.
Kata (form) means “way of doing things.”
- Kata is the core of ideal action.
- Good Kata functions as archetype that fosters
creative routine but provides higher freedom.
- Kata has a high quality feedback function that
sharpen senses and help to notify and modify the
differences between predicted outcomes and reality.
- Shu 守 (learn), Ha 破 (break), and Ri 離 (create)
steps are critical in continuous self-renewal
processes.
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Ba: Shared Context-in-Motion
Knowledge cannot be created without
specifying context (time, space, and
relationships); sharing context including
experience, memory, past/history is essential.
Ba is the inter-subjective space-time where
meaning is created through dialogues and
practice.
It can exist in various spaces such as:
 Physical
- Office, dispersed operating spaces
 Virtual
- E-mail, video conference
 Psychological - Shared experience (history), beliefs, ideals
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Office for Knowledge Creation
meeting
WINDOW
FOREST
OF
KNOWLEDG
E
WINDOW
CREATIVE
ZONE
Meeting
Room
Creative zone
(meeting zone)
OFFICE ZONE
Office Zone
Smoking
Communication
Coroner
Smoking
Communicatio
n
Zone
Entrance
Forest of
Knowledge
Refresh Corner
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Ba: Waigaya Meeting
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Small World Network
SIX DEGREES
TIPPING POINT
We are a happy family
and we all are six degrees
away from an Albanian farmer.
Connected people are
able to get information
and control networks.
The network of human
social interactions connect
us all by six degrees of
separation.
I want to be in the middle
of the network because it
provides me information
and power. I can make big
changes by small things.
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Small World Network:
Rewiring the Multilayered Ba
Through rewiring, far apart ba can be
connected to each other to find new
combinations and create new knowledge.
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Various Ba at Toyota Prius Project
Calty Design Research
(Exterior Design)
2nd & 4th
Electronics Tech Div.
(Inverter)
BR-VF
(Hybrid System)
Zi (G21)
(Planning)
1st Vehicle
Tech Div.
(Suspension)
2nd Engine
Tech Div.
(Engine)
Drive-train
Tech Div.
(Hybrid transaxel)
2nd Vehicle
Tech Div.
(Brakes)
EV Development
(Motor, Battery)
Panasonic
EV Energy
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Organization as Organic
Configuration of Ba
Ba is a concept that synthesizes the hierarchy and the
network. The organization is viewed based on the meaning
it creates, not the form it takes.
University
Customer
Government
Local
Communities
Supplier
Firm
Competitor
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Ecosystem
- Characteristics of Knowledge Assets Knowledge has no boundary. The market is an
eco-system of knowledge, which is composed
of various ba inside and outside of the
organization.
When an organization creates knowledge more
efficiently and effectively than the market, it
internalizes knowledge-creating activities.
The boundary is determined by the ideal image
of the knowledge system, appropriateness of
knowledge assets, justification cost of
knowledge, interaction cost, and co-creating or
cooperative relationships among stakeholders.
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Knowledge Asset in Embedded in
Discipline/Kata/Way
Practice of relative values
Mutual interaction between
relative and absolute values
GE
Toyota
• What does your
global competitive
environment look
like?
• In the last three
years, what have
your competitors
done?
• In the same period,
what have you done
to them?
• How might they
attack you in the
future?
• What are your plans
to leapfrog over
them?



Set even higher goals
and implement
continuous improvements without settling
with temporary
success.
Observe the place of
manufacturing with a
clean slate and without
bias, repeat ‘why?’ five
times to the subject.
Understand one’s own
capability through
comparison internally
and externally.
Practice of absolute values
Honda
• 3-Gism: Be at the actual
place of work (genba),
know the actual product
(genbutsu) and situation
(genjyou), be realistic
(genjitsuteki).
• Respect sound theory,
develop fresh ideas and
make the most effective
use of them.
• A00 -What do you do this
for? (Ontological)
• A0 - What is your
concept? (Conceptual)
• A - What is your
specification?
(Operational)
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Dynamic Knowledge-based Firms
Environment
Vision
（Ecosystem）
（What?）
Dialogue
（Why?）
Driving
Objectives
Practice
（How?）
Ba
（Shared Context）
© Nonaka・Toyama・Konno
© Nonaka・Toyama・Konno
The Knowledge Leadership is…
The process to exercise the synthesizing
capability of the organization by integrating
the vision, dialogues, practice, ba, and
environment.
At the base of such leadership is phronesis.
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Aristotle’s
Three Types of Knowledge
Episteme (Scientific Knowledge)
Universal, context-free and objective knowledge
(explicit knowledge)
Techne (Skills and Crafts Knowledge)
Practical and context-specific technical know-how
(tacit knowledge)
Phronesis (Practical Wisdom)
Experiential knowledge to make context-specific
decisions based on one’s own value/ethics (high
quality tacit knowledge)
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Phronesis
(Prudence, Practical Wisdom)
A virtuous habit of making decisions and taking
actions that serve the common good.
A capability to find a “right answer” in particular
context.
Deliberate reasoning and improvisation that
comes from the SECI process, which synthesizes
particulars and generals.
Can acquire only through high quality direct
experiences.
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Six Abilities to Constitute Phronesis
1.
2.
3.
4.
5.
6.
Ability to make judgment on goodness.
Ability to share contexts with others to create
ba/shared sense.
Ability to grasp the essence of particular
situations/things.
Ability to reconstruct the particulars into universals
using language/concepts/narratives.
Ability to skillfully use any necessary means well to
realize concepts for common goodness.
Ability to foster phronesis in others to build resilient
organization.
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Phronetic Leadership (1)
Ability to make a judgment on
goodness.
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Judging What is Good
Every sort of expert knowledge and every
inquiry, and similarly every action and
undertaking, seems to seek some good.
Because of that, people are right to affirm
that the good is ‘that which all things
seek’.
Aristotle, Nicomachean Ethics
Example: Self-sufficient values such as happiness.
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Judging by Philosophy
Philosophy is more important than
technologies. Such things as money and
technologies are just means to serve
people…There is no meaning to a
technology if it does not consider people
at the basis of it. What drives a firm’s
growth is philosophy…A true technology
is a crystal of philosophy.
-Souichiro Honda
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Judging by Fundamental Question
Our competitors are neither other
companies nor other stores, but our
customers' needs and wants. Our
absolute value is to answer the
fundamental questions of “what does
the customer want?”
-Toshifumi Suzuki, CEO, Seven-Eleven Japan
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Phronetic Leadership (2)
Ability to share context with
others to create ba/shared
sense.
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Joking as Context Sharing
Joking is very difficult. You have to grasp
the atmosphere of the occasion and the
chance. It exists only for that particular
moment, not anywhere else. The joke
doesn’t work in any other timing…To joke
is to understand human emotions.
-Souichiro Honda
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Ba: Canon’s Asakai
(Daily Morning Meeting)
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Phronetic Leadership (3)
Ability to grasp the essence of
particular situations/things.
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Ground-level Perspective
Automotive Hall of Fame
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Phronetic Experience
When I see a motorcycle, I can see
many things. I should do such and
such to maneuver through the curve.
Then I think about the next machine. I
can make the machine faster if I do
such and such…It’s a natural progress
into the next process.
Souichiro Honda
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In Touch with the Reality: Canon’s Mitarai
Visiting the Factory
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See Reality in Dynamic Context
It is impossible to apply universal rules
derived from past experiences, since
customers’ need keeps changing and
each store is operating in different
context. We are successful only by
denying the past and constantly reflecting
on the future to find fundamental
solutions in each particular context.
-Toshifumi Suzuki, CEO, Seven-Eleven Japan
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Phronetic Leadership (4)
Ability to reconstruct
the particulars into universals
using language/concepts/
narratives.
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Articulate Particulars
Using Symbolic Languages
Automotive Hall of Fame
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Strategy is a Creation of Stories
Strategy is a creation of events. Quantify
your objectives as much as you can. And
develop a story to crystallize the numbers
by specifying the beginning-middle-end
story structure.
-- Fujio Mitarai, CEO, Canon
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Hypothesis Building
The concept of opportunity loss from unrealized sales is
invisible and difficult to grasp since it is buried In tacit
insights gained in particular context for each store. Rather
than written manuals, each employee is requested to think
and act on his/her subjective insights into the local market
accumulated through daily face-to-face interactions with
customers.
Such subjective insights in particular contexts are
objectified through the process of hypothesis building and
testing. It is not good if you just see a tree, not a forest. Of
course you have to see the particular tree. But you have
see to the entire forest as well as the trees.
-Toshifumi Suzuki, CEO, Seven-Eleven Japan
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Phronetic Leadership (5)
Ability to skillfully use any
necessary means to realize
concepts for common goodness.
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Strategy as Dialectic Process
The reality of strategic process is
dynamic and full of confusion and
contradictions. In such a process,
dialectic thinking to synthesize
contradictions is required. It is a way
to accept contradictions and make the
decisions best suited to the situation
without losing the sight of the
goodness to be achieved.
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Man is a Collection of
Contradictory Ideas
Leaders who accept and internalize the contradictory
existence of humans and who can accept purity and
impurity are sought after.
Man is a collection of contradictory ideas, all of which
exist within man without any feelings of uneasiness:
beauty & ugliness, justice and injustice, good and bad,
optimism & pessimism, wildness & intellectualism,
diligence & laziness, and idealism & realism. This is
undeniable.
The human attractiveness of the leader is difficult to
articulate but it seems to lie in the leader’s capability to
synthesize these contradictions through understanding
that such a collection of contradictory ideas is the
character of human nature.
Source: Iizuka, A. “Jinbutsu o dou miwakeruka,” WEDGE, March 2003
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Embracing Paradoxes
Paradox is a way of life at
Canon….Facing a paradox, we
embrace it and go ahead coping
with it. We are constantly on the
move.
-- Fujio Mitarai, CEO, Canon
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Phronetic Leadership (6)
Ability to foster phronesis in
others to build a resilient
organization.
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Building Distributed Leadership
I only have two eyes. There are several ten
thousands part-time works at Seven-Eleven
Japan stores. If everyone can make a judgment
on his/her own, we have quite a few eyes. To do
so, everyone of us have to respect the
fundamental rules of business.
No one knows for sure how the society will
change in future. Because we don’t know, we
keep tackling the difficult task to adapt to changes.
Everyday, I say that the most important thing is to
adapt to any changes.
-Toshifumi Suzuki, CEO, Seven-Eleven Japan
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Phronetic Leadership
Goodness
Eｘperience
（particular）
Pragmatism
Objectivity
Dialog and Practice
（universal）
Disci-
Subjectivity
Explicit knowledge
-pline
Tacit knowledge
Life World
Language
Idealism
Ba
Synthesis of Self and Others
(shared context-in-motion)
Dynamic Networking of Ba
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A Knowledge-Based Organization is…
An organization who practices the idealistic pragmatism
which synthesizes;
Ontology: How to be
-”For what do we live?”: the vision to the future and the
commitment to it.
Epistemology: How to know
-”What is the truth?”: the SECI spiral which synthesizes
objective and subjective views.
Creation: How one can change itself and the
environment
Management is viewed as “a way of life” rather than a
tool to make money.
© Nonaka・Toyama・Konno
Idealistic Pragmatist
Brain
Deep Thinker
Brawn
Doer
in One Person
“Intellectual Muscle”
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