The Knowledge-Creating Company - Inovacao e Conhecimento Tacito

THE KNOWLEDGE CREATING COMPANY Ho w Japanese Companies Create the Dynamics of Innovation IKUJIRO NONAKA HIROTAKA TAKEUCHI The KnowledgeCreating Company 1 The Ambiguous Role of Tacit Knowledge Why was the car going so fast when it hit the telephone pole A police detective investigating the crash interviewed the driver How fast were you going The driver replied I dont know I think about 50 mph Why did you hit the telephone pole Well I was going too fast trying to make up for time I lost on a long delay The detective said Isnt that the same as saying you ran off the road because you were trying to drive as fast as you could The driver answered that this was exactly what had happened Why do you think you cannot say exactly how fast you were going I was still learning the route as it was my first trip through the area but I really wanted to get there as fast as possible The detective then asked if the driver could estimate his speed in the last thousand feet before hitting the telephone pole The driver replied Around 4550 mph The detective concluding the interview commented It seems that you knew you were driving fast enough to be dangerous but you could not specify exactly how fast you were going or maintain a precise control over the throttle and speed When the car crashed the driver had not yet mastered the feel of the car on the road and was driving it above safe limits This feel or knowhow is a special type of knowledge in which people hold partly tacit and partly explicit knowledge simultaneously It is this knowhow that allows people to develop skills to learn from experience and to become experts For many years analysts at business schools and economists have classified knowledge into explicit and tacit categories Explicit knowledge is formal and systematic articulated in documents manuals and databases Tacit knowledge is rooted in action procedure commitment and the ideals and values of individuals and groups It is contextspecific and hard to formalize For example riding a bike or driving a car requires a mix of explicit instructions how to shift gears and tacit knowledge balance timing The challenge in understanding and managing tacit knowledge lies in its ambiguous role On one hand it is personal and hard to communicate making it difficult to transfer On the other hand it is critical to problemsolving creativity and innovation The question arises how can organizations capture and leverage tacit knowledge to enhance learning and performance This dilemma is central to knowledge management theory and practice The KnowledgeCreating Company How Japanese Companies Create the Dynamics of Innovation Ikujiro Nonaka and Hirotaka Takeuchi New York Oxford OXFORD UNIVERSITY PRESS 1995 Oxford University Press Oxford New York Athens Auckland Bangkok Bombay Calcutta Cape Town Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto and associated companies in Berlin Ibadan Copyright 1995 by Oxford University Press Inc Published in 1995 by Oxford University Press Inc 200 Madison Avenue New York New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without the prior permission of Oxford University Press Library of Congress CataloginginPublication Data Nonaka Ikujiro 1935 The knowledgecreating company how Japanese companies create the dynamics of innovation Ikujiro Nonaka and Hirotaka Takeuchi p cm Includes bibliographical references and index ISBN 0195092694 1 Communication in organizationsJapan 2 Industrial managementJapan I Takeuchi Hirotaka II Title HD303N66 1995 65845dc20 9440408 1 3 5 7 9 8 6 4 2 Printed in the United States of America on acidfree paper To Sachiko Nonaka and Nobuko Takeuchi 9 Toward a Theory of Organizational Knowledge Creation The knowledgecreating company poses theoretical and practical challenges At the theoretical level the traditional distinction between tacit and explicit knowledge needs reexamination The dynamic interaction between tacit and explicit knowledge leads to the continual creation of new knowledge inside organizations This process cannot be fully understood by separating tacit from explicit knowledge because their interplay is fundamental to knowledge creation Concurrently knowledge creation in organizations involves humans who are functioning within complex social contexts This social process includes shared meanings trust and communication and involves the entire organization At the practical level managers must understand the importance of knowledge creation and the mechanisms that enable it They need to foster environments where knowledge is actively shared combined and transformed This involves creating systems and practices that support continuous learning dialogue and innovation The next section lays out a framework for understanding these processes and their implications for management It emphasizes the role of ba a shared context in motion and the SECI model Socialization Externalization Combination Internalization as fundamental to knowledge creation in organizations By embracing these concepts organizations can harness the power of knowledge creation to achieve competitive advantages and sustained success PREFACE The roots of this book go back 12 years We were asked by the late Professor William J Abernathy to submit a paper for the 75th Anni versary Colloquium of the Harvard Business School on the unique fea tures of the new product development process within Japanese compa nies The ideas generated in that study became the basis for our 1986 Harvard Business Review article The New New Product Development Game In that article we used the rugby metaphor to describe the speed and flexibility with which Japanese companies developed new productsas in rugby the ball gets passed within the team as it moves up the field as a unit In retrospect that study had touched on the roots of why Japanese companies became successful in the 1970s and 1980s Lets continue the rugby analogy and focus our attention on the ball to describe what we mean The ball being passed around in the team contains a shared understanding of what the company stands for where it is go ing what kind of a world it wants to live in and how to make that world a reality Highly subjective insights intuitions and hunches are also embraced Thats what the ball containsnamely ideals val ues and emotions Now lets focus on how the ball gets passed around in rugby Un like how a baton gets passed from one runner to the next in a relay race the ball does not move in any defined or structured manner Un like relay it does not move linearly or sequentially Ball movement in rugby is borne out of the team members interplay on the field It is determined on the spot here and now based on direct experience Preface viii and trial and error It requires an intensive and laborious interaction among members of the team This interactive process is analogous to how knowledge is created organizationally within Japanese companies As we shall see in this book creating organizational knowledge is as much about bodily expe rience and trial and error as it is about mental modeling and learning from others Similarly it is as much about ideals as it is about ideas We contend in this book that Japanese companies have become suc cessful because of their skills and expertise at organizational knowl edge creation By organizational knowledge creation we mean the ca pability of a company as a whole to create new knowledge disseminate it throughout the organization and embody it in products services and systems Herein lies the roots Other theories of why Japanese companies have become successful abound but our explanation hits at the most basic and universal component of the organizationhuman knowledge The study of human knowledge is as old as human history itself It has been a central subject matter of philosophy and epistemology since the Greek period Knowledge has also begun to gain a new wave of attention in recent years Not only socioeconomic theorists such as Peter Drucker and Alvin Toffler call for our attention to the impor tance of knowledge as management resource and power but also an increasing number of scholars in the fields of industrial organization technology management management strategy and organizational theory have begun to theorize about management of knowledge In this book we take knowledge as the basic unit of analysis for explaining firm behavior In discussing knowledge in the business or ganization this book calls for a fundamental shift in thinking about what the business organization does with knowledge More specifically this book starts from the belief that the business organization not merely processes knowledge but creates it as well Knowledge cre ation by the business organization has been virtually neglected in management studies Years of research on Japanese firms however convinces us that knowledge creation has been the most important source of their international competitiveness In this book we classify human knowledge into two kinds One is explicit knowledge which can be articulated in formal language includ ing grammatical statements mathematical expressions specifications manuals and so forth This kind of knowledge thus can be transmitted across individuals formally and easily This has been the dominant mode of knowledge in the Western philosophical tradition However we shall argue a more important kind of knowledge is tacit knowledge which is hard to articulate with formal language It is personal knowl edge embedded in individual experience and involves intangible fac tors such as personal belief perspective and the value system Tacit knowledge has been overlooked as a critical component of collective human behavior At the same time however tacit knowledge is an Preface IX important source of Japanese companies competitiveness This is prob ably a major reason that Japanese management is seen as an enigma among Western people In this book we focus on explicit knowledge and tacit knowledge as basic building blocks in a complementary relationship More impor tantly the interaction between these two forms of knowledge is the key dynamics of knowledge creation in the business organization Or ganizational knowledge creation is a spiral process in which the above interaction takes place repeatedly In the dominant Western philosophy the individual is the principal agent who possesses and processes knowledge In this study however we shall show that the individual interacts with the organization through knowledge Knowledge creation takes place at three levels the individual the group and the organizational levels Therefore our discussion of organizational knowledge creation consists of two major components the forms of knowledge interaction and the levels of knowledge creation The two forms of interactionsbetween tacit knowledge and explicit knowledge and between the individual and the organizationwill then bring about four major processes of knowledge conversion which all together constitute knowledge creation 1 from tacit to explicit 2 from explicit to explicit 3 from explicit to tacit and 4 from tacit to tacit The goal of this study is to formalize a generic model of organiza tional knowledge creation Our discussion will mostly involve Japa nese companies for two major reasons First Japanese companies pro vide a most challenging laboratory to develop and test the model of organizational knowledge creation as they have become most competi tive over a short period of time Second we have been conducting an indepth investigation of Japanese firms for a number of years This long history offers a rich data pool for our present intellectual under taking which should be shared with Western readers at some point In short Japanese companies are analyzed in this book as representa tive case studies rather than as success stories In fact some may contend that the recent setback of Japanese com panies in international competition could undermine our model But faced with the longest and most severe recession in recent history in the early 1990s we are observing how Japanese companies are trying to break away from what worked in the past and move into new and untried territories of opportunity The pressure of the current crisis and the need to globalize even further are forcing Japanese companies to turn to a more advanced form of knowledge creation which we may want to write about sometime in the future On a more personal note the roots of the authors relationship go back 24 years The two first met at the University of California Berke ley in 1970 Jiro as Ikujiro Nonaka was called in Berkeley was fin ishing up his PhD program in marketing and organizational theory Hiro short for Hirotaka had just started the MBA program It was an X Preface encounter that changed Hiros life for good Jiro persuaded Hiro to en ter the PhD program in marketing At Berkeley both were inspired by the late Dean E T Grether from whom they learned industrial organization They both minored in sociology studying under Profes sors Neil J Smelser and Arthur L Stinchcombe Jiro wrote his thesis under Professor Francesco M Nicosia and Hiro under Professor Louis P Bucklin Berkeley has had a profound impact on the two of us The University of California Berkeley was founded under the vision to become the Athens of the Pacific The founding fathers wanted to replicate the Athens of Aristotle and Plato the Athens of Pericles at Berkeley The city of Berkeley itself was named after Bishop George Berkeley an Irish philosopher who wrote Principles of Human Knowledge in 1710 We inherited this philosophical tradition as evidenced from the ample references made to Greek philosophy and epistemology through out the book We also inherited the intellectual tradition of the Berke ley PhD program which is bent on developing theory Our attempt to formalize a generic model of organizational knowledge creation is an indicator of this theoretical tradition Besides Berkeley we have something else in common Both of us had worked in business right after graduating a Japanese university Jiro worked for an electronics manufacturer for nine years and Hiro for an advertising agency for two years It is this shared experience that compels us to become practical and seek reality in the front line of business The case studies in the book are indicators of this practical bent In this book we hope to combine our theoretical and practical bents After all as in the words of Kurt Lewin There is nothing so practical as a good theory After leaving Berkeley Jiro returned to Japan to teach at Nanzan University and later at the National Defense Academy where he con ducted research on contingency theory based on the information processing paradigm Hiro went on to teach at the Harvard Business School where he was exposed to case studies Their paths crossed again when Jiro joined Hitotsubashi University in 1982 and Hiro a year later Kenichi Imai was instrumental in recruiting us to Hitotsu bashi Imai who is now a research director at Stanford Japan Center in Kyoto was also a coresearcher of the study we conducted for the 75th Anniversary Colloquium of the Harvard Business School As you can see the roots for this book and our personal relationship go back a long time Our only regret is that it has taken us so long to complete this book Had we done so sooner we would have been able to show Dean E T Grether who passed away this year that his two former students are keeping the Berkeley spirit alive across the Pa cific developing new theory out of Japan Tokyo December 1994 I N Η T ACKNOWLEDGMENTS We have had the opportunity to interact with a large number of people in writing this book This book to a large extent is the product of our interactions with managers colleagues graduate students and re search assistants and editors Our interactions with managers from Honda Canon Matsushita Sharp Nissan Kao Shin Caterpillar Mitsubishi NEC Mazda Fuji Xerox SevenEleven Japan Asahi Breweries Fujitsu General Elec tric and 3M have formed that knowledge base of this book We are greatly indebted to all the managers we interviewed who so willingly shared their tacit and explicit knowledge with us and to the compa nies that gave us the opportunity to test our ideas Our interactions with our colleagues stimulated our thinking and oftentimes opened up our eyes In addition to our mentors and col leagues mentioned above we owe an enormous intellectual debt to Hiroyuki Itami Iwao Nakatani Kiyonori Sakakibara Seiichiro Yone kura Tsuyoshi Numagami Kazuo Ichijo Hisanaga Amikura Shigemi Yoneyama Tadao Kagono Akihiro Okumura Yoshiya Teramoto Toshihiro Kanai Noboru Konno Kohichiro Tokuoka Michael E Por ter John A Quelch Alan M Webber Noel M Tichy David A Aaker David J Teece James R Lincoln Johny K Johansson Martin Ken ney D Eleanor Westney Gunnar Hedlund Fabio Corno Michael A Brimm Philippe Byosiere and many others throughout the world Our interactions with graduate students and research assistants served as the engine for progress SungJoon Roh TaekWhan Chung Acknowledgments xii Yaichi Aoshima Takaya Kawamura all of whom are Jiros graduate students and Timothy Ray of Manchester University provided sub stantial research support in the early stages of our research Yoshinori Fujikawa Emi Osono both of whom are Hiros graduate students and Katsuhiro Umemoto a PhD candidate at George Washington Univer sity provided key research support toward the end It was the dedica tion and commitment of Fujikawa Osono and Umemoto that finally drove the book to its completion Noriko Morimoto of Hitotsubashi University provided administrative support through all the phases of our research Our sincere arigato to all our support staff Our interactions with editors were truly a satisfying experience As with explicit and tacit knowledge the authors and the editors func tioned as building blocks in a complementary relationship Robert Howard who was with the Harvard Business Review and now serves as an independent editor did a heroic job of reading our earlier drafts and suggesting ingenious ways of reorganizing our materials The cur rent storyline of the book is due largely to his insights Our editor at the Oxford University Press Herbert J Addison also deserves a lot of credit He was the first to buy into our ideas and constantly encour aged us to never lose sight of our uniqueness As a result what you are holding in your hands turned out to be a very unique book that covers the span from Plato to Zen Buddhism and from rugby to Ameri can football As a result of all the interactions mentioned above our interface with our family members was kept at a suboptimal level while this book was being produced On their part many weekends and holidays were spent watching their husbandfather work on the book Our wives Sachiko and Nobuko understood our ideals and watched us with patience Our children watched our backs with silence In Japan they say thats how children mature Hopefully our children Miho Yukiho Yumeko and Kohtaro were able to share a tacit knowledge that will benefit them in the future Thats our way of saying Thanks CONTENTS 1 Introduction to Knowledge in Organizations 3 2 Knowledge and Management 20 3 Theory of Organizational Knowledge Creation 56 4 Creating Knowledge in Practice 95 5 Middleupdown Management Process for Knowledge Creation 124 6 A New Organizational Structure 160 7 Global Organizational Knowledge Creation 197 8 Managerial and Theoretical Implications 224 References 247 Index 257 The KnowledgeCreating Company Compiled and edited by Ikujiro Nonaka and Hirotaka Takeuchi with Jon Turner 1 Introduction to Knowledge in Organizations J apanese companies remain an enigma to most Westerners They are not terribly efficient entrepreneurial or liberated Yet slowly but surely they have advanced their position in interna tional competition Why have Japanese companies become successful In this book we offer a new explanation We argue that the success of Japanese compa nies is not due to their manufacturing prowess access to cheap capital close and cooperative relationships with customers suppliers and gov ernment agencies or lifetime employment seniority system and other human resources management practicesalthough all of these factors of course are important Instead we make the claim that Japanese companies have been successful because of their skills and expertise at organizational knowledge creation By organizational knowledge creation we mean the capability of a company as a whole to create new knowledge disseminate it throughout the organization and embody it in products services and systems Organizational knowledge creation is the key to the distinctive ways that Japanese companies innovate They are especially good at bringing about innovation continuously incrementally and spirally This view goes against the grain of the way most Western observers think of Japanese companies The common view is that Japanese com panies while extremely successful at imitation and adaptation are not really all that innovative especially when knowledge plays a big role in gaining competitive advantage Take for example the debate about 3 4 The KnowledgeCreating Company competitiveness in the computer and semiconductor industries Five years ago everyone was afraid of the Japanese but only a few are to day The general feeling is that the US computer and semiconductor companies regained their strength by developing new architectures and designs Others would contend that the Japanese have never been a major threat in the telecommunications and software industries These views have been reinforced by the recent setback of Japanese companies which have been faced with the longest and most severe recession in recent history We agree that Japanese companies have been slowed down but at the same time we contend that they will emerge stronger from the current recession Faced with a crisis Japa nese companies have historically turned to organizational knowledge creation as a means of breaking away from the past and moving them into new and untried territories of opportunity For at least the past 50 years Japanese companies existed in an environment in which the only certainty was uncertainty Following the devastating effects of World War II they were confronted with two wars in their own region the Korean War and the Vietnam War and numerous economic crises including the two oil shocks the Nixon shock the yen crisis and more recently the bursting of the bubble economy In addition to this uncertainty in the external environment Japanese companies saw markets shifting technology proliferating competitors multiplying and products becoming obsolete almost over night Coping with uncertainty was a matter of life or death even for the more successful Japanese companies Honda for example might not be in the automobile industry today had it not developed an energy efficient engine prior to the oil shocks In the camera industry Canon bet the future of the company on the AE1 the first singlelens reflex camera with a builtin electronic brain Similarly Sony could have gone into oblivion had it not pursued an aggressive export strategy during the days when Made in Japan was still synonymous with be ing cheap and shoddy As latecomers into international competition none of the Japanese companies ever achieved the dominance and success once enjoyed by such companies as IBM General Motors or Sears Roebuck Competi tion was a constant uphill battle for Japanese companies In retrospect that was fortunate since they did not acquire the usual encumbrances of successincluding complacency and arrogancethat have come to plague the three monarchs mentioned above No single Japanese com pany ever dominated a business the way IBM once ruled the computer business or the way General Motors and Sears once dominated the au tomobile and retailing industries respectively As rulers of their own fiefdoms these companies sat comfortably on their laurels becoming increasingly numb and blind to changes taking place around them Certainty not uncertainty became the norm Introduction to Knowledge in Organizations 5 In contrast Japanese companies struggled against international competition with dogged determination often in the face of tough ob stacles and adversities Until recently they could not afford to relax or become complacent The fear of losing and the hope of catching up pro pelled them to anticipate change and to come up with something new a new technology a new product design a new production process a new marketing approach a new form of distribution or a new way of servicing customers For instance Japanese motorcycle manufacturers anticipated the growing needs of the emerging babyboom segment in the United States and offered smaller lowercapacity models that other competitors disdained as less profitable and less important But innovation was not a oneact drama for successful Japanese com panies One innovation led to another bringing about continuous im provement and upgrading which is precisely what took place in the Japanese automobile industry They initially penetrated foreign markets with inexpensive compact cars of adequate quality and competed on the basis of lower labor costs Even while their laborcost advantage persisted however the Japanese compa nies were upgrading They invested aggressively to build modem plants to reap economies of scale Then they became innovators in process tech nology pioneering justintime production and a host of other quality and productivity practices This led to better product quality repair records and customer satisfaction ratings than foreign rivals Most recently Japa nese auto makers have advanced to the vanguard of product technology and are introducing new premium brand names Porter 1990 p 75 Continuous innovation of this sort has also been characteristic of successful Japanese companies in other businesses including motorcy cles consumer electronics sewing machines and airconditioning equipment How do Japanese companies bring about continuous innovation One way is to look outside and into the future anticipating changes in the market technology competition or product We have argued thus far that living in a world of uncertainty worked in favor of Japanese com panies since they were constantly forced to make their existing advan tages obsolete In fact this traitthe willingness to abandon what has long been successfulis found in all successful companies not only those in Japan To these companies change is an everyday event and a positive force Contrast this mindset to that of the three monarchs mentioned earlier who became preoccupied with defending their ad vantages and treated change with the fear that there was much to lose They became insular seeking predictability and stability Times of uncertainty often force companies to seek knowledge held by those outside the organization Japanese companies have continu ally turned to their suppliers customers distributors government agencies and even competitors for any new insights or clues they may 6 The KnowledgeCreating Company have to offer Just as the proverbial drowning man will catch at a straw these companies accumulate knowledge from the outside al most in desperation during times of uncertainty What is unique about the way Japanese companies bring about continuous innovation is the linkage between the outside and the inside Knowledge that is accumu lated from the outside is shared widely within the organization stored as part of the companys knowledge base and utilized by those engaged in developing new technologies and products A conversion of some sort takes place it is this conversion processfrom outside to inside and back outside again in the form of new products services or systems that is the key to understanding why Japanese companies have become successful It is precisely this dual internal and external activity that fuels continuous innovation within Japanese companies Continuous innovation in turn leads to competitive advantage as shown The New Focus on Knowledge as a Competitive Resource The focus of this book is on knowledge creation not on knowledge per se But before we can embark on the task of trying to master an under standing of the Japanese techniques of knowledge creation a close ex amination of knowledge itself is in order A keen interest in the subject of knowledge has been developing in the West An explosion of sorts has occurred in the business press in recent years with prominent authors such as Peter Drucker Alvin Toffler James Brian Quinn and Robert Reich leading the field In their own ways they all herald the arrival of a new economy or soci ety referred to as the knowledge society by Drucker which distin guishes itself from the past in the key role knowledge plays within society Drucker 1993 argues in his latest book that in the new econ omy knowledge is not just another resource alongside the traditional factors of productionlabor capital and landbut the only meaning ful resource today The fact that knowledge has become the resource rather than a resource is what makes the new society unique he con tends Introduction to Knowledge in Organizations 7 Toffler 1990 echoes Druckers contention proclaiming that knowl edge is the source of the highestquality power and the key to the powershift that lies ahead Toffler observes that knowledge has gone from being an adjunct of money power and muscle power to being their very essence and that is why the battle for the control of knowledge and the means of communication is heating up all over the world He believes that knowledge is the ultimate replacement of other re sources Quinn 1992 shares with Drucker and Toffler the similar view that the economic and producing power of a modern corporation lies more in its intellectual and service capabilities than in its hard assets such as land plant and equipment He goes a step further by pointing out that the value of most products and services depends primarily on how knowledgebased intangibleslike technological knowhow product design marketing presentation understanding of the customer per sonal creativity and innovationcan be developed These authors also agree that the future belongs to people endowed with knowledge In a society based on knowledge says Drucker the knowledge worker is the single greatest asset Included in his defini tion of a knowledge worker is a knowledge executive who knows how to allocate knowledge to productive use just as the capitalist knew how to allocate capital to productive use Quinn notes that the capacity to manage what he calls knowledgebased intellect is fast becoming the critical executive skill of this era Reich 1991 contends that the only true competitive advantage will reside among those he calls sym bolic analysts who are equipped with the knowledge to identify solve and broker new problems The same message is beginning to appear in the popular press as well A recent feature article entitled Knowledge Is Power News week June 14 1993 predicts in no uncertain terms that the future belongs to people who use their heads instead of their hands News week ends its article by pointing out how countries like South Korea and Singapore are educating their workers to new standards of excel lence and how international competition will be defined in terms of the advantage in knowledge a nation creates in the future The realization that knowledge is the new competitive resource has hit the West like lightning But all this talk about the importance of knowledgefor both companies and countriesdoes little to help us understand how knowledge gets created Despite all the attention by leading observers of business and society none of them has really ex amined the mechanisms and processes by which knowledge is created This distinction is what separates the Japanese approach from theirs More important it is for this reason that the Japanese experience is especially interesting and useful 8 The KnowledgeCreating Company The Distinctive Japanese Approach to Knowledge Creation There is a reason why Western observers tend not to address the issue of organizational knowledge creation They take for granted a view of the organization as a machine for information processing This view is deeply ingrained in the traditions of Western management from Frederick Taylor to Herbert Simon And it is a view of knowledge as necessarily explicitsomething formal and systematic Explicit knowledge can be expressed in words and numbers and easily commu nicated and shared in the form of hard data scientific formulae codi fied procedures or universal principles Thus knowledge is viewed syn onymously with a computer code a chemical formula or a set of general rules When Drucker 1993 p 38 observes that within a few years after Taylor began to apply knowledge to work productivity be gan to rise at a rate of 35 and 4 percent compound a year he is actually referring to the application of quantifiable data to work Simi larly Toffler 1990 uses the words data information and knowl edge interchangeably throughout his book to avoid tedious repe tition Japanese companies however have a very different understanding of knowledge They recognize that the knowledge expressed in words and numbers represents only the tip of the iceberg They view knowl edge as being primarily tacitsomething not easily visible and ex pressible Tacit knowledge is highly personal and hard to formalize making it difficult to communicate or to share with others Subjective insights intuitions and hunches fall into this category of knowledge Furthermore tacit knowledge is deeply rooted in an individuals action and experience as well as in the ideals values or emotions he or she embraces To be more precise tacit knowledge can be segmented into two di mensions The first is the technical dimension which encompasses the kind of informal and hardtopindown skills or crafts captured in the term knowhow A master craftsman for example develops a wealth of expertise at his fingertips after years of experience But he is often unable to articulate the scientific or technical principles behind what he knows At the same time tacit knowledge contains an important cognitive dimension It consists of schemata mental models beliefs and percep tions so ingrained that we take them for granted The cognitive dimen sion of tacit knowledge reflects our image of reality what is and our vision for the future what ought to be Though they cannot be articu lated very easily these implicit models shape the way we perceive the world around us The distinction between explicit knowledge and tacit knowledge is Introduction to Knowledge in Organizations 9 the key to understanding the differences between the Western ap proach to knowledge and the Japanese approach to knowledge Explicit knowledge can easily be processed by a computer transmitted elec tronically or stored in databasesBut the subjective and intuitive na ture of tacit knowledge makes it difficult to process or transmit the acquired knowledge in any systematic or logical manner For tacit knowledge to be communicated and shared within the organization it has to be converted into words or numbers that anyone can under stand It is precisely during the time this conversion takes placefrom tacit to explicit and as we shall see back again into tacitthat orga nizational knowledge is created Although Western managers have been more accustomed to dealing with explicit knowledge the recognition of tacit knowledge and its im portance has a number of crucially relevant implications First it gives rise to a whole different view of the organizationnot as a machine for processing information but as a living organism Within this context sharing an understanding of what the company stands for where it is going what kind of a world it wants to live in and how to make that world a reality becomes much more crucial than processing objective information Highly subjective insights intuitions and hunches are an integral part of knowledge Knowledge also embraces ideals values and emotion as well as images and symbols These soft and qualitative elements are crucial to an understanding of the Japanese view of knowledge The Japanese have come to realize that tacit knowledge cannot be easily communicated to others Everyone in Japan would agree that Shigeo Nagashima nicknamed Mr Baseball in Japan is one of the greatest baseball players of all time Having had the opportunity of meeting him in person we asked him why he was so successful in ris ing to the occasion and hitting so many gamewinning runs in tight moments He used a lot of figurative language and body movement but couldnt explain exactly what he meant His words were not very logical or systematic In the end Nagashima simply said You have to feel it This episode questions the premise widely held in the West that knowledge can be taught through education and training As Levitt 1991 points out The most precious knowledge can neither be taught nor passed on Levitt uses another metaphor to drive home his point that not everything that is learned is done so consciously A young child screams with pain upon touching a hot stove A little com fort and mild medication soon make things well except for a small blister That evening the parent returning home greets the child as usual Hi and what did you learn today Nothing comes the cheerful response But never again will the child touch the burner except cautiously even when the stove is cold Levitt 1991 p 17 IO The KnowledgeCreating Company In fact the most powerful learning comes from direct experience A child learns to eat walk and talk through trial and error she or he learns with the body not only with the mind Similarly managers in Japan emphasize the importance of learning from direct experience as well as through trial and error Like a child learning to eat walk and talk they learn with their minds and bodies This tradition of emphasizing the oneness of body and mind has been a unique feature of Japanese thinking since the establishment of Zen Buddhism It stands in sharp contrast to the thinking behind the learning organization a phrase that has become a conceptual catch all of the new business organization Peter Senge 1990 the apostle of the learning organization utilizes systems thinking to shift the mind from seeing the parts to seeing the whole Systems thinking according to Senge is a conceptual framework a body of knowledge and tools that has been developed over the past 50 years in the West to help people see the full patterns more clearly The focus of the learning organization is clearly on learning with the mind not with the body Senge goes a step further and says that trialanderror learning is a delusion since the most critical decisions made in an organization have systemwide consequences stretching over years and decades a time frame that makes learning from direct experience an impossi bility The second implication of tacit knowledge follows naturally from the first Once the importance of tacit knowledge is realized then one be gins to think about innovation in a whole new way It is not just about putting together diverse bits of data and information It is a highly individual process of personal and organizational selfrenewal The personal commitment of the employees and their identity with the company and its mission become indispensable In this respect the cre ation of new knowledge is as much about ideals as it is about ideas And that fact fuels innovation The essence of innovation is to recreate the world according to a particular ideal or vision To create new knowledge means quite literally to recreate the company and every one in it in an ongoing process of personal and organizational self renewal It is not the responsibility of the selected fewa specialist in research and development strategic planning or marketingbut that of everyone in the organization Creating new knowledge is also not simply a matter of learning from others or acquiring knowledge from the outside Knowledge has to be built on its own frequently requiring intensive and laborious interac tion among members of the organization Newproduct development team members at Canon for example hold camp sessions at a local hotel over a weekend to brainstorm through a critical problem or issue In this respect the Japanese approach is at variance with the best and benchmarking practices carried out at companies like GE ATT Xerox and Milliken that are bent on learning from others Introduction to Knowledge in Organizations 11 Milliken calls its practice SIS for Steal ideas shamelessly The Japa nese approach also runs counter to the basic premise of the modular or virtual corporation which uses the knowledge of outside part nerssuppliers customers rivals and outside specialistsin lieu of its own Companies in Japan believe that new and proprietary knowl edge cannot be created without an intensive outsideinside interaction To create knowledge the learning that takes place from others and the skills shared with others need to be internalizedthat is reformed enriched and translated to fit the companys selfimage and identity A third important implication that can be drawn from the above dis cussion is that Western managers need to unlearn their old view of knowledge and grasp the importance of the Japanese view They need to get out of the old mode of thinking that knowledge can be acquired taught and trained through manuals books or lectures Instead they need to pay more attention to the less formal and systematic side of knowledge and start focusing on highly subjective insights intuitions and hunches that are gained through the use of metaphors pictures or experiences Doing so will enable Western managers to understand what successful Japanese companies are doing right And indeed our theory will help them do just that Making Tacit Knowledge Explicit The Honda City Example1 The explanation of how Japanese companies create new knowledge boils down to the conversion of tacit knowledge to explicit knowledge Having an insight or a hunch that is highly personal is of little value to the company unless the individual can convert it into explicit knowl edge thus allowing it to be shared with others in the company Japa nese companies are especially good at realizing this exchange between tacit and explicit knowledge during the product development phase Take Honda as a case in point In 1978 top management at Honda inaugurated the development of a newconcept car with the slogan Lets gamble The phrase expressed senior executives conviction that Hondas Civic and Accord models were becoming too familiar Manag ers also realized that along with a new postwar generation entering the car market a new generation of young product designers was com ing of age with unconventional ideas about what made a good car The business decision that followed from the Lets gamble slogan was to form a newproduct development team of young engineers and designers the average age was 27 Top management charged the team with twoand only twoinstructions 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 This mission might sound vague but in fact it provided the team 12 The KnowledgeCreating Company with an extremely clear sense of direction For instance in the early days of the project some team members proposed designing a smaller and cheaper version of the Honda Civica safe and technologically feasible option But the team quickly decided this approach contra dicted the entire rationale of its mission The only alternative was to invent something totally new Project team leader Hiroo Watanabe coined another slogan to ex press his sense of the teams ambitious challenge Automobile Evolu tion The phrase described an ideal In effect it posed the question If the automobile were an organism how should it evolve As team mem bers argued and discussed what Watanabes slogan might mean they came up with an answer in the form of yet another slogan man maximum machineminimum This captured the teams 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 ap pearance The evolutionary trend the team articulated eventually came to be embodied in the image of a spherea car simultaneously short in length and tall in height Such a car they reasoned would be lighter and cheaper but also more comfortable and more solid than traditional cars A sphere provided the most room for the passenger while taking up the least amount of space on the road Whats more the shape minimized the space taken up by the engine and other me chanical systems This gave birth to a product concept the team called Tall Boy which eventually led to the Honda City the companys dis tinctive urban car The Tall Boy concept contradicted the conventional wisdom about automobile design at the time which emphasized long low sedans But the Citys revolutionary styling and engineering were prophetic The car inaugurated a whole new approach to design in the Japanese auto industry based on the manmaximum machineminimum concept which had led to the new generation of tall and short cars now quite prevalent in Japan Three Key Characteristics of Knowledge Creation The story of the Honda City illustrates the way Japanese managers approach the process of making tacit knowledge explicit It also sug gests three other characteristics of knowledge creation that relate to how tacit can be made explicit First to express the inexpressible heavy reliance is placed on figurative language and symbolism Sec ond to disseminate knowledge an individuals personal knowledge has to be shared with others Third new knowledge is born in the midst of ambiguity and redundancy We shall elaborate on each of these charac teristics below Introduction to Knowledge in Organizations 13 Metaphor and Analogy First the story of the Honda City suggests how Japanese managers use figurative language to articulate their intuitions and insights Fig urative language which is especially prominent in product develop ment can take the form of metaphor or analogy A metaphor or an analogysuch as Automobile Evolution manmaximum machine minimum or Tall Boyis a distinctive method of perception 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 No analysis or generalization is needed Through metaphors people put together what they know in new ways and begin to express what they know but cannot yet say As such metaphor is highly effective in fostering direct commitment to the cre ative process in the early stages of knowledge creation An analogy is much more structured than a metaphor in making a distinction between two ideas or objects It clarifies how the two ideas or objects are alike and not alike In this respect analogy is an inter mediate step between pure imagination and logical thinking In the Honda City example recall how some team members proposed design ing a smaller and cheaper version of the Civic But the team quickly realized that this approach contradicted the rationale of its mission and decided to make a distinction by trying to invent something totally new By exploring how the City and the Civic are actually alike and not alike the team was able to postulate a breakthrough concept From Personal to Organizational Knowledge Second the story of the Honda City suggests how new knowledge al ways starts with an individualHiroo Watanabe in this caseand how an individuals personal knowledge is transformed into organiza tional knowledge valuable to the company as a whole ie Tall Boy Other examples of this sort of transformation may include a brilliant researchers insight leading to a new patent or a shopfloor workers long years of experience resulting in a new process innovation Although we use the term organizational knowledge creation the organization cannot create knowledge on its own without the initiative of the individual and the interaction that takes place within the group Knowledge can be amplified or crystallized at the group level through dialogue discussion experience sharing and observation Recall how the newproduct development team at Honda discussed what Wata nabes slogan might possibly mean before coming up with a metaphor of its own manmaximum machineminimum This example illus trates the central role teams play in the knowledgecreation process they provide a shared context in which individuals can interact with each other Team members create new points of view through dialogue 14 The KnowledgeCreating Company and discussion This dialogue can involve considerable conflict and dis agreement but it is precisely such conflict that pushes employees to question existing premises and to make sense of their experience in a new way This kind of dynamic interaction facilitates the transforma tion of personal knowledge into organizational knowledge Ambiguity and Redundancy Third the story of the Honda City suggests how certain organizational conditions can enhance the knowledgecreation process It may sound paradoxical but the confusion created within the product development team by the ambiguity of the mission handed down by Hondas top management provided an extremely clear sense of direction to the team Ambiguity can prove useful at times not only as a source of a new sense of direction but also as a source of alternate meanings and a fresh way of thinking about things In this respect new knowledge is born out of chaos Another organizational condition worth mentioning here is redun dancy To Western managers the term redundancy with its connota tion of unnecessary duplication and waste may sound unappealing And yet the building of a redundant organization plays an important role in management of the knowledgecreation process Redundancy is important because it encourages frequent dialogue and communica tion This helps create a common cognitive ground among employees and thus facilitates the transfer of tacit knowledge Since members of the organization share overlapping information they can sense what others are struggling to articulate Redundancy which takes place pri marily in information sharing also spreads new explicit knowledge through the organization so that it can be internalized by employees The organizational logic of redundancy helps explain why Japanese companies manage product development as an overlapping process in which different functional divisions work together in a shared division of labor Takeuchi and Nonaka 1986 At many Japanese companies redundant product development goes one step further A product devel opment team is divided into competing subgroups that develop differ ent approaches to the same project and then argue over the advantages and disadvantages of their proposals This redundancy encourages the team to look at a project from a variety of perspectives Under the guidance of a team leader the team eventually develops a common understanding of the best approach The Key Players in Knowledge Creation Who is responsible for creating new knowledge Another unique fea ture of Japanese companies is the fact that no one department or group of experts has the exclusive responsibility for creating new knowledge Introduction to Knowledge in Organizations 15 Frontline employees middle managers and senior managers all play μ part But this is not to say that there is no differentiation among these three roles In fact the creation of new knowledge is the product of a dynamic interaction among them Frontline employees are immersed in the daytoday details of par ticular technologies products or markets Most members of the Honda City development team were frontline employees who qualified as genuine car maniacs Recalls Hiroshi Honma Its incredible how the company called in young engineers like ourselves to design a car with a totally new concept and gave us the freedom to do it our way Giving them the freedom makes sense since no one is more expert in the real ities of a companys business than they are But while these employees have an abundance of highly practical information they often find it difficult to turn that information into useful knowledge For one thing signals from the marketplace can be vague and ambiguous For an other employees can become so caught up in their own narrow per spective that they lose sight of the broader context Moreover even when employees do develop meaningful ideas or insights they may find it difficult to communicate the importance of that information to others People do not just receive new knowledge passively they inter pret it actively to fit their own situation and perspective Thus what makes sense in one context can change or even lose meaning when communicated to people in a different context As a result there is continual confusion as new knowledge is diffused in an organization The major job of managers is to direct this confusion toward purpose ful knowledge creation Both senior and middle managers do this by providing employees with a conceptual framework that helps them make sense of their own experience Senior managers provide a sense of direction by creating grand concepts that identify the common fea tures linking seemingly disparate activities or businesses into a coher ent whole The Honda City project for example began with the slogan Lets gamble These slogans provide employees with a sense of direc tion by establishing the criteria for estimating the value of the knowl edge being created Does the idea embody the companys vision Is it an expression of top managements aspirations and ideals Nobuhiko Kawamoto the current president of Honda who was a vice president in charge of the City project at the time kept on rejecting the teams tooconservative designs in the early phase of development Recalls Hiroshi Honma Senior managers are romantics who go in quest of the ideal Middle managers serve as a bridge between the visionary ideals of the top and the often chaotic reality of those on the front line of busi ness Middle managers mediate between the what should be mindset of the top and the what is mindset of the frontline employees by creating midlevel business and product concepts As team leaders of the product development team for example middle managers are in a 16 The KnowledgeCreating Company position to remake reality according to the companys vision Thus at Honda top managements vision of coming up with something com pletely new became a reality at the level of Hiroo Watanabe and his team in the form of the Tall Boy product concept Middle managers play a key role in the knowledgecreation process They synthesize the tacit knowledge of both frontline employees and senior executives make it explicit and incorporate it into new prod ucts and technologies It is people such as Hiroo Watanabe at Honda who actually manage the knowledgecreation process within Japanese companies The Journey Ahead This book has several ambitious objectives Succinctly they are as fol lows One is to present a new theory of organizational knowledge cre ation developed in Japan to researchers and managers in the West The second is to provide a new explanation for why certain Japanese companies have been continuously successful in innovation The third is to develop a universal model of how a company should be managed based on the converging of management practices found in Japan and the West Given these ambitions our journey will be covering a great deal of ground It will traverse a wide territory marked by sharp contrasts from Greek philosophy to Zen Buddhism from classical economists to modernday management gurus from pure theory to practical cases from Matsushita to 3M and from newproduct development to human resources management But despite this breadth of coverage we will be singularly focused throughout our journey on the topic of organiza tional knowledge creation To Western managers the anecdotes and figurative language used in this book may seem odd or even incomprehensible Consider the ex amples we have seen thus far How is the slogan Automobile Evolu tion a meaningful design concept for a new car or manmaximum machineminimum a useful ideal These cryptic slogans may sound just plain silly to a Western manager but are in fact highly effective tools for creating new knowledge in Japanese companies Western managers will also come across new and strangesounding road signs throughout the journey Many of the key concepts used throughout this bookfor example oneness of body and mind knowledge conversion knowledge spiral selforganizing teams middleupdown management style or hypertext organizationare not everyday terms Not only are they new but they are foreign in origin and theoretical in nature as well Thus many of the ideas in the pages that follow are difficult but necessarily so Managers in any country can no longer afford to be satisfied with simplistic ideas about Introduction to Knowledge in Organizations 17 knowledge and its creation Our goal is to develop as rigorous and ro bust a theory about knowledge creation in the modern corporation as others have developed for corporate finance or business strategy We shall visit with close to 20 organizations during our journey Most of these are companies based in JapanCanon Honda Matsu shita NEC Nissan Kao Sharp Mazda Fuji Xerox Shin Caterpillar Mitsubishi and Fujitsubut some are based in the United States 3M GE the US Marines We conducted indepth personal interviews with approximately 130 managers in these companies to collect the necessary field data for this book Most of the research was conducted in the 1980s At the time the Japanese economy was strong and Japanese companies appeared to be a competitive juggernaut Today the Japanese economy is in trouble and Japanese companies appear considerably less invincible Does this change of affairs invalidate our theory of knowledge creation We dont think so Indeed it is the skills of Japanese companies at creating systematic organizational knowledge that has allowed them again and again to innovate their way out of crisis After all the cur rent situation is not the first time observers have noted the crisis of the Japanese economy During the Nixon shock of 1971 and the oil shock of the 1970s similar concerns were raised about the sustainabil ity of the Japanese miracle But in both cases Japanese companies used knowledge creation to turn economic crisis into competitive op portunity We fully expect them to do so again As a case in point just look at how Honda innovated itself out of a crisis with the development of the 1994 Accord When Kawamoto took over as Hondas president in 1990 the year sales of autos in the Japa nese market began to slide American and European engineers and marketers were flown into Tokyo to help with earlystage planning for the new model something that Honda had never done before Simi larly for the first time ever nearly 60 American production engineers and their families began moving to Japan for two to threeyear stints working with development engineers at Hondas Sayama assembly plant and Wako engine plant One of their key roles was to make sure that each part could be easily and cheaply manufactured at Hondas plants in Marysville Ohio Furthermore Honda carried out a contest among Hondas design studios in Japan the United States and Europe to choose the 1994 Accord designagain a company first What Honda did was to create new knowledge on a global scale with the American team making major contributions to develop a jazzier looking and more affordable 1994 Accord Looking at the brisk sales of the new Accord in the United States since its September 1993 introduction this case may offer another example of how a Japanese company may emerge from a crisis stronger than ever before 18 The KnowledgeCreating Company Road Map to the Rest of the Book Our journey will take us through seven more chapters Chapter 2 dis cusses the theoretical foundation of knowledge and its application to management Our discussion of knowledge is embedded in three diver gent theoretical foundationsthe theory of knowledge epistemology organizational theory and the theory of innovation We will review existing theories of knowledge in the Western philosophical tradition and contrast them with the Japanese philosophical tradition We will also review and critique economic and management theories of knowl edge that are strongly influenced by Western epistemology Chapter 3 presents the core concepts of knowledge creation centered around tacit and explicit knowledge Four modes of knowledge conver sionfrom tacit to tacit from tacit to explicit from explicit to explicit and from explicit to tacitwill be presented sprinkled with examples from companies such as NEC Canon Asahi Breweries and Fuji Xe rox We will explore how a key idea for Canons epochmaking personal copier was the product of a conversation about a beer can We will also present a process model of organizational knowledge creation in this chapter Organizational conditions for promoting the spiral process upon which knowledge is created are discussed as well Chapter 4 uses Matsushita to illustrate the theoretical arguments presented in the two preceding chapters The case shows that knowl edge creation takes place continuously and at all levels of the organiza tion The example focuses on the product development story of Home Bakery the worlds first fully automatic home breadmaking machine and demonstrates how personal knowledge was converted to organiza tional knowledge through a seemingly neverending iterative process But the case also shows that knowledge creation did not end with the development of Home Bakery In fact it triggered major changes in other parts of the company which started yet another round of itera tions involving the corporation at large Chapter 5 shows that the two traditional styles of management the topdown model and the bottomup model are not all that effective in fostering the dynamic interaction necessary to create organizational knowledge We propose a new management style which we call middleupdown management that is more conducive to creating knowledge organizationally than the two traditional models Under the new model middle managers play the central role in managing the knowledgecreation process taking the initiative to involve managers located up on the organizational ladder as well as frontline em ployees at the bottom of the organization The chapter draws on three minicasesGE 3M and Canonto compare and contrast the three management models It also describes the expected roles of the three key playerstop middle and frontline employeesunder the middleupdown model Introduction to Knowledge in Organizations 19 Chapter 6 discusses the organizational structure most conducive to knowledge creation It argues that neither a formal hierarchy nor a flexible task force alone is the appropriate organizational structure in which knowledge creation can flourish using the Japanese military and the US Marines as examples We propose a new organizational structure that can take best advantage of the efficiency inherent in a hierarchal structure and a flexible task force We call this new struc ture a hyptertext organization and show how certain Japanese com panies have already adopted it using Sharp and Kao as case studies Chapter 7 shows that knowledge creation can be extended on a global scale Two experiences of global knowledge creation are presented one inside a Japanese company Nissan and the other involving a US Japanese alliance Shin Caterpillar Mitsubishi Nissans experience in developing its first global car Primera with its British subsidiary is an example of how intracompany knowledge creation can take place across national boundaries Shin Caterpillar Mitsubishis experience on the other hand shows how knowledge creation not only can cross boundaries but can cut across different companies as well To use our terminology knowledge creation can take place interorganizationally Chapter 8 the culmination of our journey summarizes the major findings of the book and presents two kinds of implications drawn from our study The first is a set of practical managerial implications in tended for the business reader They take the form of our recommenda tions on what companies in the West should do to convert themselves into knowledgecreating companies One of our recommendations for example is to treat every employee as a member of the knowledge crew The second set of implications is conceptual and theoretical in nature Written primarily for the academic reader our discussion here revolves around our observation that organizational knowledge is cre ated by transcending a multitude of dichotomies presented throughout our book In this introductory chapter alone several of these dichoto miessuch as body vs mind tacit vs explicit individual vs organiza tion East vs Westhave already been mentioned With this preview of the following chapters we are now ready to embark on a journey that should provide a new insight into how Japa nese companies engage themselves in a neverending process of contin uous innovation For practitioners who are in a hurry and are not theo retically inclined Chapter 4 may be the most appropriate place to start For practitioners who are theoretically inclined but cannot get excited about Plato or Descartes Chapter 3 will most likely serve as the best starting platform All others should come on board starting with the following chapter on the theory of knowledge Note 1 This section is taken largely from Nonaka 1991 p 100 2 Knowledge and Management I n Chapter 1 we sketched a basic difference in the way Western and Japanese managers approach knowledge creation which is deeply rooted in the intellectual traditions of the two cultures To understand the difference we need to examine fundamental assump tions about what knowledge is and how knowledge comes about The philosophical inquiry of knowledge is known as epistemology Thus we begin our journey in this chapter with a brief look at the con trasting approaches to epistemology in the Western and Japanese in tellectual traditions We encounter a paradox right away While there is a rich epistemo logical tradition in Western philosophy there is almost none to speak of in Japan Yet this is in itself a reflection of the very different ways that the two cultures think about knowledge In Western philosophy there has long been a tradition separating the subject who knows from the object that is known This tradition was given a solid methodologi cal basis by Descartes who posited the Cartesian split between sub ject the knower and object the known mind and body or mind and matter And as we will see below the history of Western philosophy in the past two centuries can be seen as an unsuccessful effort to over come this Cartesian dualism This history is important because the Western philosophical tradi tion has fundamentally shaped the disciplines of economics manage ment and organization theory which in turn have affected managerial thinking about knowledge and innovation Contrasting this Western 20 Knowledge and Management 21 philosophical tradition with the Japanese intellectual tradition where the split between subject and object has not been as deeply rooted goes a long way toward understanding Western and Japanese managerial approaches today This is not to say that we see only an eitheror choice between the Western and Japanese approaches to knowledge creation Indeed our theory is based on the idea that these two per spectives are mutually complementary We maintain that any ade quate theory of knowledge creation must contain elements of both We start this chapter by examining the history of Western episte mology Here again we encounter two opposing yet complementary tra ditions One is rationalism which essentially says that knowledge can be obtained deductively by reasoning The other is empiricism which essentially says that knowledge can be attained inductively from sensory experiences We will follow these two dominant epistemo logical traditions by contrasting Plato with Aristotle and then Des cartes with Locke We will go on to argue that philosophers in the eighteenth and nineteenth centuries such as Kant Hegel and Marx attempted to synthesize the two traditions Then we will briefly exam ine some twentiethcentury attempts to overcome the Cartesian split Finally we will look briefly at the Japanese intellectual tradition in order to highlight differences from the Western philosophical tradition but we will argue that they are mutually complementary What Is Knowledge The history of philosophy since the ancient Greek period can be seen as the process of searching for an answer to the question What is knowledge 1 Despite the fundamental differences between rational ism and empiricism Western philosophers have generally agreed that knowledge is justified true belief a concept that was first introduced by Plato in his Meno Phaedo and Theaetetus2 However the definition of knowledge is far from perfect in terms of logic3 According to this definition our belief in the truth of something does not constitute our true knowledge of it so long as there is a chance however slight that our belief is mistaken Therefore the pursuit of knowledge in Western philosophy is heavily laden with skepticism which has induced numer ous philosophers to search for the method to help them establish the ultimate truth of knowledge beyond all doubt They have aimed to dis cover fundamental knowledge without proof or evidence on which all other knowledge could be grounded As noted above there are two great epistemological traditions in Western philosophy Rationalism argues that true knowledge is not the product of sensory experience but some ideal mental process Ac cording to this view there exists a priori knowledge that does not need to be justified by sensory experience Rather absolute truth is deduced from rational reasoning grounded in axioms Mathematics is a classic 22 The KnowledgeCreating Company example of this kind of reasoning In contrast empiricism claims that there is no a priori knowledge and that the only source of knowledge is sensory experience According to this view everything in the world has an intrinsically objective existence even when one has an illusory perception the very fact that something is perceived is significant Ex perimental science is the classic example of this view Thus the two dominant approaches to epistemology rationalism and empiricism differ sharply with regard to what constitutes the actual source of knowledge4 Another fundamental difference lies in the method by which knowledge is obtained Rationalism argues that knowledge can be attained deductively by appealing to mental con structs such as concepts laws or theories Empiricism on the other hand contends that knowledge is derived inductively from particular sensory experiences Plato vs Aristotle Foundation of Western Epistemology It was Plato who first built up an elaborate structure of thought on knowledge from a rationalistic perspective5 He developed the theory of idea which is a form seen through the pure mental eye and at the same time the ultimate ideal that the human spirit aspires to know Plato argued Would not that man do this most perfectly who approaches each thing so far as possible with the reason alone not introducing sight into his rea soning nor dragging in any of the other senses along with his thinking but who employs pure absolute reason in his attempt to search out the pure absolute essence of things and who removes himself so far as possi ble from eyes and ears and in a word from his whole body because he feels that its companionship disturbs the soul and hinders it from at taining truth and wisdom Is not this the mem Simmias if anyone to attain to the knowledge of reality6 Thus for Plato the physical world is a mere shadow of the perfect world of ideas Human beings aspire toward the eternal unchanging and perfect ideas that cannot be known through sensory perception but only through pure reason Aristotle a student of Plato criticized his mentor He contended that Platos conceptualization of idea as form or an eternal and super sensible object was wrong Idea or more precisely form cannot be iso lated from a physical object nor does it have an existence independent from sensory perception Rather an individual thing consists of its form and physical object or matter and knowledge of forms is always occasioned by sensory perception From an empiricistic perspective he argued as follows Knowledge and Management 23 So out of senseperception comes to be what we call memory and out of frequently repeated memories of the same thing develop experience for a number of memories constitute a single experience From experience againie from the universal now stabilized in its entirety within the soul the one besides the many which is a single identity within them all originate the skill of the craftsman and the knowledge of the man of sci ence skill in the sphere of coming to be and science of being We conclude that these stages of knowledge are neither innate in a deterministic form nor developed from other higher states of knowledge but from sense perception7 Thus he stressed the importance of observation and the clear verifica tion of individual sensory perception8 Descartes vs Locke Continental Rationalism vs British Empiricism The Platonic and Aristotelian views were inherited through intermedi ate philosophers9 by modern epistemologys two mainstreams the Con tinental rationalism and the British empiricism Rene Descartes a Continental rationalist proposed four general rules for rational thinking The first of these was to accept nothing as true which I did not clearly recognize to be so that is to say carefully to avoid precipitation and preju dice in judgments and to accept in them nothing more than what was presented to my mind so clearly and distinctly that I could have no occa sion to doubt it The second was to divide up each of the difficulties which I examined into as many parts as possible and as seemed requisite in order that it might be resolved in the best manner possible The third was to carry on my reflections in due order commencing with objects that were the most simple and easy to understand in order to rise little by little or by degrees to knowledge of the most complex assuming an order even if a fictitious one among those which do not follow a natu ral sequence relatively to one another The last was in all cases to make enumerations so completely and reviews so general that I should be certain of having omitted nothing10 Descartes also devised the method of doubt questioning all beliefs in an attempt to create his own philosophy from scratch His methodologi cal skepticism is reflected in the following question What can I hold as true beyond any doubt He discovered that one could question all beliefs except the existence of the questioner which was expressed by the famous phrase I think therefore I am cogito ergo sum He argued that ultimate truth can be deduced only from the real existence of a thinking self He went a step further to assume that the think ing self is independent of body or matter because while a body or 24 The KnowledgeCreating Company matter does have an extension or existence we can see and touch in space but does not think a mind has no extension but thinks As for his epistemology Descartes argued that honey waxs qualities such as taste scent color and size which are apparent to the senses change if we put it near fire therefore wax itself cannot be sensible Thus true knowledge about external things can be obtained by the mind not by the senses Descartess rationalism was criticized by John Locke the founder of British empiricism In Lockes view things existing in the real world are objective in nature Even if the sensory perception of things is illu sory it is undoubtedly evident that something can be perceived He compared the human mind to a tabula rasa or white paper void of all characters which has no a priori idea With this metaphor he re jected the rationalist argument that the human mind is already fur nished with innate ideas or concepts He argued that only experience can provide the mind with ideas and that there are two kinds of experi ence sensation and reflection By sensation Locke meant the sensory perception which is the great source of most of our ideas and by reflection the perception of the operation of our own mind within us which is the other fountain from which experience fumisheth the un derstanding with ideas 11 Kant Hegel and Marx Attempts at a Synthesis The two streams of rationalism and empiricism were brought together by the eighteenthcentury German philosopher Immanuel Kant He agreed that the basis of knowledge is experience but did not accept the empiricist argument that experience is the sole source of all knowl edge In his words Though all our knowledge begins with experience it does not follow that it all arises out of experience 12 He argued that knowledge arises only when both the logical thinking of rationalism and sensory experience of empiricism work together For Kant the hu man mind is not the passive tabula rasa but active in ordering sensory experiences in time and space and supplying concepts as tools for un derstanding them Russell 1961 p 680 Therefore his position is closer to rationalism than to empiricism However Kant believed that we could only know the phenomenon or our sensory perception of the transcendental object or thing in itself which transcends experi ence For this reason his philosophy is often called transcendental idealism Rejecting the concept of the thing in itself in Kantian philosophy Georg W F Hegel argued that both mind and matter are derived from the Absolute Spirit through a dynamic dialectical process According to Hegel dialectics is the creation of a synthesis by reconciling thesis and antithesis or rejecting what is not rational and retaining what is Knowledge and Management 25 rational For Hegel knowledge begins with sensory perception which becomes more subjective and rational through a dialectic purification of the senses and at last reaches the stage of selfknowledge of the Absolute Spirit Russell 1961 p 704 The selfconsciousness of the Absolute Spirit is the highest form of knowledge In this sense his position is closer to rationalism than to empiricism With this absolute idealism he attempted to overcome the Cartesian dualism between subject and object Karl Marx made another attempt at a synthesis between rationalism and empiricism by integrating Hegels dialectical dynamics and the emerging social sciences of the day He refuted Hegels abstract and idealistic philosophy because it could not explain the dynamic and in teractive relationship between man and his environment13 According to Marx perception is an interaction between the knower subject and the known object In the pursuit of knowledge both subject and object are in a continual and dialectic process of mutual adaptation Object is transformed in the process of becoming known As for subject what the British empiricists conceived as sensation would be better called noticing to imply activity We notice things in the process of acting on them Thus knowledge is obtained by handling things or action and its truth should be demonstrated in practice However Marxs in terest was not in knowledge itself His real task was not to interpret the world but to change it Russell 1961 pp 749750 TwentiethCentury Challenges to the Cartesian Split The Cartesian dualism of subject and object or mind and body followed from the assumption that the essence of a human being lies in the rational thinking self This thinking self seeks knowledge by isolating itself from the rest of the world and other human beings But contem porary challenges to the Cartesian split have emphasized the impor tance of some form of interaction between the self and the outside world in seeking knowledge We will briefly describe the contributions made by Husserl Heidegger Sartre MerleauPonty Wittgenstein James and Dewey Edmund Husserl a German philosopher focused on the relationship between the thinking self and the world He built the foundation of phenomenology which is a philosophical inquiry into human con sciousness of self and other objects He contrasted the physical objectiv ism of modern science since Galileo with the transcendental idealism established by Kant and highlighted the importance of conscious di rect experience He argued that certain knowledge is possible only by describing the interactions between pure consciousness and its ob jects Pure consciousness can be reached through phenomenological 26 The KnowledgeCreating Company reduction a method whereby all factual knowledge and reasoned as sumptions about a phenomenon are set aside so that pure intuition of its essence may be analyzed14 Martin Heidegger a student of Husserl used the phenomenological method to analyze the mode of human being in the world Dasein According to Heidegger we are a being in the world by having to do with something such as producing something or making use of something These practical behaviors or actions must employ theo retical cognition 15 In other words our Dasein is characterized by ac tive relationships with other things in the world For Heidegger there fore Dasein is not a detached spectator like Descartess thinking self but someone who has a close relationship between knowledge and ac tion He thus rejected the Cartesian dualism between the thinking sub ject and the objective world The relationship between knowledge and action was further empha sized by a philosophical and literary movement known as existential ism an inquiry into individual human existence and living experi ence Russell 1989 pp 302304 While most phenomenologists argue that knowledge can be obtained through reflection existentialists stress that if we want to know the world we must act toward an end JeanPaul Sartre a French existentialist stated For human reality to be is to act the act must be defined by an intention Since the intention is a choice of the end and since the world reveals itself across our conduct it is the intentional choice of the end which reveals the world italics in original16 The Cartesian split between mind and body was refuted by Maurice MerleauPonty a French phenomenologist who contended that percep tion is a bodily cognitive action aimed at something and that con sciousness is not a matter of Ί think that but of Ί can 17 It is through body that we can perceive things and understand other people In this sense a body is ambiguous in that it is subject and at the same time object The body subject does not just exist but dwells in the world here and now and contains knowledge of such bodily habits as driving a car a blind persons use of a cane and typing Despite this empiricistic tendency MerleauPonty was a rationalist at heart He reproached empiricists for deducing the datum from what hap pens to be furnished by the sense organs and asserted that empiri cal theories based on such data could never be the equivalent of knowledge 18 While phenomenology has tried to describe and analyze phenomena or how the Kantian things in themselves appear to our conscious ness another twentiethcentury philosophical movement called ana lytical philosophy has focused on the language with which people de scribe phenomena Ludwig Wittgenstein an Austrian philosopher is the most influential figure of this philosophical movement In his ear Knowledge and Management 27 lier days Wittgenstein viewed language as a picture of reality that corresponds exactly to logic and rejected metaphysics as nonsensical with his famous saying What we cannot speak about we must pass over in silence quoted by Ayer 1984 p 112 In his later days how ever he viewed language as a game or interaction played by multi ple persons following rules Moreover knowing is a bodily action with a will to bring about changes in the state of affairs rather than with a detached stance toward the world Thus Wittgenstein argued The grammar of the word knows is evidently closely related to that of can is able to But also closely related to that of understands But there is also this use of the word to know we say Now I knowsimi larly Now I can do it and Now I understand 19 The emphasis on the relationship between knowledge and action can also be found in pragmatism an American philosophical tradition In Pragmatism 1907 William James argued that if an idea works it is true insofar as it makes a difference to life in terms of cash value it is meaningful This pragmatic standpoint was further developed by John Dewey who opposed the spectator theory of knowledge that separates theory and practice knowledge and action He maintained that ideas are worthless except as they pass into actions which rearrange and reconstruct in some way be it little or large the world in which we live Thus pragmatism has attempted to develop an interactive relationship between human beings and the world by means of human action experiment and experience The Japanese Intellectual Tradition In this section we introduce the Japanese intellectual tradition No major Japanese philosophical tradition has become widely known nor has one been described in any systematic way20 And scarcely can a trace of Cartesian rationalism be found in Japanese thinking But there exists some Japanese approach to knowledge that integrates the teachings of Buddhism Confucianism and major Western philo sophical thoughts We will briefly discuss three distinctions of the Jap anese intellectual tradition 1 oneness of humanity and nature 2 oneness of body and mind and 3 oneness of self and other These traits have formed the foundation of the Japanese view toward knowl edge as well as the Japanese approach toward management practices Oneness of Humanity and Nature The most important characteristic of Japanese thinking can be termed a oneness of humanity and nature Examples of this trait include 1 the sympathy to nature depicted in the Manyohshu21 2 the notion of 28 The KnowledgeCreating Company the beauty of change and transition mono no aware described in the famous Tale of Genji22 3 the delicate sentiment conveyed by the Kokinwakashu23 and 4 the stylish iki lifestyle and art in the ur ban culture of eighteenth and nineteenthcentury Yedo old name of Tokyo Yujiro Nakamura 1967 a contemporary Japanese philoso pher dubbed this tradition emotional naturalism According to this tradition the Japanese perception is oriented toward objects in nature that are subtle but at the same time visual and concrete While Japa nese epistemology has nurtured a delicate and sophisticated sensitivity to nature it has prevented the objectification of nature and the devel opment of sound skepticism Nakamura argued that the Japanese had failed to build up a rational thought of clear universality because they did not succeed in the separation and objectification of self and nature24 Basic attitudes associated with the oneness of humanity and na ture in Japanese epistemology can also be found in the structural characteristics of the Japanese language According to Kumakura 1990 a Japanese linguist physical and concrete images of objects are indispensable for Japanese expression an essential epistemological pattern for the Japanese is to think visually and manipulate tangible images In the Japanese language statements made by the speaker articulate certain concrete images These images irrespective of whether they belong to the world of reality or the imagination are all realistic to the speaker because they exist as a reality within the mind of the speaker the moment they are spoken Even when the speaker narrates a past experience the concrete images of the experience are revived within himself or herself Put simply the Japanese language is characterized by visual concepts that are highly contextspecific in terms of both time and space The inherent characteristics of the Japanese language reveal a unique view of time and space The Japanese see time as a continuous flow of a permanently updated present Many Japanese novels do not have any fixed time point in their plots and traditional Japanese poems are free from any fixed time perspective In contrast Westerners have a sequential view of time and grasp the present and forecast the future in a historical retrospection of the past The Japanese view of time is more circular and momentalistic Everything appears and dis appears occasionally and ultimate reality is confined to here and now To the Japanese emphasis is given to leaving their existence to the flow of time and placing a high value on being flexible in accor dance with the flux and transition of the world The Japanese view of space is also free from a fixed perspective as is clearly depicted in traditional Japanese art Although Western drawings view things from a fixed standpoint Japanese drawings do not fix the artists viewpoint In the traditional Japanese woodcut print ukiyoe for example the ren Knowledge and Management 29 dition of the parts is realistic but the distance is not determined from one fixed point Since the perspective is not fixed there is no need to draw shadows The basic attitude of the oneness of humanity and nature found in the Japanese language and the flexible view of time and space clearly illustrates a Japanese tendency to deal with sensitive emotional move ments rather than to abide by any fixed worldview or metaphysics The Japanese have a tendency to stay in their own world of experience without appealing to any abstract or metaphysical theory in order to determine the relationship between human thought and nature Such a basic attitude of the oneness of human and nature is one of the most important characteristics of the Japanese intellectual tradition We do not regard this tradition as underdeveloped but believe it can complement the Cartesian separation of man and nature in which Western philosophical traditions are deeply rooted Oneness of Body and Mind Another important intellectual tradition of Japan is the emphasis on the whole personality as opposed to the Western sense of knowledge which is separated from human philosophical and epistemological de velopment For the Japanese knowledge means wisdom that is ac quired from the perspective of the entire personality This orientation has provided a basis for valuing personal and physical experience over indirect intellectual abstraction This tradition of emphasizing bodily experience has contributed to the development of a methodology in Zen Buddhism dubbed the one ness of body and mind by Eisai one of the founders of Zen Buddhism in medieval Japan It is the ultimate ideal condition that Zen prac titioners seek by means of internal meditation and disciplined life Zen profoundly affected samurai education which sought to develop wis dom through physical training In his famous book Bushido Inazo Ni tobe 1899 a Japanese Christian educator pointed out that in tradi tional samurai education knowledge was acquired when it was integrated into ones personal character Samurai education placed a great emphasis on building up character and attached little impor tance to prudence intelligence and metaphysics Being a man of ac tion was considered more important than mastering philosophy and literature although these subjects constituted a major part of the sam urai s intellectual education25 In the Meiji era 18681912 Kitaro Nishida Japans first theoreti cal philosopher built up a philosophy through the logical articulation of Zen experience For Nishida ultimate reality and existence lay only in the acquisition of fact from pure experience Yuasa 1987 p 65 Nishida interpreted it as experience direct to subject 30 The KnowledgeCreating Company Pure experience is an animated state with maximum freedom in which there is not the least gap between the wills demand and its fulfillment It is in such occasions as a persons scaling a cliff holding on for dear life or a musicians playing a composition he has mastered When our mind forgetting both self and things is lost in a sublime mu sic the entire world becomes a single melodious sound26 As these examples indicate Nishida believed that true directness is realized only within the living reality of experience prior to the sepa ration of subject and object This philosophy is in stark contrast to the Western philosophical tradition of the bodymind separation27 Ac cording to Nishidas philosophy true knowledge cannot be obtained by theoretical thinking but only through ones total mind and body Yu asa 1987 pp 2526 Nishida 1990 p 26 also held that the perfect truth cannot be expressed in words 28 The Western philosophical tra dition is compared with Nishidas philosophy as follows Modern Western philosophy regards the problem of action namely that of the will to be an issue for practical ethics but not theoretical epistemol ogy This is because modern Western philosophy seeks human es sence in rational thinking subject its epistemology excludes the problem of the body This attitude obviously originates in the rationalistic view of the human being and from Descartes mindbody dualism In contrast Nishidas theory of acting intuition grasps the human beingintheworld as originally having the character of action the essential mode is to act on the world not to cognize it Persons are subjects qua action before they are thinking cognizing subjects The former implies the latter So it is clear why Nishida rejects both the rationalistic view of being human rep resented by modern epistemology as well as the mode of thinking that puts the subject and object in opposition to each other italics in original Yuasa 1987 p 68 The belief that a person is a subject of action can be seen in the training style of the Zen temple where a mentor and students live together Although this tradition is also evident in the Western tradi tion of the academy which started in the ancient Greek period the method for pursuing truth is different The dialectic used since Socra tes and Plato is completely different from the practice of Zen Bud dhism While the Zen master uses a questionandanswer conversation to evaluate the students ability to explore paradoxical issues this style of conversation is nonlogical metaphorical and abductive rather than being deductive or inductive In Zen Buddhist training students are required to devote themselves to the world of nonlogic throughout their learning process As we have discussed earlier Western epistemology tends to accord the highest values to abstract theories and hypotheses which have contributed to the development of science The backdrop of this ten dency is the long tradition of valuing precise conceptual knowledge Knowledge and Management 31 and systematic sciences which can be traced back to Descartes In con trast Japanese epistemology tends to value the embodiment of direct personal experience The emphasis of onthespot personal experience in Japanese management is a real manifestation of such an epistemo logical tendency Oneness of Self and Other The two major traditions of the oneness of humanity and nature and the oneness of body and mind have led the Japanese to value the inter action between self and other While most Western views of human relationships are atomistic and mechanistic the Japanese view is col lective and organic It is within this context of an organic worldview that the Japanese emphasize subjective knowledge and intuitive intel ligence While a typical Western individual conceptualizes things from an objective vantage point a Japanese person does so by relating her or himself to other things or persons Therefore the Japanese per spective is tactile and interpersonal The structure of the Japanese language shows the sympathetic unity of self and other people In the Japanese language a message is often communicated through the use of context not solely by the selfcomplete grammatical code The am biguous nature of the Japanese language thus asks one to be equipped with some tacit knowledge of each context29 This ambiguity can be seen from the fact that verbs in the Japanese language do not conjugate with the subject of the sentence In Indo European languages verbs basically conjugate in accordance with the subject because the meaning of a verb differs when used with a differ ent subject A Japanese can easily gain sympathy and agreement with a statement because verbs are always used in the same form in any context The perspective of the Japanese speaker therefore can be shared naturally and smoothly by the group and sometimes by larger society because of this sympathetic nature of the verb This also means however that it is difficult for the Japanese to express their own thoughts and feelings directly For the Japanese you and I are two parts of a whole that is two sides of the same coin To be an independent individual and to respect others is such a difficult concept for the Japanese that they sometimes misunderstand the Western no tion of public While Western societies promote the realization of the individual self as the goal of life the Japanese ideal of life is to exist among others harmoniously as a collective self For the Japa nese to work for others means to work for oneself The natural ten dency for the Japanese is to realize themselves in their relationship to others The above review of the Japanese intellectual tradition suggests that the ultimate reality for the Japanese lies in the delicate transitional process of permanent flux and in visible and concrete matter rather 32 The KnowledgeCreating Company than in an eternal unchanging invisible and abstract entity They see reality typically in the physical interaction with nature and other human beings These basic attitudes are clearly different from the pre vailing Western view that the thinking self seeks the eternal ideal as a detached spectator Although contemporary Western philosophy seems to be getting closer to the Japanese intellectual tradition that has emphasized body and action the view of knowledge in sciences and in Western management practices is still dominated by the Cartesian dualism between subject and object mind and body or mind and mat ter Following the Japanese intellectual tradition however we do not see these distinctions as an eitheror dichotomy but as mutually com plementary Knowledge in Economic and Management Theories The separation of subject mind and self from object body and other lies at the root of Western social sciences including eco nomics management and organization theory As will be illustrated below the centurylong history of Western management thought can be seen as repeated challenges against the scientific view of knowl edge by the humanistic one This history reflects the entire effort of Western philosophy in the past two centuries to overcome the Cartesian split between the knower and known In this section we will critically review major economic and manage ment thinkers of the West in terms of how they have treated knowl edge covering the span from Alfred Marshall to Peter Senge We con tend that none of the thinkers has articulated the dynamic notion that human beings can actively create knowledge to change the world im plicitly suggesting that our view of knowledge and theory of organiza tional knowledge creation provide a fundamentally new economic and management perspective that can overcome the limitations of existing theories bounded by the Cartesian split Knowledge in Economic Theories Most economic theories have treated knowledge either implicitly or explicitly as an important factor in economic phenomena30 However the way knowledge is treated differs depending on the emphasis put on knowledge the type of knowledge to which attention is paid and the ways to acquire and utilize it In this section we will examine the treatment of knowledge in the neoclassical economics of Marshall the Austrian school of economics by Hayek and Schumpeter the economic theory of firm by Penrose and the evolutionary model of technological change by Nelson and Winter31 Knowledge and Management 33 Marshall vs Hayek and Schumpeter Although classical economists treated knowledge as a disturbance category in their model specifications Alfred Marshall a forefather of todays tradition of neoclassical economics was among the first to state explicitly the importance of knowledge in economic affairs According to Marshall 1965 Capital consists in a great part of knowledge and organization Knowledge is our most powerful engine of produc tion organization aids knowledge p 11532 But neoclassical economists were concerned with the utilization of existing knowledge which is represented by price information Under market mechanism every firm has the same fixed knowledge that enables profit maximiza tion rather than having different knowledge created by each firm Thus neoclassical economists neglected a huge amount of both tacit and explicit knowledge held by economic subjects that is not repre sented in the form of price information They were not concerned with the creation of knowledge and did not position the firm as a knowl edge creator The Austrian school of economics represented by Frederich von Hayek and Joseph A Schumpeter paid more attention to knowledge in economic affairs They argued that knowledge is subjective and cannot be treated as fixed In contrast to the neoclassical economists both Hayek and Schumpeter tried to describe the dynamics of economic change by focusing their attention on the unique knowledge held by each economic subject rather than on the common knowledge shared by economic subjects Hayek was a pioneer in drawing attention to the importance of im plicit contextspecific knowledge He classified knowledge into scien tific knowledge ie knowledge of general rules and knowledge of the particular circumstances of time and place arguing that changing cir cumstances continually redefine the relative advantage of knowledge held by different individuals According to Hayek 1945 The peculiar character of the problems of a rational economic order is de termined precisely by the fact that the knowledge of the circumstances of which we must make use never exist in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess The economic prob lem of society is thus not merely a problem of how to allocate given resources it is a problem of the utilization of knowledge not given to anyone in its totality pp 519520 Hayek posited that the function of the price mechanism is to communi cate information and that the market is the process through which individual knowledge is mobilized socially However he failed to grasp the important role of the conversion of such contextspecific knowledge which is tacit in large part into explicit knowledge Despite his orig inal intention to develop a dynamic theory of market as the continuous 34 The KnowledgeCreating Company process of change Hayek ended up with a static interpretation ar guing for simply the efficient utilization of existing knowledge Schumpeter who developed a dynamic theory of economic change was concerned primarily with the tentative and unfolding nature of the capitalist economy According to Schumpeter Capitalism is by nature a form or method of economic change and not only never is but never can be stationary 1952 p 82 and the fundamental im pulse of capitalism development is new combinations 1951 p 66 Schumpeter emphasized the importance of combining explicit knowl edge In fact he pointed out that the emergence of new products pro duction methods markets materials and organizations resulted from new combinations of knowledge However combination is only one mode of knowledge creation as we will see in the next chapter The Firm as a Knowledge Repository Penrose Nelson and Winter While Schumpeter was primarily concerned with the process of change in the economy as a whole Edith P Penrose 1959 focused on the growth of individual firms She viewed the firm as both an adminis trative organization and a collection of productive resources both hu man and material p 31 According to Penrose it is never resources themselves that are the inputs in the production process but only the services that resources can render italics in original p 25 Services are a function of the experience and knowledge accumulated within the firm and thus firm specific In essence the firm is a repository of knowledge Moreover Penrose 1959 considered the planning process as a cen tral determinant of the growth of firms She argued that corporate planners create images or mental models of the firm and its environ ment by appraising the firms strengths and weaknesses in terms of its productive services and the environments opportunities and con straints And these images emerge from the experience and knowledge within the firm Although Penrose pointed out the importance of expe rience and knowledge accumulated within the firm she did not elabo rate on the organizational mechanism or the process through which members of a firm can accumulate knowledge Nelson and Winter 1977 1982 and Winter 1988 also viewed the firm as a repository of knowledge in their evolutionary theory of eco nomic and technological change Echoing the Hayekian view of knowl edge Winter 1988 argued as follows Fundamentally business firms are organizations that know how to do things In fact a particular firm at a particular time is a reposi tory for a quite specific range of productive knowledge a range that often involves idiosyncratic features that distinguish it even from superficially similar firms in the same lines of business p 175 Knowledge and Management 35 According to Nelson and Winter such knowledge is stored as regular and predictable behavioral patterns of business firms or what they called routines and equated with genes Innovation is an inher ently unpredictable mutation of routines 1982 pp 1418 Nelson and Winter also devised a concept of natural trajectory a path of technological evolution that is decided by a technology regime broadly defined as cognitive beliefs about what is feasible or at least worth attempting italics added as well as technological imperatives 1982 pp 258259 Thus they recognized that the essence of technol ogy is knowledge but they did not explicitly link the creation of tech nological knowledge to broader organizational processes Knowledge in Management and Organization Theories One of the reasons why economists have tended to focus on existing knowledge and to neglect the active and subjective creation of new knowledge by economic subjects may be found in the strong orientation toward the scientification of economics Economists tend to accept the Cartesian view of knowledge that separates economic knowledge from the economic subject While we find a similar trend in management theories there is another strong orientation toward humanization This humanistic approach may have come from management re searchers strong interest in management practices in contrast to economists primary concern with the building of abstract models Management literature in the past century can be divided along two developmental lines On the one hand is the scientific line from Tay lor to Simon to contemporary preoccupation with the scientification of strategy On the other hand is the humanistic line from Mayo to Weick to recent attention to organizational culture In fact the centurylong history of management studies can be seen as a series of controversies between the two camps and unsuccessful attempts at a synthesis between them eg Barnard 1938 which seems to be very similar to the development process of Western philosophy discussed earlier Scientific Management vs Human Relations Theory Scientific management was founded by Frederick W Taylor who tried to eliminate the soldiering of workers and to replace rules of thumb with science thereby increasing efficiency in production He prescribed scientific methods and procedures to organize and operate work the most important of which was time and motion study to find the best method for implementing a job The scientific management was an attempt to formalize workers experiences and tacit skills into objective 36 The KnowledgeCreating Company and scientific knowledge However it failed to perceive the experiences and judgments of the workers as a source of new knowledge Conse quently the creation of new work methods became the responsibility of managers only Managers were shouldered with the chore of classi fying tabulating and reducing the knowledge into rules and formulae and applying them to daily work Taylor 1911 p 3633 The rapid diffusion of scientific management gave rise to the human relations theory which highlighted the importance of human factors in management In the 1920s and 1930s a group of management schol ars at Harvard University headed by George Elton Mayo conducted a series of experiments at the Hawthorn plant of Western Electric The socalled Hawthorn experiments showed that social factors such as morale a sense of belonging to a work group and interpersonal skills to understand human especially group behavior improved pro ductivity Roethlisberger and Dickson 193934 Based on this finding Mayo developed a new management theory of human relations in collaboration with F J Roethlisberger and oth ers They criticized the Taylorist view of management for treating the worker as an atomized economic man and argued that human beings are social animals who should be understood and treated in the context of the social group Mayo 1933 contended that managers should de velop social human skills to facilitate interpersonal communication within formal and informal groups of the work organization The human relations theory suggested that human factors played a significant role in raising productivity through the continuous im provement of practical knowledge held by workers on the shop floor It did not develop clearcut theoretical constructs that differentiated it from the Taylorist view As a result it was later absorbed into more scientific theories of human group and social interaction similar to Taylorssuch as group dynamics and operational behaviorismthat tended to treat human beings as stimulusresponse machines with lit tle capability of knowledge creation Barnards Attempt at a Synthesis Chester I Barnard attempted to synthesize the management theories of the two campsmechanistic rationality stressed by scientific man agement and the human factors highlighted by the human relations theoryat the organizational level Barnard who tried to build a sci ence of organization based on his own experience as president of the New Jersey Bell Telephone Company was one of the first to recognize clearly the importance of the organization in business management Although knowledge was not a central issue in Barnards management concept his views of knowledge can be condensed into the following two points First knowledge consists not only of logical linguistic con Knowledge and Management 37 tent but also of behavioral nonlinguistic content35 Second leaders create values beliefs and ideas in order to maintain the soundness of knowledge system within the organization as well as to manage the organization as a cooperative system Barnard emphasized the importance of behavioral knowledge in the management processes which is different from scientific knowl edge According to Barnard leaders use both scientific knowledge ob tained from logical mental processes and behavioral knowledge ex tracted from nonlogical mental processes Barnard 1938 argued that the latter is more important for the following reason The essential aspect of the executive process is the sensing of organization as a whole and the total situation relevant to it It transcends the capabil ity of merely intellectual methods and the techniques of discriminating the factors of the situation The terms pertinent to it are feeling judge ment sense proportion balance and appropriateness It is a mat ter of art rather than science and is aesthetic rather than logical For this reason it is recognized rather than described and is known by its effects rather than by analysis p 235 The essence of the problem of organizing according to Barnard is to transform the actors who strategically pursue mutually conflicting goals into a rational cooperative system And knowledge is essential to securing cooperative rationality because of our limited capability to process information Barnard recognized the importance of the integration of the logical and nonlogical processes of human mental activity of scientific and behavioral knowledge and of the managerial and moral functions of executives But since the creation of knowledge was not his central concern Barnards treatment of the executives role in creating knowl edge was rather general leaving the organizational process of knowl edge creation largely unexplained36 The important questions concern ing how to convert organizational members implicit behavioral knowledge into organizational knowledge and how best to implement this knowledge in acting on the environment remained unanswered by Barnards analysis of the organization Simons InformationProcessing Paradigm The Barnardian attempt to synthesize the scientific and humanistic views of management laid the foundation of organization theory In spired by Barnards insights on the importance of the role of executive managers in the organization Herbert Simon saw the essential func tion of executives as that of decision making Strongly influenced by the development of the computer and cognitive science Simon investi gated the nature of human problem solving and decision making and 38 The KnowledgeCreating Company developed a view of organization as an informationprocessing ma chine The task Simon undertook in Administrative Behavior 1945 and Organizations 1958 coauthored with J March was to build a scien tific theory of problem solving and decision making based on the as sumption that human cognitive capacity is inherently limited In other words he contended that we have only a limited ability to process in formation over a short period of time Using this concept of bounded rationality Simon built a computer model of the human thought pro cess as a form of information processing According to this model hu man beings act as informationprocessing systems that extract mean ing structures from information inputs through sensory organs and store these meaning structures as new knowledge or use them in decid ing courses of action It is knowledge that selects a limited number of or ideally a single set of consequences correlated with each strategy from all possible consequences Simon further argued that the basic features of organizational structure and function are derived from the characteristics of human problemsolving processes and rational choices Thus Simon 1973 concluded that an organization facing a complex environment should design itself in a way that minimizes the need for information distribution among its units in order to reduce the information load on them Simon however overemphasized the logical aspect of the human reasoning and of organizational decisionmaking processes and the limitations of human cognitive capacity He attempted to formalize in formation and knowledge by disregarding the nonlinguistic mental process or behavioral knowledge discussed by Barnard and the tacit knowledge emphasized by Polanyi 196637 For Simon implicit knowledge is nothing more than noise and the logical content of hu man reasoning and decision making is far more important than such things as value and meaning Nor did he pay sufficient attention to the role of the ambiguity and diversity that resides in a problem or to the importance of redundancy of information in the organization Simon argued that effective information processing was possible only when complex problems were simplified and only when organizational struc tures were specialized so that units did not have any unnecessary in teraction with each other This Cartesianlike rationalist view led him to neglect the human potential for creating knowledge both at the indi vidual and organizational levels he failed to see human beings as those who actively discover problems and create knowledge to solve them In addition Simon viewed the organizations relation to its environ ment as passive He argued that the business organization reacts to the environment mainly by adjusting the informationprocessing struc ture What he missed was the proactive aspect of the organizations action on the environment The organization acting on the environ Knowledge and Management 39 ment not only performs effective information processing but also cre ates information and knowledge by itself This process involves not merely a strategy of reducing the informationprocessing burden it also requires the organization to evolve itself by amplifying its own diversity destroying the existing patterns of thought and behavior and creating new patterns Garbage Can Model and the Theory of Sensemaking The Simonian paradigm was challenged by the garbage can model of organization proposed by Cohen March and Olsen 1972 and March and Olsen 1976 who emphasized the irrational and ambigu ous nature of human problem solving and decision making They ar gued that an organization is a collection of choices looking for prob lems issues and feelings seeking decision situations in which they may be aired solutions searching for issues to which they may be the an swer and decision makers looking for work Cohen March and Olsen 1972 p 2 In this model selection opportunities are equated with garbage and problems solutions and decision makers with garbage can This model also characterizes the organization as a system of perception that assigns meaning to what happened retrospectively rather than as a system of planning and deductive decision making In contrast with choice theories dominant in economics and decision science March 1978 argued that preferences may emerge as a consequence of action rather than guiding such action a priori an argument consonant with Karl Weicks 1969 discussion of retrospective rationality The garbage can model noted the role of ambiguity or disorder in the organization but contained no valid insight on the learning that takes place among individuals and organizations The model did not throw light on the importance of active knowledge creation within an organi zation and neglected to integrate organizational behavior with system atic organizational learning If learning takes place only at the indi vidual level as March and Olsen 1976 indicated the learner would produce knowledge only on a limited range of activity and the re sulting knowledge could be relevant only to those who produced it An organizational knowledge base could hardly emerge because of the dif ficulty of establishing links among the knowledge produced by differ ent individuals In addition the model assumed that individuals in volved in organizational learning hit on relevant ideas more or less randomly When they do and when they can manage to establish a case of cause and effect organizational knowledge may increase Such a very limited view of organizational learning cannot provide a basis for describing a systematic organizational learning process Duncan and Weiss 1979 p 90 The view of knowledge underlying the garbage can model can also 40 The KnowledgeCreating Company be found in Weicks theory of organizational sensemaking According to Weick 1993 The basic idea of sensemaking is that reality is an ongoing accomplish ment that emerges from efforts to create order and make retrospective sense of what occurs Sensemaking emphasizes that people try to make things rationally accountable to themselves and others p 635 Weick viewed the organization in terms of cycles of structured behav iors which can be better expressed by the term organizing Weick 1969 1979 He argued that shared information and meaning become structured in organizations as well as in behaviors It is through the development of shared meaning and understanding that the cycles of structured behaviors themselves become sensible and meaningful Or ganized actions occur in the face of various interpretations and dissen sions around one dimension of meaning as long as there is consensus around another Fiol forthcoming Reaching convergence among members characterizes the act of organizing Weick 1969 and enables the organization to interpret the convergence as a system Daft and Weick 1984 Weick 1969 also emphasized the importance of the en actment of organizations on their environment From our perspective however Weicks view is still passive and lacks a proactive view of organization that includes a notion of creative chaos that is critical to the process of organizational knowledge creation Science of Business Strategy While the Simonian scientific view of organization as information processing machine was challenged by the humanistic view that sees organization as the process of sensemaking and nonrational decision making another debate between the scientific and humanistic views of management has taken place between theories of strategic manage ment and organizational culture The scientification of business strat egy started from the concept of the experience curve effect that was suggested by the Boston Consulting Group BCG In the 1960s man agement scholars and consultants argued that business strategy should not be concerned merely with production cost but with total cost38 To cut total cost quickly they argued that a firm should produce as much as possible and increase market share BCG refined this idea into a strategic planning technique called Product Portfolio Manage ment PPM a system in which the flow of funds for a product or a business is determined by a combination of market growth rate and relative market share39 Another technique called Profit Impact of Marketing Strategy PIMS was created in 1960 by a project team at General Electric GE to find better methods of explaining and forecasting business results Knowledge and Management 41 The PIMS model Buzzell and Gale 1987 was based on factors that had contributed to higher return on investment ROI rates in many of GEs markets or businesses Porter 1980 developed a framework for understanding how firms create and sustain competitive advantage He argued that a firm had to make two choices with regard to competitive strategy 1 industry attractiveness and 2 competitive positioning within an industry To analyze the attractiveness of an industry Porter devised the famous fiveforces model which provided an understanding of the structure of an industry and how it is changing by examining five competitive forces entry barriers bargaining power of buyers bargaining power of suppliers threat of substitute products or services and rivalry among existing competitors Porter 1985 proposed another framework called the value chain model to analyze the sources of competitive advan tage The value chain is a systematic theory of examining all the activ ities a firm performs and how they are linked with each other The techniques and frameworks developed in the field of strategy implicitly assumed the importance of strategic knowledge but it is un realistic to expect the notion of knowledge creation to come up in this field The major limitations of the view of knowledge in the science of strategy can be summarized by the following three points First the science of business strategy is not able to deal with questions of value and belief and has precluded the possibility of the creation of knowl edge or vision from its theoretical domain The preoccupation with ex plicit information makes researchers ignore the creation of a new vi sion or value system40 Second the science of strategy presupposes the topdown style of management in which only top management is as sumed to think or manipulate existing explicit knowledge A huge amount of tacit knowledge held by all other organizational members tends to be unutilized Third prevailing strategic management con cepts do not pay due attention to the role of knowledge as a source of competitiveness As society is becoming more knowledge based the lack of attention to knowledge weakens the otherwise strong appeal of this approach In sum the view of knowledge in the science of strategy is similar to that of Taylorism Emphasis is put on logical and analytical ie deductive or inductive thinking as well as on the use of existing ex plicit knowledge at the top of the organization Unquantifiable human factors such as values meanings and experiences are excluded from formal business planning and deployment of strategic resources41 As we will see below this lack of attention to the human aspect of knowl edge was supplemented by studies on organizational culture simi larly to the way that the human relations theory supplemented scien tific management 42 The KnowledgeCreating Company Studies of Organizational Culture Many Western firms preoccupied with the scientific quantitative ap proach to strategy making and inflicted with the analysis paralysis syndrome began to lose their dynamism and competitiveness in the early 1980s In response to the demand for an alternative to the scien tific approach Peters and Waterman 1982 proposed a humanistic approach to management They observed that excellent companies had made a variety of efforts to promote the sharing of values among employees Each excellent company has created its own unique corpo rate culture which determines how a company thinks and behaves Schein 1985 argued There has to have been enough shared experi ence to have led to a shared view and this shared view has to have worked for long enough to have come to be taken for granted and to have dropped out of awareness Culture in this sense is a learned product of group experience italics added p 742 He defined culture as a pattern of basic assumptionsinvented discovered or developed by a given group as it learns to cope with its problems of external adaptation and internal integrationthat has worked well enough to be considered valid and therefore to be taught to new members as the correct way to perceive think and feel in relation to those problems p 943 Pfeffer 1981 on the other hand stressed the importance of beliefs He considered organizations as systems of shared meanings and beliefs in which a critical administrative activity involves the con struction and maintenance of belief systems which assure continued compliance commitment and positive effect on the part of partici pants p 1 Thus organizational culture can be seen as consisting of beliefs and knowledge shared by members of the organization44 Studies of organizational culture have been able to shed light on the organization as an epistemological system In addition they have un derscored the importance of such human factors as values meanings commitments symbols and beliefs and paved the way for more elabo rate research on the tacit aspect of knowledge Furthermore they have recognized that the organization as a shared meaning system can learn change itself and evolve over time through the social interac tion among its members and between itself and the environment While the studies of organizational culture have recognized the im portance of knowledge they have not given it its due place From our point of view there seem to be three common shortcomings with this line of research First most of these studies have not paid enough at tention to the potential and creativity of human beings Second the human being in most cases is seen as an information processor not as an information creator And third the organization is portrayed as rather passive in its relation to the environment neglecting its poten tial to change and to create Knowledge and Management 43 Toward a New Synthesis Barnard attempted to synthesize scientific and humanistic views of knowledge Two camps subsequently pursued divergent paths with the scientific approach further advanced by the informationprocessing paradigm and the science of strategy and the humanistic approach by the garbage can model the theory of organizational sensemaking and studies of organizational culture But since the mid1980s a new at tempt at synthesizing the scientific and humanistic approaches has ap peared along three strands of literature They consist of 1 conjectures about the knowledge society 2 theories of organizational learning and 3 resourcebased corecompetence or corecapability approaches to strategic management Drucker on the Knowledge Society Of course society has been subject to continual change and evolution over time The manufacturingbased industrial society of the postwar period has evolved more and more into a service society45 and more recently into the socalled information society According to the lead ing management thinkers the manufacturing service and infor mation sectors will be based on knowledge in the coming age and business organizations will evolve into knowledge creators in many ways Peter Drucker is one of the earliest thinkers who noticed a sign of this great transformation He coined the terms knowledge work or knowledge worker around 1960 Drucker 1993 p 5 According to his most recent book PostCapitalist Society 1993 we are entering the knowledge society in which the basic economic resource is no longer capital or natural resources or labor but is and will be knowledge and where knowledge workers will play a central role p 7 Drucker 1993 suggested that one of most important challenges for every organization in the knowledge society is to build systematic practices for managing a selftransformation The organization has to be prepared to abandon knowledge that has become obsolete and learn to create new things through 1 continuing improvement of every ac tivity 2 development of new applications from its own successes and 3 continuous innovation as an organized process Drucker 1991 also points out that an organization has to raise productivity of knowledge and service workers in order to meet the challenge The single greatest challenge facing managers in the developed countries of the world is to raise the productivity of knowledge and service workers This challenge which will dominate the management agenda for the next several decades will ultimately determine the competitive performance of 44 The KnowledgeCreating Company companies Even more important it will determine the very fabric of soci ety and the quality of life in every industrialized nation p 69 Drucker 1993 seems to have recognized the importance of tacit knowledge when he argues that a skill itechne in Greek could not be explained in words whether spoken or written It could only be demon strated and therefore the only way to learn a techne was through apprenticeship and experience p 24 At the same time Drucker be lieves that such methodologies as scientific and quantitative methods can convert ad hoc experience into system anecdotes into infor mation and skill into something that can be taught and learned p 42 He does not argue for the need of human interaction in the knowl edgeconversion process or of knowledge sharing among a group of persons He may thus be closer to the scientific camp than to the humanistic camp at heart Organizational Learning The need for organizations to change continuously which was empha sized by Drucker has long been the central concern of organizational learning theorists46 Just as with individuals organizations must al ways confront novel aspects of their circumstances Cohen and Sproull 1991 The need is growing in this era of turbulent economy and accel erated technological change It is widely agreed that learning consists of two kinds of activity The first kind of learning is obtaining know how in order to solve specific problems based upon existing premises The second kind of learning is establishing new premises ie para digms schemata mental models or perspectives to override the ex isting ones These two kinds of learning have been referred to as Learning I and Learning II Bateson 1973 or singleloop learn ing and doubleloop learning Argyris and Schon 1978 From our viewpoint the creation of knowledge certainly involves interaction be tween these two kinds of learning which forms a kind of dynamic spiral Senge 1990 recognized that many organizations suffer from learn ing disabilities To cure the diseases and enhance the organizations capacity to learn he proposed the learning organization as a practi cal model He argued that the learning organization has the capacity for both generative learning ie active and adaptive learning ie passive as the sustainable sources of competitive advantage Ac cording to Senge managers must do the following in order to build a learning organization 1 adopt systems thinking 2 encourage personal mastery of their own lives 3 bring prevailing mental models to the surface and challenge them 4 build a shared vision and 5 facilitate team learning Knowledge and Management 45 Among these five disciplines Senge 1990 emphasized the impor tance of systems thinking as the discipline that integrates the disci plines fusing them into a coherent body of theory and practice p 12 He also suggested that systems thinking is a philosophical alternative to the pervasive reductionism in Western culturethe pursuit of sim ple answers to complex issues p 185 He argues At the heart of a learning organization is a shift of mindfrom seeing ourselves as separate from the world to connected to the world from seeing problems as caused by someone or something out there to seeing how our own actions create the problems we experience A learning orga nization is a place where people are continually discovering how they cre ate their reality And how they can change it pp 1213 Senge may not have intended to build a new synthesis between scien tific and humanistic approaches to management but he seems to be trying to overcome the Cartesian dualism He says that Systems thinking may hold a key to integrating reason and intuition p 168 and that systems thinking fuses the five disciplines into a coherent body of theory and practice p 12 Judging from the entire argument of his book more specifically from such terms as mental models a shared vision team learning and the above quotation his practical model of learning organization has some affinity with our theory of knowledge creation which we will present in the next chapter How ever he rarely uses the word knowledge and does not present any ideas on how knowledge can be created Despite the affinity with our own thinking there are some critical limitations often found in the literature on organizational learning First as seen in Senge 1990 organizational learning theories basi cally lack the view that knowledge development constitutes learning Weick 1991 p 122 Most of them are trapped in a behavioral concept of stimulusresponse Second most of them still use the metaphor of individual learning Weick 1991 Dodgson 1993 In the accumulation of over 20 years of studies they have not developed a comprehensive view on what constitutes organizational learning Third there is widespread agreement that organizational learning is an adaptive change process that is influenced by past experience focused on devel oping or modifying routines and supported by organizational mem ory47 As a result the theories fail to conceive an idea of knowledge creation48 The fourth limitation is related to the concept of double loop learning or unlearning Hedberg 1981 as well as to a strong orientation toward organizational development which we will discuss below Following the development of Argyris and Schons 1978 theory of organizational learning it has been widely assumed implicitly or ex plicitly that doubleloop learningthe questioning and rebuilding of 46 The KnowledgeCreating Company existing perspectives interpretation frameworks or decision prem isescan be very difficult for organizations to implement by them selves In order to overcome this difficulty the learning theorists argue that some kind of artificial intervention such as the use of an organi zational development program is required The limitation of this argu ment is that it assumes that someone inside or outside an organization objectively knows the right time and method for putting doubleloop learning into practice A Cartesianlike view of organization lies be hind this assumption Seen from the vantage point of organizational knowledge creation doubleloop learning is not a special difficult task but a daily activity for the organization Organizations continuously create new knowledge by reconstructing existing perspectives frame works or premises on a daily basis In other words the capacity for doubleloop learning is built into the knowledgecreating organization without the unrealistic assumption of the existence of a right answer A New ResourceBased Approach to Strategy A new paradigm of corporate strategy which we call the resource based approach has emerged to help companies compete more effec tively in the everchanging and globalizing environment of the 1990s In contrast to the structural approach which we discussed under the science of strategy the new approach sees competencies capabilities skills or strategic assets as the source of sustainable competitive ad vantage for the firm The literature on the resourcebased approach to competitive strategy has been increasing in recent years49 with Praha lad and Hamels 1990 article on core competence and Stalk Evans and Shulmans 1992 article on capabilitiesbased competition repre senting the field Conceptually the new approach is rooted in Penroses 1959 theory of the firm which we discussed earlier Proponents of the resourcebased approach contend that the competi tive environment of the 1990s has changed dramatically making the structural approach represented by Porters competitiveforces frame work obsolete Stalk Evans and Shulman 1992 observed as follows When the economy was relatively static strategy could afford to be static In a world characterized by durable products stable consumer needs well defined national and regional markets and clearly identified competitors competition was a war of position in which companies occupied competi tive space like squares on a chessboard Competition is now a war of movement in which success depends on anticipation of market trends and quick response to changing customer needs Successful competitors move quickly in and out of products mar kets and sometimes even entire businessesa process more akin to an interactive video game than to chess In such an environment the essence of strategy is not the structure of a companys products and markets but the dynamics of its behavior italics in original p 62 Knowledge and Management 47 The dynamic nature of strategy was also emphasized by Teece Pisano and Shuen 1991 who developed the concept of dynamic capabilities or the ability of an organization to learn adapt change and renew over time which involves search problem finding and problem solv ing at the organizational level p 20 Prahalad and Hamel 1990 provided a similar but less dynamic definition of core competence the collective learning in the organization especially how to coordinate diverse production skills and integrate multiple streams of technolo gies p 82 As the above definitions show the distinction between core compe tence and capabilities has not been clear Both concepts emphasize be havioral aspects of strategy namely how a company chooses to com pete rather than where it chooses to compete But whereas Prahalad and Hamel 1990 focused on corporatewide technologies and produc tion skills that underlie a companys myriad product lines in defining core competence Stalk Evans and Shulman 1992 took a broader view of the skill base and focused on business processes which encom pass the entire value chain in defining capabilities Prahalad and Hamel 1990 referred to the following examples to illustrate the importance of corporatewide technologies and production skills in gaining competitive advantage In NEC digital technologies especially VLSI and systems integration skills are fundamental In the core competence underlying them dispa rate businesses become coherent It is Hondas core competence in engines and power trains that gives it a distinctive advantage in car motorcycle lawn mower and generator businesses Canons core competencies in op tics imaging and microprocessor controls have enabled it to enter even dominate markets as seemingly diverse as copiers laser printers cam eras and image scanners p 83 According to Stalk Evans and Shulman 1992 however it is broader skills that can transform a companys key business processes into stra tegic capabilities thereby leading to competitive success Taking Honda as an example they point out that the innovative designs of its products or the way they were manufactured are not the only factors underlying Hondas success They believe that the companys ability to train and support its dealer network with operating procedures and policies for merchandising selling floor planning and service manage mentits expertise in the dealer management processis equally as important This expertise which was first developed for its motorcycle business has since been replicated in lawn mowers outboard motors and automobiles Despite this distinction there are a number of similarities between Prahalad and Hamel and Stalk Evans and Shulman First both groups of authors make extensive use of Japanese companies as case studies of exemplary behavior as shown above Second they both ob 48 The KnowledgeCreating Company serve that larger companies today are suffering from the tyranny of the strategic business unit SBU and need to overcome it by devel oping corporatewide or organizational skills in moving competencies or capabilities from one business unit to another Third they both believe that the process of identifying and building competencies or capabili ties involves a topdown process with the CEO and top management playing the key role And finally they both contend that competitive advantage should be found in resources and skills inside the com pany as opposed to the market environment outside the company as in the structural approach At first glance these characteristics may give the impression that our theory of organizational knowledge creation resembles the resourcebased view of strategy Indeed both are concerned with 1 how innovation takes place 2 how Japanese companies have gained competitive advantage 3 organizational skills rather than individual skills 4 the role of top management as a key player and 5 what takes place inside the company But there are several fundamental dif ferences between our theory and the resourcebased approach to strategy First while we are explicitly concerned with knowledge Prahalad and Hamel and Stalk Evans and Shulman treat knowledge only im plicitly Although several authors have recently incorporated the no tion of knowledge into the resourcebased approach50 the focus is still blurred because of the lack of agreedupon and welldefined definitions of terms According to Teece Pisano and Shuen 1991 There re mains a substantial level of ambiguity surrounding such terms as re sources capabilities skills and the conceptual framework is over determined in that there are too many competing explanations for the phenomena identified pp 1718 Second although Prahalad and Hamel and Stalk Evans and Shul man make extensive use of Japanese case examples these examples do not shed much light on how the companies actually went about build ing core competence or capabilities In contrast our primary research interest is in how Japanese companies go about creating knowledge organizationally We will discuss the knowledgecreation process in the next chapter and then identify the management process and the orga nizational structure most conducive to the process in later chapters Our indepth field research of selected Japanese companies provides a unique inside look at how Japanese companies actually go about the knowledgecreation process Third regarding middle managers Stalk Evans and Shulman 1992 argue as follows Because capabilities are crossfunctional the change process associated with building capabilities cant be left to middle managers It requires the handson guidance of the CEO and the active involvement of top line managers p 65 Prahalad and Hamel 1990 also assign the key role of identifying developing and Knowledge and Management 49 managing competencies or capabilities to top management the respon sibilities of middle managers and frontline workers are not made clear in their approach In contrast middle managers play a key role in our theory acting as knowledge engineers within the company They function as facilitators of knowledge creation involving top manage ment and frontline workers in a management process we call middle updown management more on this topic in Chapter 5 And finally the resourcebased approach has not yet reached the stage of being able to build a comprehensive theoretical framework Our intent in this book is to build a new theory something Porter was able to do in the field of strategy We will progress a step at a time identifying elements of knowledge creation building an interactive model and eventually coming up with a dynamic model that incorpo rates three different dimensionsepistemological ontological and temporal What is missing in the resourcebased approach is a compre hensive framework that shows how various parts within the organiza tion interact with each other over time to create something new and unique Need for the Theory of Organizational Knowledge Creation In this chapter we have critically reviewed the major economic man agement and organization theories We have found a paradox in that most of these theories scarcely mention knowledge itself while they supposedly pursue scientific objective knowledge under the strong in fluence of the Western epistemological tradition Even though many of the new management theories since the mid1980s have pointed to the importance of knowledge to society and organizations in the coming era there are very few studies on how knowledge is created within and between business organizations At the core of concern of these theo ries is the acquisition accumulation and utilization of existing knowl edge they lack the perspective of creating new knowledge This may be due to the fact that they have not followed modern and contempo rary philosophical discussions on how the Cartesian dualism between subject and object or body and mind can be transcended The subjec tive bodily and tacit aspects of knowledge are still largely neglected Recent studies on product development Davis 1986 von Hippel 1994 have begun to shed light on the tacitness of knowledge but their pri mary research interest is still focused on the transfer or articulation of tacit knowledge for information sharing particularly in the product development process As a result the creation of explicit knowledge from tacit knowledge is still beyond their reach Organizations deal with uncertain environments not merely through passive adaptation but through active interaction Organizations can transform themselves Yet many existing views of organization are 50 The KnowledgeCreating Company passive and static The organization that wishes to cope dynamically with the changing environment needs to be one that creates informa tion and knowledge not merely processes them efficiently Further more the organizational members must not be passive but must rather be active agents of innovation As we will see in the next chap ter our view of the organization is one in which the organization re creates itself by destroying the existing knowledge system and then innovating new ways of thinking and doing things Simon 1986 once criticized Barnard for being too preoccupied with strategic factors and thus failing to provide a general treatment of the design process He continued A major target for research in organizations today is to understand how organizations acquire new products new methods of manufacture and marketing and new organizational forms This is the unfinished business that Chester Barnard has left for us p 16 Understanding how organizations create new products new methods and new organizational forms is important A more fundamental need is to understand how organizations create new knowledge that makes such creations possible This is the unfinished business that Herbert Simon has left for us In the next chapter we will embark upon this challenging task Notes 1 For the history of Western epistemology see Russell 1961 1989 Moser and Nat 1987 and Jordan 1987 for a review of contemporary epistemology see Ayer 1984 and Dancy 1985 2 In traditional epistemological accounts knowledge must satisfy the fol lowing conditions In order for individual A to have knowledge of something that is a proposition hereafter P the following are necessary and sufficient conditions of As knowledge of P a P is true the truth condition b A must believe that P is true the belief condition and c As belief that P is true must be justified the justification condition According to the first truth condition an individuals knowledge of something does not exist unless its proposition is true Therefore a statement like I know P but P is not true is simply selfcontradictory A true proposition de scribes reality which is true in the past the present and the future The belief condition requires not only that a statement must be true but also that we must believe that the statement is true While the truth condition is an objective requirement the belief condition is a subjective requirement Therefore when we claim the knowledge of P we must assume a certain atti tude toward P Assuming an attitude toward P means that we believe in P Nevertheless believing P is not a defining characteristic of Ps being true It is possible to say that I believe in P but P is not true yet the proposition I Knowledge and Management 51 know P is true but I do not believe P is true is a selfcontradiction In short knowledge contains belief but belief does not contain knowledge The justification condition calls for evidence for proving the truthfulness of knowledge Belief which reveals an attitude toward P does not justify P itself it needs evidence of truth Belief formed without valid evidence does not consti tute knowledge even though it could happen to be true in some circumstances 3 The famous Gettier counterexamples provide a good case in point Suppose one holds a belief grounded in valid assumptions Despite the fact that the belief could be wrong in reality it could give birth to another be lief that is true Based upon this observation Gettier noted that a wrong belief that satisfies the above three conditions cannot produce knowledge This is an important criticism of the imperfect nature of the mainstream conception of knowledge 4 Western epistemology has been loaded with contending arguments about three major problems 1 the nature of knowledge 2 the origin of knowledge and 3 the reliability of knowledge 5 His epistemology was partly derived from previous philosophers partic ularly from Parmenidesthe belief that reality is eternal and therefore all changes must be illusory from Heraclitusthe doctrine that there is nothing permanent in the sensible world and from his mentor Socratesthe theory of idea or form 6 Plato Phaedo 65e in Plato I trans Η N Fowler Cambridge Mass Harvard University Press The Loeb Classical Library 1953 p 229 7 Aristotle Analytica Posteriora II 19 100a from The Oxford Transla tion o f Aristotle Vol 1 trans G R G Mure ed W D Ross Oxford Oxford University Press 1928 quoted by Moser and Nat 1987 p 59 and by Jordan 1987 p 136 8 It should be noted that while Aristotles argument is empiricistic he has been considered the authority on logic or rational reasoning Moser and Nat 1987 considered Aristotle a rationalist emphasizing that knowledge about the forms and their relationships can be acquired only by rational reasoning p 17 9 Among others St Augustine was a rationalist influenced by Plato and held that the sensible world is inferior to the eternal Russell 1961 p 356 Disliking Platonism in St Augustine St Thomas Aquinas became an ardent follower of Aristotle ie an empiricist ibid p 445 Taking the middle course between Plato and Aristotle William of Occam a Franciscan philosopher ar gued that abstract knowledge presupposes perception or intuitive knowledge which is caused by individual things ibid p 464 10 Rene Descartes Discourse on the M ethods trans E S Haldane and G R T Ross in The Philosophical Works o f Descartes Vol 1 Cambridge Cambridge University Press 1911 p 92 11 John Locke A n E ssay Concerning H um an Understanding Book II i 3 4 quoted by Moser and Nat 1987 p 133 12 Immanuel Kant Critique o f Pure Reason trans Norman Kemp Smith New York St Martins Press 1965 p 41 13 Marx was strongly influenced by dialectical materialism of Ludwig A Feuerbach a critical student of Hegel who contended that the physical and material life of human beings determines human consciousness and thought thus denying Hegels idea that the mind is the source and reality of the world 52 The KnowledgeCreating Company 14 For Husserls phenomenological method see Part I of his Ideas General Introduction to Pure Phenomenology trans W R Royce Gibson London Allen and Unwin 1931 15 Martin Heidegger Being and Time trans John Macquarrie and Edward Robinson Oxford Basil Blackwell 1962 pp 83 99 16 JeanPaul Sartre Being and Nothingness trans Η E Barnes New York Philosophical Library 1956 p lxvi 17 Maurice MerleauPonty Phenomenology o f Perception trans Colin Smith London Routledge and Kegan Paul 1962 p 137 18 Ibid pp 2122 19 Ludwig Wittgenstein The Blue and Brown Books Oxford Basil Black well 1958 p 150 20 Chohmin Nakae a liberal thinker who led the freedom and peoples right movement in the Meiji era 18681912 once lamented Japan has never created any philosophy since its foundation quoted in Nakamura 1967 p 174 21 The earliest extant collection of poetry compiled ca AD 770 22 One of the most distinguished Japanese novels written by Lady Mura saki in ca AD 1010 23 The first official collection of Japanese poetry compiled by the order of Emperor Daigo in ca AD 905 24 Nakamuras criticism against the Japanese intellectual tradition is based on his study of modern French philosophy 25 Thus Nitobe 1899 lamented Our lack of abstruse philosophywhile some of our young men have already gained international reputation in scien tific researches no one has achieved anything in philosophical linesis trace able to the neglect of metaphysical training under Bushido regimen of educa tion p 176 26 Quoted by Yuasa 1987 p 65 While Nishida borrowed the term pure experience from psychological philosophies of Wilhelm Wundt and William James he criticized their philosophical expression of pure experience and reconceptualized it by shifting the basis of metaphysics from speculation to factuality In the introduction of the English language edition 1990 of Ni shidas A n Inquiry into the Good Masao Abe summarized Nishidas criticism as follows they Wundt and James grasp pure experience not from within but from without thus missing the true reality of pure experience To see it from without means to analyze the concrete dynamic whole of pure experience into abstract psychological elements like perception feeling and representa tion and then to reconstruct them In this explanation living individual expe rience is generalized true pure experience is direct to the subject But in the psychological philosophies of Wundt and James the observed consciousness and the observing consciousness stand dualistically opposed p xv 27 Varela Thompson and Rosch 1991 argued From Descartes on the guiding question in Western philosophy has been whether body and mind are one or two distinct substances properties levels of description etc and what the ontological relation between them is Descartess conclusion that he was a thinking thing was the product of his question and that question was a product of specific practicesthose of disembodied unmindful reflection p 28 Knowledge and Management 53 28 Nishida 1990 also asserted that scientific truth cannot be considered perfect truth p26 It is however the Western orientation toward rigorous questioning and doubting that gave birth to modern science 29 Pascale and Athos 1981 observed as follows In the Japanese lan guage verbs appear at the ends of sentences so the listener doesnt know where the speaker is headed until he gets there The speaker can change his verbs in response to the listeners expression So pronounced in fact is their desire for concurrence that the Japanese sometimes avoid the definitiveness of verbs altogether The listeners receptivity or hesitancy in responding to a few key nouns sets the stage for a choreography of consensus The Japanese em ploy open discussions with generalities that leave room for movement and com promise They have nineteen ways of saying nosuggestive of the extreme finesse with which their language navigates the shoals of conflict avoiding it if possible p 98 30 According to Penrose 1959 Economists have of course always recog nized the dominant role that increasing knowledge plays in economic process but have for the most part found the whole subject of knowledge too slippery to handle p 77 Finally however some economists started building the eco nomics of knowledge in the form of growth theory Examples include Romer 1986 1990a 1990b of the University of California Berkeley 31 For a review of economic thought from the viewpoint of knowledge see Fransman 1993 Our argument concerning knowledge in economic theories draws partly on this paper 32 Marshall was aware of the contradiction between the increasing frag mentation of knowledge implied by the process of the division of labor and the need for the integration of this knowledge He thus identified a number of different forms of organization that aid the development and use of knowledge 33 It should be noted that Taylor himself had a humanitarian interest in workers fair wages and productive development In practice however tech niques he and his followers developed to increase labor productivity were often misused with dehumanizing effects on workers 34 This kind of phenomenon which arises from persons being noticed has become known as the Hawthorn effect 35 Barnard 1938 divided mental processes into logical and nonlogical pro cesses Logical processes refer to the conscious thinking or reasoning process that can be expressed in terms of words and signals Nonlogical processes in volve inexpressible mental processes such as judgments decisions or actions in practical affairs These processes are unconscious and behavioral knowl edge stems from them He argued that the words and signals even though they are correct constitute only the top layer of the huge system of human knowledge given that human rationality is incomplete itself p 303 These nonlogical processes are essential even in the most rigorous scientific work pp 303306 36 According to Levitt and March 1990 Barnard did not attempt to define exactly what these nonlogical processes consist of but one thing he had in mind was the coding of experience and knowledge Barnard described the advantages and limitations of nonlogical processes and some circumstances in which such nonlogical good judgment or good sense had an advantage over rationality p 14 54 The KnowledgeCreating Company 37 For this very reason Barnard found Simons decisionmaking process too mathematical and called attention to the importance of nonlogical mental processes 38 From its analysis of thousands of products BCG found that total cost depended on empirical observations regarding the marginal reduction of costs 39 The PPM technique was later expanded to include organization and hu man resource aspects jn the deployment of resources As such strategic man agement came to include a wide variety of areas including the functions goals strategies structure and control systems of the business organization 40 As a counter argument Ohmae 1982 stressed the importance of insight in business strategy He argued that insight contains creativity and from time to time involves the breakdown of the status quo Therefore the plans that stem from insight cannot be analyzed in quantitative terms In a similar vein Tregoe et al 1989 highlighted the role of vision in the establishment of longterm plans which is usually missing from theories preoccupied with the immediateness of activity 41 Mintzberg 1994 criticized three assumptions of strategic planning as fundamental fallacies 1 formalization that assumes systems can make strat egy better than human beings 2 detachment that assumes thought strategy ostensible thinkers and strategists should be detached from action operations real doers and the objects of their strategies and 3 predetermination that assumes the process of strategy making and strategies themselves can be pre determined because context of strategy making is predictable 42 Traditionally anthropologists and sociologists view culture as webs of meaning organized in terms of symbols and other ways of representation They see human beings as makers of meaning creating their world through symbols 43 According to Schein 1985 moreover a key part of every culture is a set of assumptions about what is real how one determines or discovers what is real and how members of a group take an action how they determine what is relevant information and when they have enough of it to determine whether to act and what to do p 89 44 From our viewpoint culture is important to organizational knowledge creation A good part of our knowledge has been learned as culture from older generations 45 Quinn 1992 observed that the US economy today is fundamentally restructured by service industries and up to 95 percent of a manufacturing firms employees are engaged in service activities He stressed the importance of focusing strategy on core intellectual and service competencies and lev eraging knowledge and servicebased strategies through strategic outsourc ing He also proposed organizational strategies that yield knowledgebased ser vices and illustrated the way to reconstruct manufacturingservice interfaces This new management paradigm was summarized under the concept of an in telligent enterprise that manages professional innovative and massservice intellect to achieve high service productivity 46 For a detailed review see Dodgson 1993 47 Literature reviews on organizational learning revealed that the terms adaptation and learning are sometimes used interchangeably Levitt and March 1988 Huber 1991 48 Duncan and Weiss 1979 Daft and Weick 1984 Brown and Duguid Knowledge and Management 55 1991 and Fiol forthcoming are among the few exceptions on this point They study organizational learning from the viewpoint of organizational inter pretation or collective sensemaking and define knowledge development as the outcome of learning 49 For example Itami 1987 pointed to the importance of information based resources or invisible assets such as customer trust brand images and management skills Aaker 1989 distinguished between an asset and a skillan asset is something your firm possesses such as a brand name or retail location that is superior to the competition and a skill is something that your firm does better than competitors such as advertising or efficient manufacturing italics added p 91 Dierickx and Cool 1990 called stocks such as technological expertise and brand loyalty strategic assets which are accumulated over time 50 For example LeonardBarton 1992 defined a core capability as the knowledge set that distinguishes and provides a competitive advantage p 113 and argued that there are four dimensions to a knowledge set 1 em ployee knowledge and skills 2 technical systems 3 managerial systems and 4 values and norms Spender 1993 classified tacit knowledge into three categories conscious automatic and communal each of which has different strategic implications 3 Theory of Organizational Knowledge Creation I n the previous chapter we saw that the distinctive approach of Western philosophy to knowledge has profoundly shaped the way organizational theorists treat knowledge The Cartesian split be tween subject and object the knower and the known has given birth to a view of the organization as a mechanism for information pro cessing According to this view an organization processes information from the external environment in order to adapt to new circumstances Although this view has proven to be effective in explaining how orga nizations function it has a fundamental limitation From our perspec tive it does not really explain innovation When organizations inno vate they do not simply process information from the outside in in order to solve existing problems and adapt to a changing environment They actually create new knowledge and information from the inside out in order to redefine both problems and solutions and in the pro cess to recreate their environment To explain innovation we need a new theory of organizational knowledge creation Like any approach to knowledge it will have its own epistemology the theory of knowledge although one substan tially different from the traditional Western approach The cornerstone of our epistemology is the distinction between tacit and explicit knowl edge As we will see in this chapter the key to knowledge creation lies in the mobilization and conversion of tacit knowledge And because we are concerned with organizational knowledge creation as opposed to individual knowledge creation our theory will also have its own dis 56 Theory of Organizational Knowledge Creation 57 tinctive ontology which is concerned with the levels of knowledge creating entities individual group organizational and inter organizational In this chapter we present our theory of knowledge creation keeping in mind the two dimensionsepistemological and ontologicalof knowledge creation Figure 31 presents the epistemo logical and ontological dimensions in which a knowledgecreation spi ral takes place A spiral emerges when the interaction between tacit and explicit knowledge is elevated dynamically from a lower ontologi cal level to higher levels The core of our theory lies in describing how such a spiral emerges We present the four modes of knowledge conversion that are created when tacit and explicit knowledge interact with each other These four modeswhich we refer to as socialization extemalization combina tion and internalizationconstitute the engine of the entire knowledgecreation process These modes are what the individual ex periences They are also the mechanisms by which individual knowl edge gets articulated and amplified into and throughout the organi zation After laying out these four modes and illustrating them with examples we will describe five conditions that enable or promote this spiral model of organizational knowledge creation We also present a fivephase process through which knowledge is created over time within the organization Knowledge and Information Before delving into our theory we first turn to describing how knowl edge is similar to and different from information Three observations Epistemological dimension Explicit know ledge Tacit knowledge O ntological Individual G roup O rganization Interorganization dim ension K now ledge level r Figure 31 Two dimensions of knowledge creation 58 The KnowledgeCreating Company become apparent in this section First knowledge unlike information is about beliefs and commitment Knowledge is a function of a particu lar stance perspective or intention Second knowledge unlike infor mation is about action It is always knowledge to some end And third knowledge like information is about meaning It is context specific and relational In our theory of organizational knowledge creation we adopt the tra ditional definition of knowledge as justified true belief It should be noted however that while traditional Western epistemology has fo cused on truthfulness as the essential attribute of knowledge we highlight the nature of knowledge as justified belief This difference in focus introduces another critical distinction between the view of knowledge of traditional Western epistemology and that of our theory of knowledge creation While traditional epistemology emphasizes the absolute static and nonhuman nature of knowledge typically ex pressed in propositions and formal logic we consider knowledge as a dynamic human process of justifying personal belief toward the truth Although the terms information and knowledge are often used interchangeably there is a clear distinction between information and knowledge As Bateson 1979 put it information consists of differ ences that make a difference p 5 Information provides a new point of view for interpreting events or objects which makes visible pre viously invisible meanings or sheds light on unexpected connections Thus information is a necessary medium or material for eliciting and constructing knowledge It affects knowledge by adding something to it or restructuring it Machlup 1983 Similarly Dretske 1981 ar gued as follows Information is commodity capable of yielding knowl edge and what information a signal carries is what we can learn from it Knowledge is identified with informationproduced or sus tained belief pp 44 86 Information can be viewed from two perspectives syntactic or vol ume of and semantic or meaning of information An illustration of syntactic information is found in Shannon and Weavers 1949 analy sis of information flow measured without any regard to inherent mean ing although Shannon himself admitted that his way of viewing infor mation is problematic1 The semantic aspect of information is more important for knowledge creation as it focuses on conveyed meaning If one limits the span of consideration to the syntactic aspect alone one cannot capture the real importance of information in the knowledgecreation process Any preoccupation with the formal defini tion of information will lead to a disproportionate emphasis on the role of information processing which is insensitive to the creation of new meaning out of the chaotic equivocal sea of information Thus information is a flow of messages while knowledge is created by that very flow of information anchored in the beliefs and commit ment of its holder This understanding emphasizes that knowledge is Theory of Organizational Knowledge Creation 59 essentially related to human action2 Searles 1969 discussion of the speech act also points out the close relationship between language and human action in terms of intention and the commitment of speakers As a fundamental basis for the theory of organizational knowledge creation we focus attention on the active subjective nature of knowledge represented by such terms as commitment and belief that are deeply rooted in individuals value systems Finally both information and knowledge are contextspecific and re lational in that they depend on the situation and are created dynami cally in social interaction among people Berger and Luckmann 1966 argue that people interacting in a certain historical and social context share information from which they construct social knowledge as a re ality which in turn influences their judgment behavior and attitude Similarly a corporate vision presented as an equivocal strategy by a leader is organizationally constructed into knowledge through interac tion with the environment by the corporations members which in turn affects its business behavior Two Dimensions of Knowledge Creation Although much has been written about the importance of knowledge in management little attention has been paid to how knowledge is created and how the knowledgecreation process is managed In this section we will develop a framework in which traditional and nontradi tional views of knowledge are integrated into the theory of organiza tional knowledge creation As mentioned earlier our basic framework contains two dimensionsepistemological and ontological see Figure 31 Let us start with the ontological dimension In a strict sense knowl edge is created only by individuals An organization cannot create knowledge without individuals The organization supports creative in dividuals or provides contexts for them to create knowledge Organiza tional knowledge creation therefore should be understood as a process that organizationally amplifies the knowledge created by individuals and crystallizes it as a part of the knowledge network of the organiza tion This process takes place within an expanding community of in teraction which crosses intra and interorganizational levels and boundaries3 As for the epistemological dimension we draw on Michael Polanyis 1966 distinction between tacit knowledge and explicit knowledge Tacit knowledge is personal contextspecific and therefore hard to for malize and communicate Explicit or codified knowledge on the other hand refers to knowledge that is transmittable in formal systematic language Polanyis argument on the importance of tacit knowledge in human cognition may correspond to the central argument of Gestalt psychology which has asserted that perception is determined in terms 60 The KnowledgeCreating Company of the way it is integrated into the overall pattern or Gestalt However while Gestalt psychology stresses that all images are intrinsically inte grated Polanyi contends that human beings acquire knowledge by ac tively creating and organizing their own experiences Thus knowledge that can be expressed in words and numbers represents only the tip of the iceberg of the entire body of knowledge As Polanyi 1966 puts it We can know more than we can tell p 44 In traditional epistemology knowledge derives from the separation of the subject and the object of perception human beings as the subject of perception acquire knowledge by analyzing external objects In con trast Polanyi contends that human beings create knowledge by involv ing themselves with objects that is through selfinvolvement and com mitment or what Polanyi called indwelling To know something is to create its image or pattern by tacitly integrating particulars In or der to understand the pattern as a meaningful whole it is necessary to integrate ones body with the particulars Thus indwelling breaks the traditional dichotomies between mind and body reason and emo tion subject and object and knower and known Therefore scientific objectivity is not a sole source of knowledge Much of our knowledge is the fruit of our own purposeful endeavors in dealing with the world5 While Polanyi argues the contents of tacit knowledge further in a philosophical context it is also possible to expand his idea in a more practical direction Tacit knowledge includes cognitive and technical elements The cognitive elements center on what JohnsonLaird 1983 calls mental models in which human beings create working models of the world by making and manipulating analogies in their minds Mental models such as schemata paradigms perspectives beliefs and viewpoints help individuals to perceive and define their world On the other hand the technical element of tacit knowledge includes concrete knowhow crafts and skills It is important to note here that the cog nitive elements of tacit knowledge refer to an individuals images of reality and visions for the future that is what is and what ought to be As will be discussed later the articulation of tacit mental mod els in a kind of mobilization process is a key factor in creating new knowledge Some distinctions between tacit and explicit knowledge are shown in Table 31 Features generally associated with the more tacit aspects of knowledge are listed on the left while the corresponding qualities re lated to explicit knowledge are shown on the right For example knowledge of experience tends to be tacit physical and subjective while knowledge of rationality tends to be explicit metaphysical and objective Tacit knowledge is created here and now in a specific prac tical context and entails what Bateson 1973 referred to as analog quality Sharing tacit knowledge between individuals through commu nication is an analog process that requires a kind of simultaneous processing of the complexities of issues shared by the individuals On Theory of Organizational Knowledge Creation 61 Table 31 Two Types of Knowledge Tacit Knowledge Subjective Explicit Knowledge Objective Knowledge of experience Knowledge of rationality body mind Simultaneous knowledge Sequential knowledge here and now there and then Analog knowledge Digital knowledge practice theory the other hand explicit knowledge is about past events or objects there and then and is oriented toward a contextfree theory6 It is sequentially created by what Bateson calls digital activity Knowledge Conversion Interaction Between Tacit and Explicit Knowledge As discussed in Chapter 2 the history of Western epistemology can be seen as a continuous controversy about which type of knowledge is more truthful While Westerners tend to emphasize explicit knowl edge the Japanese tend to stress tacit knowledge In our view how ever tacit knowledge and explicit knowledge are not totally separate but mutually complementary entities They interact with and inter change into each other in the creative activities of human beings Our dynamic model of knowledge creation is anchored to a critical assump tion that human knowledge is created and expanded through social interaction between tacit knowledge and explicit knowledge We call this interaction knowledge conversion It should be noted that this conversion is a social process between individuals and not confined within an individual7 According to the rationalist view human cogni tion is a deductive process of individuals but an individual is never isolated from social interaction when he or she perceives things Thus through this social conversion process tacit and explicit knowledge expand in terms of both quality and quantity Nonaka 1990b The idea of knowledge conversion may be partially consonant with the ACT model Anderson 1983 Singley and Anderson 1989 devel oped in cognitive psychology This model hypothesizes that for cogni tive skills to develop all declarative knowledge which corresponds to explicit knowledge in our theory has to be transformed into procedural knowledge which corresponds to tacit knowledge used in such activi ties as riding a bicycle or playing the piano8 But as Singley and An derson admit the ACT model has one limitation It views the transfor mation as a special case because this models research interest is focused on the acquisition and transfer of procedural tacit knowledge not declarative explicit knowledge In other words proponents of this 62 The KnowledgeCreating Company model consider knowledge transformation as mainly unidirectional from declarative explicit to procedural tacit whereas we argue that the transformation is interactive and spiral Four Modes of Knowledge Conversion The assumption that knowledge is created through the interaction be tween tacit and explicit knowledge allows us to postulate four different modes of knowledge conversion They are as follows 1 from tacit knowledge to tacit knowledge which we call socialization 2 from tacit knowledge to explicit knowledge or externalization 3 from ex plicit knowledge to explicit knowledge or combination and 4 from explicit knowledge to tacit knowledge or internalization9 Three of the four types of knowledge conversionsocialization combination and internalizationhave been discussed from various perspectives in or ganizational theory For example socialization is connected with the theories of group processes and organizational culture combination has its roots in information processing and internalization is closely related to organizational learning However externalization has been somewhat neglected10 Figure 32 shows the four modes of knowledge conversion Each of these four modes of knowledge conversion will be discussed in detail below along with actual examples Socialization From Tacit to Tacit Socialization is a process of sharing experiences and thereby creating tacit knowledge such as shared mental models and technical skills11 An individual can acquire tacit knowledge directly from others without Tacit knowledge To Explicit knowledge Tacit knowledge From Explicit knowledge Socialization Externalization Internalization Combination Figure 32 Four modes of knowledge conversion Theory of Organizational Knowledge Creation 63 using language Apprentices work with their masters and learn crafts manship not through language but through observation imitation and practice In the business setting onthejob training uses basically the same principle The key to acquiring tacit knowledge is experience Without some form of shared experience it is extremely difficult for one person to project her or himself into another individuals thinking process The mere transfer of information will often make little sense if it is abstracted from associated emotions and specific contexts in which shared experiences are embedded The following three examples illustrate how socialization is employed by Japanese companies within the product development context The first example of socialization comes from Honda which set up brainstorming camps tama dashi kaiinformal meetings for de tailed discussions to solve difficult problems in development projects The meetings are held outside the workplace often at a resort inn where participants discuss difficult problems while drinking sake sharing meals and taking a bath together in a hot spring The meet ings are not limited to project team members but are open to any em ployees who are interested in the development project under way In these discussions the qualifications or status of the discussants are never questioned but there is one taboo criticism without constructive suggestions Discussions are held with the understanding that mak ing criticism is ten times easier than coming up with a constructive alternative This kind of brainstorming camp is not unique to Honda but has been used by many other Japanese firms It is also not unique to developing new products and services but is also used to develop managerial systems or corporate strategies Such a camp is not only a forum for creative dialogue but also a medium for sharing experience and enhancing mutual trust among participants12 It is particularly effective in sharing tacit knowledge and creating a new perspective It reorients the mental models of all individuals in the same direction but not in a forceful way Instead brainstorming camps represent a mechanism through which individuals search for harmony by engag ing themselves in bodily as well as mental experiences The second example which shows how a tacit technical skill was socialized comes from the Matsushita Electric Industrial Company A major problem at the Osakabased company in developing an auto matic home breadmaking machine in the late 1980s centered on how to mechanize the doughkneading process which is essentially tacit knowledge possessed by master bakers Dough kneaded by a master baker and by a machine were xrayed and compared but no meaning ful insights were obtained Ikuko Tanaka head of software develop ment knew that the areas best bread came from the Osaka Interna tional Hotel To capture the tacit knowledge of kneading skill she and several engineers volunteered to apprentice themselves to the hotels head baker Making the same delicious bread as the head bakers was 64 The KnowledgeCreating Company not easy No one could explain why One day however she noticed that the baker was not only stretching but also twisting the dough which turned out to be the secret for making tasty bread Thus she socialized the head bakers tacit knowledge through observation imita tion and practice Socialization also occurs between product developers and customers Interactions with customers before product development and after mar ket introduction are in fact a neverending process of sharing tacit knowledge and creating ideas for improvement The way NEC devel oped its first personal computer is a case in point The newproduct development process began when a group from the Semiconductor and IC Sales Division conceived of an idea to sell Japans first microcom puter kit the TK80 to promote the sales of semiconductor devices Selling the TK80 to the public at large was a radical departure from NECs history of responding to routine orders from Nippon Telegraph and Telephone NTT Unexpectedly a wide variety of customers ranging from high school students to professional computer enthusi asts came to NECs BITINN a display service center in the Akiha bara district of Tokyo which is famous for its high concentration of electronic goods retailers Sharing experiences and continuing dia logues with these customers at the BITINN resulted in the develop ment of NECs bestselling personal computer the PC8000 a few years later Externalization From Tacit to Explicit Externalization is a process of articulating tacit knowledge into ex plicit concepts It is a quintessential knowledgecreation process in that tacit knowledge becomes explicit taking the shapes of metaphors analogies concepts hypotheses or models When we attempt to con ceptualize an image we express its essence mostly in languagewrit ing is an act of converting tacit knowledge into articulable knowledge Emig 1983 Yet expressions are often inadequate inconsistent and insufficient Such discrepancies and gaps between images and expres sions however help promote reflection and interaction between indi viduals The externalization mode of knowledge conversion is typically seen in the process of concept creation and is triggered by dialogue or collec tive reflection13 A frequently used method to create a concept is to combine deduction and induction Mazda for example combined these two reasoning methods when it developed the new RX7 concept which is described as an authentic sports car that provides an exciting and comfortable drive The concept was deduced from the car makers cor porate slogan create new values and present joyful driving pleasures as well as the positioning of the new car as a strategic car for the US market and an image of innovation At the same time the new con cept was induced from concept trips which were driving experiences Theory of Organizational Knowledge Creation 65 by development team members in the United States as well as from concept clinics which gathered opinions from customers and car ex perts When we cannot find an adequate expression for an image through analytical methods of deduction or induction we have to use a nonanalytical method Externalization is therefore often driven by metaphor andor analogy Using an attractive metaphor andor anal ogy is highly effective in fostering direct commitment to the creative process Recall the Honda City example In developing the car Hiroo Watanabe and his team used a metaphor of Automobile Evolution His team viewed the automobile as an organism and sought its ulti mate form In essence Watanabe was asking What will the automo bile eventually evolve into I insisted on allocating the minimum space for mechanics and the maxi mum space for passengers This seemed to be the ideal car into which the automobile should evolve The first step toward this goal was to challenge the reasoning of Detroit which had sacrificed comfort for appearance Our choice was a short but tall car spherical therefore lighter less expensive more comfortable and solid14 The concept of a tall and short carTall Boyemerged through an analogy between the concept of manmaximum machineminimum and an image of a sphere that contains the maximum volume within the minimum area of surface which ultimately resulted in the Honda City The case of Canons MiniCopier is a good example of how an anal ogy was used effectively for product development One of the most dif ficult problems faced by the development team was producing at low cost a disposable cartridge which would eliminate the necessity for maintenance required in conventional machines Without a disposable cartridge maintenance staff would have to be stationed all over the country since the copier was intended for family or personal use If the usage frequency were high maintenance costs could be negligible But that was not the case with a personal copier The fact that a large number of customers would be using the machine only occasionally meant that the new product had to have high reliability and no or minimum maintenance A maintenance study showed that more than 90 percent of the problems came from the drum or its surrounding parts Aimed at cutting maintenance costs while maintaining the high est reliability the team developed the concept of a disposable cartridge system in which the drum or the heart of the copier is replaced after a certain amount of usage The next problem was whether the drum could be produced at a cost low enough to be consistent with the targeted low selling price of the copier A task force assigned to solve this cost problem had many heated discussions about the production of conventional photosensitive drum cylinders with a base material of aluminumdrawn tube at a low cost One day Hiroshi Tanaka leader of the task force sent out for 66 The KnowledgeCreating Company some cans of beer Once the beer was consumed he asked How much does it cost to manufacture this can The team then explored the pos sibility of applying the process of manufacturing the beer can to manu facturing the drum cylinder using the same material By clarifying similarities and differences they discovered a process technology to manufacture the aluminum drum at a low cost thus giving rise to the disposable drum These examples within Japanese firms clearly show the effectiveness of the use of metaphor and analogy in creating and elaborating a con cept see Table 32 As Hondas Watanabe commented We are more than halfway there once a product concept has been created In this sense the leaders wealth of figurative language and imagination is an essential factor in eliciting tacit knowledge from project members Among the four modes of knowledge conversion extemalization holds the key to knowledge creation because it creates new explicit concepts from tacit knowledge How can we convert tacit knowledge into explicit knowledge effectively and efficiently The answer lies in a sequential use of metaphor analogy and model As Nisbet 1969 noted much of what Michael Polanyi has called tacit knowledge is expressiblein so far as it is expressible at allin metaphor p 5 Metaphor is a way of perceiving or intuitively understanding one thing by imaging another thing symbolically It is most often used in ab ductive reasoning or nonanalytical methods for creating radical con cepts Bateson 1979 It is neither analysis nor synthesis of common attributes of associated things Donnellon Gray and Bougon 1986 Table 32 Metaphor andor Analogy for Concept Creation in Product Development Product Company MetaphorAnalogy Influence on Concept Creation City Automobile Evolution2 Hint of maximizing passenger space as Honda metaphor ultimate auto development Manmaximum machineminimum concept created The sphere Hint of achieving maximum passenger analogy space through minimizing surface area Tall and short car Tall Boy concept created MiniCopier Aluminum beer can Hint of similarities between inexpensive Canon analogy aluminum beer can and photosensitive drum manufacture Lowcost manufacturing process con cept created Home Bakery Hotel bread Hint of more delicious bread Matsushita metaphor Osaka International Hotel head baker analogy Twist dough concept created Theory of Organizational Knowledge Creation 67 argue that metaphors create novel interpretation of experience by asking the listener to see one thing in terms of something else and create new ways of experiencing reality pp 48 52 Thus meta phors are one communication mechanism that can function to reconcile discrepancies in meaning p 4815 Moreover metaphor is an important tool for creating a network of new concepts Because a metaphor is two thoughts of different things supported by a single word or phrase whose meaning is a resul tant of their interaction Richards 1936 p 93 we can continuously relate concepts that are far apart in our mind even relate abstract concepts to concrete ones This creative cognitive process continues as we think of the similarities among concepts and feel an imbalance inconsistency or contradiction in their associations thus often leading to the discovery of new meaning or even to the formation of a new par adigm Contradictions inherent in a metaphor are then harmonized by anal ogy which reduces the unknown by highlighting the commonness of two different things Metaphor and analogy are often confused Associ ation of two things through metaphor is driven mostly by intuition and holistic imagery and does not aim to find differences between them On the other hand association through analogy is carried out by rational thinking and focuses on structuralfunctional similarities between two things and hence their differences Thus analogy helps us understand the unknown through the known and bridges the gap between an im age and a logical model16 Once explicit concepts are created they can then be modeled In a logical model no contradictions should exist and all concepts and prop ositions must be expressed in systematic language and coherent logic But in business terms models are often only rough descriptions or drawings far from being fully specific Models are usually generated from metaphors when new concepts are created in the business context17 Combination From Explicit to Explicit Combination is a process of systemizing concepts into a knowledge sys tem This mode of knowledge conversion involves combining different bodies of explicit knowledge Individuals exchange and combine knowl edge through such media as documents meetings telephone conversa tions or computerized communication networks Reconfiguration of existing information through sorting adding combining and catego rizing of explicit knowledge as conducted in computer databases can lead to new knowledge Knowledge creation carried out in formal edu cation and training at schools usually takes this form An MBA educa tion is one of the best examples of this kind In the business context the combination mode of knowledge conver 68 The KnowledgeCreating Company sion is most often seen when middle managers break down and opera tionalize corporate visions business concepts or product concepts Mid dle management plays a critical role in creating new concepts through networking of codified information and knowledge Creative uses of computerized communication networks and largescale databases facil itate this mode of knowledge conversion18 At Kraft General Foods a manufacturer of dairy and processed foods data from the POS pointofsales system of retailers is utilized not only to find out what does and does not sell well but also to create new ways to sell that is new sales systems and methods The com pany has developed an informationintensive marketing program called micromerchandizing which provides supermarkets with timely and precise recommendations on the optimal merchandise mix and with sales promotions based on the analysis of data from its micro merchandising system Utilizing Krafts individual method of data analysis including its unique classification of stores and shoppers into six categories the system is capable of pinpointing who shops where and how Kraft successfully manages its product sales through super markets by controlling four elements of the category management methodologyconsumer and category dynamics space management merchandizing management and pricing management19 At the top management level of an organization the combination mode is realized when midrange concepts such as product concepts are combined with and integrated into grand concepts such as a corpo rate vision to generate a new meaning of the latter Introducing a new corporate image in 1986 for example Asahi Breweries adopted a grand concept dubbed live Asahi for live people The concept stood for the message that Asahi will provide natural and authentic prod ucts and services for those who seek active minds and active lives Along with this grand concept Asahi inquired into the essence of what makes beer appealing and developed Asahi Super Dry beer based on the newproduct concept of richness and sharpness The newproduct concept is a midrange concept that made the grand concept of Asahi more explicitly recognizable which in turn altered the companys prod uct development system The taste of beer was hitherto decided by en gineers in the production department without any participation by the sales department The richness and sharpness concept was realized through cooperative product development by both departments Other examples of interaction between grand concepts and mid range concepts abound For example NECs CC computers and communications concept induced the development of the epoch making PC8000 personal computer which was based on the mid range concept of distributed processing Canons corporate policy Creation of an excellent company by transcending the camera busi ness led to the development of the MiniCopier which was developed with the midrange product concept of easy maintenance Mazdas grand vision Create new values and present joyful driving was real Theory of Organizational Knowledge Creation 69 ized in the new RX7 an authentic sports car that provides an excit ing and comfortable drive Internalization From Explicit to Tacit Internalization is a process of embodying explicit knowledge into tacit knowledge It is closely related to learning by doing When experi ences through socialization extemalization and combination are in ternalized into individuals tacit knowledge bases in the form of shared mental models or technical knowhow they become valuable assets All the members of the Honda City project team for example internal ized their experiences of the late 1970s and are now making use of that knowhow and leading RD projects in the company For organizational knowledge creation to take place however the tacit knowledge accumu lated at the individual level needs to be socialized with other organiza tional members thereby starting a new spiral of knowledge creation For explicit knowledge to become tacit it helps if the knowledge is verbalized or diagrammed into documents manuals or oral stories Documentation helps individuals internalize what they experienced thus enriching their tacit knowledge In addition documents or manu als facilitate the transfer of explicit knowledge to other people thereby helping them experience the experiences of others indirectly ie re experience them GE for example documents all customer com plaints and inquiries in a database at its Answer Center in Louisville Kentucky which can be used for example by members of a new product development team to reexperience what the telephone oper ators experienced GE established the Answer Center in 1982 to pro cess questions requests for help and complaints from customers on any product 24 hours a day 365 days a year Over 200 telephone oper ators respond to as many as 14000 calls a day GE has programmed 15 million potential problems and their solutions into its computerized database system The system is equipped with an online diagnosis function utilizing the latest artificial intelligence technology for quick answers to inquiries any problemsolution response can be retrieved by the telephone operator in two seconds In case a solution is not available 12 specialists with at least four years of repair experience think out solutions on site Four fulltime programmers put the solu tions into the database so that the new information is usually in stalled into the system by the following day This information is sent to the respective product divisions every month Yet the product divi sions also frequently send their newproduct development people to the Answer Center to chat with the telephone operators or the 12 special ists thereby reexperiencing their experiences Internalization can also occur even without having actually to re experience other peoples experiences For example if reading or lis tening to a success story makes some members of the organization feel the realism and essence of the story the experience that took place in 70 The KnowledgeCreating Company the past may change into a tacit mental model When such a mental model is shared by most members of the organization tacit knowledge becomes part of the organizational culture This practice is prevalent in Japan where books and articles on companies or their leaders abound Freelance writers or former employees publish them some times at the request of the companies One can find about two dozen books on Honda or Soichiro Honda in major bookstores today all of which help instill a strong corporate culture for Honda An example of internalization through learning by doing can be seen at Matsushita when it launched a companywide policy in 1993 to reduce yearly working time to 1800 hours Called MIT93 for Mind and Management Innovation Toward 1993 the policys objective was not to reduce costs but to innovate the mindset and management by reducing working hours and increasing individual creativity Many de partments were puzzled about how to implement the policy which was clearly communicated as explicit knowledge The MIT93 promotion of fice advised each department to experiment with the policy for one month by working 150 hours Through such a bodily experience em ployees got to know what working 1800 hours a year would be like An explicit concept reducing working time to 1800 hours was inter nalized through the onemonth experience Expanding the scope of bodily experience is critical to internaliza tion For example Honda City project leader Hiroo Watanabe kept say ing Lets give it a try to encourage the team members experimental spirit The fact that the development team was crossfunctional en abled its members to learn and internalize a breadth of development experiences beyond their own functional specialization Rapid proto typing also accelerated the accumulation of developmental experi ences which can lead to internalization Contents of Knowledge and the Knowledge Spiral As already explained socialization aims at the sharing of tacit knowl edge On its own however it is a limited form of knowledge creation Unless shared knowledge becomes explicit it cannot be easily lever aged by the organization as a whole Also a mere combination of dis crete pieces of explicit information into a new wholefor example a comptroller of a company collects information from throughout the company and puts it together in a financial reportdoes not really extend the organizations existing knowledge base But when tacit and explicit knowledge interact as in the Matsushita example an innova tion emerges Organizational knowledge creation is a continuous and dynamic interaction between tacit and explicit knowledge This inter action is shaped by shifts between different modes of knowledge con version which are in turn induced by several triggers see Figure 33 First the socialization mode usually starts with building a field of Theory of Organizational Knowledge Creation 71 interaction This field facilitates the sharing of members experiences and mental models Second the extemalization mode is triggered by meaningful dialogue or collective reflection in which using appro priate metaphor or analogy helps team members to articulate hidden tacit knowledge that is otherwise hard to communicate Third the combination mode is triggered by networking newly created knowl edge and existing knowledge from other sections of the organization thereby crystallizing them into a new product service or managerial system Finally learning by doing triggers internalization The content of the knowledge created by each mode of knowledge conversion is naturally different see Figure 34 Socialization yields what can be called sympathized knowledge such as shared mental models and technical skills The tacit skill of kneading dough in the Matsushita example is a sympathized knowledge Extemalization out puts conceptual knowledge The concept of Tall Boy in the Honda example is a conceptual knowledge created through the metaphor of Automobile Evolution and the analogy between a sphere and the concept of manmaximum machineminimum Combination gives rise to systemic knowledge such as a prototype and new component technologies The micromerchandizing program in the Kraft General Foods example is a systemic knowledge which includes retail manage ment methods as its components Internalization produces operational knowledge about project management production process new product usage and policy implementation The bodily experience of working 150 hours a month in the Matsushita case is an operational knowledge of policy implementation These contents of knowledge interact with each other in the spiral Dialogue Field Building Linking Explicit Knowledge Learning by Doing Figure 33 Knowledge spiral 72 The KnowledgeCreating Company Tacit knowledge To Explicit knowledge Tacit knowledge From Explicit knowledge Socialization Sympathized Knowledge Externalization Conceptual Knowledge Internalization Operational Knowledge Combination Systemic Knowledge Figure 34 Contents of knowledge created by the four modes of knowledge creation For example sympathized knowledge about consumers wants may become explicit conceptual knowledge about a newproduct concept through socialization and externalization Such conceptual knowledge becomes a guideline for creating systemic knowledge through combination For example a newproduct concept steers the combination phase in which newly developed and existing component technologies are combined to build a prototype Systemic knowledge eg a simulated production process for the new product turns into operational knowledge for mass production of the product through internalization In addition experiencebased operational knowledge often triggers a new cycle of knowledge creation For exam ple the users tacit operational knowledge about a product is often so cialized thereby initiating improvement of an existing product or de velopment of an innovation Thus far we have focused our discussion on the epistemological di mension of organizational knowledge creation As noted before how ever an organization cannot create knowledge by itself Tacit knowl edge of individuals is the basis of organizational knowledge creation The organization has to mobilize tacit knowledge created and accumu lated at the individual level The mobilized tacit knowledge is organi zationally amplified through four modes of knowledge conversion and crystallized at higher ontological levels We call this the knowledge spiral in which the interaction between tacit knowledge and explicit knowledge will become larger in scale as it moves up the ontological levels Thus organizational knowledge creation is a spiral process starting at the individual level and moving up through expanding com munities of interaction that crosses sectional departmental divi sional and organizational boundaries see Figure 35 Theory of Organizational Knowledge Creation 73 Epistemological dimension Externalization 4 Explicit knowledge t Tacit knowledge Internalization Individual Group Organization Interorganization Knowledge level Figure 35 Spiral of organizational knowledge creation Ontological dimension This process is exemplified by product development Creating a prod uct concept involves a community of interacting individuals with dif ferent backgrounds and mental models While the members from the RD department focus on technological potential those from the pro duction and marketing departments are interested in other issues Only some of those different experiences mental models motivations and intentions can be expressed in explicit language Thus the social ization process of sharing tacit knowledge is required Moreover both socialization and externalization are necessary for linking individuals tacit and explicit knowledge Many Japanese companies have adopted brainstorming camps as a tool for that purpose The product created by this collective and cooperative process will then be reviewed for its coherence with midrange and grand concepts Even if the newly created product has superior quality it may conflict with the divisional or organizational goals expressed by the midrange and grand concepts What is required is another process at a higher level to maintain the integrity of the whole which will lead to another cycle of knowledge creation in a larger context Enabling Conditions for Organizational Knowledge Creation The role of the organization in the organizational knowledgecreation process is to provide the proper context for facilitating group activities 74 The KnowledgeCreating Company as well as the creation and accumulation of knowledge at the individ ual level In this section we will discuss five conditions required at the organizational level to promote the knowledge spiral Intention The knowledge spiral is driven by organizational intention which is defined as an organizations aspiration to its goals20 Efforts to achieve the intention usually take the form of strategy within a business set ting From the viewpoint of organizational knowledge creation the es sence of strategy lies in developing the organizational capability to ac quire create accumulate and exploit knowledge The most critical element of corporate strategy is to conceptualize a vision about what kind of knowledge should be developed and to operationalize it into a management system for implementation For example NEC viewed technology as a knowledge system when it developed core technology programs at its Central Research Labora tories in 1975 At that time the company was engaged in three main businesses communications computers and semiconductors Because it was difficult to coordinate RD of these different areas it was neces sary to grasp technologies at a higher and more abstract levelthat is knowledge According to Michiyuki Uenohara former executive vice president base technologies were identified by forecasting product groups for a decade into the future including the extraction of techno logies common to and necessary for them Synergistically related base technologies were then grouped into core technologies such as pat tern recognition image processing and VLSI Since 1975 NEC has expanded its core technology programs using autonomous teams today it has 36 core technology programs in action In addition NEC devised a concept called the strategic technology domain STD in order to match core technologies with business activ ities An STD links several core technologies to create a concept for product development Thus an STD represents not only a product do main but also a knowledge domain At present there are six STDs 1 functional materialsdevices 2 semiconductors 3 materialsdevices functional machinery 4 communications systems 5 knowledge information systems and 6 software Those STDs interact with core technology programs in a matrix as illustrated in Figure 36 By com bining core technology programs and the STDs the knowledge bases at NEC are linked horizontally and vertically Through this endeavor NEC has attempted to develop a corporate strategic intention of knowl edge creation at every organizational level Organizational intention provides the most important criterion for judging the truthfulness of a given piece of knowledge If not for inten tion it would be impossible to judge the value of information or knowl edge perceived or created At the organizational level intention is of ten expressed by organizational standards or visions that can be used Theory of Organizational Knowledge Creation 75 Product groups a decade later 7 Extracting basic technologies to realize the above products Com m on base technologies j t Grouping base technologies Based on technological synergy and career development of researchers Core technology 7 Image processing VLSI Functional material device Semiconductor m aterial device Software 3 Pattern recognition Feedback Figure 36 NECs knowledge domain Source NEC to evaluate and justify the created knowledge It is necessarily value laden To create knowledge business organizations should foster their em ployees commitment by formulating an organizational intention and proposing it to them Top or middle managers can draw organizational attention to the importance of commitment to fundamental values by addressing such fundamental questions as What is truth1 What is human being or What is life This activity is more organizational than individual Instead of relying solely on individuals own thinking and behaviors the organization can reorient and promote them through collective commitment As Polanyi 1958 notes commitment underlies the human knowledgecreating activity Autonomy The second condition for promoting the knowledge spiral is autonomy At the individual level all members of an organization should be al lowed to act autonomously as far as circumstances permit By allowing them to act autonomously the organization may increase the chance of introducing unexpected opportunities Autonomy also increases the possibility that individuals will motivate themselves to create new 76 The KnowledgeCreating Company knowledge Moreover autonomous individuals function as part of the holographic structure in which the whole and each part share the same information Original ideas emanate from autonomous individu als diffuse within the team and then become organizational ideas In this respect the selforganizing individual assumes a position that may be seen as analogous to the core of a series of nested Russian dolls From the viewpoint of knowledge creation such an organization is more likely to maintain greater flexibility in acquiring interpreting and relating information It is a system in which the minimum criti cal specification principle Morgan 1986 is met as a prerequisite for selforganization and therefore autonomy is assured as much as pos sible21 A knowledgecreating organization that secures autonomy may also be depicted as an autopoietic system Maturana and Varela 1980 which can be explained by the following analogy Living organic sys tems are composed of various organs which are again made up of nu merous cells Relationships between system and organs and between organ and cells are neither dominatesubordinate nor wholepart Each unit like an autonomous cell controls all changes occurring con tinuously within itself Moreover each unit determines its boundary through selfreproduction This selfreferential nature is quintessential to the autopoietic system Similarly to an autopoietic system autonomous individuals and groups in knowledgecreating organizations set their task boundaries by themselves to pursue the ultimate goal expressed in the higher in tention of the organization In the business organization a powerful tool for creating circumstances in which individuals can act autono mously is provided by the selforganizing team22 Such a team should be crossfunctional involving members from a broad crosssection of different organizational activities Project teams with crossfunctional diversity are often used by Japanese firms at every phase of innova tion As illustrated in Table 33 most innovation project teams con sisted of 10 to 30 members with diverse functional backgrounds such as RD planning production quality control sales and marketing and customer service In most companies there are 4 to 5 core mem bers each of whom has had a multiple functional career For example the core members who developed Fuji Xeroxs FX3500 have had at least three functional shifts even though they were only in their 30s at that time see Table 34 The autonomous team can perform many functions thereby ampli fying and sublimating individual perspectives to higher levels Honda for example organized a crossfunctional project team to develop the City model that was composed of people from the sales development and production departments This system was called the SED sys tem reflecting the sales engineering and development functions Its initial goal was to manage development activities more systematically by integrating the knowledge and wisdom of ordinary people instead Theory of Organizational Knowledge Creation 77 Table 33 Functional Backgrounds of Product Development Team Members Functional Background Company Product RD Production Sales Marketing Planning Service Quality Control Other Total Fuji Xerox FX3500 5 4 1 4 1 1 1 17 Honda City 18 6 4 1 1 30 NEC PC 8000 5 2 2 2 11 Epson EP101 10 10 8 28 Canon AE1 12 10 2 4 28 Canon MiniCopier 8 3 2 1 1 15 Mazda New RX7 13 6 7 1 1 1 29 Matsushita Electric Automatic Home Bakery 8 8 1 1 1 1 20 Source Nonaka 1990a of relying on a few heroes Its operation was very flexible The three functional areas were nominally differentiated and there was a built in learning process that encouraged invasion into other areas The members jointly performed the following functions procuring personnel facilities and budget for the production plant analyzing the automobile market and competition setting a market target determining a price and a production volume Table 34 Corporate Careers and Educational Backgrounds of Core Members of the FX3500 Development Team Name Career Path within Fuji Xerox University Specialization Hiroshi Yoshida Technical Service Staff Personnel Product Planning Product Management Education Kenichiro Fujita Marketing Staff Product Planning Product Management Commerce Masao Suzuki Planning Research Planning Mechanical Engineering Mitsutoshi Kitajima Technical Service Staff Quality Guarantee Production Electrical Engineering 78 The KnowledgeCreating Company The actual work flow required team members to collaborate with their colleagues Hiroo Watanabe the team leader commented I am always telling the team members that our work is not a relay race in which my work starts here and yours there Everyone should run all the way from start to finish Like rugby all of us should run together pass the ball left and right and reach the goal as a united body23 Type C in Figure 37 illustrates the rugby approach Type A shows the relay approach in which each phase of the development process is clearly separated and the baton is passed from one group to another Type B is called the sashimi system at Fuji Xerox because it looks like sliced raw fish sashimi served on a plate with one piece overlap ping another Imai Nonaka and Takeuchi 1985 p 351 Fluctuation and Creative Chaos The third organizational condition for promoting the knowledge spiral is fluctuation and creative chaos which stimulate the interaction be tween the organization and the external environment24 Fluctuation is different from complete disorder and characterized by order without recursiveness It is an order whose pattern is hard to predict at the beginning Gleick 1987 If organizations adopt an open attitude to ward environmental signals they can exploit those signals ambiguity redundancy or noise in order to improve their own knowledge system When fluctuation is introduced into an organization its members face a breakdown of routines habits or cognitive frameworks Wino grad and Flores 1986 emphasize the importance of such periodic breakdowns in the development of human perception A breakdown RD Manufacturing Marketing Type A 1 I 1 Phase 1 2 3 Type B Phase 1 Hi Type C Phase 1 2 3 Figure 37 Sequential A vs overlapped B and C phases of development Source Takeuchi and Nonaka 1986 Theory of Organizational Knowledge Creation 79 refers to an interruption of our habitual comfortable state of being When we face such a breakdown we have an opportunity to reconsider our fundamental thinking and perspective In other words we begin to question the validity of our basic attitudes toward the world Such a process requires a deep personal commitment on the part of the indi vidual A breakdown demands that we turn our attention to dialogue as a means of social interaction thus helping us to create new con cepts25 This continuous process of questioning and reconsidering ex isting premises by individual members of the organization fosters orga nizational knowledge creation An environmental fluctuation often triggers a breakdown within the organization out of which new knowl edge can be created Some have called this phenomenon creating or der out of noise or order out of chaos 26 Chaos is generated naturally when the organization faces a real cri sis such as a rapid decline of performance due to changes in market needs or significant growth of competitors It can also be generated intentionally when the organizations leaders try to evoke a sense of crisis among organizational members by proposing challenging goals Ryuzaburo Kaku chairman of Canon often says The role of top man agement is to give employees a sense of crisis as well as a lofty ideal Nonaka 1985 p 142 This intentional chaos which is referred to as creative chaos increases tension within the organization and focuses the attention of organizational members on defining the problem and resolving the crisis situation This approach is in sharp contrast to the informationprocessing paradigm in which a problem is simply given and a solution found through a process of combining relevant informa tion based upon a preset algorithm Such a process ignores the impor tance of defining the problem to be solved To attain such definition problems must be constructed from the knowledge available at a cer tain point in time and context Japanese companies often resort to the purposeful use of ambiguity and creative chaos Top management often employs ambiguous vi sions or socalled strategic equivocality and intentionally creates a fluctuation within the organization Nissans CEO Yutaka Kume for example coined the catch phrase Lets change the flow by which he tried to promote creativity through an active investigation of alterna tives to established procedures When the philosophy or vision of top management is ambiguous that ambiguity leads to interpretative equivocality at the level of the implementing staff It should be noted that the benefits of creative chaos can only be realized when organizational members have the ability to reflect upon their actions Without reflection fluctuation tends to lead to destruc tive chaos Schon 1983 captures this key point as follows When someone reflects while in action he becomes a researcher in the prac tice context He is not dependent on the categories of established the ory and technique but constructs a new theory of the unique case p 80 The KnowledgeCreating Company 68 The knowledgecreating organization is required to institutional ize this reflectioninaction in its process to make chaos truly cre ative Top managements ambiguity with respect to philosophy or vision can lead to a reflection or questioning of value premises as well as of factual premises upon which corporate decision making is anchored Value premises aresubjective in nature and concern preferences they make possible a far broader range of choice Factual premises on the other hand are objective in nature and deal with how the real world operates they provide a concrete but limited range of choice Chaos is sometimes created independently of top managements phi losophy An individual organizational member can set a high goal in order to elevate him or herself or the team to which he or she belongs Hiroo Watanabes pursuit of the ideal car challenging the reason ing of Detroit is an example of a goal set high High goals whether set by top management or individual employees enhance personal commitment As Taiyu Kobayashi the former chairman of Fujitsu pointed out high goals may intensify individual wisdom as well Relaxed in a comfortable place one can hardly think sharply Wisdom is squeezed out of someone who is standing on the cliff and is struggling to survive without such struggles we would have never been able to catch up with IBM Kobayashi 1985 p 171 In sum fluctuation in the organization can trigger creative chaos which induces and strengthens the subjective commitment of individu als In actual daytoday operation organizational members do not reg ularly face such a situation But the example from Nissan has shown that top management may intentionally bring about fluctuation and allow interpretative equivocality to emerge at lower levels of the or ganization This equivocality acts as a trigger for individual members to change their fundamental ways of thinking It also helps to exter nalize their tacit knowledge Redundancy Redundancy is the fourth condition that enables the knowledge spiral to take place organizationally To Western managers who are preoccu pied with the idea of efficient information processing or uncertainty reduction Galbraith 1973 the term redundancy may sound perni cious because of its connotations of unnecessary duplication waste or information overload What we mean here by redundancy is the exist ence of information that goes beyond the immediate operational re quirements of organizational members In business organizations re dundancy refers to intentional overlapping of information about business activities management responsibilities and the company as a whole For organizational knowledge creation to take place a concept ere Theory of Organizational Knowledge Creation 81 ated by an individual or group needs to be shared by other individuals who may not need the concept immediately Sharing redundant infor mation promotes the sharing of tacit knowledge because individuals can sense what others are trying to articulate In this sense redun dancy of information speeds up the knowledgecreation process Redun dancy is especially important in the concept development stage when it is critical to articulate images rooted in tacit knowledge At this stage redundant information enables individuals to invade each others functional boundaries and offer advice or provide new informa tion from different perspectives In short redundancy of information brings about learning by intrusion into each individuals sphere of perception Redundancy of information is also a prerequisite to realization of McCullochs 1965 principle of redundancy of potential command that is each part of an entire system carrying the same degree of im portance and having a potential of becoming its leader Even within a strictly hierarchical organization redundant information helps build unusual communication channels Thus redundancy of information fa cilitates the interchange between hierarchy and nonhierarchy27 Sharing extra information also helps individuals understand where they stand in the organization which in turn functions to control the direction of individual thinking and action Individuals are not uncon nected but loosely coupled with each other and take meaningful posi tions in the whole organizational context Thus redundancy of informa tion provides the organization with a selfcontrol mechanism to keep it heading in a certain direction There are several ways to build redundancy into the organization One is to adopt an overlapping approach as illustrated by Japanese companies rugbystyle product development in which different func tional departments work together in a fuzzy division of labor Takeu chi and Nonaka 1986 Some companies divide the product develop ment team into competing groups that develop different approaches to the same project and then argue over advantages and disadvantages of their proposals This internal competition encourages the team to look at a project from a variety of perspectives Under the guidance of a team leader the team eventually develops a common understanding of the best approach Another way to build redundancy into the organization is through a strategic rotation of personnel especially between vastly different areas of technology or functions such as RD and marketing Such rotation helps organizational members understand its business from multiple perspectives thereby making organizational knowledge more fluid and easier to put into practice It also enables each employee to diversify her or his skills and information sources The extra informa tion held by individuals across different functions helps the organiza tion expand its knowledgecreation capacity One of the most notable characteristics of Japanese organizations 82 The KnowledgeCreating Company compared with their Western counterparts is the value placed on re dundant information Leading Japanese firms have institutionalized redundancy within themselves in order to develop new products and services swiftly in response to fastchanging markets and technologies Japanese firms have also developed many other organizational devices that increase and maintain redundancy Among them are frequent meetings on both regular and irregular bases eg Hondas brain storming camp or tama dashi kai and formal and informal communi cation networks eg drinking sessions after working hours These devices facilitate the sharing of both tacit and explicit knowledge Redundancy of information increases the amount of information to be processed and can lead to the problem of information overload It also increases the cost of knowledge creation at least in the short run eg decreased operational efficiency Therefore balancing between creation and processing of information is another important issue One way to deal with the possible downside of redundancy is to make clear where information can be located and where knowledge is stored within the organization Requisite Variety The fifth condition that helps to advance the knowledge spiral is requi site variety According to Ashby 1956 an organizations internal di versity must match the variety and complexity of the environment in order to deal with challenges posed by the environment Organiza tional members can cope with many contingencies if they possess req uisite variety which can be enhanced by combining information differ ently flexibly and quickly and by providing equal access to information throughout the organization To maximize variety every one in the organization should be assured of the fastest access to the broadest variety of necessary information going through the fewest steps Numagami Ohta and Nonaka 1989 When information differentials exist within the organization orga nizational members cannot interact on equal terms which hinders the search for different interpretations of new information Kao Corp Ja pans leading maker of household products such as detergents believes that all employees should have equal access to corporate information Kao has developed a computerized information network for this pur pose It has become the basis for opinion exchanges among various or ganizational units with different viewpoints Kao has also built an organizational structure shown in Figure 3 8 that allows the various organizational units and the computerized information network to be interwoven organically and flexibly Kao named this structure a biofunctiontype of organization Under this structure each organization unit works in unison with other units to cope with various environmental factors and events just as a living Theory of Organizational Knowledge Creation 83 Sanitary products division Home products division RD and production General affairs group Personnel committee Kao life sciences laboratories Societyrelated group Household products sales division f Head office for pollution preventioni V safety promotion Sales control 1 Distribution development group Distribution planning group Home products education group Research and technology development division Tochigi research institute Fundamental science laboratories Patents and information unit Research and technology development unit CBoard of Director Qnang i ngdrect o r s Engineering service Floppy disk business center Organizational development project center I Total creativityvompanywide service staff revolution projectJ Corporate staff divsion Chemical division TCR promotion group System development Figure 38 Kaos biofunctiontype organizational structure Source Kao Corp organism would The human body for example reacts instinctively to itching by scratching the part of the body affected The message re layed from the skin is received by the brain which orders the hand movement Lymph glands also go into action if necessary Kao regards this kind of coordinated chain reaction an ideal way to cope with the external environment Kao believes this biofunctiontype structure helps to eliminate hierarchy and foster organizational knowledge cre ation Developing a flat and flexible organizational structure in which the different units are interlinked with an information network is one way to deal with the complexity of the environment Another way to react quickly to unexpected fluctuations in the environment and maintain internal diversity is to change organizational structure frequently Matsushita for example restructured its divisional system three times in the past decade In addition frequent rotation of personnel enables employees to acquire multifunctional knowledge which helps them to cope with multifaceted problems and unexpected environmental fluc tuations Such a fastcycle rotation of personnel can be seen at the Ministry of International Trade and Industry MITI where the bu reaucrats rotate from one job to the next every two years FivePhase Model of the Organizational Knowledge Creation Process Thus far we have looked at each of the four modes of knowledge con version and the five enabling conditions that promote organizational knowledge creation In this section we present an integrated five phase model of the organizational knowledgecreation process using 84 The KnowledgeCreating Company the basic constructs developed within the theoretical framework and incorporating the time dimension into our theory The model which should be interpreted as an ideal example of the process consists of five phases 1 sharing tacit knowledge 2 creating concepts 3 justi fying concepts 4 building an archetype and 5 crossleveling knowl edge see Figure 39 The organizationalknowledgecreation process starts with the shar ing of tacit knowledge which corresponds roughly to socialization since the rich and untapped knowledge that resides in individuals must first be amplified within the organization In the second phase tacit knowledge shared by for example a selforganizing team is con verted to explicit knowledge in the form of a new concept a process similar to extemalization The created concept has to be justified in the third phase in which the organization determines if the new concept is truly worthy of pursuit Receiving the goahead the concepts are con verted in the fourth phase into an archetype which can take the form of a prototype in the case of hard product development or an op erating mechanism in the case of soft innovations such as a new corporate value a novel managerial system or an innovative organiza tional structure The last phase extends the knowledge created in for example a division to others in the division across to other divisions or even to outside constituents in what we term crossleveling of knowledge These outside constituents include consumers affiliated companies universities and distributors A knowledgecreating com pany does not operate in a closed system but in an open system in Figure 39 Fivephase model of the organizational knowledgecreation process Theory of Organizational Knowledge Creation 85 which knowledge is constantly exchanged with the outside environ ment We shall describe each of the five phases in more detail below The First Phase Sharing Tacit Knowledge As we have mentioned repeatedly an organization cannot create knowledge by itself Since tacit knowledge held by individuals is the basis of organizational knowledge creation it seems natural to start the process by focusing on tacit knowledge which is the rich untapped source of new knowledge But tacit knowledge cannot be communi cated or passed onto others easily since it is acquired primarily through experience and not easily expressible in words Thus the shar ing of tacit knowledge among multiple individuals with different back grounds perspectives and motivations becomes the critical step for or ganizational knowledge creation to take place The individuals emotions feelings and mental models have to be shared to build mu tual trust To effect that sharing we need a field in which individuals can interact with each other through facetoface dialogues It is here that they share experiences and synchronize their bodily and mental rhythms The typical field of interaction is a selforganizing team in which members from various functional departments work together to achieve a common goal Examples of a selforganizing team include Matsushitas Home Bakery team and the Honda City team At Matsu shita team members apprenticed themselves to the head baker at the Osaka International Hotel to capture the essence of kneading skill through bodily experience At Honda team members shared their mental models and technical skills in discussing what an ideal car should evolve into often over sake and away from the office These examples show that the first phase of the organizational knowledge creation process corresponds to socialization A selforganizing team facilitates organizational knowledge creation through the requisite variety of the team members who experience redundancy of information and share their interpretations of organiza tional intention Management injects creative chaos by setting chal lenging goals and endowing team members with a high degree of au tonomy An autonomous team starts to set its own task boundaries and as a boundaryspanning unit begins to interact with the exter nal environment accumulating both tacit and explicit knowledge The Second Phase Creating Concepts The most intensive interaction between tacit and explicit knowledge occurs in the second phase Once a shared mental model is formed in the field of interaction the selforganizing team then articulates it through further continuous dialogue in the form of collective reflec 86 The KnowledgeCreating Company tion The shared tacit mental model is verbalized into words and phrases and finally crystallized into explicit concepts In this sense this phase corresponds to extemalization This process of converting tacit knowledge into explicit knowledge is facilitated by the use of multiple reasoning methods such as deduction induction and abduction Particularly useful for this phase is abduc tion which employs figurative language such as metaphors and analo gies In developing City for example the Honda development team made ample use of figurative language such as Automobile Evolu tion manmaximum machineminimum and Tall Boy The qual ity of dialogue among team members can also be raised through the use of dialectics which instills a creative way of thinking into the or ganization It is an iterative and spiral process in which contradictions and paradoxes are utilized to synthesize new knowledge Concepts are created cooperatively in this phase through dialogue Autonomy helps team members to diverge their thinking freely with intention serving as a tool to converge their thinking in one direction To create concepts team members have to rethink their existing prem ises fundamentally Requisite variety helps the team in this regard by providing different angles or perspectives for looking at a problem Fluctuation and chaos either from the outside or inside also help members to change their way of thinking fundamentally Redundancy of information enables team members to understand figurative lan guage better and to crystallize their shared mental model The Third Phase Justifying Concepts In our theory of organizational knowledge creation knowledge is de fined as justified true belief Therefore new concepts created by indi viduals or the team need to be justified at some point in the procedure Justification involves the process of determining if the newly created concepts are truly worthwhile for the organization and society It is similar to a screening process Individuals seem to be justifying or screening information concepts or knowledge continuously and uncon sciously throughout the entire process The organization however must conduct this justification in a more explicit way to check if the organizational intention is still intact and to ascertain if the concepts being generated meet the needs of society at large The most appro priate time for the organization to conduct this screening process is right after the concepts have been created28 For business organizations the normal justification criteria include cost profit margin and the degree to which a product can contribute to the firms growth But justification criteria can be both quantitative and qualitative For example in the Honda City case the Tall Boy concept had to be justified against the vision established by top man agementto come up with a product concept fundamentally different Theory of Organizational Knowledge Creation 87 from anything the company had done before and to make a car that was inexpensive but not cheap It also had to be justified against the productline concept articulated by middle managementto make the car manmaximum machineminimum More abstract criteria may include value premises such as adventure romanticism and aesthet ics Thus justification criteria need not be strictly objective and factual they can also be judgmental and valueladen In a knowledgecreating company it is primarily the role of top man agement to formulate the justification criteria in the form of organiza tional intention which is expressed in terms of strategy or vision Mid dle management can also formulate the justification criteria in the form of midrange concepts Although the key justification criteria are set by top management and to some extent by middle management this does not preclude other organizational units from having some autonomy in deciding their own subcriteria For example a committee comprised of 200 young employees within Matsushita determined that Matsushita employees in the twentyfirst century should become vol untary individuals to adapt to expected social changes as will be dis cussed in more detail in the next chapter To this extent a companys justification criteria should be consistent with value systems or needs of the society at large which should ideally be reflected in organiza tional intention To avoid any misunderstanding about the companys intention redundancy of information helps facilitate the justification process The Fourth Phase Building an Archetype In this fourth phase the justified concept is converted into something tangible or concrete namely an archetype An archetype can be thought of as a prototype in the case of a newproduct development process In the case of service or organizational innovation an arche type could be thought of as a model operating mechanism In either case it is built by combining newly created explicit knowledge with existing explicit knowledge In building a prototype for example the explicit knowledge to be combined could take the form of technologies or components Because justified concepts which are explicit are con verted into archetypes which are also explicit this phase is akin to combination Just as an architect builds a mockup before starting the actual con struction organizational members engage in building a prototype of the real product or a model of the actual system To build a prototype they pull together people with differing expertise eg RD produc tion marketing quality control develop specifications that meet ev eryones approval and actually manufacture the first fullscale form of a newly created product concept To build a model say of a new organizational structure people from the affected sections within the 88 The KnowledgeCreating Company organization as well as experts in different fields eg human re sources management legal strategic planning are assembled to draw up a new organizational chart job description reporting system or operating procedure In a way their role is similar to that of the archi tectthey are responsible for developing the blueprint as well as actu ally building the new form of an organizational concept Attention to detail is the key to managing this complex process Because this phase is complex dynamic cooperation of various de partments within the organization is indispensable Both requisite va riety and redundancy of information facilitate this process Organiza tional intention also serves as a useful tool for converging the various kinds of knowhow and technologies that reside within the organiza tion as well as for promoting interpersonal and interdepartmental co operation On the other hand autonomy and fluctuation are generally not that relevant at this stage of the organizational knowledge creation process The Fifth Phase CrossLeveling of Knowledge Organizational knowledge creation is a neverending process that up grades itself continuously It does not end once an archetype has been developed The new concept which has been created justified and modeled moves on to a new cycle of knowledge creation at a different ontological level This interactive and spiral process which we call crossleveling of knowledge takes place both intraorganizationally and interorganizationally Intraorganizationally knowledge that is made real or that takes form as an archetype can trigger a new cycle of knowledge creation expanding horizontally and vertically across the organization An ex ample of horizontal crossfertilization can be seen within Matsushita where Home Bakery induced the creation of other Easy Rich prod uct concepts such as a fully automatic coffee maker within the same division and a new generation of largescreen TV sets from another division In these cases crossfertilization took place across different sections within a division as well as across different divisions An ex ample of vertical crossfertilization also comes from Matsushita The development of Home Bakery inspired Matsushita to adopt Human Electronics as the umbrella concept at the corporate level This um brella concept opened up a series of soulsearching activities within the company to address what kind of company Matsushita should be in the twentyfirst century and how human Matsushita employees can be These activities culminated in the development of MIT93 Mind and Management Innovation Toward 93 which was instrumental in re ducing the number of annual working hours at the front line to 1800 hours thereby freeing up time for people at the front line In this case Theory of Organizational Knowledge Creation 89 knowledge created in one division led to the adoption of an umbrella concept at the corporate level which in turn affected the lives of em ployees at the front line Interorganizationally knowledge created by the organization can mobilize knowledge of affiliated companies customers suppliers com petitors and others outside the company through dynamic interaction For example an innovative new approach to budgetary control devel oped by one company could bring about changes in an affiliated com panys financial control system which in turn may trigger a new round of innovation Or a customers reaction or feedback to a newproduct concept may initiate a new cycle of product development At Apple Computer for example when product development engineers come up with ideas for new products they build a prototype that embodies those ideas and bring it directly to customers to seek their reaction De pending on the reaction or feedback a new round of development may be initiated For this phase to function effectively it is essential that each organi zational unit have the autonomy to take the knowledge developed somewhere else and apply it freely across different levels and bound aries Internal fluctuation such as the frequent rotation of personnel will facilitate knowledge transfer So will redundancy of information and requisite variety And in intraorganizational crossleveling orga nizational intention will act as a control mechanism on whether or not knowledge should be crossfertilized within the company Summary Recall that we started to develop our theoretical framework in this chapter by pointing out the two dimensionsepistemological and onto logicalof organizational knowledge creation see Figure 31 The epistemological dimension which is graphically represented on the vertical axis is where knowledge conversion takes place between tacit knowledge and explicit knowledge Four modes of this conversionso cialization externalization combination and internalizationwere discussed These modes are not independent of each other but their interactions produce a spiral when time is introduced as the third di mension We introduced five organizational conditionsintention fluctuationchaos autonomy redundancy and requisite varietythat enable thus the term enabling conditions the four modes to be transformed into a knowledge spiral The ontological dimension which is represented in the horizontal axis is where knowledge created by individuals is transformed into knowledge at the group and organizational levels These levels are not independent of each other but interact with each other iteratively and continuously Again we introduced time as the third dimension to de 90 The KnowledgeCreating Company velop the fivephase process of organizational knowledge creation sharing tacit knowledge creating concepts justifying concepts build ing an archetype and crossleveling knowledge Another spiral takes place at the ontological dimension when knowledge developed at for example the projectteam level is transformed into knowledge at the divisional level and eventually at the corporate or interorganizational level The five enabling conditions promote the entire process and facil itate the spiral The transformation process within these two knowledge spirals is the key to understanding our theory If we had a threedimensional chart we could show that the knowledge spiral at the epistemological level rises upward whereas the knowledge spiral at the ontological level moves from left to right and back again to the left in a cyclical motion And of course the truly dynamic nature of our theory can be depicted as the interaction of the two knowledge spirals over time Innovation emerges out of these spirals Notes 1 Shannon later commented I think perhaps the word information is causing more trouble than it is worth except that it is difficult to find another word that is anywhere near right It should be kept solidly in mind that information is only a measure of the difficulty in transmitting the se quence produced by some information source quoted by Roszack 1986 p 12 Boulding 1983 notes that Shannons assessment was analogous to a telephone bill which is calculated on the basis of time and distance but gives no insight into the content of information and called it Bell Telephone BT information Dretske 1981 argues that a genuine theory of information would be a theory about the content of our messages not a theory about the form in which this content is embodied 2 The importance of the knowledgeaction relationship has been recog nized in the area of artificial intelligence For example Gruber 1989 exam ined experts strategic knowledge that guides their actions and has at tempted to develop tools for acquiring such knowledge 3 Brown and Duguids 1991 work on evolving communities of practice shows how individuals actual ways of working and learning might be very different from relatively rigid official practices specified by the organization In reality informal groups evolve among individuals seeking to solve a partic ular problem or pursuing other commonly held objectives Membership in these groups is decided by individuals abilities to trade practically valuable information Orr 1990 argues that members exchange ideas and share narra tives or war stories thereby building a shared understanding out of conflict ing and confusing information Thus knowledge creation includes not only in novation but also learning that can shape and develop approaches to daily work 4 For example we recognize our neighbors face without being able to ex plain how to do so in words Moreover we sense others feelings from their Theory of Organizational Knowledge Creation 91 facial expressions but explaining them in words is more difficult Put another way while it is virtually impossible to articulate the feelings we get from our neighbors face we are still aware of the overall impression For further discus sion on tacit knowledge see Polanyi 1958 and Gelwick 1977 5 We did not include Polanyi in Chapter 2 because he is still considered minor in Western philosophy because of his view and background Michael Polanyi was born in Hungary and was the brother of Karl Polanyi an econo mist who may be better known as the author of The Great Transformation Michael Polanyi himself was a renowned chemist and rumored to be very close to the Nobel prize until he turned to philosophy at the age of 50 Polanyis philosophy has implicit or explicit agreements with those of later Witt genstein and MerleauPonty in terms of their emphases on action body and tacit knowledge For a discussion on an affinity between Polanyi and later Wittgenstein with regard to tacit knowledge see Gill 1974 6 Brown 1992 argues that The organizations of the future will be knowledge refineries in which employees will synthesize understanding and interpretations from the sea of information that threatens to flood them from all sides p 3 In a knowledge refinery he continues workers need to collabo rate with both the past and the present While collaboration with the present is about sharing tacit knowledge collaboration with the past draws on experi ences gained from previous ways of doing things 7 According to Maturana and Varela 1980 The linguistic domain as a domain of orienting behavior requires at least two interacting organisms with comparable domains of interactions so that a cooperative system of consensual interactions may be developed in which the emerging conduct of the two organ isms is relevant for both The central feature of human existence is its occurrence in a linguistic cognitive domain This domain is constitutively so cial p xxiv 8 The ACT model is consonant with Ryles 1949 categorization of knowl edge into knowing that something exists and knowing how it operates Also Squire 1987 listed contending taxonomies with more than a dozen la bels such as implicit vs explicit and skill memory vs fact memory Most of these distinctions separate properties to be grouped under procedural from those to be classified declarative 9 A survey of 105 Japanese middle managers was conducted to test the hypothesis that the knowledge creation construct is comprised of four knowl edge conversion processessocialization externalization combination and in ternalization Factor loadings from firstorder and secondorder factor analyses empirically validated the existence of these four conversion processes For de tails see Nonaka Byosiere Borucki and Konno 1994 10 For a limited analysis of externalization from a viewpoint of information creation see Nonaka 1987 11 CannonBowers Salas and Converse 1993 define shared mental mod els as knowledge structures held by members of a team that enable them to form accurate explanations and expectations for the task and in turn to coor dinate their actions and adapt their behavior to demands of the task and other team members p 228 based upon their extensive review of the literature on the shared mental model and their research on team decision making To understand how a shared mental model is created the German philosopher 92 The KnowledgeCreating Company HansGeorg Gadamers concept of fusion of horizons is helpful The concept was developed for philosophical hermeneutics or the study of methodology for interpreting historical texts Gadamer 1989 argues that a true understanding of a text is a fusion of the interpreters and the authors horizons He defines the horizon as the range of vision that includes everything that can be seen from a particular vantage point p 302 Applying this concept to our context we can argue that socialization is a fusion of participants tacit knowledge into a shared mental model 12 Proposing the concept of field epistemology Scheflen 1982 empha sizes the importance of interaction rhythms in forming a field for common understanding and contends that communication is the simultaneous sharing of information existing in the situation Similarly Condon 1976 argues that communication is a simultaneous and contextual phenomenon in which people feel a change occurring share the same sense of change and are moved to take action In other words he says communication is like a wave that passes through peoples bodies and culminates when everyone synchronizes with the wave From a social psychological perspective Hogg and Abrams 1993 ob serve that group behavior might be motivated by a search for meaning and a coherent selfconcept p 189 13 Graumann 1990 views dialogue as multiperspective cognition As noted before language is inherently related to action as suggested by the term speech act Austin 1962 Searle 1969 Dialogue therefore may be seen as a collective action Moreover according to Kant the world is created by lan guage and creating concepts is creating the world 14 Interviewed on January 25 1984 15 These authors emphasize the importance of creating shared meaning for organized action arguing that equifinal meanings for joint experience need to be developed to create shared meaning in the organization Metaphor is one of four mechanisms to develop equifinal meanings that they found through their discourse analyses For more discussion about metaphor and the other three mechanismslogical argument affect modulation and linguistic indi rectionsee Donnellon Gray and Bougon 1986 16 The following famous episode illustrates the process F A Kekule a German chemist discovered the chemical structure of benzenea hexagonal ring of carbon atomsthrough a dream of a snake gripping its own tail In this case the snake pattern was a metaphor and possible combinations of the pattern became analogies of other organic chemical compounds Thus Kekule developed the structural model of organic chemistry 17 According to Lakoff and Johnson 1980 metaphor is pervasive in ev eryday life not just in language but in thought and action p 3 18 Information and communications technologies used for this purpose in clude VAN ValueAdded Network LAN Local Area Network EMail Elec tronic Mail POS PointOfSales system Groupware for CSCW Computer Supported Cooperative Work and CADCAM ComputerAided DesignManu facturing 19 In the triad database system data from the Market Metrics Supermar ket Solutions system which integrates POS data from supermarkets nation wide is hooked to customized data on shopping behaviors provided by Informa tion Resources and lifestyle data from the Equifax Marketing Decision Theory of Organizational Knowledge Creation 93 Systems Microvision database For more information see Micro Merchandizing with KGF Food and Beverage Marketing 10 no 6 1991 Dawn of Brand Analysis Food and Beverage Marketing 10 no 10 1991 and Partnering Supermarket Business 46 no 5 1991 20 Neisser 1976 argues that cognition as knowing and understanding oc curs only in the context of purposeful activity From an organization theory perspective moreover Weick 1979 contends that an organizations interpre tation of environmental information has an element of selffulfilling prophecy because the organization has a strong will to selfactualize what it wants to become He calls this phenomenon the enactment of environment 21 Seen from the Simonian viewpoint of bounded rationality and the viewpoint that the goal of the organization is to process information efficiently autonomy is merely a source of noise and therefore not desirable The notion of cognitive limit is indeed a commonsensical one that is difficult to beat If however we approach the same problem from the viewpoint that human be ings have an unlimited capability to obtain and create knowledge it appears that human beings know no boundary in experiencing and accumulating tacit knowledge Underlying that accumulation of tacit knowledge is the sense of purpose and autonomy Human beings often create noise intentionally thereby overcoming themselves 22 The team should be established with due consideration of the principles of selforganization such as learning to learn requisite variety minimum criti cal specification and redundancy of functions Morgan 1986 Requisite vari ety will be discussed later 23 In our Harvard Business Review article entitled The New New Product Development Game Takeuchi and Nonaka 1986 we argued that in todays fastpaced and fiercely competitive world this overlapping rugbystyle ap proach has tremendous merit in terms of speed and flexibility 24 Gibson 1979 hypothesizes that knowledge lies in the environment it self contrary to the traditional epistemological view that it exists inside the human brain Norman 1988 argues that knowledge exists not only inside the brain but also in the external world in the forms of things others and situa tions 25 Piaget 1974 notes the importance of the role of contradiction in the interaction between subject and environment The root of contradiction he ar gues lies in the coordination between the positive and negative sides of specific perception or behavior which in turn is indispensable for creating new con cepts 26 According to the principle of order out of noise proposed by von Foers ter 1984 the selforganizing system can increase its ability to survive by purposefully introducing such noise into itself Order in the natural world in cludes not only the static and crystallized order in which entropy is zero but also the unstable order in which new structures are formed by the working of matter and energy The latter is what Prigogine and Stengers 1984 call order out of chaos in their theory of dissipative structure In an evolutionary planning perspective moreover Jantsch 1980 argues In contrast to widely held belief planning in an evolutionary spirit therefore does not result in the reduction of uncertainty and complexity but in their increases Uncertainty increases because the spectrum of options is deliberately widened imagination 94 The KnowledgeCreating Company comes into play p 267 Researchers who have developed the chaos theory have found the creative nature of chaos See for example Gleick 1987 and Waldrop 1992 For applications of the chaos theory to management see Nonaka 1988a and Zimmerman 1993 27 Using the term heterarchy which means nonhierarchy Hedlund 1986 explains the role of redundant information as a vehicle for problem for mulation and knowledge creation on the basis of procedures different from those officially specified by the organization 28 The final justification of created concepts and their realized forms ie products andor services occurs in the marketplace 4 Creating Knowledge in Practice T his chapter uses the Matsushita Electric Industrial Co Ltd to illustrate the theoretical framework of organizational knowl edge creation presented in Chapter 3 Although a variety of ref erences have been used to illustrate each component of the theoretical framework this chapter will illustrate the entire process of knowledge creation within a single Japanese company The Matsushita case is divided into two parts The first part explains the development by Ma tsushita of a breadmaking appliance known as Home Bakery and its subsequent effect throughout the company In the second part we analyze the continuous process of knowledge creation at the corporate level of Matsushita Matsushitas Home Bakery is the first fully automatic breadmaking machine for home use introduced to the Japanese market in 1987 It transforms raw ingredients into freshly baked bread doing everything from kneading and fermenting the dough to actually baking bread of a quality that compares favorably with what a professional baker would produce All that is required is the mixing of flour butter salt water and yeast For even further convenience a premeasured breadmix package can be used to save the trouble of measuring out the required ingredients The machine is remarkable in that it embodies the skills of a master baker in a device that can be operated easily by people with no knowledge of bread making It captures the skills of a baker in such a way that the critical doughkneading process which previously 95 96 The KnowledgeCreating Company depended on the bakers tacit knowledge can be reproduced consis tently using electromechanical technology The Home Bakerys development story supports our theory presented in the previous chapter in two ways First it illustrates the four modes of knowledge conversionsocialization externalization combination and internalization It is especially suited to show how tacit knowledge is mobilized in the pursuit of creative innovation Second it illustrates enabling conditions as well as the five phases of knowledge creation sharing tacit knowledge creating concepts justification building ar chetypes and crossleveling of knowledge We will discover that knowledge creation is not a linear process but rather a cyclical and iterative process As evidence of this the development of Home Bakery required knowledge creation to move along the five phases a total of three times or cycles The second half of the case shows how the knowledge created through the development of Home Bakery was elaborated within Ma tsushita resulting in a broader spiral of knowledge creation The de velopments that took place in the Cooking Appliances Division eventu ally triggered changes in other parts of the company and strongly affected corporate strategy The case also highlights the importance of an organizations ability 1 to identify the type of knowledge required by the changing competitive environment and 2 to enhance the en abling conditions continuously With knowledge being perishable or ganizations cannot become complacent with todays knowledge as dif ferent types of knowledge will be required as the competitive environment changes And as we have already seen it is this ability to create new knowledge continuously that becomes the source of com petitiveness in the knowledge society Corporate Background We start the case by describing the corporate background leading to the development of Home Bakery As the Japanese household appli ances market matured in the 1970s Matsushitas operational profit ability diminished in the face of strong price competition By 1977 954 percent of Japanese households already owned color television sets 945 percent owned vacuum cleaners 984 percent owned refriger ators 985 percent owned washing machines and 943 percent owned irons In addition rivals from newly industrialized countries had been improving their position as lowcost competitors A threeyear corporate plan called ACTION 61 was announced in May 1983 ACTION was an acronym that stood for Action Cost re duction Topical products Initiative in marketing Organizational re activation and New management strength The number 61 stood for the sixtyfirst year of Emperor Hirohitos era or 1986 The objectives Creating Knowledge in Practice 97 of this plan were twofold 1 to improve Matsushitas competitiveness in its core businesses through careful attention to cost and marketing and 2 to assemble the resources necessary to enter new markets his torically dominated by competitors such as IBM Hitachi NEC and Fujitsu These two objectives were expressed in a slogan that came to be known as Beyond Household Appliances Naoki Wakabayashi then chief of the Strategy Planning Section recalls the sentiment in those days Looking at market share we were losing share in TV sets and in radios The whole market was for replacements and not growing Thats why we needed to move into the industrial market We felt that we might not be able to survive without moving into a new world Of course the household appliances were our core business and we were not going to retreat from them We wanted to move beyond but not out of house hold appliances Yanagida 1986 p 31 Creative chaos was brought into the Household Appliances Group in 1983 as the company shifted its strategic focus from household appli ances to hightech and industrial products This strategic shift led to the restructuring of the core business and also led to the integration of three divisions into the Cooking Appliances Division as we shall see below This integration brought further chaos and requisite variety into the newly formed division and put pressure on the Household Appli ances Group to develop innovative products Improving competitive ness and assuring survival were the name of the game Integration of the Three Problem Children In May 1984 three divisions were integrated into the Cooking Appli ances Division as part of ACTION 61 The intent was twofold to im prove organizational efficiency by eliminating the duplication of re sources and to restore the growth track by combining the technology and knowhow of the three divisions The three divisions were the RiceCooker Division which made microcomputercontrolled rice cook ers the Heating Appliances Division which made hot plates oven toasters and coffee makers using induction heater technology and the Rotation Division which made motorized products such as food pro cessors All of these products faced market maturity see Figure 41 The market for rice cookers was no longer growing with the only growth coming from microcomputercontrolled rice cookers replacing conven tional types The oventoaster market was not growing as well while the demand was shrinking for food processors because consumers felt the setup and cleaning after use were inconvenient The benefits of the integration were not initially apparent see Fig 98 The KnowledgeCreating Company Rice cooker Electric thermo pot Oventoaster Coffee brewer Hot plate Food processor Figure 41 Market penetration rates of the main products Source M atsu shita Electric Industrial Co Ltd ure 42 In the two years immediately following the integration the new divisions profitability improved from 72 percent in 1984 to 90 percent as a result of eliminating excess capacity However the divi sion still suffered declining sales from 627 billion yen in 1984 to 604 billion yen in 1986 Consequently people in the division as well as in other parts of the company started to question the benefits of the integration Ikuji Masumura the Strategy Planning Section chief said It was apparent that sales had been slowing after the integration Many discussions took place on the benefits of integration on sales We thought it was not enough to combine existing businesses reduce fixed costs and survive There was a sentiment that something new had to be started utilizing the characteristics of the three divisions1 Enabling Conditions at Matsushita The companys strategic shift and the integration of the three divisions introduced a sense of crisis into the Cooking Appliances Division The resulting creative chaos inspired individual intention and commitment throughout the division These employees who had pride in the tradi tional core business felt that unless they could develop a homerun product a completely new product based on a unique technology that combined the knowledge of the three divisions their ability to improve competitiveness would be questioned The integration also brought in requisite variety The three divisions Creating Knowledge in Practice 99 70 Γ 0 ED Home Bakery Q Others 3 Food processor S Coffee brewer Π Oventoaster hot plate H Rice cooker electric thermo pot Figure 42 Sales of the Cooking Appliances Division Source Matsushita Electric Industrial Co Ltd contained a total of 1400 employees coming from completely different divisional cultures It was apparent that they had different back grounds and different ways of doing business It almost seemed as though they spoke different languages Following the introduction of creative chaos communications had to be improved in order to foster the redundancy of information The fact that the three divisions had totally different cultures ways of doing things and even languages made it very difficult for communication to flow with any ease To deal with this problem the new division sent 13 middle managers from various sections to a threeday retreat to discuss the divisions present situation and future direction which was an attempt to mobilize and share their tacit knowledge To diffuse ex plicit knowledge within the division the personnel department pub lished a newspaper called HotLine for factory workers Keimei Sano the Cooking Appliances Division chief commented on the importance of communication as follows Speaking a common language and having discussions can assemble the power of the group This is a vital point even though it takes time to develop a common language2 The final enabling condition was the development of organizational intention which was to guide a group of diverse individuals toward one goal one direction To find clues and suggestions about what that direction might be for the division a planning team was sent to the United States in 1984 to observe trends in the daily lives of Americans 100 The KnowledgeCreating Company What they observed there were more working women increasingly simplified home cooking and poorer diets according to Masumura Recognizing that the same trends were evident in Japan the team came to the conclusion that cooking appliances should make meals simple to prepare but at the same time make them tasty and rich in nutrition As a result the division came up with an overall con cept that came to be known as Easy Rich The team believed that an appliance that could produce delicious and nutritious food easily would respond to the needs of working women and gourmet aficio nados The First KnowledgeCreation Spiral Around the Development of Home Bakery It was not long after the return of the planning team to Japan that a rough design for an automatic home bakery machine was proposed by Hoshiden Electronics Co Ltd3 From this development Matsushitas team immediately saw that Easy Rich could be associated with an automatic breadmaking machine The idea of a fully automatic bread making machine also embodied many qualities that were appropriate to the divisions new objectives It was completely new and it involved multiple technologies such as computercontrolled heating systems from rice cookers motors from food processors and heating devices from hot plates The idea of an automatic bakery was not entirely new to Matsushita Some development work had been done at Kyushu Matsushita its sub sidiary in 1977 but it was suspended in 1980 because of technological difficulties and the prediction of a small anticipated demand The for mer Heating Appliances Division also developed and marketed an elec tric oven in 1973 to ferment and bake bread but attempts to develop an oven that kneaded dough had failed This experience was instru mental in Matsushitas decision to reject Hoshidens proposal for joint product development Nevertheless Matsushita was still attracted to the idea of an automated bread maker and elected to develop its own machine inhouse Given this background we are now ready to look in greater depth into the specifics of the product development process for Home Bakery We will observe three cycles of the knowledgecreation process Each cycle starts with the sharing of experiences among the team members From these shared experiences concepts andor archetypes are created These concepts andor archetypes are justified against the organiza tional intention The next cycle starts either to improve upon the out come or to overcome the shortcomings of the previous cycle The first cycle started with the sharing of experiences by the mem bers of the pilot team They then externalized the product concept into specific product features and assembled a prototype However the orig Creating Knowledge in Practice 101 inal prototype could not produce bread tasty enough to be justified against the concept of Rich As a result the process went into the second cycle The second cycle started with a software developer Ikuko Tanaka sharing experience with a master baker to learn how to knead bread dough properly To put this difficult knowhow into a machine Tanaka created the mental image of a twisting stretch motion to explain kneading The skill of kneading was then materialized into specific mechanics such as the movement of the propeller which kneaded dough and the design of the special ribs Because the new prototype succeeded in producing tasty bread the development moved into the third cycle with the new challenge of meeting cost requirements The third cycle began with sharing of tacit knowledge among mem bers of the commercialization team New members from the manufac turing and marketing sections were added to the team An innovative way to control fermentation known as Chumen in Japanese was developed by the team This innovation which added yeast during the kneading process produced even better bread at lower cost The re sulting bread was justified against cost and quality requirements set when the product concept was originally developed The perfected Home Bakery machine differentiated itself from competing brands that eventually entered the market and became a hit product The success of Home Bakery led to the crossleveling of knowledge at the corpo rate level The First Cycle of the Home Bakery Spiral Keimei Sano who headed the Cooking Appliances Division initiated the development work on Home Bakery in April 1984 He formed a pilot team bringing together employees from the Household Appli ances Laboratory an RD lab for four divisions including the Cooking Appliances Division with a mechanical designer and a software devel oper both of whom were familiar with bread making This ad hoc team conducted several discussions to develop the product concept that would realize Easy Rich Masao Torikoshi who was with the Household Appliances Laboratory served as the leader He developed the following product specifications himself in order to avoid any com promises 1 1 The machine must knead ferment and bake bread automatically once the ingredients are put into the machine 2 It should not need a special mix of ingredients 3 A builtin timer must allow the user to prepare the ingredients at night and have bread ready to serve in the morning 4 Bread making must not be affected by room temperature 5 The bread should have a good shape 102 The KnowledgeCreating Company 6 It should taste better than a massproduced and massmarketed one 7 The retail price should be between 30000 yen and 40000 yen Since these specifications were defined in terms of ideals rather than technological feasibility many hurdles still had to be cleared In January 1985 the project was formally approved by the company and an official team was formed jointly between the Lab and the Cook ing Appliances Division But the 11member team was drawn from several sections with Torikoshi serving as the project leader One member came from product planning three from machines two from control systems and three from software development They came into the project from completely different cultures having been assembled into one division as the result of the integration that had occurred the previous year Because the machine itself was new to the company everything had to be developed inhouse Several activitiessuch as developing the tastemeasurement system and recipes for the automatic bakery learning breadkneading and baking skills and developing the body of the machine machinery and control systemwere conducted simulta neously see Figure 43 The first prototype produced something that could hardly be de scribed as bread since it had an overcooked crust but was raw inside Several problems had to be resolved The very shape of the dough case presented the initial problem Because English bread was square the case had to be square However kneading would be much easier if the case were round The difference in electric cycles presented another problem The eastern and western parts of Japan had different electric cycles which affected the motors rotation and therefore required an adjustment in the control system The team also discovered that tem perature had a significant effect on the fermenting and baking process The ideal temperature for fermentation was 27 to 28 degrees centi grade yet the variation in summer temperatures in the different re Project leader Total product design S o ftw are H ard w are A cquisition of bread m aking skills D evelopm ent of taste evaluation criteria Product design M achine design Control system Figure 43 Product development tasks for Home Bakery Source Matsushita Electric Industrial Co Ltd Creating Knowledge in Practice 103 gions of Japan ranged between 5 and 35 degrees centigrade At too high a temperature the bread overfermented and became sour At temperatures too low the bread did not ferment enough and the dough did not rise In addition different brands and kinds of flour and yeast further complicated the control system The system had to be robust enough to produce tasty bread under any circumstances In the first cycle of knowledge creation we can observe the five en abling conditions at work First the pilot team was given full auton omy Second requisite variety existed because each member of the pilot team came into the project with a unique knowledge base Third there was redundancy of information because members with diverse knowl edge bases had basically the same job description Fourth creative chaos was introduced after the three divisions were integrated Fi nally the concept of Easy Rich was the organizational intention that served to coordinate and direct the activities of the Cooking Appli ances Division employees On the pilot team many discussions took place about what exactly Home Bakery should be The overall divisional concept of Easy Rich served as a guideline for discussion sharing tacit knowledge It was general enough to accommodate ideas that reflected each mem bers tacit knowledge At the same time the concept was specific enough to clarify the critical requirements of all product development in the Cooking Appliances Division namely ease of use and the real ization of genuine quality In realizing ease of use the tacit knowledge of each team member and the wants of consumers were externalized into product features that specified that the machine must knead ferment and bake bread automatically once the ingredients set and a builtin timer must allow the user to prepare the ingredients at night and have bread ready to serve in the morning A concrete product concept was created after sharing tacit knowledge This product concept was then justified against the organizational intention In this case the specific product features were justified against Easy Rich and accepted Once the concept was justified an archetype was built by combining explicit knowledge In other words a prototype of Home Bakery was built by combining existing technology However this prototype which over cooked the crust while leaving the dough raw inside was not justified against the original product concept As a result the knowledge creation process moved back to the beginning of the second cycle see Figure 44 The Second Cycle of the Home Bakery Spiral The second cycle began with a software developer Ikuko Tanaka shar ing the tacit knowledge of a master baker in order to learn his knead ing skill A master baker learns the art of kneading a critical step in 104 The KnowledgeCreating Company Figure 44 First cycle of the Home Bakery spiral bread making following years of experience However such expertise is difficult to articulate in words To capture this tacit knowledge which usually takes a lot of imitation and practice to master Tanaka proposed a creative solution Why not train with the head baker at Osaka International Hotel which had a reputation for making the best bread in Osaka to study the kneading techniques Tanaka learned her kneading skills through observation imitation and practice She re called At first everything was a surprise After repeated failures I began to ask where the master and I differed I dont think one can understand or learn this skill without actually doing it His bread and mine came out quite different even though we used the same materials I asked why our prod ucts were so different and tried to reflect the difference in our skill of kneading4 Even at this stage neither the head baker nor Tanaka was able to articulate knowledge in any systematic fashion Because their tacit knowledge never became explicit others within Matsushita were left puzzled Consequently engineers were also brought to the hotel and allowed to knead and bake bread to improve their understanding of the process Sano the division chief noted If the craftsmen can not explain their skills then the engineers should become crafts men5 Not being an engineer Tanaka could not devise mechanical specifi cations However she was able to transfer her knowledge to the engi neers by using the phrase twisting stretch to provide a rough image of kneading and by suggesting the strength and speed of the propeller to be used in kneading She would simply say Make the propeller move stronger or Move it faster Then the engineers would adjust the machine specifications Such a trialanderror process continued for several months Her request for a twisting stretch movement was interpreted by the engineers and resulted in the addition inside the case of special ribs that held back the dough when the propeller turned so that the dough could be stretched After a year of trial and error and working Creating Knowledge in Practice 105 closely with other engineers the team came up with product specifica tions that successfully reproduced the head bakers stretching tech nique and the quality of bread Tanaka had learned to make at the hotel The team then materialized this concept putting it together into a manual and embodied it in the product In November 1985 the team succeeded in developing a machine that could make tasty bread As illustrated in Figure 45 the product had a kneading mechanism with a motor a dough case and a yeast case that held the yeast until exactly the right moment A microcomputer controlled the heater and yeast case by way of a timer and tempera ture sensor The prototype was now ready for trial Members of the project team as well as the heads of the cooking appliances sales department the technology department and the division all took the prototype home for trial Their spouses and children made bread with the prototype and provided feedback Their comments proved that the goal of produc ing homemade quality bread was finally achieved In the second cycle the team had to resolve the problem of getting the machine to knead dough correctly See Figure 46 To solve the kneading problem Ikuko Tanaka apprenticed herself with the head baker of the Osaka International Hotel There she learned the skill through socialization observing and imitating the head baker rather than through reading memos or manuals She then translated the kneading skill into explicit knowledge The knowledge was external ized by creating the concept of twisting stretch In addition she exter nalized this knowledge by expressing the movements required for the Figure 45 Schematic of Home Bakery Source Matsushita Electric Industrial Co Ltd 106 The KnowledgeCreating Company Figure 46 Second cycle of the Home Bakery spiral kneading propeller using phrases like more slowly or more strongly For those who had never touched dough before understand ing the kneading skill was so difficult that engineers had to share expe riences by spending hours at the baker to experience the touch of the dough Tacit knowledge was externalized by lining special ribs inside the dough case Combination took place when the twisting stretch concept and the technological knowledge of the engineers came to gether to produce a prototype of Home Bakery Once the prototype was justified against the concept of Rich the development moved into the third cycle The Third Cycle of the Home Bakery Spiral Seeing the success of the new prototype Sano moved the project from technological development to the commercialization stage and trans ferred the project from the lab to the division The design staff was expanded and members from the marketing and manufacturing de partments were added at this time The project team had to deal with industrial design quality stabilization and cost reduction as the main issues at this stage Although the project leader switched from Torikoshi to Yuzuru Arao head of the divisions planning department Torikoshi continued to at tend major meetings so that his tacit knowledge could be utilized The other ten original members also remained on the team Even though the tacit knowledge of bread making had been captured in the proto type the tacit knowledge of the original members was still needed In the commercialization stage several changes were expected in order to meet the cost requirement The original members tacit knowledge of bread making was considered to be indispensable in finding a way to make these changes without harming the quality of bread The biggest challenge in the commercialization stage was to reduce the overall cost so that the retail price would become less than 40000 yen The major cost concern was over the cooler which kept the yeast laden dough from overfermenting in high temperatures Chief Engi neer Tsuneo Shibata recalls We were behind schedule and did not Creating Knowledge in Practice 107 have a machine that could make tasty bread within the cost require ment Everybody was very nervous 6 A major advance came when someone on the team discovered that it was possible to mix the other ingredients and then add the yeast at a later stage in the process a process known as Chumen in Japanese It was the way people had made bread in the past when means to control the temperature were not available Matsushita obtained a patent on this technology which subsequently proved to be an important factor in enabling the com pany to maintain its technological edge over rival companies that en tered the market later The process of bread making using an automatic machine is shown in Figure 47 In total the development process involved the baking of more than 5000 loaves of bread using 15 tons of flour 66 kilograms of butter and 100 kilograms of sugar The only problem with the new process was that it required design changessuch as developing a new yeast case controlled by a timer as well as taking out the coolantthat would postpone market intro duction by at least four months Home Bakery had been enthusiasti cally welcomed at a distributors meeting in February 1986 and its market introduction in November 1986 was much anticipated It was also rumored that competitors were trying to develop automatic bread making machines of their own In a hard choice between quality and marketintroduction timing an important factor in the competitive Japanese market Sanos commitment to Easy Rich won out and the changes were made 0 1 2 3 4 5 hours Figure 47 Comparison of breadmaking processes by hand vs Home Bakery Source Matsushita Electric Industrial Co Ltd 108 The KnowledgeCreating Company Matsushitas Home Bakery was introduced to the market in Febru ary 1987 at 36000 yen and sold a recordsetting 536000 units in its first year It hit the top of the list of Mothers Day gifts Its success was so extraordinary and rare in the mature cooking appliances market that Fortune magazine featured the machine in its October 26 1987 issue Six months after market introduction in Japan Matsushita be gan exporting Home Bakery to the United States West Germany and Hong Kong Shipments were later expanded to Sweden Thailand Aus tralia and New Zealand Though prices were set much higher than in the domestic market Home Bakery has been selling well worldwide beyond the expectations of the manufacturing plan In the United States according to Matsushita the entire market for an automatic breadmaker expanded to as much as one million units as new compet itors entered the market Justification played a critical role in the third cycle See Figure 4 8 During the commercialization stage the team faced the problem of having to reduce the cost of the machine significantly while main taining the initial quality requirement The team dealt with this prob lem by coming up with an innovative solution that did away with a costly yeast cooler The solution was to put in yeast at a later stage of the doughkneading process instead of mixing it with the other ingre dients at the very beginning This improved quality and lowered cost at the same time This method referred to as Chumen was the re sult of the socialization and externalization of the team members tacit knowledge However a change in the design required the postponement of mar ket introduction which was a major dilemma since market introduction timing is considered crucial for a products success in the Japanese market Sanos commitment to the organizational intention of Easy Rich allowed him to justify the decision to incorporate the design change despite the delay in market introduction The three cycles of the fivephase process are presented in Figure 4 9 As shown the first cycle passes through four of the five phases of knowledge creation then repeats the cycle two more times before mov ing into the crossleveling phase which we shall discuss in the next To the Crossleveling of Knowledge Figure 48 Third cycle of the Home Bakery spiral Creating Knowledge in Practice 109 Sharing Creating Justifying Building tacit knowledge concepts the concepts archetypes against Figure 49 Three cycles of the Home Bakery spiral section This figure clearly shows how knowledge is created through an iterative and spiral process not through a onetime linear process CrossLeveling of Knowledge Within the Division The success of Home Bakery is especially remarkable in light of the fact that Matsushitas previous image was as a pricebased competitor for relatively standard products in mature markets Its corporate cul ture had become conservative and status quooriented Thus the emer gence of a new product and a new process was a sharp break with past tradition This case provides insight into how established organi zational procedures can be revitalized to support the generation of cre ative approaches that foster innovation The experience of developing Home Bakery dissolved the rigid boundaries within the organization through the initiation of interde partmental project teams which provided a forum for debate covering a wide crosssection of organizational activities Home Bakery also brought the users voices close to the engineers which seemed like a breath of fresh air to the Cooking Appliances Division Having pre viously dealt with mature products the process brought a sense of en lightenment to the engineers Comments like the following were heard It was so shocking that I laughed with joy 110 The KnowledgeCreating Company I almost shouted unbelievable Thank you for developing this The success of Home Bakery changed the engineers attitudes toward new projects Their experience brought confidence and a desire among Matsushita employees to develop another innovative product Prior to Home Bakery engineers developed products to compete within the company After its introduction the focus shifted to creating products with genuine quality that met real consumer needs In addition engi neers started to investigate the desires of consumers when developing concepts Sano said By asking what dreams people have in their daily lives and how they realize them we can get to the next break through 7 Inspired by the Home Bakerys success products intended to en hance the quality of life of consumers began to follow One such prod uct was an automatic coffee brewer that came equipped with an inte grated coffee mill the first in Japan introduced in the autumn of 1987 It ground beans and brewed coffee automatically so that users could enjoy fresh delicious coffee like that served at coffee shops or restau rants at home The millintegrated coffee brewer was extremely suc cessful and this category now accounts for half of Matsushitas unit sales of coffee makers in Japan Another product that followed in Home Bakerys footsteps was the Induction Heating IH Rice Cooker which cooked rice in a manner similar to the traditional kamado Japanese steam oven with an auto matic electronic system Introduced in 1988 this new rice cooker has an induction heating system that achieved higher temperatures and allowed for more accurate control Though priced at 59000 yen about 480 which was nearly twice the price of a conventional electric rice cooker it sold well and now accounts for more than 40 percent of rice cooker sales within Matsushita Thanks to the IH rice cooker Matsu shita rice cooker sales increased overall by 50 percent and its market share rose by 7 percent since the market introduction in 1988 The new knowledge created by developing Home Bakery spilled over beyond the product development team It showed that an innovative product could be developed through cooperation rather than through internal competition It also showed that consumers would respond positively to products that fulfilled Easy Rich Furthermore it demonstrated the value of asking people what kinds of dreams they had in their daily lives and of creating a product concept that met those needs The success story of Home Bakery spread throughout Matsushita by word of mouth and inhouse publications As mentioned above the newly created knowledge was transferred among division members be yond the development team which we refer to as crossleveling of knowledge It radically changed employee perspectives about the po tential of home appliances and inspired other people within the organi zation to develop other innovative products similar to Home Bakery Creating Knowledge in Practice 111 The fully automatic coffee maker with an integrated mill and a new generation of rice cookers followed the example of Home Bakery but all these products were based on the same concept of Easy Rich organizational intention see Figure 410 CrossLeveling of Knowledge Between Divisions The development of Home Bakery inspired Akio Tanii the CEO to adopt Human Electronics as the umbrella or grand concept for Ma tsushita at large in January 1986 Under Human Electronics Ma tsushita was going to develop more human products utilizing high technology electronics A human product to Tanii was a product that could free and elevate the human spirit through ease of use Elec tronics would enhance the satisfaction and happiness of consumers by providing genuine quality Matsushitas managing director Hiro yuki Mizuno said Household appliances is the very place where elec tronics technology will have a big bang at last Shiozawa 1989 p 196 Home Bakery provided a good fit with Human Electronics since it 1 allowed people to have freshfromtheoven bread every morning at home freeing and elevating the human spirit through ease of use and genuine quality and 2 was realized as a result of the application of microcomputers sensors and other electronics Home Bakery stimu lated a new spiral of knowledge creation that had farreaching effects on organizational procedures The new tacit knowledge gained can be expressed as follows Have engineers develop a product by interfacing directly with consumers and by pursuing genuine quality without any constraint This knowledge was informally conveyed to other Matsu Figure 410 Crossleveling of knowledge within Matsushita 112 The KnowledgeCreating Company shita employees who used it to develop new products with equivalent quality standards for TV sets kitchen appliances audiovisual equip ment and others see Figure 411 One example of a new product that embodied Human Electronics was Gaoh named The One in the United States a series of large screen TV sets introduced in October 1990 Gaoh owed its success to the pursuit of genuine quality and consumers wishes for TV sets As Toshihaya Yamanashi director and TV department chief said Gaoh was developed after a reexamination of the function and design of ex isting TV sets from every aspect Kohno 1992 p 79 Matsushita started the development of Gaoh in 1987 just when the largescreen TV market was taking off and competitors were racing to introduce new products With the knowledge gained from Home Bak ery namely that the pursuit of genuine quality should take precedence no matter what technological difficulties came up Matsushitas devel opment team tried to surmount all the shortcomings of existing large screen TVs Ultimately the Gaoh development team came to the con clusion that producing a television that offered genuine quality would Historical roles of home appliances Taste Smell Looks Feeling Sound Health Easy Automatic Pride Joy Joy of giving Human Electronics Things Heart of possession gift Product concepts Electronics Software Original technology Enabling technologies Figure 411 The impact of Human Electronics and Things and Heart on product conception Source Matsushita Electric Industrial Co Ltd Creating Knowledge in Practice 113 make consumers happy In other words if consumers can have genuine quality in terms of sharp image highfidelity sound beautiful design including hidden speakers and easy usage their spirits would be ele vated TV sets in fact could be tender to humans Development of a new TV set usually takes six months and few tech nological changes are undertaken However it took the TV division at Matsushita two years to release Gaoh which contained a number of major technological breakthroughs As one development team mem ber recalled Technological development was tough and required changes up until four or five months before market introduction We were under enormous pres sure We had a sense of crisis that the TV division may not survive8 Gaoh sold more than one million units within 14 months of its intro duction which was equivalent to more than 10 percent of all domestic TVset sales in Japan With sales of 16 billion yen a month on average Gaoh was ranked third among the Top 20 Hit Products of 1991 mea sured in terms of sales volume by Mitsubishi Research Institute fol lowing the Honda Civic Ferio and the Sony camcorder It was remark able that a mature household appliance like TV was ranked in the top 20 To summarize the success of Home Bakery validated the idea be hind Easy Rich that genuine quality and ease of use will create successful products To crosslevel this knowledge beyond the divi sional boundaries Matsushita developed an umbrella concept called Human Electronics which inspired such products as Gaoh see Fig ure 410 The Second KnowledgeCreation Spiral at the Corporate Level In the previous section we presented a detailed description of the first spiral of knowledge creation It started with Tanakas apprenticeship continued onward to the success of Home Bakery and ended with the diffusion of knowledge beyond the original development team and the Cooking Appliances Division resulting in other successful products such as Gaoh In this section we will analyze Matsushitas efforts to create knowl edge continuously at the corporate level The output of knowledge cre ation in the first spiral took the form of a product such as Home Bak ery or Gaoh But products are not the only output of knowledge creation New knowledge can also be created with respect to ways of doing business operating a division developing new products or man aging people In the second cycle we focus our attention on the soft side of knowledge creation as opposed to the hard side which fo 114 The KnowledgeCreating Company cused on product development The soft side deals with less tangible outcomessuch as management systems operational mechanisms or human resource management programswhich are equally as im portant in creating innovation within a company and in turn gaining sustainable competitive advantage in the marketplace The second spiral takes us through a search for the ideal of what Matsushita should be in the twentyfirst century and a discussion of what Matsushita people should be like under that umbrella concept This process is termed the first cycle of knowledge creation at the cor porate level Having decided what kind of a company Matsushita should be and what kind of individuals Matsushita employees should be the next cycle of the knowledgecreation process takes us through the development of managerial and operational systems that can ac commodate the new ideal The First Cycle of the Corporate Spiral Matsushita began the process of establishing its corporate vision for the twentyfirst century in 1989 Top managers questioned where the company was heading and what kind of company they would like it to be While the whole nation was caught up in the economic bubble eu phoria Matsushitas top management was quite skeptical about the companys position Thus they decided to evaluate the company criti cally Hirata 1993 Realizing that the young people of today would be the leaders of the company in the future Matsushita asked 200 employees in their 20s and 30s to formulate the companys corporate vision for the twenty first century Originally the task for developing the corporate vision was entrusted to the Human 21 Committee composed of uppermiddle managers with heavy responsibilities Since original and stimulating ideas rarely emerged from these managers Matsushita decided to form another group composed of younger employees most of whom were between 25 and 32 years old Called the Human 200People Commit tee it started out with 200 stars selected from a large pool of appli cants The Human 200People Committee was organized in each of the 12 companies in the Matsushita Group Approximately 20 teams were formed and the members who would be the companys leading forces in the twentyfirst century discussed their visions for the coming cen tury and wrote reports on their discussions The Human 21 Committee then played the ombudsmans role by examining the reports and decid ing if the company should adopt their suggestions Meetings were held every other weekend in either Tokyo or Osaka One of the questions that the group tried to answer was What type of a group should Matsushita employees form The concept of a group of voluntary individuals emerged from their discussions The younger employees felt that peoples value systems would change in the future Creating Knowledge in Practice 115 More specifically people in the twentyfirst century would pursue not only material affluence but also spiritual contentment In such a soci ety each member of the corporation should be what Matsushita called voluntary individuals who embraced values such as volunteerism ambition creativity and mental productivity Each employee of Ma tsushita should thoroughly rethink work and management and try to be not only a good businessperson but also a good citizen family mem ber and individual Such efforts will lead to a group of voluntary indi viduals This idea was the fruit of the project members reflections on how the corporation could be truly spontaneous ambitious and cre ative The idea of a group of voluntary individuals became the basis for the Human 21 Committee to develop a possibilitysearching company as Matsushitas corporate vision In such a company a group of volun tary individuals with rich and diversified individual knowledge bases would share similar ideals and values In short Matsushita envisioned itself as becoming a knowledgecreating company But because the idea of becoming a knowledgecreating company was radical and new it was not surprising that some senior managers of the company were reluctant to accept this vision However the enthusiasm of the younger employees eventually won over top management In April 1990 Matsushita officially announced to the outside world its corporate vision of becoming a possibilitysearching company Un der this vision Matsushita set forth the following four objectives in the areas of business technology people and globalization 1 Human innovation business business that creates new life styles based on creativity comfort and joy in addition to effi ciency and convenience 2 Humanware technology technology based on human studies such as artificial intelligence fuzzy logic and neurocomputers as well as on chip systems and networking technology all necessary for the human innovation business 3 Active heterogeneous group a corporate culture based on indi viduality and diversity 4 Multilocal and global networking management a corporate structure that enables both localization and global synergy Notice that the first two objectives are derived directly from the um brella concept of Human Electronics with a heavy emphasis on cus tomers and high technology The third objective corresponds to one of our enabling conditions requisite variety Matsushita knew that knowledge creation would not be possible without the diversity of indi vidual experiences The fourth objective points out the importance of transcending the dichotomy between localization and globalization The first cycle of knowledge creation at the corporate level started out with 200 people sharing their experiences and carrying on a dia logue in the Human 200People Committee The dialogue was centered 116 The KnowledgeCreating Company on what society would be in the future and what that would mean for Matsushita The concept of voluntary individuals emerged as a re sult which was justified by the Human 21 Committee The fivephase model is not fully represented but the first cycle of the knowledge creation process takes us through three of the phases see Figure 412 We can also observe the five enabling conditions at work here Through the Human 21 program top management cast its doubt on the status quo and developed a new ideal or organizational intention regarding what Matsushita should be like This redefinition brought about a chain reaction heightening the anxiety among employees fluctuationchaos which in turn induced young employees commit ment to the Human 200People Committee The committee was com posed of 200 people from various divisions and group companies requi site variety This diversity was vital when the committee was trying to deal with an uncertain future since uncertainty of the environ ment is often reduced or absorbed by uncertainty itself ie uncer tainty of membership The fact that 200 people shared their tacit knowledge resulted in redundancy of information which provided a common knowledge base for all the members This committee of 200 young employees was given full autonomy by the Human 21 Commit tee to come up with innovation In addition we can clearly observe two of the four modes of knowl edge conversion in the first cycle of the knowledgecreation process Socialization took place among the Human 200People Committee members as they shared their experiences Extemalization took place when their discussion of what type of individuals Matsushita would need in the future was articulated explicitly as voluntary indi viduals In the second cycle the concept of voluntary individuals which was created in the first cycle was operationalized The objectives of volun tary individuals were to have Matsushita employees become volun 1 The Second Cycle of the Corporate Spiral Creating the concept of 1 Voluntary I Individuals J To the second cycle Figure 412 First cycle of the corporate spiral Creating Knowledge in Practice 117 tary ambitious creative and mentally productive and also become not only good businesspersons but good citizens family members and individuals One of the operational means of achieving these objectives was the reduction of working hours By eliminating or reducing time spent on routine jobs eg information processing employees would be able to be more mentally productive ambitious and creative By increasing private time their personal lives as citizens or family mem bers would be enriched Matsushita discovered that inefficiencies at work were blocking the creativity of its employees and taking away their personal time People in the staff organization were suffering from low productivity while productivity of line activities had reached a plateau which led to rou tinized overtime work Matsushitas average yearly working hours in 1990 were 2131 hours for staff people and 1903 hours for line people for an average of 2036 hours for the company To solve this problem Matsushita set a goal in 1991 to reduce its annual working hours to 1800 hours under the program called MIT93 Mind and Management Innovation Toward 1993 Osamu Tanaka general manager of the MIT93 Promotion Office emphasized that the purpose of the program was to enhance employee creativity rather than to simply reduce working hours or costs We do not need MIT if we only want to reduce working hours We can just tell employees that the company will not pay for any overtime work Lay offs might be another alternative during a recession like this But we must remember the purpose of MIT It is not a simple reduction in working hours We have wanted to improve the productivity of our staff organiza tion through this project The company wants to give time back to individuals for their creativity How can anyone be creative if he works until twelve midnight everyday Peoples sense of value is rapidly chang ing You cannot make original products just by looking at plans at the office every night9 To enhance creativity Matsushita felt that innovation had to take place both in peoples mindset and in the management system hence the name of the program The 1800hour project was considered a sym bol of Matsushitas innovation with respect to management and opera tional systems The MIT93 Promotion Office asked every division of Matsushita to develop new managerial and operational systems that would enable annual working hours to be reduced to 1800 hours Three committees were establishedin labormanagement relations personnel and gen eral accountingin order to coordinate that effort But the actual de velopment of new managerial and operational systems to reduce work ing hours was left up to selforganizing teams within each division No specific details on how to go about reducing working hours were pro vided The only guidelines that the MIT93 Promotion Office provided 118 The KnowledgeCreating Company were 1 to analyze existing working hours and business processes 2 to uncover causes of inefficiencies and 3 to make people actually experience a 150hoursamonth schedule equivalent to 1800 hours a year The analysis of existing working hours and business processes in the staff organizations led to the following findings 45 percent of working hours in the RD sections were spent on nondevelopmental work which consisted of followup work neces sitated by additional design changes that took place after product designs were handed over to the production division 40 percent of working hours in the materials management sec tions were spent on followup work caused by changes in product designs or production plans 20 percent of working hours in RD were spent on internal meet ings contacts with visitors and interviews unassociated with de velopment work Less than 20 percent of the sales staffs working hours were spent talking with customers These findings revealed ample opportunities to improve current op erating systems Team members in the RD sections and materials management sections discovered that the inefficiencies were largely due to the shortcomings of the Japanesestyle product development process Matsushitas product development was conducted using the rugby style in which several functional areassuch as engineering manufacturing planning and marketingworked together in a multi functional team exchanging information and sharing tacit knowledge through dialogue held in meetings or camps This system had some advantages such as allowing coordination to take place more easily enabling development to be completed in a shorter period of time and ensuring that the resulting new products met customer needs But it also led to the disadvantage of having the original designs and specifi cations changed constantly The rugbystyle development had the ten dency of overreliance on the socialization mode which led to ineffi ciencies as the number of people involved in the project increased and the number of suggestions for change multiplied Having employees actually experience a 150hoursamonth sched ule for example helped those involved in product development realize the pitfalls of rugbystyle product development They had firsthand experience of what can and cannot be done within a shorter working schedule Their bodily experience convinced them that a lot of design changes cannot be accommodated and certain unnecessary work had to be eliminated This experience led to the tacit knowledge of what it meant to work 1800 hours a year Creating Knowledge in Practice 119 This experience also resulted in the development of an innovative product development process called concurrent engineering which could set all the specifications at an early stage of development and consequently reduce design changes at later stages The experience of working 150 hours a month led people to realize that they could not have as many facetoface meetings as before and that communication using computer networks had to be more fully employed By relying on concurrent engineering specifications of product features were docu mented in detail at the early stage of product development through the use of electronic media such as CADCAM Frontloading explicit information helps product engineering upstream to do it right the first time and affords process engineering downstream earlier expo sure to product design specifications which reduces problemsolving lead time CADCAM assures more accuracy in communicating infor mation and reduces the length of the communication chain In the second cycle of the corporate spiral a new operational system was created to give employees more time so that they could become creative see Figure 413 For this purpose Matsushita established a selforganizing team in every division and group company The knowledgecreation process started when members of each team shared tacit knowledge on what types of work employees at Matsushita should do and shouldnt do to utilize their creativity fully The teams also analyzed existing work patterns and uncovered causes of inefficiencies For instance they felt that RD people should be spending most of their time on actual research and development and not on followup work for additional design changes The concept of Mind and Manage ment Innovation Toward 1993 was created to enhance creativity and reduce working hours This concept was justified against the objective of reducing annual working hours to 1800 allowing it to be developed into an operational system archetype that combined elements of con current engineering into existing operational systems The objective has been achieved and Matsushita dissolved the MIT93 Promotion Of fice in March 1994 In this cycle we can also observe the five enabling conditions at work Matsushitas challenging goal to reduce annual working hours Figure 413 Second cycle of the corporate spiral 120 The KnowledgeCreating Company to 1800 brought fluctuationchaos into the organization A sense of cri sis took hold inducing peoples commitment to search for the causes of inefficiencies Matsushitas organizational intention to produce volun tary individuals reoriented peoples commitment to one direction Teams consisting of people with different backgrounds were set up in all the divisions and group companies and given full autonomy to de velop ideas for improvement Redundancy of information prevailed within these teams in the form of common knowledge held about the rugby style of product development process for example This redun dancy helped members of the teams by providing a common language with which to share their tacit knowledge Requisite variety was en hanced by involving people whose working environments differed from division to division Among the four modes of knowledge conversion internalization played an important role Being forced to experience shorter working hours 150 hours a month experimentally people actually felt inter nalized how short such a curtailed schedule was and how much work had to be eliminated They engaged in learning by doing In addition team members exchanged their own tacit understandings of what it meant to limit their working hours to 150 socialization and came up with a new development system called concurrent engineering exter nalization This mechanism was combined with existing operational systems and other explicit knowledge to form a new operational system combination Enhancing Enabling Conditions for Knowledge Creation Thus far we have seen two spirals of the knowledgecreation process within Matsushita The first was around Home Bakery a product and the second around MIT93 an operating system But in both spirals enabling conditions played a key role in stimulating and promoting the knowledgecreation process Matsushitas case illustrates that for knowledge creation to continue enabling conditions should be en hanced or upgraded continuously as well Next we shall briefly de scribe the companys ongoing efforts to continuously upgrade the en abling conditions Matsushita recently enhanced one of the enabling conditions redun dancy of information by improving its communication infrastructure Matsushita installed a new communication infrastructure called MarketOriented Total Management System MTM in 1991 By con necting RD organizations factories and retail stores on line Matsu shita was able to eliminate excess inventory and avoid outofstock sit uations for popular items But its greatest impact from a knowledge creation perspective resides in the free flow and sharing of information among different functional groups Under this system the sales and the manufacturing departments shared the same explicit knowledge Creating Knowledge in Practice 121 ie sales information at retail stores This common knowledge which represents redundancy of information helped the sales and manufac turing groups exchange their mental models and gut feelings about the future In this sense MTM has facilitated the coordination of produc tion plans between the two departments and as a result improved overall efficiency MTM allowed product development teams to obtain instant feedback on how well a particular product or model sold at retail This detailed market information as opposed to warehouse shipment data was in ternalized by the development people bringing variety into their knowledge base requisite variety Development people could develop a variety of what if solutions more precisely in anticipation of cus tomer reactions In this sense MTM paved the way for joint knowledge creation between customers and development teams Vice president Shoji Sakuma stressed the importance of retailbased information as follows If I told my staff members Go to the front lines because they are very important they would all rush to the front line of the manufacturing sector But if you really care about consumers you would soon know there is another important front line the store fronts of retailers where you could have contact with consumers Matsushita however has tended to isolate itself from consumers clinging to the manufacturing sector10 Another effort on the part of Matsushita to enhance autonomy one of the enabling conditions can be seen in the change it initiated in 1993 to terminate its business group system which was a layer created above the divisional layer to coordinate interdivisional activities The predecessor of this business group system was the sector system intro duced in 1984 to coordinate activities such as joint product develop ment or joint marketing across the divisions But after nine years Matsushita realized that the extra umbrella layer business group sys tem was inhibiting the divisions autonomy and commitment to inno vation Elimination of the group layer led the divisions to take more initiative in coordinating activities across the divisions through a more flexible and ad hoc system such as an interdivisional project team Matsushita also enhanced intention and fluctuationchaos by setting extremely challenging goals On January 10 1994 Matsushita an nounced The Revival Plan which stipulated that by fiscal 1996 profitability would be increased to 5 percent return on sales ordinary incometosales ratio from 14 percent in 1993 In order to achieve this profitability level Matsushita identified the necessity to shift its stra tegic domain to multimedia an emerging industry in which the com pany could capitalize on its capabilities in hardware equipment eg audiovisual television computers and communication equipment and software eg entertainment At the same time the company decided to increase the productivity of its staff organization by 30 percent This 122 The KnowledgeCreating Company challenging goal introduced creative chaos throughout the company which forced its employees to relinquish the status quo and seek brand new solutions The Revival Plan also upgraded organizational inten tion which had the effect of reorienting the employees toward one am bitious goal Summary and Implications We used the Matsushita case to illustrate the actual process by which organizational knowledge is created within a company Several impli cations can be drawn from the case on how a successful organizational knowledgecreation process can be implemented The case points out the importance of 1 leveraging the tacit knowledge base of an indi vidual and making use of socialization to transfer it throughout the organization 2 amplifying knowledge creation across different levels of the organization ie crossleveling 3 enhancing the enabling con ditions and 4 continuing to create new knowledge constantly Each implication is elaborated below First Home Bakerys development process emphasizes the impor tance of tapping into an individuals tacit knowledge which in this case was represented by the head bakers kneading skill By its very nature tacit knowledge is hard to formalize and communicate But this skill was critical in making the machine knead the dough cor rectly The Home Bakery example also shows the importance of social ization as a means to share tacit knowledge between individuals Ikuko Tanaka apprenticed herself to the head baker and learned the skill by observation and imitation Engineers had to experience the actual breadmaking process to learn that skill Second the success of Home Bakery led to the creation of Human Electronics and a series of successful products that embodied that con cept In order to make knowledge creation truly dynamic knowledge created at one level needs to be amplified across different levels of the organization Only by crossleveling can companies obtain the true benefits of organizational knowledge creation In Matsushitas case we saw how the knowledge created in developing Home Bakery spiraled itself to create new knowledge at the corporate level Umbrella con cepts such as Easy Rich and Human Electronics played a sig nificant role in connecting one knowledge creation to another Third Matsushitas knowledgecreation process highlights the im portance of enhancing organizational enabling conditions which pro mote the four modes of knowledge conversion as well as the fivephase process We saw how Matsushita tried to 1 increase redundancy and requisite variety by providing the RD people with uptodate sales in formation 2 bring autonomy back to the divisions by restructuring organization and 3 instill intension and creative chaos into the orga Creating Knowledge in Practice 123 nization by setting challenging goals represented by the shift to multi media or the improvement of productivity by 30 percent Fourth the case illustrates that organizational knowledge creation is a neverending process that requires continuous innovation Because the competitive environment and customer preferences change con stantly existing knowledge becomes obsolete quickly We saw how the rugby style of product development which had provided a source of competitive advantage for Japanese companies in the past was al ready becoming obsolete as their competitors in the West began utiliz ing the same style and as the recession rekindled the search for elimi nating inefficiencies The continuous upgrading of organizational intention or values is important since new knowledge must be con stantly justified against the latest intention We presented the essential elements of our theory in Chapter 3 and their practical application within a firm in this chapter We now pro ceed to discuss the managerial style and the organizational structure most conductive to organizational knowledge creation middleup down and hypertext respectively in the next two chapters As we shall see in order for the new paradigm to be effective it cannot be housed in an old setting such as topdown or bottomup management styles or a traditional hierarchical structure A new setting or context is in order Notes 1 Interviewed on April 1 1988 2 Interviewed on April 1 1988 3 Hoshiden Electronics Co Ltd is a manufacturer of electronic parts and devices and not affiliated with Matsushita 4 Interviewed on July 191988 5 Interviewed on April 1 1988 6 Interviewed on April 1 1988 7 Interviewed on April 1 1988 8 Interviewed on December 2 1993 9 Interviewed on December 2 1993 10 Interviewed on July 2 1991 5 Middleupdown Management Process for Knowledge Creation T he preceding chapters presented our theoretical model of organi zational knowledge creation and its practical application within Japanese firms We shift our focus in the next two chapters to consider the most appropriate setting under which organizational knowledge creation will flourish In this chapter we focus our attention on a management process that can best facilitate the creation of orga nizational knowledge Since organizational knowledge creation calls for a radically different setting than that which exists today we will turn our attention in the next chapter to the most appropriate organi zational structure We start this chapter by examining two dominant models of the management process the topdown model and the bottomup model both of which fall short of fostering the dynamic interaction necessary to create organizational knowledge We propose a new model which we call middleupdown and explain why it is superior for knowledge creation management than the more traditional models The new model puts the middle manager at the very center of knowledge man agement and redefines the role of top management as well as of front line employees We will draw on the product development case of the MiniCopier at Canon to describe the expected roles of the key players in the middleupdown model 124 Middleupdown Management Process for Knowledge Creation 125 Topdown and Bottomup Management Sooner or later any organization ends up creating new knowledge But in most organizations this process is haphazard serendipitous and therefore impossible to predict What distinguishes the knowledge creating company is that it systematically manages the knowledge creation process And the experience of the Japanese companies we have been studying suggests that the management process best suited to creating organizational knowledge is substantially different from the traditional managerial models with which most executives are fa miliar namely the topdown and bottomup management models Topdown management is basically the classic hierarchical model It has its roots in Max Weber and Frederick Taylor and reaches its culmination in Herbert Simon The topdown model conceives of knowledge creation within the confines of the informationprocessing perspective Simple and selected information is passed up the pyramid to top executives who then use it to create plans and orders which are eventually passed down the hierarchy Information is processed using division of labor with top management creating the basic concepts so that lower members can implement them Topmanagement concepts become the operational conditions for middle managers who will de cide on the means to realize them The middle managers decisions in turn constitute the operational conditions for frontline employees who will implement the decisions At the frontline level execution becomes largely routine As a consequence the organization as a whole executes a huge amount of work and information A topdown organization is shaped like a pyramid if we visualize the dyadic relations between top vs middle managers and middle vs frontline employees An implicit assumption behind this traditional model of organization is that only top managers are able and allowed tojsreate knowledge Moreover knowledge created by top managers exists only to be processed or implemented therefore it is only a means not an end The concepts that top management generates should be void of any ambiguity or equivocality In other words the concepts are anchored in the premise that they have a singular mean ing As such the concepts are strictly functional and pragmatic It is this deductive transformation that enables workers with limited informationprocessing capacity to deal with a mass of information Bottomup management is basically a mirror imageof topdown management As our review of the managerial literature in Chapter 2 made clear there have been critics of topdown management which is closely linked to the scientific management tradition of Taylor from the very beginning These critics who belonged to the humanistic camp devised an alternative model of management process that even tually came to be known as bottomup management Instead of hierar chy and division of labor there is autonomy Instead of knowledge be 126 The KnowledgeCreating Company ing created at and controlled from the top it is created at and to a large extent controlled by the bottom A bottomup organization has a flat and horizontal shape With hier archy and division of labor eliminated the organization might have only three or four layers of management between the top and the front line Few orders and instructions are given by the top managers who serve as sponsors of entrepreneurially minded frontline employees Knowledge is created by these employees who operate as independent and separate actors preferring to work on their own There is little direct dialogue with other members of the organization either verti cally or horizontally Autonomy not interaction is the key operating principle Certain individuals not a group of individuals interacting with each other create knowledge These two traditional models may seem like alternatives to each other but neither is adequate as a process for managing knowledge creation The topdown model is suited for dealing with explicit knowl edge But in controlling knowledge creation from the top it neglects the development of tacit knowledge that can take place on the front line of an organization Bottomup on the other hand is good at deal ing with tacit knowledge But its very emphasis on autonomy means that such knowledge is extremely difficult to disseminate and share within the organization Put another way both managerial processes are not very good at knowledge conversion The topdown model provides only partial con version focused on combination explicit to explicit and internalization explicit to tacit Similarly the bottomup model carries out only par tial conversion focused on socialization tacit to tacit and externaliza tion tacit to explicit As we have seen in Chapter 3 the core process for creating organiza tional knowledge takes place intensively at the group level Successive rounds of direct and meaningful dialogue within the group for exam ple trigger externalization Through these dialogues team members articulate their own thinking sometimes through the use of metaphors or analogies revealing hidden tacit knowledge that is otherwise hard to communicate This kind of intense interaction hardly takes place in the militarylike hierarchy of the topdown model or among the autonomydriven individuals of the bottomup model Furthermore no tions such as noise fluctuation and chaos are fundamentally not per mitted in the topdown model and are incarnated only within individu als in the bottomup model The fact that knowledge is formed primarily in the minds of individ uals and not amplified or refined through interaction creates another potential problem In the case of the topdown model there is a danger of the alignment of the fate of a few top managers with the fate of the firm In the case of the bottomup model the preeminence and auton omy given to an individual make knowledge creation much more time Middleupdown Management Process for Knowledge Creation 127 consuming since the pace with which creation takes place is depen dent on the patience and talent of the particular individual Another obvious but major limitation of the twomodels is the lack of recognition and relevance given to middle managers They seem al most to have been neglected by the two models In topdown manage ment the knowledge creator is top management Middle managers process a lot of information in a typical topdown organization but play at most a minimal role in creating knowledge In a hierarchy middle managers are often responsible for submitting reports to top managers analyzing business problems and opportunities or transmit ting commands and orders from above to those below them but noth ing more relevant In bottomup management the knowledge creator is the entrepreneurlike individual lower in the organization Given the small headquarters a flat organizational structure the propensity for top managers to serve as direct sponsors and the autonomy pro vided to individuals middle managers do not even seem to have a place within a typical bottomup model Middleupdown Management The Japanese companies we have been studying suggest a third way to manage knowledge creation It is neither topdown nor bottomup but middleupdown As strange as this term may sound it best com municates the continuous iterative process by which knowledge is cre ated Simply put knowledge is created by middle managers who are often leaders of a team or task force through a spiral conversion pro cess involving both the top and the frontline employees ie bottom The process puts middle managers at the very center of knowledge management positioning them at the intersection of the vertical and horizontal flows of information within the company The fact that middleupdown management emphasizes the dynamic role of the middle manager sharply distinguishes our theory from the conventional managerial wisdom In the West where companies are laying off middle managers by the thousands the very term middle manager has become almost a term of contempt synonymous with backwardness stagnation and resistance to change Yet we are arguing that middle managers are the key to continuous innovation We disagree with the assessment of some of the leading management thinkers in the West Not long ago Tom Peters 1987 stated I like many others have repeatedly attacked middle managers And we do indeed have too many layers too much staff p 367 Rosabeth Kanter flatly declared in 1989 that tomorrows winning firms will have almost no middle managers and that the era of the linear career has ended Peters 1992 James Quinn 1992 sees them as an obstacle Problems typically lie not at the top or the bottom of the organization but in middle management Just as Gorbachev could change the top level of the 128 The KnowledgeCreating Company USSR and establish grassroots support for change quicklybut not move the middle layers of his bureaucracyWestern middle managers resist radi cal changes endlessly Jan Carlson found it easy to change the top and moti vate point people at SAS but devilishly difficult to move the huge midlevel bureaucracies that past practices had built up Few middle managers want to change from the style and skills they have so painstakingly learned Their old predictable progress ladder is suddenly gone And they wonder How can one go up when the organization is flat and there is no up p 377 Middle managers usually have been portrayed in recent literature as frustrated disillusioned stuck in the middle of a hierarchy in dreary jobs Johnson and Frohman 1989 with little hope of career progression and increasingly subject to being replaced by technologi cal advancements Dopson and Stewart 19901 Doomsayers argue ac cording to Borucki and Byosiere 1991 that the traditional role of middle managers as strategy implementers is disappearing as a result of new management philosophies and notions such as total employee involvement the selfdesigning organization and sociotechnical sys tems and autonomous work teams These arguments give the impres sion that perhaps middle managers may be in the business of going out of business But a handful of researchers have portrayed the fate of middle man agement with much more optimism arguing that they are indeed en lightened or empowered 2 Being among the leading protagonists we see middle managers playing a key role in facilitating the process of organizational knowledge creation They serve as the strategic knot that binds top management with frontline managers They work as a bridge between the visionary ideals of the top and the often chaotic realities of business confronted by frontline workers As we shall see later they are the true knowledge engineers of the knowledge creating company To repeat what we said at the outset of this book frontline employ ees are immersed in the daytoday details of particular technologies products and markets No one is more expert in the realities of a com panys business than they are But while these employees are deluged with highly specific information they often find it extremely difficult to turn that information into useful knowledge For one thing signals from the marketplace can be vague and ambiguous For another these frontline employees can become so caught up in their own narrow per spective that they lose sight of the broader context Moreover even when they do develop meaningful ideas and insights it can still be difficult to communicate the importance of that information to others People dont just receive new knowledge passively they interpret it actively to fit their own situation and perspectives Thus what makes sense in one context can change or even lose its meaning when commu nicated to people in a different context Thejnain job of middle manag ers in middleupdown management is to orient this chaotic situation Middleupdown Management Process for Knowledge Creation 129 toward purposeful knowledge creation Middle managers do this by providing their subordinates with a conceptual framework that helps them make sense of their own experience But the conceptual framework that middle management develops is quite distinct from that of top management which provides a sense of direction regarding where the company should be headed In the middleupdown model top management creates a vision or a dream while middle management develops more concrete concepts that front line employees can understand and implement Middle managers try to solve the contradiction between what top management hopes to cre ate and what actually exists in the real world In other words top man agements role is to create a grand theory while middle management tries to create a midrange theory that it can test empirically within the company with the help of frontline employees see Figure 51 In the Honda City example from Chapter 1 top management dreamed of creating something different from the existing concept and began the City project with the slogan Lets gamble Hiroo Wa tanabe a middle manager who was 35 years old at the time developed more concrete conceptsAutomobile Evolution manmaximum machineminimum and Tall Boythat frontline employees could understand and implement One of these frontline employees recalled I feel however illogical it may sound that the success of this project owes a lot to the very wide gap between the ideal and the actual A revolutionary reformulation was necessary and in order to achieve this new technologies and concepts were generated one after another Table 51 compares and contrasts the relevant features of the three Figure 51 Middleupdown knowledgecreation process 130 The KnowledgeCreating Company Table 51 Comparison of the Three Management Models Regarding Knowledge Creation Topdown Bottomup Middleupdown W ho Agent of knowl edge creation Top management Entrepreneurial individual Team with middle managers as knowl edge engineers Top manage ment role Commander Sponsormentor Catalyst Middle man agement role Information pro cessor Autonomous intrapreneur Team leader W hat Accumulated knowledge Explicit Tacit Explicit and tacit Knowledge Partial conversion Partial conversion Spiral conversion of conversion focused on combina tionintemalization focused on socializa tionextemalization internalization externalization combination socialization Where Knowledge Computerized Incarnated in indi Organizational storage databasemanuals viduals knowledge base H ow Organization Hierarchy Project team and informal network Hierarchy and task force hypertext Communication Ordersinstructions Selforganizing principle Dialogue and use of metaphoranalogy Tolerance for Chaosfluctuation Chaosfluctuation Create and amplify ambiguity not allowed premised chaosfluctuation Weakness High dependency on top management Timeconsuming Cost of coordinating individuals Human exhaustion Cost of redundancy models discussed above As we will discover in the following section of this chapter the middleupdown management model is by far the most comprehensive in terms of who gets involved the most all inclusive in terms of what kind of knowledge is created the broadest in terms of where knowledge is stored and the most flexible in terms of how knowledge is created We will discuss this table in more detail at the end of the next section Case Studies of the Three Management Models In this section we present three case studies that illustrate the three management models discussed above General Electric GE under Jack Welch is offered as an example of topdown 3M as an example of bottomup and the MiniCopier development process at Canon as an example of middleupdown management In the GE case Jack Welch develops concepts that become the operating conditions for people throughout the organization At 3M top management serves as a men tor to individuals with initiative who appear almost obsessed with Middleupdown Management Process for Knowledge Creation 131 developing new ideas The Canon MiniCopier case shows the crucially important role middle managers played within the product develop ment task force in creating a breakthrough concept Topdown Management General Electric under Jack Welch What Jack Welch inherited in 1981 when he became CEO of GE was a bureaucracy Since then he has implemented a number of actions aimed at getting rid of the bureaucracy and hierarchy But the manner in which he proceeded to bring about the necessary changes was top down in nature The topdown nature of Welchs management style can be seen in the role he played as a concept maker and a deal maker We shall look at each of these roles below3 Concept Making On December 8 1981 Jack Welch articulated to an audience of Wall Street security analysts a vision that became a hallmark of his early tenure as CEO The vision called for GE to become No 1 or No 2 in every market it served He predicted that there would be no room for the mediocre supplier of products and services in the 1980s The win ners would be those who insisted upon being number one or number i two in every business they were in already He asked his GE managers a very straightforward question Can you be number one or number two in the game youre going to play in the war youre going to wage in the skirmish youre going to be in Can you clearly go to war go to the skirmish with good equipment good arms good troops with anything else you want to use as a metaphor Can you play in that arena as a number one or number two player Welch did not leave much unanswered He warned that any business that could not become No 1 or No 2 for whatever reason would not be part of GE Where we are not number one or number two and dont have or cant see a route to a technological edge we have got to ask ourselves Peter Druckers very tough question If you werent in the business would you enter it today The managements and companies in the 80s that dont do this wont be around in 1990 Slater 1991 p 74 The vision that Welch articulated made little impact on the security analysts who gathered to hear his first explanation of what he was trying to do The same vision was a big yawn to a lot GE executives who believed the company was already a No 1 player It was unpopu lar or a crazy idea to GE who didnt want Welch to rock the boat But Jack Welch pursued his vision relentlessly helping GE to be 132 The KnowledgeCreating Company come one of the most competitive enterprises in the world a decade later Jack Welch kept trying to explain his vision whenever he had a chance although his early efforts often failed to convey what he had in mind But early in 1982 he scribbled three interlocking circles on the back of an envelope to illustrate what the company was as well as what it was not This sketch which came to be known as the three circles concept helped GE visualize Welchs grand design in no am biguous terms see Figure 52 One circle contained GEs core busi nesses the second had hightechnology businesses and the third con sisted of service businesses for a total of 15 businesses Only No 1 or No 2 businesses were allowed inside the circles Businesses outside the circles that did not meet the No 1 or No 2 criterion had to come up with a strategy to get in the circles or be divested Being placed outside the circles did not mean being put on hold These businesses were given the choice to fix sell or close The message was clear The threecircles diagram clarified Welchs thinking and more im portant helped communicate his vision more effectively within the or ganization Concepts such as No 1 or No 2 three circles or fix sell or Microelectronics Ladd Petroleum Broadcastinglfor sale Small Appliances Switchgears Wire Cable Central Airconditioningsold Mobile Communication TV Radio Large Motors Generators Large Transformers Figure 52 The shape of new GE Source Forbes March 2 6 1 9 8 4 Middleupdown Management Process for Knowledge Creation 133 close were strategic in nature They sent a clear message about the strategic direction of the company But Welch also relied on the power of his ideas to build operational concepts which enabled him to drive the process of fundamental change or revolution as he called it within the organization In the late 1980s for example he developed speed simplicity and selfconfidence as an operational concept for driving change within the organization and embarked on WorkOut a program that gives frontline employees within a team the authority to recommend solutions to business problems More recently he came up with the concept of integrated diversity which was built on the conviction that GEs varied businesses could maintain their operating independence while working closely together as a team Another re cent Welch concept is boundarylessness which signals the break down of internal barriers such as hierarchy geography and function while trying to integrate all the constituencies outside the company What is unique about GE is the fact that the CEO himself drove the entire processcoming up with the concepts both strategic and operational refining them communicating them in an understand able manner through the use of metaphors and analogies and reiterat ing them repeatedly Take the concept of boundarylessness as an ex ample It is a prototype that many people have trouble understanding To explain his thinking Welch uses a house as an analogy for three kinds of barriers that exist within an organization They consist of 1 the walls that serve as a horizontal barrier 2 the floors and the ceil ings that become a vertical barrier and 3 the outside walls that con stitute an external barrier His message is clear 1 break down func tional boundaries product division boundaries and geographic boundaries that serve as walls 2 blow up the layersthe floors and ceilingsthat come with hierarchy and 3 build close relationships with customers suppliers and venture partners on the outside Welch believes that boundarylessness will become a substitute for bureau cracy Welchs dislike of bureaucracy was quite evident when he took office in 1981 He is still preoccupied with removing bureaucracy from GE In the 1991 annual report he wrote the following Weve been trumpeting the removal of bureaucracy and the layers at GE for several years nowand we did take out sectors groups and other superstructurebut much more remains Unfortunately it is still possible to find documents around GE businesses that look like something out of the National Archives with five ten or even more signatures necessary before action can be taken In some businesses you might still encounter many layers of management in small areas boiler operators reporting to the supervisor of boilers who reports to the utility manager who reports to the manager of plant services who reports to the plant manager and so on Layers insulate They slow things down They garble Leaders in 134 The KnowledgeCreating Company highly layered organizations are like people who wear several sweaters outside on a freezing winter day They remain warm and comfortable but are blissfully ignorant of the realities of their environment They couldnt be further from whats going on Welch keeps on repeating his message He is still the key driving force fighting bureaucracy the topdown structure that he so abhors What is evident to us today is that the boundaries at GE are starting to break down primarily due to the head heart and guts of the man at the top and his style of management4 Deal Making Jack Welch is also known as a consummate deal maker During his first four years in office Welch sold off 125 businesses One of these divestitures was the sale of the housewares division to Black Decker This division which produced irons toasters and other small appli ances had been considered an essential part of GEs identity since its establishment in the early 1900s Another divestiture that raised eye brows was Utah International a highly profitable coal property in Australia Sale of this unit which was considered a sector by itself brought in 24 billion for GE Welch had placed both of these busi nesseshousewares and Utah Internationaloutside the circles So it was no big surprise that they were sold off But two deals in the following two years put Welchs creativity as a deal maker to the test The first was the 63 billion cash purchase of RCA Welch explained the rationale for this bold deal the biggest non oil acquisition to date as follows RCA with its strong array of domestic businessesdefense services and the NBC networkwill provide General Electric with a strong domestic earnings base to fuel many of our businesses that must win in the global marketplace Our defense businesses should be able to develop syner gies that will benefit the nation as well as the company The services and technology assets go together very well The television network NBC is a particularly attractive property number one in an exciting ser vices industry Slater 1991 pp 122123 The fit seemed ideal probably in part because GE and RCA had been one company until 1933 when GE sold RCA under threat of antitrust litigation Thus they still seemed to belong together 52 years later But Welch did not purchase RCA simply to reunite with an old ally for the sake of becoming bigger The deal more than anything else fit Welchs grand design The RCA deal was struck between Welch and Thornton Bradshaw chairman of RCA in Bradshaws apartment near the Rockefeller Cen ter Welch took the initiative and called Bradshaw At this meeting Welch offered to buy RCA for 61 per share in cash a 30 percent pre Middleupdown Management Process for Knowledge Creation 135 mium over RCAs 47 market price They had a deal in less than a week The second deal was a swap that was conceived during a short con versation in France between Welch and Alain Gomez chairman of Thomson SA the largest French electronics company A deal was struck between the two to swap GEs consumer electronics business for Thomsons medical diagnostics business plus 800 million in cash Thomson acquired all the TV video and audio products that carried the RCA and GE labels while GE acquired xray and other diagnostic machines sold in Europe As Welch recalls it was very much a top down decision We didnt need to go back to headquarters for a strategic analysis and a bunch of reports Conceptually it took us about 30 minutes to decide that the deal made sense Slater 1991 p 195 Both of these deals took the public and the press by surprise In fact the RCA deal was probably the riskiest thing Welch ever did But in both cases the CEO was in full control It was his acumen as a deal maker that enabled Welch to pull off these two homeruns to use one of Welchs favorite expressions Welchs ability to strike a deal with a handshake justifies the vi sion that he created In fact he does not have to rely on others to provide the justification he can justify his vision and action on his own This kind of power becomes particularly effective in promoting combination conversion of knowledge from explicit to explicit within the company as well as across companies Strong leadership fosters the interorganizational mixing of knowledge across company boundaries Bottomup Management 3M At Minnesota Mining and Manufacturing Company 3M top manage ment is not the focus of attention The names of successive CEOs are relatively unknown and what they say or do appears to be of little relevance to 3M employees Instead individual inventors and entrepre neurs are more the focus of attention and quite possibly better known than the CEO to the outside world The stories of how a lab technician named Dick Drew created masking tape and Scotch tape or how a sales manager named John Borden created a dispenser with a builtin blade for Scotch tape have become legend More recently the story of how Art Fry created those ubiquitous little stickon yellow note pads known as Postit Notes has been heard over and over again in and out of the company In many respects 3M represents an antithesis to the topdown man agement style at GE The guiding principles at 3M are autonomy and entrepreneurship which get translated into practices such as the fol lowing 136 The KnowledgeCreating Company absence of overplanning brevity of paperwork acceptance of mistakes as normal regular crossing of boundaries encouragement of initiative taking flow of ideas from below minimum interference from above inability of top to kill an idea maintenance of a small and flat organizational structure In our opinion 3M exemplifies the bottomup model of management better than any of the large companies we know of today 3Ms origin may have something to do with its management style Several local Minnesota investors bought a mine in 1902 thinking it contained the very valuable and hard mineral corundum which was used in highgrade abrasives But the mine contained only lowgrade mineral The disappointed investors concluded that the only way to redeem themselves was to come up with offshoot products that had high value Says Lew Lehr the CEO from 1979 to 1986 The salesmen would go from smokestack to smokestack knocking on doors But they didnt stop at the purchasing agents office They went into the back shop to talk to the boys and see what was needed that nobody was making5 A company of practical problem solvers be they salesmen or technical people was born as a result The bottomup approach seems to have become entrenched within the company early in its history An accountant and the third CEO William McKnight describes how 3M was managed in its formative years As our business grows it becomes increasingly necessary for those in man agerial positions to delegate responsibility and to encourage men to whom responsibility is delegated to exercise their own initiative This requires considerable tolerance Those men to whom we delegate authority and re sponsibility if they are good men are going to have ideas of their own and are going to want to do their jobs in their own way It seems to me these are characteristics we want in men and they should be encouraged as long as their way conforms to our business policies and our general pattern of operation Mistakes will be made but if the man is essentially right himself I think the mistakes he makes are not so serious in the long run as the mistakes management makes if it is dictatorial and undertakes to tell men under its authority to whom responsibility is delegated exactly how they must do their job If management is intolerant and destructively critical when mistakes are made I think it kills initiative and it is essen tial that we have many men with initiative if we are to continue to grow Huck 1955 p 239 Middleupdown Management Process for Knowledge Creation 137 Individuals with Initiative 3M has been blessed over the years with a large number of what McKnight called individuals with initiative Peters and Waterman 1982 referred to them as heroes and Gifford Pinchot 1985 as in trapreneurs Whatever they may be called we need to focus on spe cific individuals if we are to understand the essence of bottomup man agement at 3M We shall highlight the stories of two individuals Dick Drew and Art Fry6 Dick Drew When Dick Drew was selling sandpaper he noticed the difficulty his customers in the automobile industry were having painting twotone cars One day he promised a painter to make a tape that could solve his problem Since neither Drew nor 3M had ever worked on tape be fore the early attempts all failed After a number of successive fail ures McKnight the president for fear of damaging 3Ms reputation with auto industry customers told Drews boss to take him off the tape project and put him back on sandpaper Drew was assigned to work on a flexible crepepaper backing for sandpaper Still obsessed with solving the problem of the painting of twotone cars Drew came up with the idea of crepe with adhesives As he was about to test his idea in the lab Drew bumped into McKnight who asked Drew if he knew he had been ordered to stop working on tape and to go back to sandpaper Drew admitted that he knew but explained with conviction how his idea was going to work and how it was going to help his customers McKnight allowed him to continue and after hundreds of failures the crepepaper backing worked A masking tape the first tape 3M ever made was born Five years later Drew went on to invent Scotch tape A rt Fry Fry sang in the church choir and noticed that the slips of paper he inserted to mark selected hymns would fall out He decided to create a marker that would stick to the page but would peel off without damag ing it He made use of a peelable adhesive that Spence Silver at the Central Research Lab had developed four years previously and made himself some prototypes of the selfattaching sheets of paper Sensing a market beyond just hymnal markers Fry got permission to use a pilot plant and started working nights to develop a process for coating Silvers adhesive on paper When he was told that the machine he designed could take six months to make and cost a small fortune he singlehandedly built a crude version in his own basement overnight and brought it to work the next morning The machine worked But 138 The KnowledgeCreating Company the marketing people did some surveys with potential customers who said they didnt see the need for paper with a weak adhesive Fry said Even though I felt that there would be demand for the product I didnt know how to explain it in words Even if I found the words to explain no one would understand Instead Fry distributed sam ples within 3M and asked people to try them out The rest was history Postit Notes became a sensation thanks to Art Frys entrepreneurial dedication and dogged persistence7 Stories like these are heard over and over again within 3M The company treasures these stories and keeps them alive Each story cen ters around a hero and a legend Each story also has a moral to tell but a common theme runs through all of them Pursue your dream with freedom Pursue your dream despite opposition or interference from above Pursue your dream no matter how long a raw idea may take to make it in the marketplace Pursue your dream using informal channels Pursue your dream even if you fail It is important to note that individuals with initiative will not be able to pursue their dreams unless the company gives them the free dom and the funding to do so At 3M researchers can spend up to 15 percent of their onthejob time pursuing their own dreams This 15 percent rule means that researchers are free to do whatever they want roughly one day out of the week 3M also provides those pursuing their dreams with access to company resources Art Fry took advan tage of this access by using bottles of Spence Silvers adhesive that were lying around the lab to make himself some selfsticking hymnal markers He also used the equipment of other divisionsdifferent kinds of coasters and paper handlesto try out his ideas A1 Boese another 3M individual with initiative and his group received funding to explore new uses for nonwoven material in order to produce success ful products beyond lens wipers Top Management as Mentor The idea of a boss does not sit well at 3M Entrepreneurs like to believe they are in control of their own destinies An episode from the 1950s illustrates how 3M tries to deny the concept of hierarchy Ames Smithers a Wall Street Journal reporter calling in the late 1950s to write an article about the 3M company interviewed President Buetow The newsman mentioned at one point that his understanding of 3M would be enhanced considerably if he could see an organization chart Buetow changed the subject almost as though he had not heard The visitor re peated his request several times Still no direct response from Buetow Finally in growing exasperation the reporter interjected From your reluctance to talk about or show me an organization chart may I assume you dont even have one Oh we have one all right Buetow replied reaching sheepishly into his desk drawer But we dont like to wave it Middleupdown Management Process for Knowledge Creation 139 around There are some great people here who might get upset if they found out who their bosses are Pinchot 1985 p 208 In this kind of a setting rarely does a boss give an order or a com mand McKnight once did if you recall He became concerned that 3Ms reputation with auto industry customers would be damaged by Dick Drews frequent failures as he tested his tape and ordered Drews boss to remove him from the tape project We all know what became of that order It was ignored An order or a command has little meaning in a company that encourages meritorious disobedience At 3M senior managers act as mentor coach and sponsor They are there to keep a sharp eye out for individuals who believe passionately in something and to empower them to follow their intuitions They are there to protect people below from premature interference and to push them out of the nest when the time is right The following homily is often used within 3M to describe their role The captain bites his tongue until it bleeds Its a naval expression concerning the patience the captain has to endure when watching a junior officer bring a big ship alongside the dock for the first time Lew Lehr explains as follows The captain bites his tongue until it bleeds means that once a sponsor has bet on someone he doesnt speak out against the project represented The qualities that a sponsor needs are 1 belief 2 patience and 3 the vision to differentiate between onetime and mortal failure8 As befits a company that was founded on a mistake 3M has prided itself on having continued to accept failure as a normal part of running a business Lehr admits that every one of his colleagues in senior man agement has backed a few losers along the way On the other hand Desi DeSimone the current CEO admits the mistake of opposing what turned out to be a very successful product Actually when Thinsulate was being developed I stood on the side that wanted to kill the project saying Enough already stop this thing Even so I left open a loophole to permit its continued autonomous development In other words at a suitable stage one closes ones eyes to process9 In addition to biting its tongue management at 3M has to close its eyes and just grit its teeth to use DeSimones words Obsession with NewProduct Ideas Very few things are considered sacred within 3M but the development of newproduct ideas is certainly one of them Individuals are set free to pursue their dream while management bites its tongue and grits its teeth to foster the development of newproduct ideas There is even a commandment that serves as a behavioral guide Known as the elev enth commandment within 3M it says Thou shall not kill ideas for new products If someone wants to stop a project aimed at the develop 140 The KnowledgeCreating Company ment of a new product the burden of proof is on the person who wants to stop the project not the person proposing it When you switch the burden from proving that the idea is good to the burden of proving that the idea is not good you do an awful lot for changing the environment within the company with respect to the sponsorship of entrepreneurial people says one 3M employee Peters and Waterman 1982 pp 227228 More formally each division has to comply with a corporate require ment that at least 25 percent of its sales must be derived from products that did not exist five years ago This requirement which is uniquely 3Ms serves as the positive driving force behind the companys finan cial structure It also forces each divisional manager to pursue new products especially since compensation at senior levels is linked to the percentage of sales that come from new products According to DeSi mone that percentage has exceeded 30 percent on a companywide ba sis in recent years This kind of requirement drives the 15 percent rule and the elev enth commandment inside the company and fosters close contacts with customers and users outside the company To facilitate new product development the company provides funding for virtually any idea and makes pilot testing facilities accessible to anyone See Figure 53 for the various organizational characteristics supporting the con tinuous innovation process at 3M Middleupdown Management Canon At the end of the 1970s the top management at Canon feared that the demand for plain paper copiers targeted toward the office market would eventually level off Canon had entered the plain copier business in 1970 with its introduction of the NP1100 which sold for 880000 yen In early 1979 Canons top management asked researchers in their mid30s to develop a radically new copier We insisted on developing a small multifeature product that could be used by anyone and pro duced at minimum cost said Hiroshi Tanaka a senior managing di rector and a director of the Imaging Business Machines Development Center who headed this development effort at the time10 The new product would target small offices owners of small busi nesses professionals such as doctors or lawyers salesmen or writers working out of their homes and even familiesin short people who would buy a plain paper copier for personal use To appeal to this mar ket the new product had to be small light inexpensive and easy to use but without a compromise on quality Top management expressed a strong hope not a command to realize the dream of developing a 1000 copier based on a totally new concept said Teruo Yamano uchi director of the Corporate Technical Planning and Operations Center Yamanouchi 1991 pp 344345 Middleupdown Management Process for Knowledge Creation 141 Organizational level 1 Strategy Niche uninhabited market 2 Knowledge base Categorization of core technology 120 Synergy 3 Small divisional structure Grow and divide syndrome 4 Intracompany venture system Product lifecycle commitment project department division Multiple sources of funds 5 Personnel system MultipleLadder system 6 Corporate performance measures ROI 2025 salesprofit ratio 2025 Sales growth ratio 1015 New product development ratio 30 in 4 years I l Group level 1 System of encouraging dialogue technical forum etc 2 Crossfunctional team RD production marketing finance I 3 Intracompany member recruitment I j Individual level 115 rule 2 Bias for action culture 3 11th commandment I Thou shalt not kill ideas for new products j 4 Tolerance for failure Guarantee of reinstatement to former salary and status in event of failure 5 Tolerance for time culture Figure 53 Organizational characteristics for continuous innovation at 3M After a number of informal discussions a rough image began to emerge for a personal copier that met the broad guidelines set by top management That image was expressed in terms of the following five goals First the copier must produce clear and stable copies constantly Second it should be the worlds smallest and lightest less than 20 kg or 50 lbs Third it should have a market price about half that of the smallest plain paper copier on the market or below 200000 yen or 1000 in the United States Fourth it should be as close to 142 The KnowledgeCreating Company maintenancefree as possible without the need for parts replacement or regular servicing Fifth it should be creative and contain an ele ment of fun eg use of colors or different paper sizes When these goals were established there were no technological solutions nor were there any signs this would work Yamanouchi 1991 p 346 added Feasibility Study Team A feasibility study team was formed to examine what it would take to realize the project The 14member team headed by Hiroshi Nitanda consisted of 8 people from RD 3 from production 2 from marketing and 1 from product design The average age of this team was 28 The team began with a technical analysis The important questions were crystal clear Why are plain paper copiers so expensive And why do they need so much servicing The feasibility study team members faced a big challenge They had to resolve what appeared to be a contradiction between reliability and cost Normally production costs would increase in order to improve reliability and service requirements could increase when cost was re duced How could both reliability and cost be improved simultane ously To resolve this challenge members from different disciplines had to abandon their conventional wisdom and create a totally new concept of how a copier operated Internally this challenge was re ferred to as the creation of a Canon Revolution The feasibility study team discovered that the two questions they raised had a common source Most plain paper copiers used a compli cated delicate imaging mechanism that needed regular servicing Apart from paper jams the researchers found that 97 to 98 percent of copier service problems were related to the drum and its surrounding mechanisms Since this servicing was very costly any reduction in pe riodic maintenance meant that a copier could be sold for much less Or better still maintenance could be eliminated altogether Members of the feasibility team engaged in outspoken arguments at several impromptu gasshuku or camp sessions which were overnight brainstorming seminars held outside the workplace Team members not only debated among themselves but also invited people from other areas of Canon to discuss how the problem could be solved As Kei Saito a key member of the feasibility team pointed out managing the different rhythms that existed within the team became the key to achieving a creative solution during a camp session To solve a fundamental question like the seesaw between cost and relia bility requires a reorientation of the mind First one needs to ask What is the essence Then the available approaches to deal with it are enumer ated and diffused I think the diverging mind is different from the converg ing mind which figures out what sort of technology is used for making products When these are mixed up what comes out is something which is Middleupdown Management Process for Knowledge Creation 143 shrunken Often conflicts occur when people have rhythms that do not agree with each other Attempts to bring them together dont succeed when they are diverging If the rhythms are in unison from the beginning we can hardly have good result Only one major proposition is given and later people are divided into groups which will do complete divergence to make them compete Because there are several groups instead of just one which work in parallel naturally there is waste and we are aware of it as we do it Creating the rhythms of divergence and convergence is the trick of conducting a successful camp session11 Camp sessions were an ideal forum for bringing together people with different rhythms having conflicts emerge as a result and eventually synchronizing them to find a creative solution Disposable Cartridge After much debate or seesaw one of the emerging ideas began to make sense to everyone What if the troublesome part of the copier the drum and its surrounding mechanismcould be made disposable so that the user simply discarded the entire module after making a certain number of copies and inserted a fresh unit as a replacement With this idea the copier would be essentially maintenancefree Whereas the drum in a conventional copier was a component with an openended operating life which meant that it would certainly fail at some point in time and then would have to be repaired the feasibility team came up with an entirely new way of thinking about the drum It was reconceptualized as a cartridge with a limited but known life expectancy All the major parts of the copier mechanismphotosensi tive drum toner and development assemblywould be fitted into a disposable cartridge Thus a totally new concept was born using an imaging cartridge that eliminated the need for regular maintenance service Hiroshi Tanaka reflected on this breakthrough in 1982 Up until now copier maintenance and service calls have been inseparable from the copier business because the copiers circuitry and developer as well as the charging units are sophisticated and therefore susceptible to the least environmental change To aggravate the problem some geo graphic regions lack sufficient qualified service engineers We decided that a way around servicerelated obstacles would be to put the heart of the copier mechanism in a protective cartridge that could be changed after a certain number of copies were taken putting an end to the need for main tenance calls by service engineers And we set the life of a cartridge at 2000 copies12 The disposable cartridge provided a conceptual breakthrough that triggered other benefits Nitanda explained the ripple effect as follows The idea of packaging the drum and surrounding components as a car tridge revealed a great number of things to us First of all as everything is brought together the structure can be simplified and only a very small 144 The KnowledgeCreating Company number of essential parts are needed So high precision design becomes possible by combination in design The product becomes less messy Also the key module becomes quite compact as the release mechanisms between units are no longer needed So low cost as well as high reliability will be achieved at the same time Moreover with a cartridge the toner seal is opened only after reaching the customer This meant the plant was re quired to develop a production process without imaging inspection This led to better efficiency13 The feasibility study team organized two additional camp ses sionsone at a sea resort near Tokyo the other at a small business hotel in Tokyoto analyze the cost structure of what came to be called the MiniCopier Naturally the photosensitive drum which was by far the most costly component became the focus of the costcutting discus sion When many of the feasibility study team members expressed doubts that a costdown of one figure could be achieved Hiroshi Ta naka had someone go out and buy some beer As the team discussed design problems over their drinks Tanaka held one of the beer cans and wondered aloud How much does it cost to manufacture this can The question led the team to speculate whether the same process for manufacturing an aluminum can could be applied to the production of an aluminum copier drum By exploring how the drum is like and un like a beer can the MiniCopier feasibility study team was able to come up with the process technology that could manufacture the dis posable cartridge at an appropriately low price The disposable cartridge provided the conceptual breakthrough that moved the entire product development forward by leaps and bounds By reversing their thinkingthat is from treating the entire imaging mechanism as consisting of lifelong components to reconceptualizing it as made up of fixedlife components that could be thrown awaythe feasibility study team members were able to convert a rough image into something practical and doable The reverse concept as it is known within Canon is depicted in Figure 54 MiniCopier Task Force Having made a conceptual breakthrough and being satisfied with the results of the cost analysis Canon decided to go ahead with fullscale product development of the MiniCopier A formal task force headed by Hiroshi Tanaka was launched in September 1980 The MiniCopier task force started with 130 members and eventually involved nearly 200 scientists engineers and marketing specialists covering pure re search product development production engineering and consumer research Ryuzaburo Kaku the company president attended the kick off meeting and gave a pep talk about the importance of the project and the need for Canon to win through technology No specifics were mentioned by Kaku Middleupdown Management Process for Knowledge Creation 145 High Quality High Reliability Compact Lightweight Clean Color Changeable Economical Price Automated Assembly Nonadjustment Automatic Inspection Figure 54 Reverse concept Creation of the disposable cartridge Source Canon Although the MiniCopier task force was the first to be created within the Reproductive Products Group it was the second for Canon The first task force was formed to develop the AE1 camera a single lens reflex camera with a builtin microprocessor introduced in 1976 The AE1 was considered the companys greatest product development success As with the MiniCopier the AE1 task force came up with new ideas to meet the challenging parameters set forth by top manage ment Taskforce members were asked to develop a highquality auto matic exposure camera that had to be compact lightweight easy to use and priced 30 percent lower than the prevailing price of single lens cameras To reach this ambitious target the project team achieved several firsts in camera design and production an electronic brain consisting of integrated circuits custommade by Texas Instruments 146 The KnowledgeCreating Company modularized production which made automation and mass production possible and reduction in the number of parts by 30 to 40 percent It was a struggle because we had to deny our traditional way of think ing recalled the head of the AE1 task force As the newly appointed head of the MiniCopier task force Tanaka saw a lot of similarities with the AE1 project Both started with a specific price point and features in mind Both set ambitious goals that would only be accomplished through a shedding of the traditional way of thinking Thus it was natural for Tanaka to try to transfer much of the knowhow accumulated during the AE1 development project to the MiniCopier project He even adopted Lets make the AE1 of copiers as the slogan for the MiniCopier project The hope obviously was to replicate the market success of AE1 But equally as important he wanted to rally all the departments within the company behind the MiniCopier In particular Tanaka knew from the AE1 experience that a joint effort of the RD and production engineering departments was indispensable to the success of the development process But at the time the focus of the production engineering group was directed en tirely toward cameras The slogan Lets make the AE1 of copiers was created partly to draw the cameraoriented production engineering group into the copier project Tanaka organized the task force with two group leaders one from RD and the other from production engineering As shown in Figure 55 the RD group is at the bottom right and the production engi neering group at the bottom left The task force also included two as sessment groups The first was the Product Quality Assessment Group which stipulated that the copier should aim at achieving the repair frequency level of TV sets used in the home The group collected ex haustive information related to TV repair frequencies and set all qual ity standards for the copier based on that information The second was the Product Cost Assessment Group which analyzed the cost and qual ity standards necessary to achieve a retail price of under 200000 yen Two additional groups were created within the task force The first was the Marketing Group which invited copier sales representatives from around the world to present marketing ideas The second was the Sales Software Group which examined software options such as the use of color The multidisciplinary nature of the task force brought about some longterm benefits for its members As one member who joined the MiniCopier task force at age 24 a year and a half after joining Canon recalls Through the task force I realized how important it was to join hands with other departments I reaped a big benefit from simply knowing what to ask whom The personal network that I built then is still a precious asset for me now Magami 1990 p 85 Middleupdown Management Process for Knowledge Creation 147 Figure 55 Organization of the MiniCopier task force Source Canon As a rule representatives from the RD group and the production engineering group met once a week and often engaged in heated de bate over cost and reliability By their very nature the two groups had different thought processes As one project member aptly put it If someone from development thinks that 1 out of 100 is good thats a clear sign for going ahead But if someone from production thinks that 1 out of 100 is not good weve got to start all over This gap in percep tion creates conflict But at the same time these weekly sessions helped to create a synergistic effect Kei Saito who was deputy man ager of an RD center at that time observed the following In any company good products are created when production engineering and design come together Working together with Production Engineering we can propose uniform parts design or assembly in one direction how 148 The KnowledgeCreating Company something should be assembled and in what sequence or that one should do this or that if possible when attempting to automate production for example If we in product design are by ourselves it is easy to prepare drawings and do what we like without thinking that far ahead So our discussions with the production engineering people and our subsequent effort to accommodate their various requests in our own ways resulted in both tangible and intangible cost reductions14 Hiroshi Nitanda who was appointed deputy leader of the RD group within the MiniCopier task force attributed the success of the project to the frank and open discussion among members of the team from different functional groups and across different ages and titles He and other middle managers who were involved in the feasibility study team played a key integrative role along several fronts One obvious integra tion was across the various groups within the task force Nitanda cited the following example as a case in point We had people from RD production engineering and the Product Cost Assessment Group working to assign target costs to the various compo nents since we knew that the target retail price was 200000 yen in Japan or 1000 in the US We decided what the target costs were for the paper feeder the optical parts the drum the charger etc Every group pitched in to make the assigned target costs a reality We would have an infinite number of discussions If a problem arose wed go back to the specification and conduct a thorough value engineering analysis to realize the target15 Another integration Nitanda conducted was with the very young en gineers assigned to the seven subgroups within the RD group Each subgroup was made up of from 2 to 10 engineers in their early 20s who had worked for Canon for only two or three years The only exception was the Copying Process Design subgroup whose members were in their late 20s Experience was a key consideration for this subgroup as the members had to master several diverse fields of technology The young engineers on the task force were not at all bashful about expressing their views or contradicting their seniors Their aggressive ness and autonomy were very much a part of the culture revered within Canon One of the companys key corporate philosophies has long been the socalled threeself spirit in which everyone is encour aged to proceed in the spirit of selfmotivation selfknowledge and selfgovernment According to the director of the Central Laboratory where these three words were engraved in the three pillars at the en trance The threeself spirit enables us to operate in a bottomup manner Basi cally you can do whatever you please here There are no fine rules And from the past you dont get yelled at even if you attempt something new and fail Iwabuchi 1992 pp 162163 One of the young engineers reflected on his experience within the task force and commented We would devote all our energy towards Middleupdown Management Process for Knowledge Creation 149 product development but we realized that our immediate superiors were hard at work trying to manage people above them Magami 1990 p 85 In fact the third integration Nitanda and his peers worked on was with senior management Informally these middle managers were in constant communication with the heads of the vari ous internal organizations including Hajime Mitarai managing direc tor for RD Kazuo Naito director of the Production Engineering Re search Center and Akio Yamanouchi director of the Corporate Technical Planning and Operations Center A formal meeting with the Steering Committee see Figure 55 was organized once every two months Nitanda explained the rationale for this meeting as follows It was important for everyone to be at the same level since the task force was large A Steering Committee consisting of a board of directors was formed for that reason Tanaka chaired that committee which met once every two months We checked how the project was progressing schedule wise and discussed what breakthroughs were needed when we ran into problems Budget issues were also discussed in that committee Iwabuchi 1992 p 126 Nitanda also involved the top managers at the very end of the proj ect through a product quality assessment program called the In My House Test in which they actually tested the MiniCopier in their homes He recalls It was in 1982 that we delivered the copiers to the homes of Kaku Yamaji vice president and others and had them actually use the new machines We also set them up at different offices but heard no reports of failures Consequently none of them was ever returned to us Iwabuchi 1992 p 124 At that point Nitanda Saito and other members of the MiniCopier task force knew that they had a winner on their hands Canon intro duced two versions of the MiniCopierthe PC10 and the PC20in late 1982 The machines generated 470 patents 340 for the new car tridge system alone for Canon The knowledge created by the MiniCopier development project has subsequently been utilized within the company in a number of im portant areas First the product knowledge generated by the Mini Copier especially with respect to the disposable cartridge has been adopted in other successful officeautomation equipment introduced by Canon Such equipment includes laserbeam printers in which Canon holds 80 percent of the world market share as well as facsimiles and microfilm readerprinters Second the manufacturing process knowl edge gained through the MiniCopier project such as reduction in the number of parts by onethird a tenfold improvement in parts processing precision and introduction of the automated image inspec tion system paved the way for copier production to be automated This shift was instrumental in boosting sales of copiers and business ma 150 The KnowledgeCreating Company chines which today account for over threequarters of Canons sales Third the organizational knowledge gained from the MiniCopier es pecially with respect to the critical role played by middle managers and the importance of working jointly across functional specializations is reflected in the way Canon is managed today Middle managers can be seen in the roles of creators and converters of organizational knowl edge process facilitators and agents of change They foster direct dia logue and locate themselves at the center of interaction within the organization As Nitanda reflects today After the MiniCopier experi ence I made sure that the younger people have ample opportunity to voice their opinion For example I have them say whatever is on their mind for 30 minutes every morning during the chorei morning gather ing write it up as a memo and distribute topics before noon Ma gami 1990 p 85 Comparison of the Three Management Models The three cases presented above help to identify the differences in the prevailing management styles within GE topdown 3M bottomup and Canon middleupdown Using Table 51 as a frame of reference we can see the difference in who is the agent of knowledge creation in each of these cases It was clearly Jack Welch the CEO in the case of GE Dick Drew Art Fry and other entrepreneurial individuals within 3M and middle managersHiroshi Nitanda and Kei Saitoat Canon Although Jack Welch acted as the commander within GE creating concepts and justifying them himself top management at 3M acted more like a sponsor and mentor As with Kawamoto in the Honda City example Hiroshi Tanaka at Canon served more as a catalyst leaving the actual knowledgecreation process to the middle managers he appointed Thus it was Nitanda and Saito who were responsible for carrying out the five phases of the processsharing tacit knowledge creating concepts justifying concepts building archetypes and cross leveling knowledgeby involving both the top as well as the front line The different roles that the top middle and front line play within middleupdown management are discussed in further detail in the next section of this chapter Turning to the what section of Table 51 we notice that the types of knowledge accumulated differ across the three models As mentioned earlier the topdown model deals primarily with explicit knowledge the bottomup with tacit knowledge while middleupdown covers both types of knowledge Furthermore the middleupdown model provides a more appropriate setting for realizing all four modes of knowledge conversion while the two traditional models are limited to converting only two of the modes The where and how sections of Table 51 will be treated in more depth in Chapter 6 which proposes a new organizational structure Middleupdown Management Process for Knowledge Creation 151 more conducive to knowledge creation But we were able to see the difference in how communication takes place within the three models The concepts created by Jack Welch such as No 1 or No 2 and speed simplicity and selfconfidence are passed down the organiza tion almost as an order or instruction to be followed In the case of 3M the communication of ideas generated by individuals with initiative is left up to the individuals involved who work on a selforganizing basis In contrast companies like Canon and Honda rely more on twoway communications such as dialogue camp sessions and drinking ses sions in fact some companies use the word nommunication which is a hybrid created by combining a Japanese word for drinking nomu with communication to describe this kind of session and make frequent use of metaphors and analogies KnowledgeCreating Crew Creating new knowledge in the knowledgecreating company requires the participation of frontline employees middle managers and top managers Everyone in a knowledgecreating company is a knowledge creator Indeed the value of any one persons contribution is deter mined less by his or her location in the organizational hierarchy than by the importance of the information she or he provides to the entire knowledgecreating system But this is not to say that there is no dif ferentiation among roles and responsibilities in the knowledge creating company In fact creating new knowledge is the product of dynamic interaction among the following three players 1 knowledge practitioners 2 knowledge engineers and 3 knowledge officers Until now we have referred to the three key players in organiza tional knowledge creation as frontline employees middle managers dnd top managers But in hindsight these are titles inherited from a traditional hierarchical organizational structure in which the domi nant management process is topdown In an organizational structure that can take advantage of both a hierarchy and a task force a topic covered in depth in the next chapter we need to develop a more appro priate set of titles We shall use the term knowledgecreating crew to refer to all the individuals engaged in knowledge creation within the company The knowledgecreating crew is made up of knowledge practitioners knowledge engineers and knowledge officers These three players correspond roughly to the three titles we have been using thus far see Table 52 Table 52 KnowledgeCreating Crew Knowledge practitioners Frontline employees and line managers Knowledge engineers Middle managers Knowledge officers Top managers 152 The KnowledgeCreating Company Knowledge practitioners are responsible for accumulating and gen erating both tacit and explicit knowledge They consist of knowledge operators who interface with tacit knowledge for the most part and knowledge specialists who interface primarily with explicit knowl edge Knowledge engineers are responsible for converting tacit knowl edge into explicit and vice versa thereby facilitating the four modes of knowledge conversion Knowledge officers are responsible for manag ing the total organizational knowledgecreation process at the corpo rate level These crew members should be distinguished from what Peter Drucker calls knowledge workers According to Drucker 1993 p 8 just as capitalists owned the means of production eg capital land or labor in the capitalist society knowledge workers own their knowledge and take it with them wherever they go in the postcapitalist society Knowledge is viewed as a resource by Drucker whose key con cern is with the productivity of knowledge work and the knowledge worker We view knowledge both as a resource and an output and are more concerned with the creation of knowledge by the knowledge creating crew Our definition of a knowledge crew member also differs from that of a symbolic analyst a term coined by Reich 1991 p 177 that has been applied generically to people who use their heads instead of their hands As we shall find out below included in a knowledge creating crew are people who use their heads as well as their hands Knowledge Practitioners The basic role of knowledge practitioners is the embodiment of knowl edge They accumulate generate and update both tacit and explicit knowledge acting almost as walking archives on a daytoday basis Since most of them work at the front lines of business which means that they are constantly in direct touch with the outside world they can obtain access to the latest information on developments in the market technology or competition The quality of knowledge that they accumulate and generate is determined by the quality of their direct experiences at the front lines of daytoday business Thus knowledge officers and knowledge engineers need to give them tasks that are as challenging and exploratory as possible As mentioned above knowledge practitioners are made up of two complementary groupsknowledge operators and knowledge spe cialists Knowledge operators accumulate and generate rich tacit knowledge in the form of experiencebased embodied skills In most cases they are frontline employees or line managers who are located closest to the realities of the business Included in this group are mem bers of the selling organization who interact with customers in the marketplace skilled workers and supervisors on the production line skilled craftspersons line managers and others engaged in the opera Middleupdown Management Process for Knowledge Creation 153 tional side of the business They constantly interface with the realities of the various fields and accumulate tacit knowledge through bodily experience Knowledge operators generally use their heads and their hands Members of the Yazaki Group at Nissan Motor who are test drivers exemplify the role that knowledge operators play in the knowledge creating process These test drivers often live in a specific country for a year or so to get the feel of local driving conditions and driving styles as well as to learn local lifestyles habits customs and values Their personal experience and knowhow become valuable when de signers and planners working on a newproduct development project ask their opinion on how the model being developed is likely to per form in that particular country relative to competitors Members of the Yazaki Group provide feedback on the potential problems of the new model based on their indepth knowledge of the local environment and competing models They sometimes take the design engineers on a test drive to let the designers actually feel the problems A similar bodily experience becomes the basis for new knowledge among frontline salespeople For example leading apparel companies in Japan such as OnwardKashiyama Renown or Sanyo send their own salespeople to the selling floor of major department stores and encourage them to carry on a dialogue with customers Since most of the customers needs are tacit they cannot tell exactly and explicitly what they really need or want Asked What do you need or want most customers tend to answer with their limited explicit knowledge of what they acquired in the past By engaging in a meaningful dia logue with customers these salespeople can mobilize the customers tacit knowledge base This knowledge enhances the ability of the ap parel companies to discern what the fickle customers are thinking and to make future plans accordingly Knowledge specialists the other group of knowledge practitioners also accumulate generate and update knowledge but of a different kind from that which interests knowledge operators Knowledge spe cialists mobilize wellstructured explicit knowledge in the form of tech nical scientific and other quantifiable data the kind of knowledge that could be transmitted and stored in a computer Included in this group are scientists in RD design engineers software engineers sales engineers strategic planners and specialists working in staff po sitions such as finance personnel legal and marketing research They would be close to what Reich called symbolic analysts those who pri marily use their heads Several examples of knowledge specialists come to mind The younger members of the Honda City development team Matsushitas Home Bakery development team and Canons MiniCopier develop ment team for example qualify as knowledge specialists System engi neers at Kraft General Foods who developed the micromerchandising 154 The KnowledgeCreating Company program that provides supermarkets with timely and precise recom mendations on optimal merchandise mix and sales promotion see Chapter 3 for more details also fall into this group Researchers at Sharps corporate RD group function as knowledge specialists as well They collect information on the RD needs of each business group share the results of the research with the research laboratories of the respective business groups and develop prototypes for the busi ness groups as well Another example of knowledge specialists would be marketing researchers who conduct interviews and administer questionnaires and then analyze their responses using sophisticated quantitative methodologies Ideally knowledge practitioners should have the following qualifi cations 1 they need to have high intellectual standards 2 they need to have a strong sense of commitment to recreate the world according to their own perspective 3 they need to have a wide variety of experi ences both inside and outside the company 4 they need to be skilled in carrying on a dialogue with customers as well as with colleagues within the company and 5 they need to be open to carrying out can did discussions as well as debates with others Knowledge Engineers We have pointed out repeatedly that middle managers are the knowl edge engineers of a knowledgecreating company They serve as a bridge between the visionary ideals of the top and the often chaotic market reality of those on the front line of business By creating mid level business and product concepts they mediate between what is and what should be They remake realityor to put it differently engineer new knowledgeaccording to the companys vision Hiroo Watanabe of Honda Motor Hiroshi Nitanda of Canon and Ikuko Tanaka of Matsushita come immediately to mind as middle managers personifying the role of knowledge engineers At Honda top managements decision to try something completely new took concrete form at the level of Hiroo Watanabes product development team through the Tall Boy concept At Canon the companys aspiration making an excellent company by transcending the camera business became a reality when Hiroshi Nitanda and his task force developed the easy maintenance concept which eventually gave birth to the MiniCopier And at Matsushita the companys grand concept Hu man Electronics came to life through the efforts of Ikuko Tanaka and others who developed the midrange concept of Easy Rich and em bodied it in the automatic breadmaking machine In remaking reality knowledge engineers take the lead in con verting knowledge They facilitate all four modes of knowledge conver sion although they make their most significant mark in converting tacit images and perspectives into explicit concepts ie externaliza Middleupdown Management Process for Knowledge Creation 155 tion They synthesize the tacit knowledge of both frontline employees and senior executives make it explicit and incorporate it into new technologies products or systems Of course this is not to say that they are not adept at engineering the three other modes of knowl edge conversionsocialization combination and internalization In addition to knowledge conversion knowledge engineers play two other key roles both of which involve the creation of a knowledge spi ral The first is their role in facilitating a knowledge spiral along the epistemological dimension across the different modes of knowledge conversion Knowledge created in the socialization mode can trigger knowledge creation in the other three other modes of knowledge con version creating a spiral that we presented visually in Figure 33 The second is their role in facilitating another spiral along the ontological dimension across different organization levels Knowledge created at the individual level can move up to the group level then to the organi zational level and sometimes up to the interorganizational level We shall return to the three knowledge engineers mentioned above to see how they engineered these two spirals We start with Ikuko Tanaka who mobilized others in the Home Bakery development team to create knowledge not only for the team but for the company at large She facilitated knowledge conversion and the knowledge spiral in the following ways 1 tacit to tacit socializa tion she learned the tacit secrets of the head baker at Osaka Interna tional Hotel 2 tacit to explicit extemalization she translated these secrets into explicit knowledge so that the knowhow could be commu nicated and transmitted to her team members as well as to others at Matsushita 3 explicit to explicit combination the team standard ized this knowledge putting it together into a manual or workbook and embodying it in a product and 4 explicit to tacit internaliza tion Ikuko and her team members enriched their own tacit knowledge base through the experience of creating an innovative new product The new tacit insight about providing genuine quality which was gained from developing Home Bakery was conveyed to others within Matsushita who used it to formulate equivalent quality standards for kitchen appliances TV sets and white goods In this way Ikuko in duced a spiral of knowledge for the company at large Similarly Hiroo Watanabe and Hiroshi Nitanda engineered knowl edge spirals within Honda and Canon respectively Watanabes image of a sphere and his metaphor of Automobile Evolution eventually led to the development of the Tall Boy concept which was used to de velop the City model in the early 1980s Nitanda was one of the project leaders who developed the easy maintenance concept which eventu ally led to development of the disposable cartridge used in the Mini Copier introduced in the early 1980s The tacit knowledge associated with Tall Boy was utilized a decade later in developing two 1994 Honda models Ascot and Rafarga whose selling approach focuses on 156 The KnowledgeCreating Company their height Similarly the tacit knowledge associated with easy maintenance was utilized in the late 1980s to develop Canons laser printer which also uses a disposable cartridge A number of qualifications must be met for middle managers to be come effective knowledge engineers 1 they must be equipped with topnotch capabilities of project coordination and management 2 they need to be skilled at coming up with hypotheses in order to create new concepts 3 they need to have the ability to integrate various method ologies for knowledge creation 4 they need the communication skills to encourage dialogue among team members 5 they should be profi cient at employing metaphors in order to help others generate and ar ticulate imagination 6 they should engender trust among team mem bers and 7 they should have the ability to envision the future course of action based on an understanding of the past Knowledge Officers The basic role of knowledge officers who are top or senior managers of a company is the management of the total organizational knowledge creation process at the corporate level Knowledge officers produce and control the process on a handson basis sometimes resorting to man agement by wandering around At other times they manage the pro cess somewhat more removed from the daytoday operation deciding which projects to create and fund Knowledge officers give a companys knowledgecreating activities a sense of direction by 1 articulating grand concepts on what the company ought to be 2 establishing a knowledge vision in the form of a corporate vision or policy statement and 3 setting the standards for justifying the value of the knowledge that is being created If the job of knowledge practitioners is to know what is then the job of knowledge officers is to know what ought to be Knowledge officers are responsible for articulating the companys conceptual um brella the grand concepts that in highly universal and abstract terms identify the common features linking seemingly disparate activities or businesses into a coherent whole At NEC top management has cate gorized the companys knowledge base in terms of several core technologies and then developed the metaphor CC for computers and communications At Kao the umbrella concept is surface sci ence referring to technologies for coating the surface area of materi als This concept has guided the companys diversification into products ranging from detergents to cosmetics to floppy disks all of which are natural derivatives of Kaos core knowledge base Another key role of knowledge officers is the establishment of a knowledge vision that defines the value system of the company It is this value system that evaluates justifies and determines the quality of knowledge the company creates Knowledge officers should be aware Middleupdown Management Process for Knowledge Creation 157 that their aspirations and ideals determine the quality of knowledge the company creates While the ideals of top management are im portant on their own they are not enough they need to foster a high degree of personal commitment by other members of the knowledge creating crew To do so an openended and equivocal vision which is susceptible to a variety of interpretations is preferable A more equiv ocal vision gives members of the selforganizing team the freedom and autonomy to set their own goals making them more committed to fig uring out what the ideals of the top really mean Thus at Honda a slogan as vague as Lets gamble and an extremely broad mission statement led the Honda City team to set its own goals and develop innovative new concepts Knowledge officers are also responsible for justifying the value of knowledge that is constantly being developed by the crew They need to decide strategically which efforts to support and develop We have found that qualitative criteria such as truthfulness beauty or good ness are equally as important as quantitative criteria such as effi ciency cost or return on investment A classic example of the more qualitative kind of justification can be seen in Mazdas decision to continue developing the rotary engine Back in 1974 the product development team working on the new en gine was facing heavy pressure within the company to abandon the project The rotary engine was seen as a gas guzzler and critics con tended that it would never succeed in the marketplace But Kenichi Yamamoto who headed the development team and is now chairman of Mazda argued that stopping the project would mean giving up the companys dream of revolutionizing the combustion engine Lets think of it this way Yamamoto proposed We are making history and it is our fate to deal with this challenge Yamamoto invoked the fundamental aspiration of the companywhat he termed dedication to uncompromised valueand the strategy of technological leadership that top management had articulated in order to show how the rotary engine project expressed the organizations commitment to its vision The decision to continue the project led eventually to the development of a successful rotary engine sports car the Savanna RX7 We have seen several senior managers who personify the role of knowledge officers The first is Hiroshi Tanaka of Canon who was se nior managing director at the time of the MiniCopier development Tanaka managed the entire MiniCopier development processsetting up an initial feasibility study team organizing camp sessions using beer cans as a metaphor for the photosensitive drum adopting Lets make the AE1 of copiers as the slogan for the MiniCopier task force and encouraging a middleupdown type of management style The sec ond is Nobuhiko Kawamoto who was vice president at the time of the City development and is now president of Honda Kawamoto appointed Hiroo Watanabe to be the team leader of the City project handed him 158 The KnowledgeCreating Company a challenging goal to create something different from the existing con cept and rejected the teams proposal repeatedly by telling Watanabe to start all over from the very beginning but gave the young project team considerable autonomy and authority throughout the develop ment process A senior or top manager should ideally have the following character istics to qualify as a knowledge officer 1 ability to articulate a knowl edge vision in order to give a companys knowledgecreating activities a sense of direction 2 capability to communicate the vision as well as the corporate culture on which it is based to project team members 3 capability to justify the quality of the created knowledge based on organizational criteria or standards 4 uncanny talent for selecting the right project leader 5 willingness to create chaos within the proj ect team by for example setting inordinately challenging goals 6 skillfulness in interacting with team members on a handson basis and soliciting commitment from them and 7 capability to direct and man age the total process of organizational knowledge creation In this chapter we have proposed a new model of management pro cess which we call middleupdown management It provides the best setting in which organizational knowledge creation can take place Middleupdown management synthesizes the best that the two tradi tional modelstopdown and bottomuphave to offer But for a knowledgecreating company to make the most of this new manage ment model it has to rethink the roles of its key players We suggested the establishment of a knowledgecreating crew made up of knowledge practitioners knowledge engineers and knowledge officers to facili tate the knowledgecreation process In addition a knowledgecreating company has to establish a new organizational structure that provides institutional support for these knowledgecrew members This new knowledgebased organizational structure is proposed in the next chapter Notes 1 In the recent literature on the roles and responsibilities of middle man agers see eg Guth and Macmillan 1986 Westley 1990 Wooldridge and Floyd 1990 Kaplan 1984 Conger and Kanungo 1988 Kraut et al 1989 and Block 1987 For past research on middle management see eg Stewart 1967 Campbell et al 1970 and Mintzberg 1973 2 See eg Nonaka 1988b Dopson and Stewart 1990 Borucki and Byo siere 1991 and Nonaka Amikura Kanai and Kawamura 1992 3 Based on an interview on March 25 1986 at GE headquarters and on other published materials 4 Although we have depicted Jack Welchs style as topdown he has un dergone a transformation of his own evolving from being the toughest boss in America or Neutron Jack in the early 1980s to cultivating a more whole some attitude in the late 1980s Noel Tichy who has worked closely with Jack Middleupdown Management Process for Knowledge Creation 159 Welch since the early 1980s says Having started out as the man with the bullhorn in effect yelling at subordinates who couldnt keep pace he evolved into a coach willing to pause to help others along Tichy and Stratford 1993 pp 209210 A GE insider also noticed a similar change You know Ive watched the rebirth of Welch or the renaissance of Welch or whatever has happened to him I dont know all the elements that went into his being born again and I dont even care what they are But Im sure glad its hap pened Hes a different man than he was in 1981 p 210 Some say that this transformation coincided with the rollout of WorkOut which is very much a bottomup process involving frontline employees empowered to provide solu tions to daytoday business problems But the adoption of WorkOut does not mean that Jack Welch has made a full swing to either the bottomup model or the middleupdown model Teams are much more prevalent today within GE but they still do not function in a selforganizing manner Middle managers no longer kick the dog but neither are they the leader of the pack 5 Interviewed on November 14 1985 at 3M headquarters 6 The stories in this section have been adapted primarily from Minnesota Mining and Manufacturing Company 1977 and Huck 1955 7 Interviewed on November 12 1985 8 Interviewed on November 14 1985 9 Interviewed on November 12 1985 10 Titles used here are those that Canon employees had at that time 11 Interviewed on November 28 1984 12 Interviewed on September 4 1984 13 Interviewed on November 28 1984 14 Interviewed on November 28 1984 15 Interviewed on November 28 1984 6 A New Organizational Structure T he previous chapter introduced middleupdown as the manage ment style most conducive to organizational knowledge creation But for middleupdown management to work effectively we need an organizational structure that supports the management pro cess Knowledge creation has implications not only for the manage ment process it also has profound implications for organizational structure This chapter develops the theoretical and practical bases of a new organizational structure referred to as a hypertext organiza tion that enables an organization to create knowledge efficiently and continuously As knowledge and innovation become more central to competitive success it should come as no surprise that there has been growing dissatisfaction with traditional organizational structures For most of this century organizational structure has oscillated between two basic types bureaucracy and task force But when it comes to knowledge creation neither of these structures is adequate What is necessary is some combination or synthesis of the two We discover in this chapter that there is a surprising model for such a synthesis It is the US military which is bureaucratic in peacetime but highly task forceoriented in wartime We view the US victory against Japan in World War II as an organizational victory of the synthesized structure US military over a purely bureaucratic struc ture Japanese military The military case is a prelude to two case studies of Japanese compa 160 A New Organizational Structure 161 nies attempting to carry out the synthesis of bureaucracy and task force We introduce Kao as an in transition model of the new synthe sized structure and Sharp as a more perfected model But before we move on to describe this new organizational structure which we refer to as hypertext a quick look is in order at the two traditional struc turesbureaucracy and task forcethat form the basis of the new structure Critique of Traditional Organizational Structures The oscillation between bureaucracy and task force goes back to the nineteenth century when Max Weber asserted that the most rational and efficient organizations in modem society have bureaucratic char acteristics Gerth and Mills 1972 pp 1961981 A bureaucratic struc ture works well when conditions are stable since it emphasizes control and predictability of specific functions Bureaucratic structure which is highly formalized specialized centralized and largely dependent on the standardization of work processes for organizational coordination is suitable for conducting routine work efficiently on a large scale It is common in stable and mature industries with mostly rationalized repetitive type of work However bureaucratic control can come at the cost of hobbling indi vidual initiative and can be extremely dysfunctional in periods of un certain and rapid change2 Bureaucracy can generate other dysfunc tional characteristics such as intraorganizational resistance red tape tension shirking of responsibility means becoming objectives and sec tionalism Merton 1940 Selznik 1949 Gouldner 1954 It can also hinder the motivation of organizational members Many social psychol ogists have argued that a participationoriented and organic organiza tional structure can be more effective than bureaucracy in impelling motivation McGregor 1960 Likert 1961 Argyris 1964 The task force is an organizational structure designed precisely to address the weakness of bureaucracy It is flexible adaptable dy namic and participative In business organizations the task force is an institutionalized form of team or group that brings together repre sentatives from a number of different units on an intensive and flexible basis in many cases to deal with a temporary issue3 People in a task force work within a certain time frame and focus their energy and effort on achieving a certain goal In this way the taskforce organiza tion often succeeds in making quantum leaps in fields such as new product development However the taskforce model has its limits as well Because of its temporary nature new knowledge or knowhow created in the task force teams is not easily transferred to other organizational members after the project is completed The task force is therefore not appro priate for exploiting and transferring knowledge continuously and 162 The KnowledgeCreating Company widely throughout entire organizations When composed of many dif ferent smallscaled task forces the organization becomes incapable of setting and achieving its goals or vision at the corporate level In recent years a myriad of new organizational models basically versions of the taskforce model have been proposed These include an adhocracy an infinitely flat organization a spiders web net work an inverted pyramid a starburst satellite and an inter nal market4 Proponents of these models argue that the bureaucratic structure is too sluggish in responding to uncertain environments When properly conceptualized these new models can focus attention away from authority in order to eliminate costly administrative struc tures and support the rapid execution of strategies These organiza tional forms have forced a complete rethinking of the relationships among top executives middle management and the lower level All of these new organizational concepts share certain common char acteristics These new organizations 1 tend to be flatter than their hierarchical predecessors 2 assume a constant dynamic rather than a static structure 3 support the empowerment of people in building intimacy visavis customers 4 emphasize the importance of compe tenciesunique technologies and skills and 5 recognize intellect and knowledge as one of the most leverageable assets of a company Although these new organizational models have often been touted as cures for almost any management ill they are not a panacea Each model is useful in certain situations but not in others Each requires a carefully developed infrastructureculture style and reward sys temto support it When configured properly these disaggregated or ganizations can be effective in harnessing intellectual resources for a given purpose When configured improperly they can be less effective than the oldfashioned bureaucracy In fact these newly developed managerial models merely recapitu late a very old and by now somewhat stale debate over the dichotomy between bureaucracy and task force But from the viewpoint of knowl edge creation this debate may represent a false dichotomy Indeed one might argue that it is a product of some peculiarly Western tendency toward dichotomous thinking We should consider the traditional bu reaucracy and the task force as complementary rather than mutually exclusive approaches to organizations A business organization should be equipped with the strategic capa bility to exploit accumulate share and create new knowledge continu ously and repeatedly in a dynamic and spiral process From that point of view bureaucracy is effective in bringing about combination and internalization while the task force is suitable for socialization and extemalization In other words the former is the more appropriate structure for the exploitation and accumulation of knowledge while the latter is effective for the sharing and creation of knowledge The business organization should pursue both the efficiency of a bureau A New Organizational Structure 163 cracy and the flexibility of a taskforce organization some combination or synthesis of the two is needed to provide a solid base for knowledge creation An Attempt at Synthesis Case of the Military Organization Before describing such a synthesis within the business organization we take a look at military structures of the United States and Japan during World War II Although the Japanese military stuck to bureau cracy the US military made a clearcut attempt to synthesize bureau cracy and the task force We contend that the Japanese military over adapted itself to past successes that were achieved under bureaucracy In contrast the US military evolved into a more flexible structure with a focus on the taskforce organization and eventually won the war While organizational theory has often addressed the dichotomy be tween bureaucracy and task force military organizations have histori cally been concerned with the task of how a bureaucracy could be maintained in a dynamic and flexible manner Military organizations certainly maintain a typical bureaucratic structure in peacetime How ever in wartime they must also demonstrate mobility A look at the confrontation of the Japanese and US militaries during World War II provides a unique case study of the synthesis we have been discussing Bureaucracy under the Japanese Imperial Military The central feature of the Japanese military organization was its strict conformity to bureaucracy The Japanese Imperial Army and Navy were set up as organizationally separate entities under the direct con trol of the Emperor as shown in Figure 61 The rigid bureaucracy of Figure 61 The Japanese Imperial Army and Navy Organizational structure 164 The KnowledgeCreating Company the Japanese military became a major obstacle during World War II when it was confronted with a totally new and dynamic environment Structure directed strategy in the case of the Japanese military The strategies of both the Japanese Army and Navy were strongly dominated by paradigms that were formed from successful experiences during the RussoJapanese War and the China Incident These experi ences and subsequent successes eventually ingrained certain para digms or models of operation that became treated almost as sacred within the Japanese military The paradigm prevalent within the Im perial Army for example revolved around the concept of handtohand fighting The key to victory on the battlefield according to the Imperial Army was thought to be the last great bayonet charge and the re sulting handtohand combat This paradigm was articulated in the Basics of Training for Warfare issued by the Imperial Army Train ing Headquarters in 1908 The technique proved to be more than ade quate for defeating the Chinese and the BritishIndian Army in a num ber of battles during the war in Asia The Imperial Navys model of operation was to focus on a battle of cannon fire with enemy warships Victory was to be decided by the great salvos between giant battleships This paradigm was formed dur ing the Battle of Tsushima in the RussoJapanese War The victory of the Imperial Navy over the Russian Baltic Fleet on May 27 and 28 1905 was the first complete triumph in world naval history and had a strong influence on the Imperial Navys strategic thinking From that point forward the Japanese Navy believed that the result of a battle between opposing fleets would have a great influence on the eventual outcome of the war The Japanese militarys organizational characteristics reinforced these models or paradigms Its structure control system promotion system and leadership style were designed to conform to its para digms Table 61 shows the pattern of environmental adaptation of the Japanese military Note that the organizational characteristics under the handtohand battle paradigm of the Army and the battle be tween warships paradigm of the Navy were internally consistent The heroes who eventually emerged and the technology employed were con sistent with the respective paradigms as well The rigid paradigms worked well within a particular environment The Armys paradigm of the bayonet charge and the resulting hand tohand battle was actually a great success at least in battles in East Asia From Manchuria and China to Hong Kong and Singapore suc cesses based on the existing paradigm gave the military confidence in their model and led to the elevation of this pattern of success to the level of a behavioral norm for the organization However it became difficult to abandon what had worked well in the past even when the environment changed Not long after their general success the Japanese military confronted the American military at A New Organizational Structure 165 Table 61 Organizational Characteristics of the Japanese Imperial Forces Characteristics Army Navy Paradigm Handtohand battle Battle between warships Resource priority Priority on the number of forces Priority on individual warships Organizational structure Separation of soldiers from artillery Fleetdominant structure Prom otion system Biased in favor of infantry Biased in favor of gunnery Leadership Embodied in handto hand combat Embodied in battle between fleets H eroes Maresuke Nogi Heihachiro Togo Technology Light and medium tanks to follow infantry Big battleships eg Musashi and Yamato Source Tobe et al 1984 Guadalcanal Island They faced the US Marines who had developed a new fighting technique combining ground sea and air warfare Against the US Marines the Japanese Army made three attempts to attack at night on each occasion using a bayonet charge This strategy resulted in heavy losses Despite recognizing the importance of firepower after the Battle of Guadalcanal the Imperial Army was unable to break away from the main concept of handtohand battle epitomized by the bayonet charge And although the Imperial Navy attempted to strengthen its aircraft carriers it believed up to the very end that the destructive force of the 46cm guns of the Yamato and the Musashiwhich were embodiments of the principle of the big gunwould be the key to na val success The theory of organizational evolution points out that adaptation precludes adaptability In other words there is a danger of overadap tation to past success The dinosaur is a case in point At one point this animal was both physiologically and morphologically suited to a particular environment But it overadapted itself to that environment and could not adjust to eventual changes in the climate and food sup ply The Japanese bureaucratic military fell into the same trap It overadapted itself to past success and failed to unlearn those success factors within a new and changing environment A Synthesis under the US Marines Unlike the Japanese military the US military developed a flexible organizational structure in addition to a bureaucracy during World War II5 Among its various organizational innovations we look at its introduction of the taskforce organization with particular attention paid to amphibious combining both land and sea operations6 The 166 The KnowledgeCreating Company US military developed an amphibious operation through actual land ings on 18 Pacific islands during the war against Japan The landing on the island of Guadalcanal was the first US offensive as well as the first actual use of an amphibious operation by the US Marines While an amphibious operation had some characteristics in common with the usual land or sea battle it required the simultaneous integra tion of many activities that were usually conducted separately by ground sea and air forces Under an amphibious operation soldiers traveled on battleships for a long distance changed to landing ships at the landing point and forced a landing on an enemy shore with neither heavy equipment nor direct support from the artillery To protect the landing soldiers therefore both battleship bombardment and air at tack had to be provided at the same time This operation led to the formation of a taskforce team which was composed of members of the different bureaucracies The US victory at Guadalcanal is regarded as the turning point of World War II and the beginning of the organizational victory of the US military over the Japanese While the bureaucratic Japanese mil itary continued its use of the bayonet charge and handtohand battle the flexible US military developed a new taskforce organization the Fleet Marine Force to carry out landings on islands across the Pacific Having established a base in the southern Pacific through the use of the Marines the US military started to carry out the bombing of mainland Japan by the Armys large bombers which flew out from the occupied island bases In Search of a SynthesisThe Hypertext Organization Just as the American military created a task force in addition to the traditional hierarchical structures of the Army and the Navy A busi ness organization should have a nonhierarchical selforganizing struc ture working in tandem with its hierarchical formal structure This point is particularly important for organizational knowledge creation As business organizations grow in scale and complexity they should simultaneously maximize both corporatelevel efficiency and local flexibility In this section we present an organizational design that provides a structural base for organizational knowledge creation The central requirement for this design is that it provide a knowledgecreating company with the strategic ability to acquire create exploit and accu mulate new knowledge continuously and repeatedly in a cyclical pro cess The goal is an organizational structure that views bureaucracy and the task force as complementary rather than mutually exclusive The most appropriate metaphor for such a structure comes from a hypertext which was originally developed in computer science7 A hypertext consists of multiple layers of texts while a conventional A New Organizational Structure 167 text basically has only one layerthe text itself Texts on a computer screen may be paragraphs sentences charts or graphics Under a hy pertext each text is usually stored separately in a different file When a text is needed an operator can key in a command that pulls out all the texts on the computer screen at one time in a connected and logical way A hypertext provides an operator with access to multiple layers This feature allows anyone looking into the computer screen not only to read through the text but to go down into it for further degrees of detail or background source material He or she may even go into a different medium such as video For example a hypertext version of say Hamlet might include video clips of different actors interpre ting the To be or not to be speech in different ways The essential feature of a hypertext is this ability to get in and out of multiple texts or layers These layers should be interpreted as the different contexts that are available The layers put the knowledge of the hypertext document into a different context To continue with the Hamlet example the play itself is one context The scholarly literature on the psychology of the character of Hamlet is another context which enables the reader to interpret the play in a different light Video clips of actors performing the To be or not to be speech provide yet another context which helps the reader to transform her or his understanding of both the play and the scholarly literature Thus in terms of knowledge each layer is really a different context One example of a hypertext on the com puter screen in shown in Figure 62 Like an actual hypertext document hypertext organization is made up of interconnected layers or contexts the business system the proj ect team and the knowledge base as shown in Figure 63 The central layer is the businesssystem layer in which normal routine opera tions are carried out Since a bureaucratic structure is suitable for con ducting routine work efficiently this layer is shaped like a hierarchical pyramid The top layer is the projectteam layer where multiple project teams engage in knowledgecreating activities such as new product development The team members are brought together from a number of different units across the business system and are assigned exclusively to a project team until the project is completed At the bot tom is the knowledgebase layer where organizational knowledge generated in the above two layers is recategorized and recontextu alized This layer does not exist as an actual organizational entity but is embedded in corporate vision organizational culture or technology Corporate vision provides the direction in which the company should develop its technology or products and clarifies the field in which it wants to play Organizational culture orients the mindset and action of every employee While corporate vision and organizational culture provide the knowledge base to tap tacit knowledge technology taps the explicit knowledge generated in the two other layers Γ ι η Arrange P rin t K I 20 items 1 I nmpirtn link bomEmillsh Unlink M 1 Ίπϋΐ ΗΠΒΙ Contexts h C m it Block Unblock Shoui Block Intent D Pound ϋ English c Rom User Properties Document Properties Block Properties hOC o Ruokin Link Properties Uiei Specs MOV Neoclassical Couplet Neoclassical Couplet GPIJ Know farther yet Whoever FAIR and CHASTE REJECTS vert 1 Mankind Is by some EMBRACD verb I For Spirits Seed Pom mortal laws vrfth ease Assume WHAT Sexes and WHAT Shapes they please What guards the purity of Malting Maids In Courtly Balls nounadjective ia and Midnight Masquerades nadj lb The Glance by Day obj ic the Whisper In the D art obj idfc WHEN kind Occasion prompts their warm Desires WHEN Mustek softens and WHEN Dwiclng Ores The Rape of the Lock Canto I lines 6776 Contents Uleb Uleur 22231 in t VodOct IB 17 4333 1909 3 NNCtWMtCfM v w m ie 1 7 4 1 4 s ieet SftoeUslelArtotur S M r VHOot IO 174411 1909 S lrcoaA seican ov nmcUu Im1CiW1 7 To w n Fi v n Ptur fcoro Ο Λ Lirtm Wtm t i t tw if Κλ λ ο τϊ by Peel I Neoclassical style Is supposedly characterized by calm and balance How does Flaxman I achieve these qualities in this illustration to Homer What do the poses of the figures the fact I that the figures seem selfcontained and the emphasis upon outline have to do with 1 the I classical couplet and 2 neoclassical furniture and architecture m jj Ui ALJ tlJJUU 1IU1KP Figure 62 Hypertext on a computer screen Source Bolter 1991 A New Organizational Structure 169 Figure 63 Hypertext organization Source Nonaka and Konno 1993 What is unique about a hypertext organization is that three totally different layers or contexts coexist within the same organization As with the Hamlet example knowledge can reside within the business system context which may be analogous to the play itself The project team provides another context which may allow organizational mem bers to view the traditional organizational context in a totally different light As such it may be analogous to the scholarly literature on Ham let himself The knowledge base is the third context in which knowl edge can reside It is here that knowledge created inside the two other contexts is stored and recontextualized The knowledge base may be analogous to the video clips of speeches performed by different actors The key characteristic of the hypertext organization is the ability of its members to shift contexts They can move among the three contexts in order to accommodate the changing requirements of situations both inside and outside the organization This ability offers the same flexi bility as a computer operator moving easily through a hypertext doc ument The process of organizational knowledge creation is conceptualized as a dynamic cycle of knowledge traversing easily through the three layers Members of a project team on the top layer who are selected from diverse functions and departments across the businesssystem layer engage in knowledgecreating activities Their efforts may be guided by the corporate vision presented by top management Once the 170 The KnowledgeCreating Company team completes its task members move down to the knowledgebase layer and make an inventory of the knowledge created andor acquired during their time with the project team This inventory includes both successes and failures which are documented and analyzed After re categorizing and recontextualizing the new knowledge acquired team members return to the businesssystem layer and engage in routine operations until they are called again for another project The ability to switch among the different contexts of knowledge swiftly and flexi bly so as to form a dynamic cycle of knowledge ultimately determines the organizational capability for knowledge creation A hypertext organization which is the dynamic synthesis of both the bureaucratic structure and the task force reaps benefits from both The bureaucratic structure efficiently implements exploits and accu mulates new knowledge through internalization and combination while the task force is indispensable for generating new knowledge through socialization and externalization The efficiency and stability of the bureaucracy is combined with the effectiveness and dynamism of the task force in a hypertext organization8 Moreover it adds an other layer the knowledge base that serves as a clearinghouse for the new knowledge generated in the businesssystem and the project team layers Needless to say the knowledge content accumulated within the businesssystem layer is distinct from that generated in the project team layer To use the terminology developed in Chapter 3 bureau cracy is more adept at accumulating operational knowledge via in ternalization and systemic knowledge via combination while the project team generates conceptual knowledge via externalization and sympathized knowledge via socialization The role of the knowledge base layer is to mix these different contents of knowledge and recate gorize or recontextualize them into something more meaningful to the organization at large A hypertext organization has the organizational capability to convert continuously and dynamically the different knowledge contents generated by the bureaucracy and the project team A hypertext organization should not be confused with a matrix struc ture which is used to achieve two or more different types of tasks in a conventional hierarchical organization9 Compared with the conven tional matrix structure a hypertext organization can be distinguished as follows 1 1 In the matrix structure an organization member must belong or report to two structures at the same time In contrast an organi zation member in a hypertext structure belongs or reports to only one structure at one point in time He or she is assigned to the project team during the project period or to the business system during normal times Project members can therefore focus their attention solely on the ongoing project A New Organizational Structure 171 2 Organizational knowledge creation flows naturally from a hyper text organization since each structure generates and accumulates new knowledge differently while a matrix structure is not pri marily oriented toward knowledge conversion 3 In a hypertext organization knowledge contents are combined more flexibly across layers and over time 4 Since deadlines are set for the projects the resources and energy of the hypertext organization can be used in a more concentrated manner to fulfill the goal of the project during the project period 5 Since projects are placed under the direct control of top manage ment communication time and distance across top middle and lower management in the formal hierarchy can be compressed resulting in a more thorough and indepth dialogue across man agement levels In a sense a hypertext organization fosters middleupdown management In addition a hypertext organization has the organizational capabil ity to convert knowledge from outside the organization A hypertext organization is an open system that also features continuous and dy namic knowledge interaction with consumers and companies outside the organization It is equipped with the capability to collect customer response to new products find new trends in consumer needs or gener ate newproduct concept ideas with other companies The key characteristic of a hypertext organization is the ability of its members to shift contexts moving easily in and out of one context into another In the next section we will illustrate the hypertext orga nization by using two Japanese companies as examples The first is Kao which is still in transition from a matrix organization to a hy pertext organization At Kao project members engage in specific proj ects while at the same time reporting to the businesssystem layer They are not assigned exclusively to a project team In contrast Sharp represents a more perfected form of hypertext structure An organi zation member stays in only one layer at any one time and shifts to another layer when the need arises Kao An In Transition Case of a Hypertext Organization We analyze Kao Japans leading household and chemical products maker as an example of a hypertext organization still in transition Having been established in 1887 Kaos businesses have expanded from toiletry products into cosmetics and floppy disks10 From the perspec tive of our theory Kao qualifies as a hypertext organization because it utilizes three different layers but is considered in transition because it is still structured as a matrix organization with its projectteam members reporting to two structures at the same time Kaos businesssystem layer is structured as flat as possible which encourages active information sharing and direct employee interac 172 The KnowledgeCreating Company tion It also utilizes a projectteam approach to develop new products and solve organizational problems within the division structure al though the project team is not yet considered a standalone unit that employees can enter and leave It also has the technological explicit and philosophical tacit knowledge bases that work to support and promote organizational knowledge creation We shall now turn to de scribing each of these layers with particular focus on the knowledge creation process within each layer BusinessSystem Layer A Division System with Fluidity Kaos businesssystem layer consists of a divisional system made up of 18 divisions including the Home Product Division Sanitary Product Division and Chemical Division Kao believes that direct communica tion among the employees of different divisions becomes limited in the conventional division system and is thus striving to achieve active interaction among its employees Kao also believes that direct interac tion among employees generates creative ideas But organizational members cannot interact equally when holding different amounts of information Thus information sharing is regarded as the principle tenet that defines Kaos organization Kao has built various mecha nisms and support systems that assure the sharing of information within the businesssystem layer They include free access to informa tion open floor allocation open meetings and fluid personnel change These mechanisms and systems become the basis upon which tacit knowledge is shared or converted to explicit knowledge and vice versa We shall briefly describe each informationsharing mechanism below To assure free access te information computer systems have been introduced throughout the Kao organization with all information be ing filed in a database Through this system anyone at Kao can tap into databases included in the sales system the marketing information system MIS the production information system the distribution in formation system and the total information network covering all of its offices in Japan The unique feature of this system is that any member no matter what his or her position or to what section she or he belongs within the business system has full access to the database except for a limited amount of personnel information In other words anyone can get access to the rich base of explicit knowledge that exists within the business system through this free access to information system In the openfloor allocation system the divisions and functional groups within Kao are all configured around a large open space Half of the executive floor space for example is occupied with an open space called the decisionmaking room In fact executives rarely stay in their own offices Divisional heads hold meetings at the round table located in one of the large open spaces In the laboratories researchers A New Organizational Structure 173 do not have their own desks but share big tables President Fumikatsu Tokiwa a former researcher explains the aim of this system as follows RD members have a natural tendency to gather into small groups and isolate themselves from others To interact it does not even help to speak loudly if the offices are separated So we tried to remove both the physical and mental walls at the same time11 This kind of floor setup allows employees to share their tacit knowl edge with others or may trigger an extemalization mode in the middle of a dialogue Information sharing and employee interaction are also accelerated through open meetings Any meeting at Kao is open to any em ployee and topmanagement meetings are no exception Any employee can attend the relevant portion of the meeting and make his or her opinion known Through this practice top management can acquire insights from those most familiar with the issues at hand while em ployees can gain a better understanding of the general corporate pol icy This kind of handson experience helps to mobilize all four modes of knowledge conversion What is known within Kao as the RD conference is typical of these open meetings Through this conference which is held every quarter top management learns about research projects directly from the re searchers while research members gain an opportunity to voice their opinions directly to top management This conference which again is open to anyone outside of RD is regularly attended by some 1800 people out of a total of 7000 employees Interaction among members with different experiences is also en hanced through the fluid personnel change system For instance re searchers in one division are often transferred to other divisions or to other functional areas such as sales or finance on a whoever is needed wherever he or she is needed basis As a personnel director explains Ceaseless change is the basic way Any member should ex perience at least three different positions in her or his first ten years within the company This kind of active jobrotation system espe cially among RD people enhances the accumulation and sharing of tacit knowledge and promotes interdisciplinary product development within the company For example Kao entered the cosmetics market in the mid1980s with the introduction of a skincare product called Sofina that resulted from the cooperative effort of people working in surfaceactive science and those in biological skin care As we have seen Kaos organizational structure can be explained as a division system equipped with various mechanisms for active infor mation sharing and direct employee interaction Although it is a bu reaucracy the structure is flat with all members of the organization being placed on equal footing and creating new knowledge through di 174 The KnowledgeCreating Company rect interaction of their respective functions Its business system is sometimes described as a Japanesestyle paperweight which is shaped liked a large circular coin with a small handle in the middle The metaphor connotes the equal footing of all organizational members with top management serving as the handle ProjectTeam Layer Horizontal CrossDivisional Project Teams Although Kaos organizational structure is basically a traditional divi sion system structure with daily work organized division by division fast decision making and efficient resource allocation areachieved by treating each division as an independent profit center However when it comes to newproduct development marketing innovation and hu man resource management issues the divisions cooperate in a hori zontal manner Besides the vertical product divisions Kao organizes three horizontal committees to deal with crossdivisional strategic issues They are the Division Strategy Committee Marketing Innova tion Committee and Human Resource Management Committee We call Kaos organizational structure in transition because these com mittees are not totally outside of the business system In other words an organizational member is never solely committed to a project team he or she is in both the business system and the committee at the same point in time The Division Strategy Committee which meets twice a year and is attended by the vice presidents and division heads determines which new products need to be developed by crossdivisional teams see Fig ure 64 Ongoing crossdivisional projects for example include a hair treatment project for controlling hair hardness a new cosmetics project for mens use and an ultrathin paper products project for such products as diapers and sanitary napkins Members of these teams come from the various divisions as well as from the RD and production depart ments Kaos projectteam activities are not limited to newproduct develop ment they are applied widely throughout the entire organization as in the case of the Marketing Innovation Committee This committee meets two or three times a month and is attended by the product divi sions marketingstaff members as well as graphics engineers and mar ket researchers who operate outside the division The committee ex amines common marketing issues across divisions including effective marketresearch techniques the appropriate advertising media mix and environmentally conscious packaging The committee forms Mar keting Innovation Projects which tackle these issues and develop ap propriate recommendations The Human Resource Management Committee is another horizontal crossdivisional committee which meets once a month and is attended A New Organizational Structure 175 Household Products Department Division System Marketing Support Department Creative Media Market Research r Trade Mark Sales Promotion Service Center n h I i 1m IIff f j l k s M I M c i H i H i H i H i H I o g l l a a h k kkm 8 Ό σ a δ 3 v δ Vo 5Γ v v 3 3 O 3 o3 o3 rs CO ro i d CrossDivisional Project Teams Division Strategy Committee Marketing Innovation Committee L Human Resource Management Committee Figure 64 Crossdivisional project teams at Kao Source Kao Corp by division heads This committee reviews the overall status of human resource development across divisions and is also responsible for se lecting the appropriate members from each division for newproduct and marketinginnovation projects Kao applies the idea of horizontal crossdivisional team activities even to its corporate staff operation Each center specialized in public relations legal affairs accountingfinance or human resources carries out normal staff functions but crosscenter project teams are formed in order to deal with corporatewide issues such as the reduction of fixed cost risk management workinghour reduction and the simpli fication of corporate staff operation In trying to reduce fixed cost for example the accountingfinance staff people work together with their colleagues in human resources and legal affairs Explicit and Tacit Knowledge Bases at Kao The knowledgecreating activities conducted within the business system and the projectteam layers are captured and recontextualized in the corporatewide knowledge base Explicit knowledge is captured and recontextualized under the Five Scientific Areas which provide Kao with a sense of direction regarding which new markets Kao should enter in the future In addition tacit knowledge generated in the two layers is accumulated and reconceptualized along the philo sophical principles proposed by top management This recontextualiza tion fosters a unique organizational culture within Kao which reori ents the mindset of every employee Five Scientific Areas as an Explicit Knowledge Base Kao believes that there are five key scientific areas vital to their cur rent technologyfat and oil science surface science polymer science biological science and applied physics see Figure 65 These five sci SURFACTANTS FOR THE DEVELOPMENT OF INDUSTRIES FOR HEALTH l AND BEAUTY J Figure 65 Kaos five scientific domains Source Kao Corp A New Organizational Structure 177 entific fields are closely related to Kaos historical development The first fat and oil science dates back to Kaos soap production in 1923 The second scientific area was initiated after World War II with the production of surfaceactive agent such as a detergent from fatty acids The third area polymer science was established as a result of its studies on surfaceactive agents Since these agents are applied to fiber and fiber is made from polymers these two technologies are closely related Biological science and applied physics have been devel oped recently as key scientific areas for the future Knowledge created in the businesssystem and projectteam layers can be recategorized into these five scientific areas allowing Kao to move into markets that at first glance may seem distant from its core business These markets may seem far removed at the product level but they may have very clear commonalities at the level of basic sci ence This focus on science is what allows Kao to be in cosmetics and at the same time in computer floppy disks As President Tokiwa ex plains recontextualizing Kaos business along basic sciences has helped the company to move into new markets To develop products we used to categorize technological cores by products But we found that it gave us a much wider vision if we regard technologi cal cores as scientific knowledge For instance surface science is the study of surface tension Surfaceactive agents are used in shampoos and deter gents in order to activate surface tension However surface science is not only applicable to surfaceactive agents For instance skin cream can be looked at from a surfacescience point of view as the surface between oil and skin In that sense skin cream is no longer a cosmetic Another exam ple is the floppy disk It is a plastic film coated with magnet powder We regard it as a type of surface and applied results from surface studies Our business areas have expanded widely by shifting our approach from that of surfaceactive agents to the study of surfaces as a science Although some say that Kao has entered mutually unrelated markets different market segments do not necessarily mean different businesses They are naturally related businesses from our point of view12 Philosophical Principles as a Tacit Knowledge Base At Kao top management is very conspicuous CEO Yoshio Maruta is called the philosopher executive because he is a devout student of Buddhism and expresses his philosophy openly He insists that what executive management needs is not managerial theory but rather a philosophy on how to guide an organization Marutas philosophy can be summarized in accord with three principles 1 contribution to the consumer 2 absolute equality of humans and 3 the search for truth and the unity of wisdom These philosophical principles in turn form the tacit knowledge base for Kao They provide the context under which Kaos corporate culture is defined Its strong corporate culture 178 The KnowledgeCreating Company in turn affects the behavior of every Kao employee We shall describe each of Marutas philosophies below Contribution to the consumer means that the primary purpose of the corporation is not to receive profit or to increase market share but to offer joy and satisfaction to consumers with products as the medium Marutas commitment to serving the customers better through knowl edge can be seen in the following comment The final goal of Kao is to utilize our knowledge into consumers products Increasing market share through competition is not the purpose Kao will keep on contributing to the consumer according to the laws of the uni verse There may usually be a certain gap between the knowledge we wish to provide and what the consumers wish to have It happens because we usually see consumers lifestyles from the corporate point of view and can not conceive actual consumer needs Kao always has to stand from a con sumers viewpoint Maruta 1988a p 5 Maruta also believes that every human being has equal ability as long as restrictions are not imposed Everyone in this world is equal in his capability But those abilities are often restricted in society by others That is the origin of the separation of people into those who control and those who are controlled This idea is applicable to a modern organization Each person has equal creativity If one member cannot give full play to his or her ability there is some thing wrong with the organization or the individuals supervisor Managements task is to organize different individuals creative strengths Maruta 1988b p 61 Maruta argues that information differentials among employees should not become the source of authority or power Since creative ideas result from interaction information sharing becomes the funda mental basis of management It is for this reason that information re garding Kao is available on computers on each floor with every em ployee having access to this database Seeking truth and the unity of wisdom the third pillar of Marutas philosophy shows Kaos attitude toward knowledge creation He says The intelligence of a corporation does not come from the president nor top management That must come from the gathering of all knowledge of all members A big organization is separated into many sections If that orga nization does not have the system to integrate the knowledge of each sec tion the newly created knowledge would be poor Each sections knowl edge does not mean the knowledge of the head officer For example a line operator can give a great idea for rationalization The longrun prosperity of a corporation depends on whether it can integrate and accumulate these ideas as one13 The knowledge gathered from organizational members is stored within Kaos tacit knowledge base which is strongly influenced by Marutas philosophical principles This tacit knowledge base guides the A New Organizational Structure 179 behavior of Kao employees and serves as the key driver for its unique corporate culture Interaction with the OutsideKaos ECHO System As we have seen Kao is in the process of moving into a hypertext form of organization in which various forms of knowledge are converted among the three layers inside its organization At the same time Kao is equipped with mechanisms that allow knowledge interaction with customers outside the organization Kaos ECHO System is one such example ECHO stands for Echo of Consumers Helpful Opinion The ECHO System processes and analyzes customers questions and complaints about Kaos products Kaos operators all over Japan an swer customers phone calls using three subsystemsECHOEntry System ECHOSupport System and ECHOAnalytical System see Figure 66 The ECHOEntry System enables an operator to input customers questions and complaints according to predesignated key words and in some complicated cases in the form of sentences Kaos operators han dle up to about 250 phone calls a day and over 50000 phone calls a year The ECHOSupport System enables Kaos operators to respond to customers questions quickly For example a mother may call in an emergency situation asking what to do about a child who has swal lowed detergent In such a case the Kao operator can reference the ECHOSupport System for a quick pictorial answer Operators can also reference pictures of similar problems that have occurred in the past such as the fading of clothes staining of bathtubs greasy stains on kitchen fans and so on The ECHOAnalytical System enables the information collected through this system to be used anywhere throughout the Kao organi zation by the next morning More than 350000 consumer questions and complaints stored in the system can be analyzed and recalled us ing 8000 key wordsfor example by customer name by product by departmentdivision by date or by area Information that may be use ful in solving problems is often compiled into reports and sent to the relevant departments including RD production marketing and sales14 Sharp as a Perfected Hypertext Organization In this section we see how Sharp built a perfected form of hypertext organizational structure in order to create new knowledge at the orga nizational level15 Although knowledge creation takes place in differ ent layers or contexts within Sharp an organizational member stays in either the businesssystem layer or the projectteam layer It differs 180 The KnowledgeCreating Company Consultation Figure 66 Kaos ECHO System Source Kao Corp from the transitional structure at Kao in that the projectteam layer is fully developed and completely independent from the businesssystem layer At the same time Sharp is similar to Kao in that it has both an explicit knowledge base and a tacit knowledge base that serve as the third layer of a hypertext structure Since its foundation in 1912 Sharp has had a reputation for creating new productsfrom a selfadjusting belt buckle and Sharp pencil in A New Organizational Structure 181 the early years to liquid crystal projection TVs and electronic organiz ers today16 This reputation has been captured in the slogan of the companys founder Dont imitate Its constant pursuit of creativity and originality led Sharp to formulate its RD activities along the hypertext organizational structure Our case study will focus on how knowledge is created within Sharps RD function through effective use of the three layersbusiness system project team and knowledge base The BusinessSystem Layer A Typical Hierarchy Sharps daytoday RD activities are organized in a typically tradi tional and hierarchical manner The actual structure consists of the Corporate RD Group Business Group labs and Business Division labs see Figure 67 These three structures are separated on the basis of the time frame required for technologicalproduct development The Corporate RD Group deals with longterm 3 or more years in the future RD themes Business Group labs with midterm around 15 to 3 years RD themes and Business Division labs with shortterm 15 years or shorter themes But these three structures are aligned as a traditional hierarchy with research findings passed down the structures in a topdown fash ion Research findings at the Corporate RD Group are transferred to the research laboratories of the nine Business Groups then to the labs of each Business Division During the product development process rough prototypes are prepared in advance Researchers at both the Business Group and the Business Division labs who receive the proto types sometimes relocate to the Corporate RD Group for a few months to improve their understanding of the research findings from the Corporate RD Group When research findings have to be utilized quickly for product commercialization the Corporate RD Groups re searchers in turn sometimes move down to either the Business Group labs or the Business Division labs Explicit knowledge concerning RD is transferred efficiently and combined effectively under this kind of hierarchical structure Various meetings or conferences are used to coordinate the activities of the laboratories at the three levels see Figure 68 They allow RD members at Sharp to share knowledge not only within each level but also across the different levels The first is the General Technology Conference which is held once a month and is attended by the presi dent vice presidents executive directors and managers of the nine Business Group laboratories They discuss what sort of RD activities should be conducted at each laboratory for the upcoming oneyear pe riod These discussions which deal with the grand design of corporate RD often become heated and last as long as six hours with a break for lunch The second is the Laboratory Directors Conference which is Since 1977 Group and each business group to urgently develop a product Figure 67 Sharps organizational structure for RD Source Sharp Corp 182 A New Organizational Structure 183 Figure 68 RD conferences within Sharp Source Sharp Corp held once a month and is attended by managers of both the Business Group and the Business Division labs the director of the Corporate RD Planning Office and the director of the Intellectual Property Of fice The Laboratory Directors Conference makes specific and detailed decisions including when and how to transfer certain technology to the business groups and which collaborations are needed with an out side party The third is the Technology Development Strategy Confer ence which is held once a month in each Business Group Participation in this conference is not necessarily limited to lab members of the Business Group but can include members of the Product Planning De partment and the Engineering Department as well as selected individ uals from the Corporate RD Group The Technology Development Strategy Conference is not merely a place for receiving technology from the Corporate RD Group but a place for deliberating actively on what kind of key technologies should be developed by each Busi ness Group ProjectTeam Layer The Urgent Project System Sharps RD operations may have a traditional hierarchical structure but when it comes to newproduct development the company utilizes the taskforce organization which is a completely independent paral lel organizational structure While normal productdevelopment activi ties are carried out within each Business Division17 the strategically important product development projects are conducted under the Ur gent Project System 18 Unlike the in transition hypertext structure at Kao where project members retain their posts in their respective functional departments the members of the Urgent Project System are 184 The KnowledgeCreating Company relocated from their original departments and work exclusively for the project team The Urgent Project System gives its members who could be re cruited from any section or department within the company the same goldbadge authority as corporate directors during the project period The gold badge which is a goldcolored nameplate was called kin badge kin means gold in Japanese Kin has the same sound as the first syllable of the word urgent which is kinkyu in Japanese Wearing the gold badge carries special significance not only for project members but for other employees at Sharp as well Urgent Project members develop a priority product or technology within a year or two But since it is managed directly under the president the project budget isunlimited People with the gold badge and their project are given top priority in using company facilities or equipment and in procuring materials One Business Division manager describes the system as follows The members are given the freedom to do whatever is necessary for devel opment There is always the possibility that they might fail but they put their heart and soul into research and thats what produces products close to the innovative concept Numagami et al 1991 p 16 In addition members of the Urgent Project can be taken from any where in the company at any time A department may be deprived of its best people for over a year Needless to say management has to make every effort during the initial stages to ensure that the system is enforced as originally intended Each Business Division proposes projects that require companywide development efforts and completion in a brief period of time These proposals are either adopted or rejected or justified at the abovementioned General Technology Conference the highest decisionmaking meeting at Sharp To date many successful products have been commercialized under the Urgent Project System Examples include the electronic organizer the liquid crystal projection TV magnetooptical discs and inverter controlled air conditioners Later we will take an indepth look at how the electronic organizer was developed This story brings the inner workings of a hypertext organization to life Some 20 teams are in volved in Urgent Projects today19 The success of the Urgent Project System led to changes in Sharps business system Sharp recently started two strategy meetingsNew Life Strategy Meeting and NEWING Product Strategy Meetingin or der to diffuse the Urgent Project idea widely within the entire organi zation In the New Life Strategy Meeting held once a month and at tended by the president vice presidents and managers of the Business Group and the Business Division the division managers explain new product development plans Super Excellent SE Products are se lected as a result of this meeting The requirements for an SE product A New Organizational Structure 185 are stringent It should 1 be able to create a new market trend 2 represent a completely new technology 3 use completely new materi als and 4 employ completely new manufacturing methods The NEWING Product Strategy Meeting is also held monthly and is attended by 20 people including the president vice presidents and managers of the Business Group and the Business Division The word NEWING is an original coinage interpreted within Sharp to mean efforts to create a new market The candidates for newproduct con cepts are proposed by each Business Group or Business Division man ager and reviewed for their originality and marketability According to President Tsuji the basic guideline of the meeting is that we start with saying yes rather than no to the suggested new ideas and con cepts This positive stance encourages new ideas and motivates devel opment efforts Attendees at the meeting describe it as a really practi cal meeting you get extremely exhausted after the meeting Every meeting reviews two proposals with discussions sometimes lasting more than six hours Once a product development plan is recognized as an SE product or a NEWING product development work starts within the division The authority given to the development team is similar to that given the Urgent Project since developmentteam members receive direct sup port from the president and have the right to ask for whatever coopera tion they need from within the firm However it differs from the Ur gent Project in that the members basically stay in their original businesssystem layer and conduct other work during the develop ment process Explicit and Tacit Knowledge Base at Sharp Given the importance of both tacit and explicit knowledge we need to think of the knowledge base in a far broader way than is traditional with most Western companies In the case of Sharp its explicit knowl edge base can be described with the grand concept of optoelectronics which serves as a template for identifying useful and relevant new knowledge Optoelectronics defines the field of research and resultant products in which Sharp wants to play Sharps tacit knowledge base can be symbolized with the slogan Dont imitate which again serves as a template Imbued with a tacit understanding of the imperative not to imitate researchers at Sharp learn to distinguish what is really a new product from one that is not Optoelectronics as an Explicit Knowledge Base Optoelectronics designates the technological field in which Sharp wants to put its stakes Sharp believes that it should create its own field combining opto light or photo vision technology with micro 186 The KnowledgeCreating Company electronics Sharp wants to become a company uniquely positioned in this field20 Optoelectronics in other words is its corporate vision See Figure 69 for an illustration Every knowledge generated in the businesssystem and projectteam layers is recategorized and recontextualized with the corporate vision of optoelectronics in mind It represents the image of the world that Sharp wants to live in and is one of the key concepts describing what Sharp ought to be Although its impact is felt throughout the company it has a special bearing on researchers and engineers within Sharp For example Vice President Atsushi Asada comments on how the vi sion affects researchers and engineers There is definitely a limit to what comes out spontaneously from one par ticular technology Trying to bring a certain technology to a product limits the range of the researchers view Showing a concept in a more macro scopic way gives the researcher a greater degree of freedom All at once their mental horizon widens and triggers a series of new proposals A wider mental horizon immediately results in greater freedom for tech nology development21 Much of the knowledge accumulated in the form of optoelectronics consists of knowledge created through the dynamic conversion of vari ous knowledge contents The essence of Sharps strategy based on opto electronics could be described as a dynamic conversion of component technologies and product concepts as we can see in Figure 610 To use our terminology introduced in Chapter 3 component technologies can be interpreted as systemic knowledge generated via combination and product concepts as conceptual knowledge created via externaliza tion By combining explicit knowledge ie systemic knowledge and by converting tacit knowledge into explicit knowledge ie conceptual knowledge Sharp has been successful in developing new technologies and products Optoelectronics also affects the tacit understanding of the imperative not to imitate as described by President Tsuji In narrowing down fields optoelectronics and microelectronics became our priorities and we started to think about how the component technologies originating from them could be merged into the opto business Being a manufacturer we do all sorts of things but if we are average in everything we do we wouldnt be able to make an outstanding product 22 Dont Imitate as a Tacit Knowledge Base The founders principle Dont imitate represents Sharps corporate culture The principle forms the tacit knowledge base for Sharp or a tacit understanding of the imperative not to imitate President Tsuji explains that the purpose of the company since its foundation has al ways been the creation of unique product fields and concepts Magnetic tape 1C memory Electronic still camera photo sensor Scanner CCD camera Bar code reader CCD PDP Figure 69 Development of optoelectronics technologies Source Sharp Corp Product concept Personal OA HDTV Figure 610 Dynamic spiral of component technology and product concept Source Sharp Corp A New Organizational Structure 189 Ever since the companys foundation it has been our understanding that our major mission as a manufacturer was to develop our own technology and to make products based on that technology I am the third president but Mr Hayakawa who was the first kept saying that we must make products that others will want to imitate I think this thinking has taken root in the minds of our employees My predecessor President Saeki has also said We cant contribute to society by making products just like those of other companies The meaning of this was more or less the same but it had a slightly different angle than what Mr Hayakawa had advo cated I think this thinking has permeated the minds of the executives and employees over the years23 The Dont imitate principle also serves as a guideline for Sharps human resource development President Tsuji considers the 1990s as a time period that will require a different kind of workforce dominated by those equipped with creativity What I keep telling the top managers is to manage employees in such a manner as to allow them to develop their own ideas I tell them they mustnt push ideas from the top down In my beginningoftheyear address last year I told the employees You know the saying the nail that sticks out gets hammered down But what if the nail doesnt stick out what do you think would happen It would rot inside So even if you might get struck its better to stick out than rot And in my beginningoftheyear address this year I told them that they should all become dragonflies A dragonfly has complex eyes and it even has wings I told them to absorb information with compound eyes and to experiment I told them never to become a flatfish which has large eyes but only looks upwards Our future tasks will be difficult tasks but what is of great importance now is how to develop as many creative employees as possible These creative employees will challenge new things and new entrepreneurs of a kind unknown before will arise from them From all this I believe that the image of a creative company will spontane ously emerge I also said one more thing to our key personnel and that was When you are driving a car you may have to look into your rearview mirror sometimes But if you are speeding and on a winding road its more im portant to look ahead 24 As the words of President Tsuji indicate Dont imitate has become a template for emphasizing the need to be creative This tacit knowledge base fosters Sharps corporate culture and influences the behavior of every employee at Sharp Interaction with the OutsideSharps Creative Lifestyle Focus Center As we have seen Sharp has nearly perfected a hypertext organization that allows knowledge to be converted among the three layers inside the company In addition it is equipped with an organizational mecha 190 The KnowledgeCreating Company nism for carrying out knowledge interaction with outside customers and companies The Creative Lifestyle Focus Center established in April 1985 is a case in point25 The center collects consumer opinions interprets market data and creates newproduct concepts which it dis seminates to the planning sections of the various business divisions as well as to the RD sections The Creative Lifestyle Focus Center started various activities that enable Sharp to create new concepts based on inputs from consumers One such example is the Trend Leader System which brings to gether about 600 leading consumers ranging from junior high school students to senior citizens in their seventies Depending on the nature of the information needed for developing new products relevant people clustered into focus groups are called into the center Skilled inter viewers elicit information from them that may remain tacit otherwise This system which started in 1985 enables Sharp to predict consumer trends ten years into the future A second example is the Life Creator System which was initiated in early 1990 It sets up an actual living experiment in which con sumers are asked to touch and use potential new products in their stillincomplete stage For instance the center will hand over the lens related parts of a video camera to children as well as to representa tives of different industries including a toy dealer in hopes that they will cooperate and come up with a newproduct concept These and other living experiments are carried out under the Life Creator System A Hypertext Organization in Action Sharps Electronic Organizer The development story of the electronic organizer brings out the inner workings of the hypertext organization The significance of this story is the process by which the project shifts from the businesssystem layer to the projectteam layer and back again into the business system layer As this crisscrossing takes place organizational mem bers involved in developing the electronic organizer also shift in and out of the two layers or contexts The origin of the electronic organizer which started within the businesssystem layer dates back to January 1985 Toshio Honda the product development manager of the Calculator Division at that time faced an urgent need to develop a new product I strongly felt a sense of crisis about both the domestic and overseas calcu lator market at that time In the mid1980s annual domestic production reached 20 million units and the Japanese market was almost saturated In the overseas market many NIES companies emerged as a competitive threat to Sharp Given this situation I came across the idea that Sharp should seek a marketcreating product with the various technologies re lated to the calculator Komiya 1988 p 127 A New Organizational Structure 191 Honda first promoted the product as a calculator with an IC card for multipurpose use and called it a small informationmanagement machine His idea was based on the system notebook like Filofax with pages that were replaceable as needed that was popular among businessmen at that time To bring his idea to fruition Honda had to utilize technologies from outside the divisionthe new liquid crystal display technology and LSI technologyin addition to calculator tech nology He also had to bring together many engineers from different fields within the company which meant that the project plan needed the approval of the General Technology Conference the highest RD decisionmaking body within Sharp Honda developed the initial product concept so as to persuade top managers attending the meeting He positioned the product as more than a successor to the calculator and called it the tool to unite office automation and personal automation which enabled information stored within the electronic organizer to be transferred to a computer through an IC card or telecommunication line Honda pointed out that users of the electronic organizer would become potential customers for Sharps computers and word processors Getting the Gold Badge These efforts resulted in approval of the project plan at the General Technology Conference A gold badge and a document stating an offi cial announcement of urgent directive were given to eight members of Urgent Project A1107 on June 1 1985 This somewhat exaggerated announcement signified that a newproduct development project which would later introduce the worlds first electronic organizer officially started on that day under Sharps Urgent Project System The deadline for development was set at one year and sales of the product were expected to start in October 1986 The team led by Hiroshi Nakanishi then the engineering section manager at the Personal Machinery Division the former Calculator Division was composed of five members from the Personal Machinery Division one engineer from the IC division and one engineer from the Liquid Crystal Division of the Electronic Devices Group The average age of the team members was 32 young relative to those working on other projects As a result of the official announcement these eight members were now officially out of the ordinary businesssystem layer and engaged exclusively in the Urgent Project team activity The interdivisional makeup of the team came in handy during the development process The technology for incorporating LSI into a 2mmthick IC card for example was developed by the member from the IC Division while development of the clear panel touchkey was conducted mostly by the member from the Liquid Crystal Division Na kanishi exercised his goldbadge power to develop the LSI necessary for the liquid crystal panel operation 192 The KnowledgeCreating Company A year later Urgent Project A1107 was completed as scheduled and a prototype machine was presented to top management at the General Technology Conference President Tsuji examined the prototype at the meeting and rejected its commercialization without giving any detailed explanation Urgent Project A1107 was officially over and the young team members went back to their original businesssystem layers in disappointment Development Process Continues within the Business System The team leaders however never gave up Honda and Nakanishi put their heads together to analyze why the project was rejected They found that the main reason for the rejection was the fact that Japanese characters or kanji could not be used on the product Honda reflected The results of the market research clearly backed up the need for using kanji However we thought the product would become prohibitively expensive with such a function Komiya 1988 p 133 Nakanishi made a similar comment We were plagued by the concern that we would have serious trouble with a large number of specs and high power consumption if we incorporated kanji processing Komiya 1988 p 133 Although the necessary corrective action was widely known there was no kanjiprocessing expert within Nakanishis division Personal Ma chinery And without the mighty gold badge he could not request the assistance of engineers from other divisions It was Nakanishi who came up with the idea of forming an intradivisional development team composed of 14 division members including one kanjiprocessing ex pert recruited from the Computer Division through the intrafirm positionoffering system26 Even without the authority of the gold badge the intradivisional development team succeeded in developing an electronic organizer with a kanjiprocessing function in two months The product which was called PA 7000 was introduced to the market in January 1987 It became a big success selling over 5 million units by 1991 and taking more than a 70 percent share of the domestic market the same year27 The product development of the electronic organizer illustrates the mechanisms by which Sharp continuously launches itself into new products and markets It also shows how the Urgent Project System allowed its developers to take advantage of the Sharp system for key technologies We argued in this chapter that the hypertext organization is the ideal structure to bring about continuous organizational knowledge creation A hypertext organizational structure enables an organization to create A New Organizational Structure 193 and accumulate knowledge efficiently and effectively by transforming knowledge dynamically between two structural layersthose of the business system which is organized as a traditional hierarchy and of the project team which is organized as a typical task force The knowl edge generated in the two layers is then recategorized and recontextu alized in the third layer the knowledge base We presented two case studiesKao as an in transition and Sharp as a perfected hyper text organizationto illustrate how the new organizational structure we are proposing provides the best fit for creating knowledge continu ously at the organizational level Notes 1 According to Weber modern bureaucracy has the following characteris tics 1 fixed and official order by laws or administrative regulations 2 hier archy that is levels of graded authority 3 management based upon written documents and 4 operation based on specifiedspecialized work 2 Burns and Stalker 1961 initiated contingency theory describing a bu reaucratic structure as a mechanical system that works well only in a stable environment On the other hand an organic management system with a non bureaucratic structure is more appropriate to an unstable environment See Thompson 1967 Perrow 1967 1973 Nonaka 1972 Galbraith 1973 3 The concept of the task force evolved from that of the military operation The taskforce principle is used by the Navy and Marines to organize forces for specific purposes while preserving a separate administrative organization for training and housekeeping A task organization can function in a variety of organizational magnitudes from campaigns of entire fleets throughout a war to a single ship on a onetime mission 4 Mintzberg 1989 chap 6 has proposed the adhocracies which contain project structures that can fuse the contributions experts have drawn from different specialties in order to form smoothly functioning creative teams D Quinn Mills 1991 has claimed that what has always been accepted as formal hierarchy is actually disappearing in many larger formerly bureau cratic settings These institutions are shifting toward what he calls cluster organizations Another example of new organization concepts is an infinitely flat organi zation an organization with innumerable outposts guided by one central rulesbased or computercontrolled inquiry system Quinn 1992 The network organization operates essentially withoutor with only min imalformal authority or ordergiving hierarchies Imai and Itami 1984 This organization mode is sometimes described as a spiders web because of the lightness yet completeness of its interconnected structure Quinn 1992 For some companies the person having direct contact with the customer is so important that rather than operate merely in a flat or network mode they will literally invert their organizations making all line executives systems and support staff in the company work for the frontline Quinn 1992 Some highly innovative companies have found a special form of disaggrega 194 The KnowledgeCreating Company tionbest described as a starburst or satellite organizationto be very effective These companies constantly split off and sell off units like shoot ing stars peeled from the core competencies of their parents Sakakibara Nu magami and Ohtaki 1989 Recently some scholars have proposed the concept of internal market orga nization that internalizes market mechanism as the transition from hierarchy Halal Geranmayeh and Pourdehnad 1993 5 As for the structure of its fighting forces the Japanese Imperial Navy along with its air force instituted an air forceled task force prior to the US militarys formation of one but did not discard the conventional battleship oriented structure and strategy until the end of the war The Nagumo task force which was formed to attack Pearl Harbor for example arranged the bat tleships in a regular square style with scattered warning ships outside the battleship perimeter This system however was unable to defend the aircraft carrier from enemy fighters by antiair guns and machine guns Without a radar system the aircraft carriers only option was selfdefense The Japanese Imperial Army did not integrate the infantry artillery and aircraft either The infantry conducting handtohand combats dominated the structure as its core and the infantry and artillery were used separately in many battles 6 For example the US Navy developed a circular antiaircraft defense system in which nine warships including battleships cruisers and destroyers were located at regular intervals on the periphery The formation had a radius of 1500 meters with an aircraft carrier at its center The enemy planes rush ing at the aircraft carrier were attacked from their sides and divebombers were shot when they came in at low altitude in order to launch torpedoes at a point of 1500 meters from the targeted aircraft carrier 7 For further discussion see Nonaka et al 1992 8 It should be noted here that another critical factor for realizing this dy namic combination is the total coordination of time space and resource within an organization A bureaucratic organization coordinates requisite variety and generates a natural frequency by orchestrating various rhythms Jacques 1979 As we have mentioned in Chapter 3 each taskforce team creates its own natural frequency by synchronizing various rhythms brought into the field by members from diverse positions in a bureaucratic organiza tion The hypertext organization is an organizational structure that enables the orchestration of different rhythms or natural frequencies generated by various product teams and hierarchical organization It coordinates allocation of time space and resource within the organization so as to compose an orga nizational rhythm that makes organizational knowledge creation most effec tively and efficiently In this sense a hypertext organization is a structural device to build requisite variety which is not secured solely by the middle updown management into the organization 9 The matrixstructure concept is a balance between two or more bases of grouping for example functional with market or for that matter one kind of market with another say regional with product This is accomplished by the creation of a dualauthority structuretwo or more managers units or indi viduals are made jointly and equally responsible for the same decisions 10 Moreover the company is currently planning to enter the food and print ing markets 11 Interviewed on May 21 1991 A New Organizational Structure 195 12 Interviewed on May 21 1991 13 Interviewed on March 27 1991 14 Kao has a comprehensive Strategic Information System SIS which is one of the most advanced in Japan of which the ECHO System is only a part Kao considers tacit information as important as information generated by the computer For example when sales of a local wholesale subsidiary drop the head of the Sales Division and his staff will visit and observe the stores in the area to find out the causes of the sales decrease and jointly develop measures to overcome it 15 This case study is based on Numagami Nonaka and Ohtsubo 1991 16 The history of Sharp dates back to 1912 when an inventor and tinkerer Tokuji Hayakawa founded a small metal works in Tokyo Hayakawa was an inventive person and always encouraged his employees to pursue creativity by saying Dont imitate Make something that others will want to imitate To day Sharp is positioned uniquely within the consumer electronics industry in Japan 17 In the case of product development within the business divisions numer ous meetings are held for product planning as a means to ensure cooperation and linkage among the engineering marketing and production sections To begin with the Product Planning Committee has been established to strengthen the link between marketing and product planning in the Business Division The committees aims are to refine the product concepts of the plan ning side by reviewing them from the marketing point of view At the same time the committee works to enhance marketings sense of participation and involvement The Plans and Programs Promotion Meeting on the other hand has been established to coordinate the efforts of the planning section with those of the production section During these meetings consideration is given to ways and means to convert product concepts into concrete products 18 The Urgent Project System was developed based on the 734 Project which was installed to develop the EL805 calculator during the calculator war of the 1970s Thanks to this project Sharp won the war and became a leader in the industry Sasaki 1991 In addition some point out that the Urgent Project System is fashioned after Sharps original development style For instance a member of the electronic organizer development team made the following comments Ordinarily our approach is to specialize in something first and then have it backed up by an ordinary organization rather than first establishing an organization to make things There is of course the approach of setting up an organization first and then giving it some themes but as we are working with a small number of people it would be impossible to try to do every thing So what we have done is to decide on the domain in which we want to specialize Planning or engineering must run first Only then does the product image begin to take form If demand can be expected then we make manpower increases That is our pattern of approach The Urgent Project just happens to openly manifest the abovedescribed way of product develop ment Numagami Nonaka and Ohtsubo 1991 p 16 19 The idea of an Urgent Project System has more recently been expanded into the product development system called concurrent engineering While each Urgent Project is accomplished with the completion of product develop 196 The KnowledgeCreating Company ment concurrent engineering involves not only a product development team but also design production and testing teams even before product commer cialization This system aims to shorten the development time as well as to prevent product defects and to increase productivity after the developed prod uct has been commercialized Examples of products developed under this sys tem are Liquid Crystal View Cam video camcorder and EcoAWash washing machine using less water and detergent N ik k ei S a n g y o S h im b u n October 25 1993 N ik k e i In fo r m a tio n S tr a te g y December 1993 20 For example the electronic organizer with a liquid crystal display was commercialized by Sharp based on its original ideas and is still unmatched in terms of both product concept and component technologies In the home tele phone market Sharp was the first in the industry to release a cordless tele phone with an answering machine function The CJA300 was released in Sep tember 1989 and sold 250000 sets in four months By virtue of this product Sharp was able to double its market share from 95 percent in the previous year to 187 percent 21 Interviewed on December 18 1990 22 Interviewed on January 29 1991 23 Interviewed on January 23 1991 24 Interviewed on January 23 1991 25 The beginning of this organization dated back to the oil crisis of the 1970s The crisis triggered a change in consumer buying behavior The baby boomers were already beginning to pick up on the new family style of living but it was the oil crisis that converted the latent changes in their awareness into concrete changes in buying behavior In view of this in 1975 Masaki Seki who was then executive director and had overall responsibility for the home electric appliance business decided to reorient the business toward the development of differentiated products that were suggestive of a new lifestyle in order to cope with the changes in consumers sense of value The idea was not only to stress the technical functions of a product but also to differentiate the product by adding some emotional value to it Based on this idea in 1976 Sharp began to put the new life strategy into practice Numerous product groups consisting of products in which color shape and function were compre hensively coordinated for use by the new families to whom they were tar geted were created under the new life strategy 26 Under the intrafirm positionoffering system a researcher at some Busi ness Division labs can apply for a position offered by other division labs in which he or she is interested The researcher can send application to Sharps human resource development HRD department by mail and then go through several interviews with managers of the HRD department and the designated division This whole process will never be made public except for the initial notice of the position offered and the subsequent announcement of the re searcher named to the position This system contributes to promoting motiva tion among researchers at Sharp along their own lines of interest 27 N ik k e i B u s in e s s August 19 1991 pp 1023 7 Global Organizational Knowledge Creation I n the previous two chapters we analyzed the management process and organizational structure most conducive to organizational knowledge creation The knowledgecreating Japanese companies we encountered in the last four chaptersHonda Canon Matsushita Kao and Sharphave gone increasingly global This raises two ques tions First can the organizational knowledgecreation process used by these Japanese companies work outside of Japan Second what adjust ments are necessary when Japanese companies start to work jointly with nonJapanese counterparts in a foreign country The very ethnic and cultural homogeneity that has facilitated the sharing of rich tacit knowledge among the Japanese has the potential of becoming a competitive disadvantage in the ethnically and cultur ally diverse global economy Japanese companies may not be able to manage that diversity But the two cases in this chapter show that the organizational knowledgecreation process used by Japanese compa nies can work on a global scale although some adjustments are neces sary Japanese companies are flexible enough to adjust the knowledge creation process by synthesizing Western approaches to organizational knowledge creation Diversity provides a natural source of requisite variety for globalizing Japanese companies which can take advantage of the heightened level of this enabling condition in a foreign envi ronment This chapter focuses on how organizational knowledge creation takes place on a global scale It will show the critical importance of socializa 197 198 The KnowledgeCreating Company tion and extemalization in global knowledge creation The cases of the Nissan Primera and Shin Caterpillar Mitsubishis REGA show how Japanese companies managed to learn or socialize nonJapanese tacit knowledge Although both cases are focused on product development findings may well apply to organizational knowledge creation across national boundaries in general Before presenting the two cases we need to understand that differ ences between the Japanese and Western approaches to organizational knowledge creation do exist The key differences are found in three areas First the interaction between tacit and explicit knowledge in the West tends to take place mainly at the individual level Concepts tend to be created through the extemalization efforts of top leaders eg GEs Jack Welch or product champions eg 3Ms Art Fry and are then combined organizationally into archetypes of new products services or management systems In Japan on the other hand the interaction of tacit and explicit knowledge tends to take place at the group level Middle managers lead knowledgecreating project teams which play a key role in sharing tacit knowledge among team mem bers This tacit knowledge interacts with explicit knowledge such as a grand concept advanced by top management and information sent from the business front line This intensive human interaction produces midrange concepts as well as concepts for target products services or business systems Second Western business practices emphasize explicit knowledge that is created through analytical skills and through concrete forms of oral and visual presentation such as documents manuals and com puter databases In terms of the knowledgeconversion modes the Western strength lies in extemalization and combination Western style knowledge creation can lead to the socalled paralysis by analy sis syndrome On the other hand Japanese business people tend to rely heavily on tacit knowledge and use intuition figurative ie am biguous language and bodily experience in knowledge creation They are relatively weak in analytical skills for which they compensate by frequent interaction among people socialization Another strength in Japanesestyle knowledge creation is internalization Once an arche type is created highquality tacit knowledge is quickly accumulated at the individual and organizational levels by mass producing or imple menting an archetype The emphasis on tacit knowledge in Japanese style knowledge creation can lead to the socalled group think and the overadaptation to past success 1 syndromes Third Westernstyle knowledge creation is receptive to certain en abling conditions such as clear organizational intention low redun dancy of information and tasks ie creative chaos is produced not by sequential performance of tasks but by the natural requisite variety less fluctuation from top management high autonomy at the individ ual level and high requisite variety through individual natural differences In contrast Japanesestyle knowledge creation is charac Global Organizational Knowledge Creation 199 terized by relatively ambiguous organizational intention high redun dancy of information and tasks ie creative chaos through overlap ping tasks frequent fluctuation from top management high autonomy at the group level and high requisite variety through crossfunctional project teams Kagono et al 1985 Figure 71 summarizes the differ ences between Japanese and Western knowledgecreating practices2 We should bear these differences in mind when we address these two cases of organizational knowledge creation on a global scale leading to the development of two successful products Nissans first global car Japanese Organization I Groupbased Tacit knowledgeoriented I Strong on socialization and i internalization Emphasis on experience Dangers of group think and overadaptation to the past success a Ambiguous organizational intention Group autonomy Creative chaos through overlapping tasks Frequent fluctuation from top management I Redundancy of information Requisite variety through crossfunctional teams 1 Western Organization Individualbased Explicit knowledgeoriented Strong on externalization and combination Emphasis on analysis Danger of paralysis by analysis Clear organizational intention Individual autonomy Creative chaos through individual differences Less fluctuation from top management Less redundancy of information Requisite variety through individual differences Figure 71 Comparison of Japanesestyle vs Westernstyle organizational knowledge creation 200 The KnowledgeCreating Company Primera and Shin Caterpillar Mitsubishis REGA series of hydraulic shovels Nissans Primera Project In the first case we look at how Nissan developed Primera a global car that was originally targeted to the European market where high performance is a critical factor and then to the US and Japanese markets where users tend to ask for images plush interiors and a wider range of models and accessory options To familiarize themselves with European users expectations about performance Nissan execu tives decided to embark on a massive exercise in socialization It took the form of providing firsthand experience of the European automobile market motoring culture and road conditions to hundreds of Japanese employees in the early stages of the development project In April 1986 Nissan decided to develop a highperformance global car that was eventually named Primera Being positioned as a global car the car had to meet several qualifications Top management de cided that Primera had to 1 be manufactured both in Japan and in Britain 2 have 80 percent of its components emanate from Europe and 3 be sold primarily in the European market and additionally in the US and Japanese markets All of these qualifications which were unprecedented for Nissan became the organizational intention set forth by top management This organizational intention introduced a considerable amount of fluctuation within the organization To compensate for this Nissan ini tiated an overall organizational system called the Product Strategy Di vision under which the supervisor of a project development team coor dinated crossfunctional activities such as planning design testing production and marketing for a given model see Figure 72 This sys tem made the locus of responsibility clear for each model and at the same time provided considerable autonomy to the supervisor and the project team The supervisor for the Primera project was Yasuhisa Tsuda Tsuda studied at the Berlin Technical College and had worked for Nissan in the United States and therefore spoke German and English fluently In the United States he had headed Nissans joint develop ment of Santana with Volkswagen which gave him firsthand experi ence of managing an international project He also made frequent busi ness trips to Europe driving around in rented cars and gaining a good feel of consumer preferences there Through such experiences he was able to internalize knowledge about international project management and socialize himself to tacit knowledge about the European automo bile market motoring culture and road conditions He also had been writing reports to his superiors on ideas that were based on these expe riences and even held informal study sessions on the European mar ket Through these efforts Tsuda had developed his own European Global Organizational Knowledge Creation 201 Figure 72 Organization for product development at Nissan Auto Theory which helped shape the product concept for Primera and identify challenges that should be met to succeed in the European market Building a Development Team and Creating a MidRange Concept Nissan recognized that in order to carry out a fullscale offensive in Europe it had to acquire tacit and explicit knowledge about the Euro pean automobile market culture and road conditions The obvious so 202 The KnowledgeCreating Company lution was to build a team around people who had already had some experience there Eight Japanese managers were brought together un der Tsuda All of them had worked in Europe and shared tacit knowl edge about the challenges confronting them especially the recognition that existing Japanese models would not work in the European mar ket Yoshiharu Ohtake one of the managers who was in charge of test ing said It was painfully obvious that Japanese models werent right for the market The desire to find a technical solution for this problem was rooted in me while I was in Europe Tsuda and his colleague Shigeki Miyajima devoted considerable time to developing a marketing strategy They knew that given the nature of the European market and Nissans stature within it little would be gained if the new model was perceived as the only jewel in an otherwise lackluster crown In addition to being a success in its own right the new model had to boost Nissans image and deepen its trustworthiness among European consumers The name Primera was selected to reflect Nissans desire to turn out a firstrate blueribbon model that would spearhead its marketing effort throughout Europe Discussions with supervisors in charge of other Nissan models ex ported to Europe and with managers in the Overseas Sales Division in Japan gave rise to a concept that would serve as Nissans image in the European market comfortable functionality This midrange concept spawned several ideas such as a uniform insignia and front mask as well as more or less standardized layouts for the front panel including switches stereos and heaters that could be used across different Nis san models targeted for Europe Creating the Product Concept and Breaking It Down Shigeru Sakai one of the managers of the Primera project developed the midrange concept of comfortable functionality into a product concept for Primera by associating the car with the Autobahn A con versation with the Chassis Design Team and an ensuing reflection re sulted in a catchphrase Sure fast and comfortable on the Autobahn as the product concept for Primera It was clear from the start of the project that Primera could not be a mere copy of other European models In addition to having high perfor mance standards exceeding those of competing models Primera em phasized comfort as its distinguishing feature This feature was further broken down into what Sakai called Comfort 10 or 10 dimensions of comfort space ride ventilationair conditioning texturefeel sound field of vision visibility operability safety and security see Table 7 1 and Figure 73 To make the product concept clearer to those who were involved in the project and others concerned Sakai compiled a 50page catalog that included many sketches externalizing the mental model or image of Primera It was the first time Nissan had com Global Organizational Knowledge Creation 203 Table 71 Notes for Developing the Product Concept of Primera Business Strategy where and how Turn a profit in Europe Boost the image o f Nissan models in Europe Change the image o f Nissan models in Japan Keep the production volume at NM UK Target customers UK companies and families German families Nissans new middlesize models Product Strategy targets sales price and prime cost how avoid erosion o f profit profile of customers in aspects o f fam ily makeup income edu cation age lifestyle attitude Selling points W orth the m oney H ow will purchase help enjoy life Good feel A good feel is a sign o f good quality Exterior design Functional beauty that does not sacrifice comfort W ellbalanced functions Balances between engine performance and mileage and between handling and ride Vehicle Concept developm ent objectives target performances Sure fast and comfortable or enjoyable on the Autobahn Comfort and safety with driving at 160 kmh for an extended time M aximum speed Highspeed stability Control stability Quiet Operability M ileage Riding comfort aerodynamics coefficient suspension antiskid low wind noise engine noise with little peak feeling layout of meters switches and pedals weight aerodynamics coefficient seat form suspension Interior comfort for the middle class Interior dimensions and trunk space for a middleclass family packaging efficiency But exterior dimensions should be as compact as possible Source Nissan piled a catalog of this kind before starting the product development process Communicating the Product Concept and Building Wider Support The Primera projects efforts to clarify the product concept and its spe cific features at the beginning were not only new to Nissan but also a rejection of its conventional approach to product development a pro cess inundated with fluctuation and creative chaos To break from the past the top priority for the project team was to build wider support within the organization The projectteam members walked around the 204 The KnowledgeCreating Company Typical users Important requirements characteristics for a car Characteristics of Primera Technologies Car as a necessity of life Need for a long drive at high speed Drive on a crowded road in the urban area parking on a narrow street Feel intimacy with technology know the difference prefer the established brands use various media Comfort interior Highspeed performance Good mileage Safety Security Compact body High performances of basic functions Persuasive product concept supported by technologies Design to realize a long safe and comfortable drive COMFORT 10 space seat ventilation touch feel sound quality visibility safety controllability inside visibility protection against burglary Highspeed performance effective on Autobahn engine performance and mileage steady drive and breaking system European styling with new concepts low and short nose long and spacious cabin aerodynamic styling High quality Light weight aluminum cylinder block 13 full wheel cover Interior Easytoread meters better seatbelts European style inexpensive air conditioner high quality audio system Engine transmission chassis multivalve engine new low emission muffler new front suspension improved rear suspension Body and exterior Flash surface body cd value C29 innovative trunk lid manual sunroof wiper for the highspeed drive Figure 73 Analysis of the Primera concept Source Nissan company with a catalog in their hands to explain the specific require ments of a car that would succeed in the European market But verbal explanations and rough sketches had their limitations The full impli cation of driving on the Autobahn was lost on a person who had never driven on it To remedy this drawback Nissan decided actually to send people to the Autobahn so that they could see and experience the situation for themselves During the first three years of the Primera project Nissan sent nearly 1500 people from the planning design testing production and marketing departments to Europe to acquire tacit knowledge about the European automobile market motoring culture and road conditions This experience helped to build a common understanding of the differences between the European and Japanese markets Gathering Information in Europe The companys European Technology Liaison Office in Brussels served as an outpost for the Primera project It provided people from Japan with rides in European cars so that they could personally experience what should go into a model designated for the European market in cluding performance requirements for the cars engine cornering and braking Visitors from Japan quickly recognized a big difference be tween being told about something and experiencing it with their own bodies It was a big shock to many of them serving to magnify per sonal and organizational fluctuations For instance many engine spe cialists who had been supremely selfassured before they left Japan returned with crestfallen looks on their faces The outpost also functioned as an information center connecting Global Organizational Knowledge Creation 205 Europe and Japan Examples of information sent to Japan included such general suggestions as we need a seat that will prevent fatigue even on the 800km or 500mile haul from Belgium to Zurich and such specific requirements as the hazardlight button has to be in the center of the dashboard so that it can be pushed from the passenger seat as well The outpost also arranged design clinics which will be discussed below Designing Primera From the beginning the design team shared the need to outengineer the best European models such as Mercedes Benz and BMW while retaining the distinguished virtues of Japanese cars Having studied European models for two years the design teaimexternalized four de velopment objectives 1 high performance 2 cabin comfort 3 dis tinctive design and 4 topquality luxury The goal was to lead the world in all four areas Some members of the design team had already socialized themselves with European motoring culture and road conditions prior to joining the Primera project For instance Mikio Fujito who was in charge of exterior design had studied at the Royal College of Arts in London He developed several design sketches during the projects early stages with the assistance of two young designers sent to Europe from Japan These sketches which were drawn in Europe were used to prepare onequarterscale clay models in Japan Eight clay models were made and the four most promising ones were sent to the Liaison Office in Brussels These four clay models and other models prepared by local designers were subjected to tough screenings by the companys Brussels design clinics More than 100 people including designers engineers and deal ers from both Europe and Japan attended these clinics They evalu ated each scaleddown model for example on whether the design had a cold or warm feeling and whether the model looked slow or fast The design clinics selected two clay models as a result of these evaluations The next step involved the preparation of fullscale clay models The interior had to have ample headroom for four adults measuring 190 cm or 63 in height but the exterior had to combine compactness with low air drag This conflicting requirement meant achieving the largest possible cabin space within the most compact shell possible while achieving the best possible aerodynamics Once the actual prototype was completed it was put through not only the ordinary battery of tests within Japan but also test runs in Europe on a scale that far exceeded the norm Specifically the test runs in Europe logged 180000 km or 112500 miles The Primera design team carried out frequent dialogues with the European Technology Liaison Office during development of the interior 206 The KnowledgeCreating Company design The aim was to develop the best interior design which could provide comfort and pleasure regardless of the distance or speed as well as visibility and operability As part of the process some design ers went to Europe and took an 800km or 500mile ride in existing models which was arranged by the Brussels office The engine went through rigorous testing as well In the initial stages team members of the Primera project went to Europe and ran tests to compare European and Japanese engines while they were in operation on the Autobahn These tests helped to shed light on certain problems with the Japanese engine To equal European models the engine chamber had to deliver the same combustion efficiency at high rpm revolutions per minute as at medium or low rpm and remain cool even at high speeds The problem was solved by developing a new enginethe SR20DEfor the Primera While no car maker can afford to develop a new engine for each model the strategic importance of Primera made it worth this investment In addition to the engine re peated runs on the test course in Japan revealed a need for suspension improvement which led to the development of a new multilink sus pension Timing couldnt have been better for the Primera project as Nissan was undergoing an overall organizational reform the main thrust of which was directed at changing the prevailing mindset of choosing the status quo for fear of failure To use our terminology fluctuation was introduced within the organization The president at the time Yutaka Kume ordered such measures as delegation of authority to product supervisors to shorten the decisionmaking process and the interde partmental rotation of personnel to increase diversity which would en hance autonomy and requisite variety As part of this reform Nissans engineers started their own bottomup movementcalled the 901 Campaignto raise Nissans technology level to the top of the world by 1990 Before this campaign began only about 1 percent of some 700 engineers in the Engine Department went on overseas business trips As part of the campaign engineers were sent abroad in large numbers The overseas trips took the engineers out of the Japanese environment enhancing fluctuation and socialization and thereby helping them in crease their ability to assess car performance more objectively These engineers played an important role in the quest for superior perfor mance in the Primera project Forming the Yazaki Group Another benefit of the campaign was the creation of a group of developmentengineerscumtestdrivers whose role was to evaluate and communicate their bodily experiences to design engineers A group of skilled test drivers called the Yazaki Group was formed with Yoshi aki Yazaki serving as its leader Global Organizational Knowledge Creation 207 A skilled test driver can externalize many of the quirks and prob lems of a new model within a few hours It is far more difficult how ever to decide what should be corrected and how especially when such matters are strongly dependent on the local driving environment The person making the evaluation should have a deep tacit knowledge of the target market that covers road conditions driving styles relevant customs and so on To groom such evaluators Nissan posted selected engineers to some overseas markets for about a year to socialize exter nalize and internalize the local lifestyles and values They were then trained by Yazaki upon their return to refine their knowledge conversion skills Throughout Primeras development the Yazaki Group refused to compromise with the design engineers To make a point a Yazaki group member would take design engineers along on test drives to give them a bodily experience of a problem area in the prototype that did not live up to the product concept Yazaki required the design engi neers to consider not whether Primeras performance was better than those of major competing models but whether it was the best in the world In this way the evaluators and the designers came to share a common understanding of the product concept The Yazaki Group also had frequent interactions with other members of the Primera team Shigeru Sakai who was in charge of planning recalled I had a lot of contact with them I was always off to the test course They were the test pilots and we were the designers and planners As a plan ner I should listen to what pilots say I said pilots because I wanted to make the automobile equivalent of the Zero fighter Nonaka 1992 p 22 Preparing for Production in Britain The production people in Japan participated in the development project at the early stage of concept development It was not uncommon for design engineers to produce drawings that could cause problems at the manufacturing stage Such problems could not be solved without the vast reservoir of tacit knowledge acquired from working directly at the plant knowledge that was difficult to externalize into explicit lan guage The direct involvement in the early stage of people having this tacit knowledge helped in the design of a highquality product that could be manufactured with more ease and efficiency As the new product moved closer to reality in Japan attention shifted to ensuring that Nissan Motor UK NMUK which was re sponsible for production in Europe would be ready for the planned launch date The quality of the Primera had to be up to the standards of its Japanese production while meeting the cost constraints applied in Japan Failure in this regard would jeopardize Nissans entire Euro pean strategy 208 The KnowledgeCreating Company While the basic design of Primera was completed in Japan NMUK organized a task force to establish the necessary interface with local components suppliers An earlier experience with another model man ufactured at NMUK made it clear that components suppliers had to become involved in the project at an early stage Consequently NMUK was quick to establish links with local suppliers while at the same time developing an effective method of knowledge transfer from Japan to NMUK Nissan tried as much as possible to replicate its Japanese operation in Britain while recognizing the significance of cultural and other dif ferences between the two national environments The Japanese opera tion required few formal procedures and manuals since the workers in Japan shared a relatively high amount of tacit knowledge The follow ing comment by a Japanese manager described the status quo in Japan Much of the knowledge about production which Nissan has so painstak ingly built up over the past several decades can of course be put into words and numbers But much of it is locked up within the brains of indi viduals Nonaka 1992 p 28 In contrast British workers were more accustomed to having their du ties and specific operating procedures articulated in explicit language Therefore Nissan codified its knowhow on how to prepare for produc tion of a new model into a manual and transferred it to NMUK To enhance socialization NMUK sent some 300 middlelevel British engineers and technicians to Japan to acquire the necessary production knowhow through an onthejob training program at a Japanese plant3 This program gave the UK operation a stronger knowledge base in production procedures which proved to be useful in overcoming problems at the manufacturing stage To further this exchange Nissan frequently sent its Japanese engineers to Britain As a result of these early preparations production of Primera at NMUK started only six months after that in Japan Yet NMUK had serious problems during the production startup stage when several suppliers failed to deliver workable parts on time To improve this key process NMUK sent Japanese engineers to each of the problematic suppliers for an extended period and succeeded in transforming these suppliers from its worst to its best This transfer of Japanese engineers helped to establish trust and a longterm relation ship between NMUK and its suppliers see Womack and Jones 1994 pp 100102 Primera as a Global Car As soon as Primera was introduced into the European market in 1990 it garnered a favorable market reaction as evidenced by its sales Global Organizational Knowledge Creation 209 trend In the first four weeks after the models debut orders in Europe soared to 28175 units On an annual basis 124000 units were pro duced in Europe that year exceeding the planned production volume of 100000 units by a wide margin Moreover as of early 1994 Primera had won 19 bestcar prizes throughout Europe Primera had a favorable reception in Japan and North America as well In Japan the targeted monthly production of 3000 units for 1990 was easily surpassed as monthly sales averaged 5030 units in 1990 and increased to 6260 units in 1991 In North America Primera was positioned as a luxury compact car and marketed through Nissans In finiti channel It cleared its expected sales volume in North America as well indicating that Nissans vision for developing a global car was actually supported in the marketplace Implications of the Primera Case for Knowledge Creation This case study shows that the Japanese approach to organizational knowledge creation works equally as well outside of Japan although some adjustment is needed The case highlights the much more vital importance of socialization for global knowledge creation than for do mestic knowledge creation especially when production is involved It provides a good example of crosscultural socialization a time consuming and costly process that is indispensable to carrying out or ganizational knowledge creation across national boundaries In the Primera case two rounds of socialization took place The first round took the form of sending hundreds of Japanese engineers to Eu rope during the early stages of the project to gain tacit knowledge about the European car market motoring culture and road conditions Nissan set up an information center in Brussels to facilitate this pro cess The second round of socialization which was aimed at transfer ring manufacturing expertise from Japan to the British plant took the form of sending some 300 British engineers and technicians to Japan to gain tacit knowledge about manufacturing practices Nissan exter nalized the tacit knowledge that had been internalized over a long pe riod of time at Japanese plants by compiling manuals to help the NMUK people learn Japanese manufacturing practices This case also shows the importance of mobilizing employees like Tsuda and Fujito who had already socialized themselves in a foreign market and culture as well as of training specialists such as members of the Yazaki Group who are adept at socializing tacit knowledge and externalizing it into explicit language In our terms they are the knowledge specialists in both socialization and externalization A less obvious but highly significant implication of the Primera case is the birth of a new approach to product development As noted ear lier Japanese car manufacturers have been overlapping the develop ment stages in what we called the rugby style to compress their new 210 The KnowledgeCreating Company product introduction lead time enabling them to put out new models once every three or four years and to make minor changes about once every two years In contrast US and European car manufacturers have taken a lot longer to come out with full model changes4 This ability to introduce new products with a shorter development cycle has long been considered a source of Japanese competitiveness The over lapping approach can function with little organizational conflict be cause of the intensive socialization and resultant information redun dancy among team members from the various functional departments This vigorous exchange and sharing of information unites all the func tional departments in pursuit of the common goal The overlapping approach also involves the production department from an early stage of the project which leads to the development of designs amenable to manufacturing This process in turn results in short lead time and high quality of the product The rugby style however has its drawbacks Since this approach entails problem solving by an interdepartmental pool of personnel who share the same space and time the process is liable to give too much importance to preserving overall unity and conformance In other words it may lead to the risk of achieving a compromise or consensus around the lowest common denominator Since the relative influence of the manufacturing and marketing departments is strong the rugby approach hinders a relentless quest of technological potential In addition the approach may not be conducive to setting clearcut performance targets or standards at the outset for each functional de partment since the development process is subject to constant change BMW Mercedes Benz and other topranked European car makers still organize their development process by function that is department and adhere to the phasebyphase system to enable the pursuit of per fection and completeness by each department in each phase This phased approach however necessarily lengthens the lead time as well as requiring a great deal of effort to coordinate the various functional activities and ensure that an overall quality standard has been achieved in the final product see Table 72 for a comparison of the Japanese and European styles of product development The argument above assumes that there is an intrinsic tradeoff be tween performance and lead time But Primera was able to achieve both having been developed in less than four years just like other Jap anese models but still managing to meet the European standards of performance What is more Primera managed to meet both the local content target for production in Britain and the quality standards set by Nissan for its Japanese production Using metaphors from the world of sports we have labeled the over lapping approach prevalent in Japan as rugby and the phased ap proach often used in the West as relay What the Primera case sug gests is a third approach that can take advantage of both procedures Global Organizational Knowledge Creation 211 Table 72 Comparison of JapaneseStyle vs EuropeanStyle Product Development of HighEnd Automobiles EuropeanStyle JapaneseStyle Objective Pursuit o f superior performances Adaptation to changing needs Product appeal Function eg highspeed perfor mance Image and quality Product concept Clearcut decision at the initial Vague at the initial stage creation stage adhered to throughout the ensuing stages modified and altered in ensu ing stages in accordance with changes in needs F low o f activities Sequential approach Overlapping approach E n su in g process Specific design targets fixed at the initial stage are pursued un der a strict division o f labor Close cooperation among all departments concerned dur ing the development Organization Organization according to func tion and often under a project leader with limited authority Matrix or projectteamtype organization under a project leader with authority over the entire process from plan ning to production to sales Strengths Conducive to a relentless pur suit o f superior performance function and high quality Shorter lead time 3 4 years high quality and at tuned to needs in the market Weaknesses Longer lead time 7 8 years high development costs Risk o f compromise on a low level not conducive to an allout pursuit of superior performance To continue using our sports metaphor we have named the new style American football It achieves both short lead time and higher per formance levels at the same time In the Japanese rugby style a grand concept ie business strategy a midrange concept if any and a product concept are gradually clari fied through long and continuous interaction among project members In the American football style however a grand concept a midrange concept and the product concept are determined and clarified by a small number of project leaders through a thorough and intensive dia logue at the start of development This process corresponds to the de termination of the game plan and tactics before each play by the head coach and the offensive and defensive coordinators in American foot ball Determination of the concepts at this early stage is necessary be cause the frequent and facetoface dialogue that is possible among all project members in the rugby approach is physically impossible to carry out on a global scale Thus a clear division of labor is established with teams formed for specialization in certain functions In a sense this division of labor is similar to an American football team with spe cialized units for offense defense and particular maneuvers 212 The KnowledgeCreating Company Once the product concept is determined all the functional depart ments move simultaneously as in the rugby style running together to meet the targeted cost performance level and launch date First largescale socialization takes place during which project members visit foreign markets to gain tacit knowledge Second an interdepart mental collaboration takes place to implement the overall business strategy with departments sharing a common goal and a common in formation base Third all project members engage in evaluating or testing the prototype to judge whether the product concept has been re alized In this way the Americanfootball approach to newproduct develop ment combines the benefit of a clearcut division of labor among the functional teams such as we encounter in relay with the benefit of the entire teams running the entire distance as in rugby But the key to American football lies in making the comprehensive plan early in the game and in having the tactics decided by a few leaders who confer intensively among themselves In sum the Primera case illustrates how a Japanese company cre ated knowledge organizationally by having Japanese employees gain tacit knowledge associated with a foreign market through actual visits to Europe socialization and by making Japanese tacit knowledge as sociated with production knowhow understood by foreigners extemal ization Because this case involves an international operation of a Jap anese corporation using Japanese knowledgecreating practices across national boundaries did not pose a serious problem The next case in volves a JapaneseUS joint venture We shall see what difficulties could arise in synthesizing the Japanese and Western approaches to organizational knowledge creation on a global scale under such an ar rangement Shin Caterpillar Mitsubishis REGA Project The second case takes the global knowledgecreation theme a step fur ther It is more than a story of a multinational company that developed a product for the global market and began to produce it in a foreign country It is a story about two companies forming a joint venture to develop a global line of hydraulic shovels The case shows that the newly formed Tokyobased company Shin Caterpillar Mitsubishi sur mounted many obstacles and successfully developed and marketed the REGA series of hydraulic shovels for the global market Historical Background In 1963 Mitsubishi Heavy Industries Ltd of Japan and Caterpillar Inc of the United States formed a joint venture company Caterpillar Mitsubishi Corp to manufacture and sell Caterpillar products At that Global Organizational Knowledge Creation 213 time Caterpillar viewed hydraulic shovels as a product with limited potential and decided not to enter the market In 1970 however the rapid growth of the market forced Caterpillar to reverse that decision Although Caterpillar launched its first hydraulic shovel three years later in the United States its contract with Mitsubishi prevented it from selling the product in Japan which had emerged as the worlds largest market for this type of product In 1977 Caterpillar attempted to solve this problem by proposing a merger of its hydraulic shovel division with Caterpillar Mitsubishi but met with a negative response from Mitsubishi Mitsubishi did not want to pay a license fee for Cater pillars technology which was not at the leading edge and feared that the American firm would exploit Mitsubishis strengths as a leading producer of hydraulic shovels The two sides could not compromise and the negotiation ended in failure During the 1980s both Mitsubishi and Caterpillar found good reason to reconsider their decision Mitsubishi was eager to eliminate the un necessary duplication of activities between its hydraulic shovel divi sion and the tractor division of Caterpillar Mitsubishi Meanwhile Caterpillar suffered its first loss in half a century in 1983 and was facing stiff competition in the US shovel market from Japans largest construction equipment maker Komatsu which entered the market in 1982 This time around Mitsubishi was more receptive to Caterpillars proposal After nine rounds of tough negotiation a new joint venture Shin Caterpillar Mitsubishi was formed in July 1987 It pooled both companies resources in the hydraulic shovel business In addition Caterpillar gained access to the Japanese market and Mitsubishis technology and Mitsubishi acquired a route to global expansion through Caterpillars worldwide sales network Clashes Due to Differences in Product Development Approaches The REGA series of ultraadvanced hydraulic shovels was Shin Cat erpillar Mitsubishis first attempt to develop a product for the global market It was expected to be manufactured in Japan the United States and Europe But differences in the Japanese and US ap proaches to product development led to a number of clashes which we will discuss below The first clash between the two approaches was about the relative importance of cost quality performance and safety In Japan cost was considered the overriding factor as evidenced by the frequently asked question What is the best quality we can achieve within the allocated cost In the United States however safety and performance were con sidered more important The United States had strict product liability laws and careful attention had be paid to safety Caterpillar refused to budge on safety Having done business in the litigationprone US 214 The KnowledgeCreating Company society Caterpillar was nervous about the possibility of costly law suits But the Japanese side wanted to eliminate any factor that in creased costs and did not contribute directly to sales especially since a vicious price war was raging at the time in the Japanese construction equipment market The Japanese engineers insisted that Japanese customers were extremely sensitive to price and quality On the other hand the American engineers contended that Caterpillars customers would purchase a highperformance product even at a high price The second clash occurred over the problem of who should lead the conceptcreation process In the United States a marketingled model was prevalent with opinions of the marketing department reflected strongly in the development process At Caterpillar it was the market ing department that set the major specifications for a product In Ja pan however a technologyled model was the norm with the RD department taking the initiative At Mitsubishi Heavy Industries it was the Engineering Departments planning section that determined the specifications One of Caterpillars managers described the situa tion as follows Mitsubishis design and sales ideas focused on minimizing production costs If a minimum cost could not be achieved specifications should be changed and the sales price lowered This would cause us to forego much of potential profits However Caterpillars profits do not derive from sales alone but also from parts sales and afterservice by our sales organi zation that brings together superior dealers and users Over 50 of Cater pillars profits come from parts and services Caterpillar always has a lot of marketing and design ideas Mitsubishi doesnt however Mitsubishi makes their decisions on the basis of which design can be produced for the lower cost and does not take afterservice and other aspects into consider ation We found ourselves facing a completely culturally different concep tual process Nonaka Ohtsubo and Fukushima 1993 p 12 The third clash centered on how the development project should be carried out In the United States each phase of a development process was performed sequentially like a relay At Caterpillar the develop ment process consisted of four phases concept making prototyping pi lot running and mass production In contrast the Japanese method started with concept making but prototyping pilot running and pre paring for mass production took place almost in parallel Pilot running started before the completion of prototyping and the results of proto typing and pilot running were incorporated into the massproduction system The Japanese rugby style was effective in reducing develop ment time The product development cycle in Japan was usually be tween three and four years while the cycle in the United States was between five and ten years The fourth clash occurred about whether or not the design should be standardized throughout the world Caterpillar held firmly to the belief that worldwide standardization brought about certain advantages Global Organizational Knowledge Creation 215 such as interchangeability of parts In addition since Caterpillar owned its plants around the world their layouts and manufacturing facilities were identical to those of its domestic facilities which re moved the potential problem of differences among plants in various countries Thus Caterpillar insisted on worldwide standardization of both the design and the manufacturing process But the Japanese side contended that its Akashi plant differed from Caterpillars making it difficult to implement standardization Mitsubishi invited Caterpillars two vice presidents for manufacturing to visit its Akashi plant they were surprised at the differences between the Akashi plant and their own As a result Caterpillar reconsidered its policy of standardizing production diagrams Trying to understand these differences and reaching a compromise took a great deal of time during the REGA project As these discus sions proceeded both sides came to realize that the factor hindering mutual understanding was not merely a language barrier but differ ences in values and in approaches to problems In the end Caterpillar entrusted the overall approach of the REGA project to Shin Caterpillar Mitsubishi on the conditions that the joint venture would make no compromise in performance and safety and that progress would be reg ularly reported to Caterpillar Consequently REGA was developed largely utilizing Japanese methods of product development Organizing the REGA Project No special project team was formed for the REGA project Members of the project retained their normal positions and wore a second hat for REGA For example a designer would work on REGA but also design nonREGA equipment in parallel The Hydraulic Excavator Design Center which was responsible for developing REGA employed a ma trix organization One axis was the planning division divided into three areaslarge medium and smallaccording to the size of the hydraulic shovel being designed The other axis was the design divi sion which was divided according to design components such as struc ture hydraulic mechanism electric and electronic system and other equipment Of the two axes the planning division became the main axis and its head managed the whole project How did US and Japanese engineers work together within this scheme From the beginning both D R Larsen and Takeji Adachi co general managers of the Design Center made a conscious effort to achieve good communication Their desks were located next to each other The two spent as much time together as possible not only in their work but also in their private lives by engaging in long discus sions visiting each others homes and traveling together A close rela tionship developed between the two through these socialization efforts In addition there were two general managers and two vice general 216 The KnowledgeCreating Company managers at the Design Center In each case one was Japanese and the other American Like the top two they had identical status and worked next to each other at adjacent desks As of 1992 21 American engineers were in residence at the Design Center This project was the first foreign experience for many of the Ameri can engineers In fact the majority of these engineers did not even have passports before coming to Japan Larsen offered the following advice to these engineers Always think positively and Always keep the whole picture in sight Yet as soon as the American and Japanese engineers began working together a major problem arose The Ameri can engineers could not understand what the Japanese engineers were saying Since American engineers were used to articulating their feel ings they kept asking Why over and over again until the Japanese engineers felt cornered Adachi who had a shipbuilding background and was a complete amateur with hydraulic shovels commented Most Japanese become unable to answer if they are pushed with a series of whys American engineers can always answer An amateur like I can understand why Americans keep asking Nonaka Ohtsubo and Fuku shima 1993 p 14 On the other hand Larsen made the following comment What surprised me most on my first visit to Japan was the difference in logic process I have worked with French Belgian and German engi neers They possess a similar type of logic process Therefore we thought that the logic process would be the same We are still trying to deter mine how we can overcome this difference Ibid The major source of difference in the logic process stemmed from the tendency of Japanese engineers to communicate on the basis of the tacit experiential knowledge they shared Few Japanese engineers were good at articulating their experience The Japanese engineers at the Design Center realized that communication based on tacit knowl edge would not work well with foreigners Thus achieving externaliza tion became an important issue for the REGA project Standardizing REGAs Specifications for the Global Market One of the most challenging problems in global product development is the tradeoff between meeting different needs in different areas of the world and the pursuit of efficiency through standardization of prod ucts and production processes throughout the world REGA was not only intended for the global market but also scheduled to be manufac tured at the Akashi plant in Japan as well as at Caterpillars Aurora plant in Illinois and the Gosselies plant in Belgium Two steps were taken at the design and development stages to ensure some level of standardization among the three plants The first was the establishment of interplant meetings to enhance socialization To manufacture REGA at the three different plants it Global Organizational Knowledge Creation 217 was imperative that the design drawings be standardized This task was carried out at interplant meetings in which representatives from each plant met to discussoften heatedlytopics ranging from pur chasing to production to marketing Experts on a given topic from each plant formed a team for each component eg piping layout power train structure to discuss how to produce a common product The pos sibility of one plant with the lowest cost producing the entire compo nent was also discussed This type of meeting was a new experience for both Caterpillar and Mitsubishi Caterpillar gained a lot of from these meetings since in terplant communication had been poor until then The Aurora plant had provided drawings to the Gosselies plant in the past but engineers from the two plants had never met with each other until these in terplant meetings This fact alone made the interplant meetings val uable The second attempt at standardization was the development of the multiselection concept for the front that is the upper arm called a boom the lower arm and the bucket In the past it had been consid ered sufficient for a single machine to have a single front of fixed size In the case of REGA however 14 combinations were available for the front This concept was developed by two American engineers at the Design Center in response to a problem concerning the best arm length for REGA in Japan They discovered that the length considered opti mal in the Japanese market differed from the lengths commonly used outside of Japan They tested the idea with dealers throughout the world and decided to try marketing the variations The idea of options for the arm and bucket was unique and eventually became REGAs main selling point Organizational Learning Through the REGA Project Mitsubishi learned many things about development methods from the joint project We shall describe as examples the use of design drawings and manuals The Akashi plant produced drawings based on a style originally used in shipbuilding Mitsubishi Heavy Industries mainstay business in the past Design drawings for shipbuilding showed the completed form of a product but all production design drawings were made at the plant In fact all aspects of the manufacturing process were delegated to the plant Since the relationship between the design team and the plant was rather loose the plant was allowed to modify or make additions to the drawings onsite Even in cases in which nothing was wrong with a design workers at the plant often changed specifications and prided themselves on not following the design drawings with which they were presented Shin Caterpillar Mitsubishi inherited this let the plant handle it attitude from the Japanese parent company REGAs design drawings produced by the Design Center differed in 218 The KnowledgeCreating Company several respects from those used previously at the Akashi plant First they conformed to Caterpillar drawing standards that were established worldwide Second they depicted not only the finished product but also all intermediate manufacturing processes This meant that the draw ings took about five times longer to produce than the drawings used previously Third American engineers added detailed written descrip tions to the assembly procedure files Once completed these files cov ered some 950 separate procedures One file containing 290 of these procedures was over five centimeters or two inches thick This pen chant for externalization helped REGAs cause since drawings had to be developed that could be used anywhere in the world Mitsubishi also learned the importance of externalization from the joint project Japanese engineers continued their effort to externalize their own tacit experiential knowledge into something more explicit Adachi recalled Prior to the REGA project Japanese engineers would design things as they like Once a manager said I have decided X no one would question him about it Now we had to explain this to nonJapanese clearly and unambiguously Even though there was quite a bit of friction we gained technical expertise experience and knowhow through working together They became valuable assets Nonaka Ohtsubo and Fukushima 1993 p 18 Manuals became one of the most concrete forms of capturing explicit knowledge The value of manuals became particularly apparent in the replacement of engineers When new American engineers came in to replace 15 of the 20 original engineers from Caterpillar the newcom ers had no more than two weeks to take over their predecessors duties Information in the manuals enabled them to complete the transfer of responsibilities within the allotted period Makoto Deguchi director and general manager of the Akashi plant noted as follows In Japan technical expertise and knowhow accumulate within individu als and theres a problem transferring them to others Thats why the same mistake would happen over and over again when a supervisor was re placed But we have eliminated this wastefulness and become able to transfer knowledge smoothly Ibid Although it was still difficult for the Japanese to take over someone elses job with only two weeks of lead time the project made them realize their lack of filing and presentation skills and the great need of training themselves to improve their externalization skills Itakura Goes to America In December 1990 Adachi asked Noriyuki Itakura who was a plan ning manager for large equipment at the time to go to Caterpillars Aurora plant in the United States This turned out to be a golden op Global Organizational Knowledge Creation 219 portunity for Itakura to blossom into a global knowledge engineer a key player in synthesizing the Japanese and Western approaches to organizational knowledge creation Itakuras first job was to act as a liaison observing the production of a REGA pilot machine and reporting any technical problems to the Akashi plant Itakura returned to Japan temporarily after six weeks but again found himself on a plane for America in September 1991 This time he came to work at the Aurora plant as a product process supervising engineer responsible for about 20 workers His job was a mixture of engineering and production since he worked with those on site and resolved problems encountered during production based on de sign drawings sent from the Design Center This type of work had never existed at Caterpillar before Certainly it was unprecedented for the company to have a Japanese working in this capacity Itakura instituted a morning meeting held once a week for one hour during which he externalized his way of thinking and his own experi ences particularly past mistakes he had made or witnessed At first only Itakura spoke but after about three months others began to par ticipate Several people started to challenge him saying That cant be right Nori Eventually one hour was not enough and a special ses sion was occasionally added In this way Itakura began to develop a twoway communication channel between himself and his staff In these morning meetings Itakura often spoke about the proper mental attitude for a designer to have Caterpillar designers seldom visited plants or actually touched the machines they developed All responsibilities were clearly divided among sections with operators working with the machines lab personnel writing reports and design ers checking the reports Itakura emphasized how important it was for designers to observe and touch the machines they develop and ex plained the virtues of Japanese onthejobsiteism or actual experienceism to his American designers In essence he was stress ing the importance of socialization Itakura was also surprised at first by the low level of cost conscious ness among the design engineers at Caterpillar In Japan keeping costs within a predetermined target was considered a key concern from the inception of the design stage In the United States Itakura would be met with puzzled looks when he said anything like Well if its going to cost that much we cant do it To US designers can was purely a technical question completely unrelated to cost To combat this lack of cost consciousness Itakura called his staff together and spoke of his experience in reducing costs and working within cost lim its at the Akashi plant Although the costcutting scheme at the Akashi plant had been underway for ten years it had only begun to prove effective in the last five years In the first five years it had largely been a repetition of trial and error If a mistake was made it would be reviewed and problems would be identified and resolved one 220 The KnowledgeCreating Company by one Listening to his stories concerning the Akashi plant his Amer ican staff engineers soon began to realize that these problems were the same ones confronting the Aurora plant Itakura also conveyed his experience in cost reduction to his immedi ate boss D M Murphy In a oneonone meeting he explained the history of the costcutting plan implemented at the Akashi plant Mur phy then arranged to have Itakura meet his top boss E D Gramme in February 1992 Armed with only his own experience and handwritten memos Itakura again explained the costcutting plan Itakuras recol lection of this meeting was that he had left a strong impression but wasnt completely understood Six months later however several Caterpillar staff members turned Itakuras explanation into a powerful piece of computer software As part of its costreduction plan Caterpillar produced a costmonitoring system incorporating the costreduction and followup concepts Ita kura had outlined This system enabled Caterpillar to compare parts costs anywhere in the world and to track daily cost fluctuations Thus the tacit knowledge accumulated in Japan was effectively documented and transformed into an explicit system by American computer skills Itakura explained Well the idea was Japanese But the ability to document or to compile manuals was definitely on their side In Japan you might find a kind of superman who can do a difficult job which is convenient enough But after hes gone no one else can do it In America anyone can do the job as long as theres a manual Documentation the sharing of software and building them into a business system are going to become important to manufac ture the exact same product in many countries while taking into account local conditions and cultures In this respect I think I learned the ad vantage of the American approach to documentation and software shar ing Nonaka Ohtsubo and Fukushima 1993 p 25 Itakura also learned the importance of managing diversity in the United States Many Hispanics African Americans and women worked in his section and he learned the necessity of giving special attention to minorities Managers at the Aurora plant were required to report to their superiors every three months on what actions they had taken to cope with this issue Itakura observed Managing diversity is an extremely important question in the United States America is thinking hard about how to manage people in the midst of diverse organizations corporations and races But I think this issue is something Japan should also think about When a company is going global it naturally needs to consider the issue of managing diversity Nonaka Ohtsubo and Fukushima 1993 p 26 It should be noted here that ethnic and cultural diversities are natu ral sources of requisite variety one of the five enabling conditions for organizational knowledge creation Global Organizational Knowledge Creation 221 Introducing REGA to the Market In February 1992 Shin Caterpillar Mitsubishi held a press conference to announce the introduction of the REGA 300 series REGA exceeded conventional hydraulic shovels in all aspects including performance and safety In addition to its smooth and comfortable operation high power for digging and running and comprehensive safety one of REGAs striking features was its original design A hydraulic shovel normally had the image of a dirty machine at a construction site something completely unrelated to the world of design But REGAs exterior and operator cabin were designed by a firm that also designed the awardwinning Diamante of Mitsubishi Motors The design firm used the metaphor of a Japanese sword which was represented by black lines on the sides of the machine Reaction to the design has been exceptionally favorable especially when viewed from the rear angle In Japan it has been nicknamed mikaeri bijin literally meaning a beautiful woman who is looking back borrowing the title of a famous ukiyoe or woodblock print Pho tographs of equipment used in newproduct announcements and cata logs are usually taken from the front In the case of REGA however photographs emphasized the line of the Japanese sword along the sides of the machine Adachi noted The impact of this design was in fact much greater than expected Now customers who would never visit our company in the past come by just to see it Thats important to us And even potential customers who used to tell us Sorry we only use Komatsu or We have Hitachi without even letting us in the door will now say Please show it to us Wow this is really different Can we get inside Thats a big plus for us Nonaka Ohtsubo and Fukushima 1993 p 22 Shin Caterpillar Mitsubishi invested a huge amount of money into the REGA series over a fouryear period The market has responded positively thus far with sales exceeding the plan for 1992 and 1993 But the real value of this investment in time and money would come from how effectively the company made use of the knowledge it created during this project Implications of the REGA Case for Knowledge Creation This case illustrates what can take place when Japanese and American engineers are placed on an equal footing to develop a global product The project started out with more clashes than the Japaneseled Prim era project with two different value systems patterns of engineering or business logic and approaches to organizational knowledge cre ation colliding with each other But it also shows what socialization can do to turn such possibly destructive clashes into immensely valu able chances for innovation 222 The KnowledgeCreating Company The development of REGA represents a fascinating synthesis of Jap anese and US approaches to organizational knowledge creation The synthesis is a synergy of Japanese and American strengths Japanese strengths can be represented for example by the effective use of so cialization eg interplant meetings and selforganizing teams eg the rugby style of product development American strengths on the other hand rest on extemalization eg iterative why questions more specified design drawings and standardized operation manuals and combination eg the costmonitoring system We should also emphasize that both sides tried to overcome their weaknesses in knowledge creation and attempted to correct them through the four modes of knowledge conversion Japanese engineers learned how to externalize tacit knowledge into explicit knowledge and internalized it American engineers learned how to socialize tacit knowledge from interaction with other people or direct experience on site and internalized it Discovering and remedying weaknesses both at the individual and organizational levels hold the key to an effective organizational knowledgecreation process on a global scale Finally the REGA case shows that for any organizational knowledge creation on a global scale to succeed the following three conditions must be met First top management of the participating organizations should show strong commitment to the project This visible support provides the first step in persuading project members to commit them selves to the project Second assigning capable middle managers to the project as global knowledge engineers is critical The assignment of Itakura for example facilitated knowledge conversion within the joint venture Third participants in the project should develop a sufficient level of trust among themselves Building trust requires the use of mu tually understandable explicit language and often prolonged socializa tion or twoway facetoface dialogue that provides reassurance about points of doubt and leads to willingness to respect the other partys sin cerity These two case studies clearly show that the Japanese approach to or ganizational knowledge creation can be applied outside of Japan and that the key adjustment needed is a prolonged phase of socialization and extemalization This adjustment is needed because it takes time for people from different cultures to share tacit knowledge It also takes more time to build trust between people from different cultures Notes 1 As suggested in Chapter 6 overadaptation to past success was the single most important factor in the repeated defeats of the Japanese Imperial Army and Navy in World War II Many Japanese companies seem to have main tained the same propensity Global Organizational Knowledge Creation 223 2 For a comparison of knowledge management in the West mainly USA and Japan see Hedlund and Nonaka 1993 3 Although there is a huge body of literature on technology ie knowl edge transfer across organizational or national boundaries few studies stand out in relevance Teece 1981 for example argued as follows citing Polanyi 1966 Knowhow cannot always be codified since it often has an important tacit dimension Individuals may know more than they are able to articulate When knowledge has a high tacit component it is extremely difficult to transfer without intimate personal contact demonstration and involvement Indeed in the absence of intimate human contact technology transfer is sometimes impossible p 86 Thus Teece recognized the tacit dimension of knowledge and the need of so cialization Related to this article is von Hippels 1994 concept of sticky in formation Contrary to the conventional economic view of information as cost lessly transferable he observed that information is often costly or difficult to acquire transfer and use owing to attributes of information itself eg tac itness or information seekers eg a lack of complementary information He too argued the importance of tacit information and human skills drawing on Polanyi 1958 4 These differences in lead time seem to be shrinking as Japanese car mak ers have intentionally lengthened theirs during the latest recession after the explosion of the bubble economy and US and European car makers have learned concurrent engineering whose basic idea was derived from the rugby approach 8 Managerial and Theoretical Implications T he journey we embarked on is about to end We started the jour ney with lofty goals 1 to construct a new theory of organiza tional knowledge creation 2 to provide a new explanation of why certain Japanese companies have been successful at continuous innovation and 3 to develop a universal management model that con verges management practices found in Japan and the West On reflec tion we have taken a major step in achieving the first two goals We started to address the third goal in the previous chapter but have not yet given it a full treatment which we intend to do below In this chapter we offer two sets of implications that are drawn from our research The first involves practical implications for business practitioners interested in implementing a knowledgecreation pro gram within their companies The second is more conceptual in nature offering new insights about a universal model of management that emerges out of the findings of our research A Summary o f Our M ajor Findings Before proceeding with our discussion of the two sets of implications it is important that we have a common understanding of what we have been able to find out about organizational knowledge creation thus far The first step in understanding how organizational knowledge is cre ated is to draw on a deep epistemological foundation to distinguish between two types of knowledgetacit and explicit knowledge The in 224 Managerial and Theoretical Implications 225 teraction of these two types of knowledge which we called knowledge conversion gave rise to the following four modes socialization from tacit to tacit externalization from tacit to explicit combination from explicit to explicit and internalization from explicit to tacit Second we mentioned that this interaction between tacit and ex plicit knowledge is performed by an individual not by the organization itself We repeatedly emphasized that the organization cannot create knowledge devoid of individuals But if the knowledge cannot be shared with others or is not amplified at the group or divisional level then knowledge does not spiral itself organizationally This spiral pro cess across different ontological levels is one of the keys to understand ing organizational knowledge creation As mentioned in Chapter 3 the socialization mode starts by building a team whose members share their experiences and mental models The externalization mode is triggered by successive rounds of mean ingful dialogue Metaphors and analogies which enable team members to articulate their own perspectives and thereby reveal hidden tacit knowledge that is otherwise hard to communicate are often used in a dialogue The combination mode is facilitated when the concept formed by the team is combined with existing data as well as with knowledge that resides outside the team to create more shareable specifications The internalization mode is induced when team members begin to in ternalize the new explicit knowledge that is shared throughout the or ganization That is they use it to broaden extend and reframe their own tacit knowledge Third the core of the organizational knowledgecreation process takes place at the group level but the organization provides the neces sary enabling conditions The organization provides organizational contexts or devices that facilitate the group activities as well as the creation and accumulation of knowledge at the individual level We cited five conditions that are required at the organizational level to promote the knowledge spiralintention autonomy fluctuation and creative chaos redundancy and requisite variety Fourth our case studies suggest that the actual process by which organizational knowledge creation takes place is nonlinear and inter active Our fivephase model of the processwhich consists of sharing of tacit knowledge concept creation concept justification archetype building and crossleveling of knowledgediffers from horizontal process models in that it moves cyclically and across levels The first four phases move horizontally but the fifth phase moves vertically creating layers of activities at different organizational levels as we saw in the Matsushita case The Matsushita case also showed that organizational knowledge creation is a neverending iterative process Recall how the Home Bakery development went through a number of cycles involving the corporate organization at large But the neverending circular process 226 The KnowledgeCreating Company is not confined within the organization it also takes place inter organizationally The knowledge created by the company mobilizes the tacit knowledge of others outside the organization who convert it to explicit knowledge that will be fed back to the organization as environ mental fluctuation In most cases this interaction will take place be tween the product service or system that the company offers and cus tomers suppliers distributors and competitors Fifth neither the topdown model of management nor the bottomup model is particularly suited to foster dynamic interaction between tacit and explicit knowledge The topdown model provides limited ability for the organization to realize socialization and extemalization and the bottomup model is not particularly helpful in bringing about com bination and internalization Herein lies the limitation of these two models in bringing about the knowledge spiral across the four modes as well as across the ontological levels We proposed a new manage ment process called middleupdown management which integrates the benefits of the topdown and bottomup models and is the most fitting model for bringing about organizational knowledge creation Sixth neither a formal hierarchy nor a flexible task force alone is the appropriate organizational structure in which knowledge creation can flourish The hierarchical structure is effective in realizing the combination and internalization modes and the taskforce structure is suited for the socialization and extemalization modes We proposed a hypertext organization as a new organizational structure most appro priate for the pursuit of both the efficiency of a hierarchybureaucracy and the flexibility of a task force This does not mean that a hypertext organization is a prerequisite for organizational knowledge creation but it is something that will facilitate the process Seventh neither the Japanese nor the Western methodology of knowledge creation provides the complete solution In the Western methodology the interaction between tacit knowledge and explicit knowledge tends to take place mainly at the individual level with a few individuals playing a critical role While the interaction between tacit knowledge and explicit knowledge takes place at the group level in the Japanese methodology its tendency is to overemphasize the use of figurative language and symbolism at the expense of a more analyti cal approach and documentation We need to integrate the merits of both the Japanese and Western methodologies to develop a universal model of organizational knowledge creation And since knowledge cre ation is at the heart of management in todays knowledge society that model will serve as the universal model for management at large Practical Implications Any manager reading the popular press will realize that we have now entered the knowledge society in which knowledge is not just an Managerial and Theoretical Implications 227 other resource alongside the traditional factors of productionlabor capital and landbut the most critical resource Managers will also perceive that the future belongs to knowledge workers those who use their heads instead of their hands and the key to future prosperity lies in educating and training these workers If companies will train train train these knowledge workers they will learn learn learn goes the popular thinking This simplistic model will work if the company is concerned only with absorbing knowledge from somewhere and passing it along to in dividuals within the organization But it will not work when the intent is to create knowledge not only at the individual level but at the group as well as the organizational level In the simplistic case knowl edge moves laterally and in one direction whereas knowledge moves in a spiral when creating organizational knowledge In this section we present seven guidelines a practitioner can adopt to implement an organizational knowledgecreation program within a company Unfortunately the process is not as simplistic as portrayed in the popular press but it is guaranteed to be more effective These guidelines which will be discussed below are as follows 1 Create a knowledge vision 2 Develop a knowledge crew 3 Build a highdensity field of interaction at the front line 4 Piggyback on the newproduct development process 5 Adopt middleupdown management 6 Switch to a hypertext organization 7 Construct a knowledge network with the outside world Create a Knowledge Vision Top management should create a knowledge vision and communicate it within the organization A knowledge vision should define the field or domain that gives corporate members a mental map of the world they live in and provides a general direction regarding what kind of knowledge they ought to seek and create It is similar to organizational intention and should serve as the foundation upon which the com panys strategy is formulated The essence of strategy lies in devel oping the organizational capability to acquire create accumulate and exploit the knowledge domain But at the present time most compa nies have only products and services in mind when formulating their strategy This preoccupation can be somewhat limiting since products and to a lesser extent services have clear boundaries In contrast boundaries for knowledge are much more obscure which helps to ex pand the competitive scope as well as the technological horizon of the company For example the fact that Kao defines its knowledge domain as sur 228 The KnowledgeCreating Company face science enables the company whose origin was in surfaceactive agents used in detergents to move into new markets such as cosmetics and floppy disks A skin cream can be looked at from a surfacescience point of view as the surface between oil and skin and floppy disk as a plastic film coated with magnet powder Similarly both NEC and Sharp define their knowledge domain in terms of their core technologies NEC for example includes pattern recognition and image processing as part of its core technologies and tries to match them with business activities through the strategic technology domain STD we saw in Chapter 3 Since STD links sev eral core technologies to create a product concept it not only repre sents a product domain but a knowledge domain as well At Sharp the core technology is optoelectronics which represents the image of the world Sharp wants to live in and is one of the key concepts describing what Sharp ought to be As we saw in Chapter 6 much of the knowl edge accumulated in the form of optoelectronics consists of knowledge created through the dynamic conversion of various knowledge con tents The essence of Sharps strategy based on optoelectronics could be described as a dynamic conversion of component technologies and product concepts A knowledge vision created by top management helps to foster a high degree of personal commitment from middle managers and front line workers It provides meaning to the daily tasks they are per forming on the job and a sense of direction to the kind of knowledge they ought to be seeking A knowledge vision also helps to restructure an existing knowledge system which may be particularly useful dur ing periods of transition Without a vision knowledge may be based solely on past experiences especially successful ones If the successful experiences of top management become the only criterion it becomes difficult to turn to something new or different To foster a high degree of commitment from members of the organi zation a knowledge vision should purposefully be left equivocal and open ended A more equivocal vision gives members of the organization the freedom and autonomy to set their own goals making them more committed to figuring out what the ideals of the top really mean In the nottoodistant future top management will be evaluated not only by economic performance measures but also on the quality of the knowledge vision it presents to constituents both inside and outside the company The shift to the knowledge society will certainly acceler ate this change Someone at the top will have to be able to see the world from a knowledge perspective mobilize the latent knowledge power held within the organization and justify the knowledge created by the firm Top managers should be aware that the height of their personal aspiration and their organizational intention will determine the quality of the knowledge the firm creates Managerial and Theoretical Implications 229 Develop a Knowledge Crew Creating new knowledge starts with the individual But as Robert Howard 1993 points out Creating new knowledge is not simply a matter of processing objective information In fact it is a subjective and extremely personal activity p xvii Thus knowledge creation starts from an individuals efforts to validate or justify her or his belief and commitment to the job and company personal perspectives or men tal models come into play as well Highly subjective insights intui tions and hunches are at the root of knowledge creation and innovation To nurture rich insights and intuitions a knowledgecreating com pany needs diversity in the pool of talents available within the com pany This diversity enhances requisite variety which is one of the enabling conditions for the organization We have already seen that a few of the crew members who worked for Nissans Primera project had unusual backgrounds Tsuda one of knowledge engineers had studied at Berlin Technical College and was fluent in both German and En glish NMUKs Shigeki Miyajima had studied at the University of Glasgow and was married to a British national And Mikio Fujito an exterior designer had studied at Londons Royal College of Arts These educational backgrounds as well as these individuals familiarity with the local scene proved to be an asset in working with Europeans on the Primera project To ensure that the diverse pool of talents available within the com pany maintain their freedom and autonomy the company should be able to offer diversity in career ladders as well Attracting individuals with rich insights and intuitions can backfire if they can only be ac commodated through a standardized and hierarchical career ladder Most companies today have separate career ladders for a line manager and for a functional specialist In addition to these two ladders a sepa rate ladder for a project leader should be established A project leader is a kind of intrafirm entrepreneur with lots of frontier spirit Project leaders get a kick out of trying something new and taking initiatives But they are also skilled at coordinating and managing projects gener ating new hypotheses or concepts integrating various methodologies for knowledge creation and communicating with team members and engendering their trust We have seen several people who would be ideal candidates to fill this role of project leader Ikuko Tanaka of Matsushita Hiroo Wata nabe of Honda and Hiroshi Nitanda of Canon come to mind on the domestic scene Yasuhisa Tsuda of Nissan and Noriyuki Itakura of Shin Caterpillar Mitsubishi qualify as global project leaders Ac cording to the three categories of knowledge crew we developed in Chapter 5knowledge practitioners knowledge engineers and knowl edge officersthey all fall into the category of knowledge engineers We pointed out that knowledge engineers take the lead in converting 230 The KnowledgeCreating Company knowledge creating a modal spiral and facilitating another spiral across different organizational levels In this respect they are the proj ect leaders of the organizational knowledgecreation process Having a separate career ladder for this group of intrapreneurs will send a clearcut and positive message throughout the organization In addi tion it will provide a substantial boost to the actual implementation of the knowledgecreation effort A different performanceevaluation criterion should also be estab lished for these project leaders The traditional penalty point method of evaluation is not satisfactory for knowledge engineers charged with creating something new For knowledgecreating companies shifting the evaluation criterion from a negative to a positive method is a man date the same criterion should be applied to all crew members as well Crew members should be evaluated in terms of how many new endeav ors have been attempted They should be allowed to make meaningful failures as at 3M and given incentives to attain as much original experience as possible To a certain extent the awarding of the gold badge at Sharp has a similar effect of empowering crew members to carry out innovative projects without fear of being penalized They are able to recruit anyone in the company to the project and to proceed with an unlimited budget Build a HighDensity Field of Interaction at the Front Line To nurture the highly subjective and personal mindset of individuals within the company a knowledgecreating company should provide a place where a rich source of original experience can be gainedwhat we are calling a highdensity field A highdensity field refers to an environment in which frequent and intensive interactions among crew members take place It can be represented by the activities of the cross functional newproduct development teams we encountered throughout the book including Hondas City Matsushitas Home Bakery Canons MiniCopier Nissans Primera and Shin Caterpillar Mitsubishis REGA A highdensity field also takes the form of group meetings such as Hondas tamadashikai Canons camp session and Sharps NEW ING Other examples include the onceaweek morning meetings held by Itakura of Shin Caterpillar Mitsubishi at Caterpillars Aurora plant during which he discussed his own thinking experience and past mistakes Primeras test runs on the Autobahn and the onefloor system at Kao in which the walls of its RD lab were removed to create a large open space to promote information sharing among lab researchers To repeat our theory of knowledge creation is anchored to the very important assumption that human knowledge is created and expanded through the social interaction between tacit knowledge and explicit knowledge The quintessential knowledgecreation process takes place Managerial and Theoretical Implications 231 when tacit knowledge is converted into explicit knowledge In other words our hunches perceptions mental models beliefs and experi ences are converted to something that can be communicated and trans mitted in formal and systematic language A highdensity field is the place where the conversion is triggered through some sort of dialogue It is here that crew members begin constructing a common language and synchronizing their mental and physical rhythms Metaphors and analogies are often used in carrying out a dialogue among crew members Since tacit knowledge is inexpressible meta phors and analogies serve as the means of expression But the lan guage we use to express ourselvessuch as Automobile Evolution in the case of the Honda City or beer can in the case of the Canon Mini Copieris often inadequate and sometimes inconsistent Such discrep ancies and gaps between image and expression help to promote inter actions among individuals and often lead to collective reflection among them Crew members especially those who are at the front line carry out another kind of dialogue namely a dialogue with the market The market provides another highdensity field although the interaction is now between crew members and the outside world A less obvious but equally important interaction takes place in this field since knowledge is embedded in the market The more mature the market the more knowledge becomes tacit Thus in a mature market crew members have to interact much more intensively and frequently with the mar ket since the importance of the more qualitative type of information increases with maturity Piggyback on the NewProduct Development Process It is no coincidence that most of the cases illustrated in this book are anchored in newproduct development projects In addition to the proj ects at Honda Matsushita Canon Nissan and Shin Caterpillar Mi tsubishi we have made reference to newproduct development projects at Sharp electronic organizer NEC PC8000 Mazda new RX7 Asahi Breweries Super Dry Fuji Xerox FX3500 and others Why such an overlap The reason very simply is because the new product development process happens to be the core process for creat ing new organizational knowledge Organizational knowledge creation is like a derivative of newproduct development Thus how well a company manages the newproduct development process becomes the critical determinant of how successfully organizational knowledge cre ation can be carried out To manage the newproduct development process successfully com panies should be mindful of the following three characteristics First companies must maintain a highly adaptive and flexible approach to newproduct development They must recognize that product develop 232 The KnowledgeCreating Company ment seldom proceeds in a linear and static manner It involves an iterative dynamic and continuous process of trial and error Probably the best illustration of this characteristic comes from the software in dustry A recent study by Cusumano and Selby 1995 shows that soft ware development utilizes an iterative and spiral approach Software developers move around in phases going among designing coding and testing as the project progresses In addition software developers test the product continuously as it is built and develop prototypes quickly rather than testing primarily at the end of the development cycle They also improve features continuously introducing products in multiplerelease cycles Thus it is important that companies maintain a highly adaptive and flexible approach toward managing the new product development process Second companies need to make sure that a selforganizing project team is overseeing the newproduct development process A project team takes on a selforganizing character as it is driven to a state of zero informationwhere prior knowledge does not apply Ambiguity and fluctuation abound in this state Left to itself the process begins to create its own dynamic order The project begins to operate like a startup company taking initiatives and risks and developing its own agenda At some point the team begins to create its own concept Com panies must therefore be willing to give autonomy to the project team and at the same time tolerate fluctuation and creative chaos Third companies need to encourage the participation of nonexperts in newproduct development which adds requisite variety to the pro cess Unlike the experts who cannot tolerate mistakes even 1 percent of the time the nonexperts are willing to challenge the status quo Companies should therefore be prepared to tolerate and anticipate mistakes Engineers at Honda for example are fond of saying A 1 percent success rate is supported by mistakes made 99 percent of the time Adopt Middleupdown Management The process of organizational knowledge creation is often triggered by a sense of urgency or crisis within the organization We have seen that creative chaos can be generated internally by setting challenging orga nizational goals that are far beyond the current capability of the firm or by promoting reflectioninaction in which the company encour ages its crew members to doubt and negate the existing cognitive behavioral premises One of the most effective ways of managing creative chaos in our opinion is middleupdown management In this model top manage ment articulates the vision or dream for the company while frontline employees down in the trenches look at reality The gap between dream and reality is narrowed by middle managers who mediate be Managerial and Theoretical Implications 233 tween the two by creating middlerange business and product concepts In doing so they synthesize the tacit knowledge of both top manage ment and frontline employees make it explicit and incorporate it into new technologies products and programs In our view middle managers play a key role in the organizational knowledgecreation process They have a lot of knowledge being posi tioned at the intersection of the vertical and horizontal flows of in formation in the company which qualifies them to serve as team lead ers But our view is not in accord with the badgering they have been receiving recently in the West where middle managers have been portrayed as cancer and a disappearing breed In contrast in a knowledgecreating company they are positioned as the knot bridge and knowledge engineers Switch to a Hypertext Organization In order for a company to qualify as a knowledgecreating company it must have the organizational capability to acquire accumulate ex ploit and create new knowledge continuously and dynamically and to recategorize and recontextualize it strategically for use by others in the organization or by future generations Unfortunately conventional organizational structures are not flexible enough to perform all of these functions A hierarchy is the most efficient structure for the ac quisition accumulation and exploitation of knowledge while a task force is the most effective structure for the creation of new knowledge Recategorizing and recontextualizing the knowledge generated in these two structures or layers necessitates the establishment of a third layer we called the knowledge base This layer does not exist as an actual organizational entity but is embedded in corporate vision orga nizational culture or technology Corporate vision and organizational culture tap tacit knowledge whereas technology taps the explicit knowledge generated in the two layers A switch to a hypertext organization which accommodates all three layers is by no means easy To use a computer metaphor all three layers of text are stored separately in a separate file and can be pulled out on the screen as needed To convince managers who have an either or mentality that they should view hierarchy and task force as comple mentary rather than mutually exclusive is a challenge in itself To overlay another layer knowledge base on top of the two and say You can be in any one of these three layers at any one point in time may be asking too much But this ability to switch from one layer to an other is fundamentally the core feature that distinguishes the hyper text organization from conventional structures Within a hypertext crew members can traverse through the three layers but can be in only one layer at any one given point in time Although it is not easy the switch to a hypertext is necessary pri 234 The KnowledgeCreating Company marily for two reasons First it makes the life of crew members a lot easier because they have to be in only one layer at a time Since they will not have to perform dual functions as in a matrix organization being in one layer at a time will improve crew members endurance Second the quality of knowledge tapped by the organization increases since a specialization of sorts takes place The businesssystem layer in a hierarchy specializes in acquiring accumulating and exploiting explicit knowledge while the task force deals primarily with tacit knowledge and creates new knowledge through a conversion process The knowledgebase layer in a sense focuses on storing and reinter preting both tacit and explicit knowledge Switching to this kind of loose and flexible organization may take some time The decision to switch will require the vision and commit ment of top management Those who are currently resisting should bear in mind that one Japanese company Sharp has already made that switch with Kao on its way to doing the same To use another computer metaphor these companies will be on the Windows op erating system pulling multiple files onto the screen dynamically while the rest will be operating like a static MSDOS system Construct a Knowledge Network with the Outside World Creating knowledge is not simply a matter of processing objective in formation about customers suppliers competitors channel subscrib ers the regional community or the government Crew members also have to mobilize the tacit knowledge held by these outside stakehold ers through social interactions Tapping the mental maps of customers is a typical example of this activity Most customers needs are tacit which means that they cannot tell exactly or explicitly what they need or want Asked What do you need or want most customers tend to answer the question from their lim ited explicit knowledge of the available products or services they ac quired in the past This tendency points to the critical limitation of the oneway questionnaire format employed in traditional market re search A much more interactive methodology involving direct twoway com munication offers better promise The way NEC developed its personal computer is a case in point Recall how the newproduct development process was kicked off by the sales of Japans first microcomputer kit the TK80 and the establishment of the BITINN service center in Akihabara Customers ranging from high school students to profes sional computer enthusiasts visited BITINN and shared their experi ences of using the TK80 The continued dialogue and insights that NEC gained eventually led to its bestselling PC8000 personal com puter Another example of direct communication comes from the ap Managerial and Theoretical Implications 235 parel industry Leading apparel companies in Japan such as Onward Kashiyama Renown and Sanyo send their own sales force to the selling floors of major department stores to engage in meaningful dia logue with customers For direct communication to be effective it helps to have the actual products or prototypes on hand They project a much stronger image of the message the company is trying to convey than words alone Sharp Microsoft and Apple for example all have their product development team members take their prototypes into the marketplace and ask for spontaneous impressions or reactions from customers on the street to the new product idea or concept Matsushita Electrics bicycle division went a step further by devising a tool called a fitting scale that artic ulates how a customer feels while riding a bicycle prototype at one of its store locations and translates the customers feeling of best fit into specifications that the factory can understand But on occasion one comes across creative customers who are adept at externalizing their tacit needs Mobilizing the knowledge of this small group of creative customers or opinion leaders is critical to the knowledgecreation process Sharp for example established two cus tomer boards to involve these leadingedge customers in its new product development process As mentioned earlier the first board called the Trend Leader System organized 600 leading customers ranging from junior high school students to senior citizens in their 70s as outside staff members Sharp clustered these customers into small groups and collected valuable information that enabled the company to predict consumer trends 1 to 10 years into the future The second board known as the Life Creator System involved leading customers in various live experiments the objective of which was to create a bet ter quality of life Theoretical Implications We have repeatedly emphasized that the focus of this book is on knowl edge creation not on knowledge per se From our perspective knowl edge creation fuels innovation but knowledge per se does not In other words the process by which new knowledge is created within the orga nizationin the form of new products services or systemsbecomes the cornerstone of innovative activities That process is dynamic pro ducing two different kinds of knowledge spirals The first spiral takes place at the epistemological dimension across the four modes of knowl edge conversionsocialization extemalization combination and in ternalizationas we saw in Figure 33 Another spiral takes place at the ontological dimension where knowledge developed at the individ ual level is transformed into knowledge at the group and organiza tional levels as shown in Figure 35 Although each dimension pro 236 The KnowledgeCreating Company duces a dynamic spiral the truly dynamic nature of our theory can be depicted as the interaction of the two knowledge spirals over time It is this dynamic process that fuels innovation Organizational knowledge is also created through an interactive pro cess Interactions in the epistemological and ontological dimensions bring about the two spirals mentioned above At the epistemological dimension it is the interaction across the four modes that produces a spiral when time is introduced as the third dimension At the ontologi cal dimension the iterative and continuous interactions across say the projectteam level the divisional level and eventually the corpo rate or interorganizational levels over time produce a spiral that can be visualized as moving from left to right and back again to the left The key to our theory lies in understanding the nature of the conver sion behind the dynamic and interactive process of knowledge creation We encountered a number of conversions throughout the book The most visible and important of course is the conversion of tacit knowl edge into explicit knowledge and vice versa which we referred to as knowledge conversion Other examples of conversion include a mana gerial conversion of topdown style and bottomup style into middle updown management or an organizational conversion of bureaucracy and task force into a hypertext structure The starting point toward building a conversion is to recognize the need to transcend beyond dichotomies We discovered a strong propen sity in the West to view the world in terms of a dichotomy This intel lectual tradition can be traced back to the Cartesian dualism or split as we saw in Chapter 2 A is pitted against B resulting in the A vs B model The debates over subject vs object mind vs body rational ism vs empiricism and scientific management vs human relations re flect this intellectual tradition The danger in our opinion is to view the building blocks of organizational knowledge creation in the same light In our view tacit knowledge and explicit knowledge for exam ple are not opposing ends of a dichotomy but mutually complemen tary entities They interact with and interchange into each other to create something new The same holds true for topdown and bottom up management as well as for bureaucracy and task force In all these cases what appear to be opposite ends of a dichotomy interact with each other to create a synthesis In other words our model looks at A and B simultaneously The dynamic and simultaneous interaction between two opposing ends of false dichotomies creates a solution that is new and different In other words A and B create C which synthesizes the best of A and B C is separate and independent of A and B not something in between or in the middle of A and B It corresponds to middleup down management which is created by taking the best of topdown and bottomup and to hypertext which is created by synthesizing bu reaucracy and task force In both cases C is created by pursuing A and Managerial and Theoretical Implications 237 B simultaneously Our approach has been to take the best of two worlds and create something new from their dynamic interaction In other words a dynamic interactive and simultaneous conversion pro cess involving A and B creates C a synthesis of the two Our approach is in stark contrast to the eitheror approach prevalent in the West In an A vs B model a dialectic process is used to seek an answer in either one of the two opposing sides of the dualism ie either A or B But how a synthesis occurs in the dialectic process is not clear A boxing of logic takes place in the dialectic process with both sides being represented by explicit knowledge As in boxing one winner ie either A or B emerges after the confrontation In our ap proach the synthesis occurs through a transformation or what we called a knowledge conversion between not only explicit and explicit knowledge but between tacit and explicit as well as between tacit and tacit This transformation takes place through both confrontation and collaboration We have encountered a number of false dichotomies throughout the book In this final section we will focus on the following seven dichotomies which are listed approximately in the order in which they appeared in the book 1 Tacitexplicit Bodymind 3 Individualorganization 4 Topdownbottomup 5 Bureaucracytask force 6 Relayrugby 7 EastWest These dichotomies form the basis upon which our theory of organiza tional knowledge creation was constructed For each dichotomy we take the two seemingly opposing concepts integrate them dynami cally and build a synthesis We will discover that the essence of knowledge creation is deeply rooted in the process of building and managing syntheses which take place through a conversion process The seven syntheses that we will discuss below represent the some thing new this book has to offer Our hope is that they will shed some new light for researchers engaged in the study of innovation TacitExplicit Dichotomy Recall our earlier observation that the history of Western epistemology can be seen as a continuous controvesy over which type of knowledge tacit or explicitis more truthful While those in the West tend to emphasize the importance of explicit knowledge the Japanese put more emphasis on tacit knowledge The critical assumption underlying our model of knowledge creation favors the Japanese view that human 238 The KnowledgeCreating Company knowledge is created and expanded through social interaction between tacit and explicit knowledge This assumption enabled us to postulate four different modes of knowledge conversionsocialization extemalization internalization and combination Three of these modes have already been discussed in writings on organization theory to some extent Socialization for ex ample is similar in content to theories of group processes and organi zational culture combination has its roots in the information processing paradigm and internalization is closely related to the learning organization But we felt that extemalization which has been somewhat neglected in the literature holds the key to knowledge cre ation It is in this mode that tacit knowledge which is personal contextspecific and therefore hard to formalize and communicate to others is converted into knowledge that is transmittable and articula ble such as words or numbers We also discovered the importance of using metaphors and analogies especially when we cannot find ade quate expression through analytical methods of deduction or induction as a means of converting tacit knowledge into explicit knowledge Each of the four modes of knowledge conversion yields a knowledge content that is distinct from the others As we briefly discussed in Chapter 3 socialization yields sympathized knowledge such as men tal models and technical skills Extemalization yields conceptual knowledge as in the concept of the Tall Boy at Honda Combination yields systemic knowledge such as a prototype or a new component technology Internalization yields operational knowledge about proj ect management production process or policy implementation These four knowledge contents represent C the four syntheses of the four modes of knowledge conversion that resulted from the interaction between A and B the two types of knowledge In other words some thing new is created by having tacit and explicit knowledge interact with each other BodyMind Dichotomy Embedded in Western epistemology is the tradition of separating the body from the mind which has been referred to as the Cartesian split or dualism Descartes argued that the ultimate truth can be deduced only from the real existence of a thinking self which was made fa mous by his phrase I think therefore I am He assumed that the thinking self is independent of body or matter because while a body or matter does have an extension we can see and touch but does not think a mind has no extension but thinks Thus according to the Cartesian dualism true knowledge can be obtained only by the mind not the body This epistemological tradition still lives today as seen in the fasci nation with the systems thinking developed by Peter Senge 1990 Managerial and Theoretical Implications 239 originator of the learning organization The focus of the learning orga nization is clearly on learning with the mind not with the body As we mentioned earlier Senge even says that trialanderror learning is a delusion since the most critical decisions made in an organization have systemwide consequences stretching over years and decades a time frame that makes learning from bodily experience an impossi bility In contrast we have placed strong emphasis on the importance of bodily experience We have argued for example that the most power ful learning comes from bodily experience A child learns to eat walk and talk through trial and error he or she learns with the body not only with the mind But learning represents only one of the interac tions in the knowledgecreation framework Learning by doing is equivalent to internalization which is the conversion of explicit knowl edge into tacit knowledge The remaining three modes of knowledge conversion place equal importance on acquiring knowledge from pure or direct experience One gains subjective insights intuitions and hunches from bodily experience We have argued that personal and physical experience is equally as valuable as indirect intellectual abstraction For example recall how being a man of action was considered to contribute more to ones character than mastering philosophy and literature in medieval samu rai education The synthesis of the two opposing sides of the dualism was dubbed the oneness of body and mind by Eisai one of the found ers of Zen Buddhism in medieval Japan This philosophy lives on in Japan making it easier to build a synthesis C of two seemingly op posing conceptsbody and mind A and Bthan in the West IndividualOrganization Dichotomy As we have pointed out knowledge is created only by individuals An organization cannot create knowledge on its own without individuals It is therefore very important for the organization to support and stimulate the knowledgecreating activities of individuals or to provide the appropriate contexts for them Organizational knowledge creation should be understood as a process that organizationally amplifies the knowledge created by individuals and crystallizes it at the group level through dialogue discussion experience sharing or observation Recall how the newproduct development team at Honda argued and discussed what Hiroo Watanabes slogan might possibly mean before coming up with a metaphor of its own manmaximum machinemini mum This example illustrates the central role selforganizing teams play in the knowledgecreation process They provide a shared context in which individuals can carry on a dialogue which may involve con siderable conflict and disagreement But as we mentioned earlier it is precisely such a conflict that pushes individuals to question existing 240 The KnowledgeCreating Company premises and to make sense of their experiences in a new way This kind of dynamic interaction facilitates the transformation of personal knowledge into organizational knowledge It should be clear from the above discussion that an individual and an organization are not at the opposing ends of a dichotomy The indi vidual is the creator of knowledge and the organization is the ampli fier of knowledge But the actual context in which much of the conver sion takes place is at the group or team level The group functions as the synthesizer of knowledge The more autonomous diverse and selforganizing the team the more effectively it will function as a syn thesizer Thus the dynamic integration of individuals A and the orga nization B creates a synthesis in the form of a ielferganizing team C which plays a central role in the knowledgecreation process It provides a shared context in which individuals can interact with each other Team members create new points of view through dialogue and discussion TopdownBottomup Dichotomy The topdown model and the bottomup model of management have long been viewed as two opposing ends of the managementprocess spectrum The implicit assumption behind the topdown model is that only top managers are able and allowed to create knowledge More over the knowledge created by top management exists to be processed or implemented In contrast the bottomup model assumes that knowl edge is created by entrepreneurially minded frontline employees with very few orders and instructions coming from top management Cer tain individuals not a group of individuals interacting with each other create knowledge since there is relatively little dialogue among members of the organization We have concluded that neither model is adequate as a process for managing knowledge creation For one thing the topdown model is suited for dealing with explicit knowledge but not tacit knowledge while the reverse holds true for the bottomup model Because of this limitation the two models can carry out only partial knowledge con versionsthe topdown model is focused on combination and internal ization and the bottomup model on socialization and externalization Another obvious limitation of the two models is the neglect of middle managers in both In topdown management middle managers process a lot of information but seldom get involved in creating knowledge In bottomup management the knowledge creator is clearly the entrepre neurial individual at the front line of the organization with middle managers playing a minimal role Again the middleupdown model provides the synthesis for the two extreme ends of the dichotomy In this model knowledge is created by middle managers who are often leaders of a team or a task force in a Managerial and Theoretical Implications 241 process involving a spiral interaction between the top and frontline employees as we saw in Figure 51 The model puts middle managers at the very center of synthesis building Knowledge is created neither through A nor B but through C which synthesizes the best of two worlds BureaucracyTaskForce Dichotomy Bureaucracy and task force are two opposing organizational structures that have been around a long time Bureaucracy which is a highly formalized specialized and centralized structure works well in con ducting routine work efficiently on a large scale The task force on the other hand is flexible adaptive dynamic and participative and is particularly effective in carrying out a welldefined task that needs to be completed within a certain time frame But neither structure is well suited for fostering organizational knowledge creation Bureaucracy hobbles individual initiative because of its strong propensity for control and can be dysfunctional in periods of uncertainty and rapid change It is not suited to acquire create exploit and accumulate tacit knowledge The task force because of its temporary nature is not all that effective in exploiting and transfer ring knowledge continuously and widely throughout the entire organi zation Neither is it particularly suited to tap explicit knowledge A hypertext structure which is a synthesis of bureaucracy and task force reaps benefits from both The bureaucratic structure efficiently implements exploits and accumulates new knowledge through inter nalization and combination The task force on the other hand is indis pensable in generating new knowledge through socialization and ex ternalization The efficiency and stability of the bureaucracy are combined with the effectiveness and dynamism of the task force within a hypertext organization In this respect A and B are seen as comple mentary rather than mutually exclusive In addition a hypertext organization contains a third organizational layer called the knowledge base in which the organizational knowl edge generated in bureaucracy and task force is recategorized and re conceptualized in accord with the firms corporate vision organiza tional culture or technology As mentioned earlier corporate vision helps to calibrate the direction in which the firm should develop its technology or products and clarifies the domain in which it wants to compete Organizational culture calibrates the mindset and action of every employee Technology taps the explicit knowledge generated in bureaucracy and task force while corporate vision and organizational culture tap the tacit knowledge created in the two other layers In this way a hypertext structure C recategorizes and synthesizes the knowledge generated in A and B through a process of continuous inter action 242 The KnowledgeCreating Company RelayRugby Dichotomy We positioned the sequential relay approach to newproduct develop ment and the overlapping rugby approach as though they were at opposite ends of a dichotomy in Figure 37 Under the relay approach newproduct development proceeds sequentially from phase to phase concept development feasibility testing product design development process pilot production and final productionwith one group of func tional specialists passing the baton to the next group In relay func tions are specialized and segmented with division of labor being the norm One of its major drawbacks is the long lead time to develop prod ucts on the other hand the phasebyphase approach enables the pur suit of perfection and completeness by each group of functional special ists in each phase often leading to high performance standards Under the rugby approach the product development process emerges from the constant interaction of a multidisciplinary team whose mem bers work together from start to finish In our 1986 Harvard Business Review article Takeuchi and Nonaka 1986 we argued that the rugby approach was essential for companies seeking to develop new products quickly and flexibly The constant interaction of team members en couraged them to challenge the status quo implement trial and error and stimulate new kinds of learning The rugby approach worked well to use terminologies developed in this book because of the intensive socialization process and the resulting information redundancy among team members from varous functional areas But as we pointed out in Chapter 7 it may run the risk of compromising performance standards in an effort to preserve overall group unity and conformance But we saw in the previous chapter that the relay and rugby ap proaches need not necessarily be positioned as opposite ends of a di chotomy An intrinsic tradeoff between performance gained from the relay approach and speed achieved through the rugby approach can be avoided by resorting to the Americanfootball approach which capi talizes on the advantages of both relay and rugby The American football approach which was partially utilized in the development of the Nissan Primera in Europe can simultaneously attain both excep tionally high performance standards and short lead time In order to develop a car in two locations several thousand miles apart the Prim era team members could not physically carry out the constant faceto face interactions they were accustomed to in the rugby approach Thus they had to clarify the overall strategy and develop concrete midrange and product concepts before starting the project Decisions were made at the outset by a few project leaders who engaged in intensive dia logues just as the overall game plan and specific tactics in American football are determined by the head coach and the offensive and defen sive coordinators Once the product concept was determined several functional depart Managerial and Theoretical Implications 243 ments carried out concurrent activities under a clear division of labor These departments are analogous to the specialized units in American football Each department operated in a rugbylike fashion with the team going the entire distance as a unit passing the ball back and forth among themselves as well as with other teams While each team was off and running the project leaders conferred among themselves to achieve the interdepartmental collaboration that was essential to the success of the project In this manner American football not only capitalized on the advantages of both the relay and rugby approaches but signaled a clearly new approach to product development EastWest Dichotomy We started our journey thinking that a wide gap existed between the ways Japanese and Western companies approached organizational knowledge creation By the time we reached Chapter 7 we had com piled a long list of differences which was presented in Figure 71 Does this suggest Rudyard Kiplings East is East and West is West and never the twain shall meet The experiences at Nissan when it developed Primera and at Shin Caterpillar Mitsubishi when it developed REGA however carry some hope that a synthesis of the Japanese and American approaches to or ganizational knowledge creation may indeed be possible To create a synthesis both sides must realize two simple facts Both sides must first realize that differences do exist Figure 71 which summarizes the points of contention into 11 areas is a good place to start At first glance the gap appears too wide to contemplate any kind of synthesis But the root of the differences can actually be boiled down to the two dimensions that we identified in Chapter 3the epistemological and the ontological Epistemologically the difference should be obvious by now Westerners tend to emphasize explicit knowledge and the Japa nese tend to stress tacit knowledge Ontologically Westerners are more focused on individuals while the Japanese are more group oriented Second both sides must realize that they have their weaknesses as well as their strengths and be willing to learn from the other side Epistemologically Western companies should start paying more atten tion to the less formal and systematic side of knowledge and begin focusing on highly subjective insights intuitions and hunches that are gained through experience or the use of metaphors or pictures The reverse could be said of Japanese companies which need to make bet ter use of advanced information technology software capabilities and computerized management systems to accumulate store and dissemi nate explicit knowledge throughout the organization Of course gain ing access to either tacit or explicit knowledge alone will not create new knowledge a conversion from one type of knowledge to the other 244 The KnowledgeCreating Company has to take place within the organization This requirement highlights the importance of the ontological dimension Western companies need to learn how to amplify or crystallize knowledge at the group level through dialogue discussion experience sharing and observation Japanese companies on the other hand need to learn how to build up stronger capabilities at the individual level not only at the top but throughout the organization A clearer statement of organizational in tention by top management a higher level of autonomy for each front line employee and a larger pool of knowledge engineers with diversi fied backgrounds and externalization skills will help to reduce the fluctuation and redundancy inherent in the Japanese process and make it easier to implement knowledge creation on a global scale This kind of mutual learning is already taking place In both the Primera and REGA projects Japanese engineers learned the impor tance of documentation and manuals from their Western counterparts In addition Japanese managers in the REGA project learned how American strength in computer software could enhance externaliza tion As we saw in Chapter 7 a staff member at Caterpillar turned the verbal explanation of a Japanese manager on how to cut costs into a costmonitoring system which enabled the company to compare parts costs anywhere in the world and to track daily cost fluctuations West ern managers on the other hand learned the importance of socializa tion from the Japanese At Nissan for example 300 British engineers and technicians were sent to Japan to gain firsthand experience of Jap anese manufacturing practices At Shin Caterpillar Mitsubishi social ization took the forms of 1 Larsen and Adachi the two top managers having their desks next to each other and spending as much time to gether as possible both on and off work 2 interplant meetings to improve communication across plants in Japan the United States and Belgium and 3 morning meetings instituted by Itakura once a week in which he shared his own experiences or urged American engineers actually to touch the machines for whose construction they were re sponsible These simple realizations go a long way toward paving the road for establishing an EastWest synthesis of organizational knowledge cre ation Our contention is that this synthesis is already taking place both in the East and the West We need only look at two entrepreneur ial companiesMicrosoft and SevenEleven Japanfor evidence In our opinion both have succeeded in incorporating the best of two worlds Microsoft is known as an American company that is run like a Japa nese company Like many other American companies it has for exam ple a sophisticated electronic mail Email system that enables every one in the company to exchange explicit knowledge A frontline employee receives an average of 50 messages a day with managers receiving about 100 messages and the CEO Bill Gates receiving as Managerial and Theoretical Implications 245 many as 200 messages a day through Email In addition Microsoft uses its Email system to carry out virtual meetings in which a group of people sit down in front of personal computers and exchange not only data but also vocal messages graphs pictures and video Mi crosofts software developers try to elicit as much tacit knowledge as possible in a process reminiscent of the handson product development approach utilized among Japanese companies They take a prototype to market have customers try it out get a feel for what the customers like and dislike about the product and gain insights on how to improve it This trialanderror process can be repeated several times before a product is finally introduced to the market SevenEleven in Japan is run like an American company This con venience store chain makes extensive use of manuals ie quintessen tial explicit knowledge for store operation employee training and franchisee recruiting which it learned from US 7Eleven and adapted to Japanese conditions The company also has Japans best retail infor mation system It enables not only store owners but also parttime em ployees to access detailed pointofsales POS data and to place orders through handheld computers called graphic order terminals When placing orders they hypothesize what items would sell well how much and how to sell them based on their beliefs and experiences as well as on POS data advice of field counselors from SevenEleven Japans local offices information about weather forecasts local events and others Each hypothesis is tested by an actual order and confirmed by POS data Successful hypotheses are collected by the field counselor and a selected one is reported at a weekly meeting at the headquarters which is attended by all field counselors top management and head quarters staff The hypothesis is tested throughout the stores in the following weeks By utilizing this system that elicits the frontline knowledge the company has become Japans most profitable retailer and is now teaching the system to US 7Eleven which it acquired in 1991 We believe 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 as we will no longer identify the key characteristic of successful companies as being Japanese American or European Suc cess in the new knowledge society will be judged on the basis of knowledgecreating capabilities To become knowledgecreating com panies managers in the East and West need to build and manage mul tiple conversions spirals and syntheses and not be content simply to carry out a unidimensional boxing match The key lies in multiple transformations across multiple dimensions or what we will call hy ertransformations Hypertransformation will necessarily involve a dy namic interactive and simultaneous process as we have seen in this final section of the book In the final analysis companies that can or 246 The KnowledgeCreating Company chestrate a hypertransformation and do it quickly will gain sustain able competitive advantage in this fastchanging corporate environ ment The speed by which conversions spirals and syntheses take place therefore will be a key capability in the future Our hope is that Japanese companies have become less of an enigma to Westerners For most of the past 50 years Japanese companies ex isted in an environment in which the only certainty was uncertainty Although they allowed themselves to relax a little during the bubble economy they are currently facing an economy in which the only cer tainty is again uncertainty To cope with this uncertainty they are turning themselves into knowledgecreating companies on a global scale They will emerge stronger from the current recession since the seeds for continuous innovation have already been sewn Japanese companies have taught us that innovation can be achieved by contin uosly creating new knowledge disseminating it widely through the or ganization and embodying it quickly in new technologies products and systems This knowledgecreating process is no longer an enigma This process is also no longer endemic to Japanese companies It is uni versal 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Lorange P et al eds pp 37393 Oxford Basil Blackwell INDEX Aaker D A 55n Abductive reasoning 30 66 86 Abe Masao 52n Abrams D 92i Absolute Spirit Hegel 2425 Action in Japanese concept of human being 30 and knowledge in organizational knowledge creation theory 5859 90n Western concept of 2627 relationship to language 92n ACTION 61 reorganization plan Matsushita See Matsushita Electric Industrial Company ACT model Anderson and Singley of cognitive psychology 6162 9 In Adachi Takeji 21516 218 244 Adaptation in organizational learning theory 45 55n Adaptive learning Senge 4 4 4 5 Adhocracies Mintzberg 161 193n Adm inistrative Behavior Simon 38 AE1 camera Canon See Canon development of AE1 camera Age of engineers in development of Canon MiniCopier 148 Air Force Japanese 194n Akashi plant Shin Caterpillar Mitsubishi 21519 Ambiguity in newproduct development process 232 role in organizational knowledge creation 14 7980 in topdown management model 125 American football approach to product development 21112 24243 Amikura H 158n Amphibious operations US development in World W ar II 16566 194n Analog knowledge 60 611 Analogy role in knowledge conversion 13 6467 71 225 231 examples of 6566 66t 92n Analytic philosophy 26 Anderson J R 616 2 Answer Center General Electric GE 69 Apparel companies Japanese salesperson contact with customers in 153 235 Apple Computer use of customer feedback at 89 235 Apprenticeship as socialization 63 example of 6 3 6 4 257 258 Index Arao Yuzuru 106 Archetype building in development o f Matsushita Home Bakery 103 in Matsushita MIT93 workhour reduction program 119 as organizational knowledgecreation phase 84 8788 Argyris C 4546 161 Aristotle epistemological thought of 2 2 23 51n Asada Atsushi 186 196n Asahi T 192 Asahi Breweries combination of mid range and grand concepts in 68 Ascot Honda 15556 Ashby W R 82 Assets See also Strategic assets Aaker on 55n Athos A G 53n ATT 10 Augustine St 5In Aurora plant Caterpillar 21617 2 1 9 20 Austin J L 92n Austrian school of economics view of knowledge 33 Automobile industry European 210 Japanese 20910 21 It 223n See also Honda Nissan Motors continuous innovation in 5 Autonomy in bottomup organization 12526 3M example of 13536 as condition for knowledge creation 7578 93n 225 and crossleveling o f knowledge 89 enhancement by elimination of organizational layer at Matsushita 121 and equivocal goals 157 of frontline employees at ItoYokado SevenEleven 245 need in Japanese companies 244 of individuals as condition for knowledge creation 7576 93n in Matsushita corporate vision reestablishment 116 of team members in concept creation phase of organizational knowledge creation 85 in sharing of tacit knowledge phase of organizational knowledge creation 85 of teams 232 as condition for knowledge creation 7678 in development of Matsushita Home Bakery 103 in Matsushita M IT93 workhour reduction program 120 of young engineers in development of Canon MiniCopier 148 Autopoietic system Maturana and Varela 76 Ayer A J 27 50n Barnard Chester I 3637 43 50 53n 54 n Bateson G 44 58 60 66 Battle between warships paradigm of Japanese Imperial Navy 164 Battle of Tsushima 164 BCG See Boston Consulting Group Behavioral knowledge Barnard 37 Beliefs and knowledge 42 5859 Benchmarking 10 Benzene discovery of structure of 92i Berger P L 59 Best practices 10 Biofunctiontype of organization Kao Corporation 8283 83f BITINN service center NEC 64 234 Black Decker 134 Block P 158n BMW 205 210 Body learning with See also Experience Japanese view cf 10 2930 239 Body and mind oneness of Japanese tradition of 2 9 31 239 separation of See also Cartesian split versus indwelling 60 in Western philosophical tradition 20 2326 30 52n53n 236 synthesis of 23839 Bodymind dichotomy 23839 Boese Al 138 Books on companies and company leaders 70 Borden John 135 Borucki C C 128 158i Boston Consulting Group BCG 40 54n Bottomup management synthesis with topdown management 24041 Index 259 Bottomup management model 12427 130f 15051 226 236 3M case study of 13540 15051 Bougon M G 6667 Boulding K E 90n Boundarylessness Welch 133 Bounded rationality Simon 38 Bradshaw Thornton 13435 Brainstorming 10 Brainstorming camps 63 73 82 See also Camp sessions tama dashi kai for Canon MiniCopier development 14243 Bread machines See Matsushita Electric Industrial Company development of Home Bakery development of 100 Breadmaking by hand versus Matsushita Home Bakery 107f Breakdown caused by fluctuation 7879 Britain production o f Nissans Primera in 2 0 7 8 Brown J S 55n 91 n Buddhism See Zen Buddhism Buetow 13839 Bureaucracy at GE W elchs breakdown of 13234 within hypertext organizational structure 167 169f 170 173 194 n as organizational structure 16062 166 193n 226 236 241 example o f Japanese military during World War II 16365 example of US Marines during World War II 16566 synthesis with task force structure 241 Bureaucracytask force dichotomy 241 Bum s T 193n Bushido Nitobe 29 Business strategy scientific theories of 4041 Businesssystem layer in hypertext organization 16770 234 at Kao 17174 at Sharp 17985 19192 Byosiere P 128 158n Calculator war 195n Camcorder Sony 113 Cameras See Canon development of ΑΕ Ι camera Campbell J P 15Sn Camp sessions 14243 151 230 See also Brainstorming camps CannonBowers J A 91 n Canon 4 10 development of AE1 camera 14546 functional backgrounds of team members 771 development of MiniCopier 6566 66i 68 230 feasibility study for 14243 functional backgrounds of team members l i t and invention of disposable cartridge 14344 145 149 knowledge officer role in 157 knowledge specialist role in 153 middleupdown management in 14050 ripple effects within company 14950 task force for 14450 147f knowledge engineering at 15456 middleupdown management in 140 51 during development of MiniCopier 140 use of sense of crisis at 79 Capabilities core LeonardBarton 55n Teece Pisano and Shuens theory of 4 7 4 8 Capabilitiesbased competition Stalk Evans and Shulman 46 Capitalism Schumpeter on 34 Career ladders ensuring diversity in 229 Cartesian split 20 236 238 attempts to reconcile in organizational learning theory 46 in Western economic and management theories 32 in Western philosophy 2425 twentieth century 2526 in Western management practices 32 Catalog to communicate product concept 2 024 Category management methodology 68 Caterpillar Inc See also Shin Caterpillar Mitsubishi joint venture with Mitsubishi 21215 Change in organizational learning theory 44 reaction to in successful versus unsuccessful companies 5 260 Index Chaos in concept creation phase of organizational knowledge creation 86 creative 7880 225 232 as condition for knowledge creation 7880 225 and middleupdown management 23233 in sharing of tacit knowledge phase of organizational knowledge creation 85 enhancement by goal setting at Matsushita 12122 in knowledge creation 7880 in Matsushita corporate vision reestablishment 116 in Matsushita ΜΓΡ93 workhour reduction program 120 order out of 79 93n94rc in topdown and bottomup management models 126 Chaos theory 93n94i chorei 150 Chumen 101 1078 Civic Ferio Honda 113 Cluster organizations 193n Coach top management as at 3M 139 Codified knowledge See Explicit knowledge Coffee brewer with integrated mill development by Matsushita 110 Cognitive limit 93n Cognitive psychology 61 Cohen M D 39 44 Collective reflection 64 71 231 Combination and archetype building phase of organizational knowledge creation 87 in bureaucracy 162 226 241 in development of Matsushita Home Bakery 103 106 155 in hypertext organization 170 knowledge conversion by vii 57 62 62 6771 225 238 in Matsushita MIT93 workhour reduction program 120 role in knowledge creation 7 0 7 1 7 I f 9 In and systemic knowledge 72f 72 in topdown and bottomup management models 126 226 in topdown management organization 135 Western business emphasis on 198 Commercialization in development of Matsushita Home Bakery 1069 Commitment and breakdown 79 collective 75 employee enhancement by equivocal vision 157 innovation and 10 in Matsushita Cooking Appliances Division integration 98 organizational intention and 75 in universal knowledge creation model 228 enhancement by goals 80 and knowledge 5859 and knowledge creation 75 middle management in universal knowledge creation model 228 Communication 67 92n See also Socialization in topdown bottomup and middleup down management models 151 Communication networks computerized use in combination 67 92n formal and informal for redundancy 82 Competitive advantage hypertransformations and 245 knowledge as basis of 6 7 relationship to knowledge creation and continuous innovation 6 Competitive forces Porters framework of 4146 Competitiveness continuous knowledge creation as source of 96 Computer databases open access at Kao 172 178 use in combination 67 92rc93i Computer industry See also Apple NEC Japanese competitiveness in 4 Concept clinics 65 Concept creation 92n See also Product development in American football product development approach 211 clashes over in CaterpillarMitsubishi joint venture for REGA hydraulic shovels 214 in development of Matsushita Home Bakery 103 105 as externalization 6465 in knowledge creation process 72 in knowledge creation spiral 7273 marketing versus RD lead in in American versus Japanese product development models 214 Index 261 in Matsushita corporate vision reestablishment 116 in Matsushita ΜΓΡ93 workhour reduction program 119 metaphor and analogy in 66 66 middle management role in 68 in middleupdown management model 129 in middleupdown management model 129 in Nissans development o f Primera 2013 203 as organizational knowledgecreation phase 84 86 by project teams 232 in topdown organization 125 GE example of 13034 top management role in in middleupdown management model 129 in topdown organization 125 GE example 1334 15051 using combination for 68 Concept justification in development o f Matsushita Home Bakery 103 106 108 knowledge officers role in 15657 in Matsushita corporate vision reestablishment 116 in Matsushita MIT93 workhour reduction program 119 as organizational knowledgecreation phase 84 87 94n in topdown management organization GE under Jack Welch example 135 150 Concepts See Grand concepts Midrange concepts Concept trips 6465 Conceptual knowledge 71 72 238 in hypertext organization 170 186 Conceptual umbrella 156 See also Grand concepts Knowledge domain Concurrent engineering development of 11920 223n at Sharp 195i Condon W S 92n Confusion See also Ambiguity during knowledge creation 15 Conger J A 1581 Consensus ease of gaining in Japanese language 31 53i Construction equipment industry 21314 Consumer electronics industry Japanese 195n See also Sharp Context in hypertext organization 16771 See also Recontextualization in Japanese language 31 organizations provision of 225 Continuous change in organizational learning theory 44 Continuous improvement Drucker on 43 Contradiction 86 93i See also Breakdown Converse S 91 n Conversion See also Knowledge conversion to build and manage syntheses 237 types of in knowledge creation 236 Cool K 55n Copiers See also Canon development of MiniCopier Canons production of 140 14950 Cordless telephone with answering machine Sharps development of 196n Core capability LeonardBarton 55i Core competence Prahalad and Hamel 4 648 Core technology programs at NEC 74 75 f Corporate culture 42 See also Organizational culture internalization of through storytelling 6 9 7 0 Cost consciousness among Japanese versus American engineers 219 Costreduction plan development of in Shin CaterpillarMitsubishi REG A project 21920 244 Creative chaos 7880 225 232 See also Chaos in development of Matsushita Home Bakery 103 in Matsushita ACTION 61 reorganization plan 979 8 and middleupdown management 2 3 2 33 in sharing of tacit knowledge phase of organizational knowledge creation 85 Creative Lifestyle Focus Center Sharp 190 196i Creativity See also Innovation Matsushitas workhour reduction program to enhance 117 119 Crisis and creative chaos 79 262 Index Crisis contd sense of in Matsushita Cooking Appliances Division integration 98 in Matsushita M IT93 workhour reduction program 120 Crosscultural socialization 209 See also Socialization in Nissans development of Primera Socialization in Shin Caterpillar Mitsubishi REGA project Crossfertilization within organization 8889 Crossleveling of knowledge after development of Matsushita Home Bakery 10913 111 1028 as organizational knowledgecreation phase 84 8889 122 Culture 42 54n See also Organizational culture Cummings 128 Customer call lines at General Electric GE 69 at Kao 179 Customers interaction with 23435 in crossleveling of knowledge phase 84 89 Matsushita Home Bakery development example 10910 in hypertext organization 171 Kaos system for 179 Sharps system for 18990 in Japanese apparel industry 153 235 for knowledge operators 153 at Matsushita 10910 235 at Microsoft 245 in NEC development of PC8000 personal computer 64 234 at Sharp 18990 235 as socialization with product developers 64 Cusumano Michael 232 Daft R L 40 55n Daigo emperor 52ra Dancy J 50i Dasein Heidegger 26 Davis R 49 Deal maker top management as GE example of 13435 Decision making garbage can model of 39 organizational Simons theory of 3 7 38 54n Declarative knowledge 61 62n 62 Deductively derived knowledge 22 6465 in topdown management model 125 Deguchi Makoto 218 Descartes Rene epistemological thought of 20 2324 51n 238 Design clinics for Primera automobile 2056 Design drawings use in Shin Caterpillar Mitsubishi REGA project 21718 Design engineers as knowledge specialists 153 DeSimone Desi 13940 159rc Development team for Nissans Primera 2012 Dewey John 20n 27 Dialectics in concept creation phase of organizational knowledge creation 24 Hegels concept of 24 Dialogue 71 79 92n 225 231 23940 in companies using middleupdown management 151 in concept creation phase 8586 with customers 153 235 in topdown and bottomup management models 126 Dichotomies false need to transcend with synthesis 23637 Dickson W J 36 Dierickx P A 55n Digital knowledge 61 61i Disobedience encouragement at 3M 139 Disposable copier cartridgedrum Canons development of 6566 14344 145 149 Diversity 197 220 229 240 244 Division of labor in American football style of product development 211 in topdown organization 125 Documentation American strength in 220 244 role in internalization 69 Dodgson M 45 54n Domain in knowledge vision 227 Donnellon A 6667 Dopson S 128 158n Doubleloop learning Argyris and Schon 4546 Dretske F 58 90n Drew Dick 135 137 139 150 Drinking sessions as communication channel in companies using middleupdown management 151 Index 263 Drucker Peter vi 6 8 44 152 Duguid P 55i 90i Duncan R 55i Dunnette M 158i Dynamic capabilities Teece Pisano and Shuen 4 7 4 8 EastWest dichotomy 24346 ECHO customer contact system Kao 179 EcoAWash washing machine Sharps development of 195i Economic crisis Japanese innovation as reaction to 4 17 Economic theories Western 3235 scientific approach in 35 Eisai 29 239 EL805 calculator Sharp development of 195i Electronic mail Email system at Microsoft 24445 Electronic organizer Sharps development of 184 19092 195i Emig J 64 Emotional naturalism Nakamura 28 Empiricism 2 1 2 6 British 232 4 Employees commitment of relationship to tacit knowledge and innovation 10 effect of Matsushita Home Bakery success on 10910 frontline in bottomup organization 126 dialogue with market 231 in knowledgecreating company 151 as knowledge practitioners 152 in middleupdown management model 128 23233 development o f Canon MiniCopier example 14850 in resourcebased approach to strategy 4 8 4 9 role in knowledge creation 15 484 9 in topdown organization 125 GE example of 133 in universal knowledge creation model 228 role in concept justification Matsushita example of 87 role in organizational knowledge creation 1315 rotation of throughout organization 81 8 3 Engineers in development of Canon MiniCopier 14849 as test drivers in Nissans development o f Primera 2067 Entrepreneurship among employees 3M example of 13536 138 140 Environment enactment o f Weick 93i external interaction between organization and 78 organization matching in variety and complexity 82 fluctuation in 7879 as location of knowledge 93i organizations relationship to in organizational culture theories 42 in organizational theories critique of 50 Simons view of 3839 42 recreation of during innovation 56 Epistemology See also Japanese epistemology Knowledge Western philosophical traditions on Western epistemology definition of 20 o f organizational knowledge creation theory 5657 Epson EO101 development team functional backgrounds of 1 7 1 Equifinal meanings Donnellon Gray and Bougon 92n Equivocality 7980 o f goals 157 in topdown management model 125 o f vision 157 228 Europe Nissans design of Primera for 2 0 0 2 0 2 2 0 4 5 Evaluation of employees and middle management in knowledge creating company 230 Evans P 464 8 Evolving communities of practice Brown and Duguid 90i Excellent companies Peters and Waterman 42 Executive managers See also Top management role of Barnards view of 373 8 Simons view of 373 8 Existentialism 26 264 Index Experience bodily in Japanese concept of knowledge 30 52n 239 gaining and sharing in Kaos hypertext organization 173 highdensity field and 230 as knowledge base for knowledge operators 15253 in organizational culture view of knowledge 42 role in internalization 6971 sharing of in development of Matsushita Home Bakery 106 Matsushita corporate vision reestablishment example 115 16 and socialization 71 225 and tacit knowledge 60 61t in tacit knowledge acquisition 63 Experience curve effect 40 Explicit knowledge vi 22425 See also Knowledge conversion contextfree quality of 61 conversion from tacit knowledge 1 1 12 See also Extemalization example of 1112 conversion to explicit knowledge See also Combination conversion to tacit knowledge See also Internalization emphasis in Western companies 198 and innovation 70 interaction with tacit knowledge vii 6162 7073 238 See also Extemalization Internalization Knowledge conversion Knowledge creation epistemological dimension of in Japan 198 226 in West 198 knowledge specialists and 15253 relationship to tacit knowledge vii 61 236 role of redundancy in spreading 14 See also Redundancy Matsushita example of 99 in Schumpeters theory 34 in scientific business strategy theories 41 sharing of See also Redundancy of information in Matsushita communication infrastructure 12021 synthesizing with tacit knowledge 23738 versus tacit knowledge 8 9 6061 61f Polanyis concept of 5960 in topdown management model 126 Western emphasis on 198 243 in Western management traditions 8 Explicit knowledge base at Kao 17577 at Sharp 180 18586 Extemalization and concept creation phase of organizational knowledge creation 86 and conceptual knowledge 71 72 in development of Matsushita Home Bakery 103 1056 155 emphasis in Western businesses 198 in hypertext organization 170 interpretative equivocality and 80 knowledge conversion by vii 57 62 62fy 6467 91n 225 238 by knowledge engineers 15455 in Matsushita corporate vision reestablishment 116 in Matsushita MIT93 workhour reduction program 120 in Nissan Primera development 207 209 212 role in knowledge creation 6467 7 0 73 71 f 91 n global 19798 222 in Shin CaterpillarMitsubishi REGA project 216 21819 222 244 in task force structure 162 226 241 in topdown and bottomup management models 126 226 Failure See also Mistakes acceptance of 139 230 False dichotomies need to transcend with synthesis 23637 Feuerbach Ludwig A 51 n Field highdensity 230 in individuals sharing of tacit knowledge 85 in knowledge vision 227 in socialization 7071 71 f Field epistemology Scheflen 92n Fiol 40 55n Firm Penroses theory of 34 46 Fiveforces model Porter of business strategy 41 Index 265 Five Scientific Areas knowledge base at Kao 17577 176 f Flores F 78 Floyd S W 158n Fluctuation in concept creation phase of organizational knowledge creation 86 as condition for knowledge creation 7880 225 and crossleveling of knowledge 89 enhancement by goal setting at Matsushita 121 internal 90 in Matsushita corporate vision reestablishment 116 in Matsushita MIT93 workhour reduction program 120 need to reduce in Japanese companies 244 in newproduct development process 232 in topdown and bottomup management models 126 Fluid personnel change at Kao 1 72 73 Focus groups consumer at Sharp 190 235 Fortune 108 Fransman M 53n Frohman A L 128 Fry Art 135 13738 150 159n 198 Fujita Kenichiro l i t Fujito Mikio 205 229 Fujitsu 80 97 Fuji Xerox FX3500 development team of 76 l i t sashim i product development system of 78 78f Fusion of horizons Gadamer 91n92n Fuzzy division of labor 81 FX3500 Fuji Xerox development team of 76 l i t Gadamer HansGeorg 91n92n Galbraith J 80 193n Gaoh TV set Matsushita 11213 Garbage can model of organization 3 9 40 42 gasshuku 14243 Gates Bill 244 GE See General Electric General Electric GE 10 4041 concept creation at 13034 documentation of customer contact at 69 teams at 159n threecircles concept of 132 132f topdown management in 13035 top management as dealmaker at 13435 WorkOut program of 133 159n General Motors 4 5 Generative learning Senge 44 Gerth Η H 161 Gestalt psychology 5960 Gettier counterexamples 5 In Gibson J J 93n Gill J H 91n Gleick J 78 94n Global economics Japanese firms in vii Goals 157 See also Vision benefits of 80 85 for Canon AE1 camera 14546 for Canon MiniCopier 14142 146 enhancing effect on enabling conditions at Matsushita 12122 Gold badge system at Sharp 184 191 230 Gomez Alain 135 Gosselies plant Shin Caterpillar Mitsubishi 21617 Gouldner A W 161 Gramme E D 220 Grand concepts in American football versus rugby style of product development 211 effect of midrange concepts on in combination 6 8 6 9 in knowledge creation spiral 73 Matsushita Home Bakery development example 111 122 in middleupdown management model 129 top management responsibility for 156 Graumann C F 92n Gray B 6667 Group behavior motivation of 9 In Group level emphasis in Japanese companies 243 need to enhance in Western companies 244 Group think 198 Gruber T R 90n Guadalcanal battle of 16566 Guth W D 158n Halal W E 194n Hamel G 4 6 4 9 266 Index Handtohand battle paradigm of Japanese Imperial Army 16466 194n Harvard Business R eview 242 Harvard Business School 131 Hawthorn experiments 36 53n Hayakawa Tokuji 189 195n Hayakawa Denki Kogyo Hayakawa Electric Machinery Industry 195n Hayek Frederich von 3334 Hedberg B 45 Hedlund G 94n Hegel Georg W F 2425 51n Heidegger Martin 26 52n Heraclitus 5 In Heroes Peters and Waterman 137 Heterarchy Hedlund 94n Hierarchy See also Bureaucracy Top down management bureaucracy and 162 193n194n denial at 3M 13839 knowledge creation in 125 226 233 redundancy and 81 in Sharps hypertext organization 181 83 Highdensity field 230 Hitachi 97 Hogg M A 92n Home Bakery breadmaking machine Matsushita See Matsushita General Industrial Company development of Home Bakery Honda 4 47 Accord design as example of Japanese innovation in reaction to crisis 17 attitude toward mistakes 232 books on as example of internalization of corporate culture through storytelling 70 City design concept justification in 8687 development team of crossfunctionality of 7678 230 as knowledge specialists 153 as example of equivocal goal setting 157 as example of internalization 6970 as example of knowledge creation 1216 239 as example of middleupdown concept creation 129 as example of socialization 85 as example of tacitexplicit knowledge conversion externalization 1112 65 71 knowledge officer role in 15758 metaphor and analogy in 65 66 86 Civic Ferio 113 communication in 151 knowledge engineering at 15456 product development brainstorming in 63 83 Honda Soichiro 69 Honda Toshio 19092 Honma Hiroshi 15 Horizons Gadamer fusion of 9 1 n 9 2 n Hoshiden Electronics Company 100 123i Household appliances Japanese market for in 1980s 9697 Matsushita grand concept Human Electronics for 111 Howard Robert 229 Huber G P 55n Huck V 136 159n Human 21 Committee Matsushita 114 Human Electronics concept Matsushita creation of 11113 impact on product conception at Matsushita 112 f new corporate vision and 115 Humanistic management approach of Peters and Waterman 42 Human 200People Committee Matsushita 11416 Human relations theory of management 3536 236 Hunches as part of knowledge 9 239 Husserl Edmund 2526 52n Hydraulic shovels See Shin Caterpillar Mitsubishi development of REG A hydraulic shovels Hypertext 16667 168 Hypertext organizational structure 160 61 16671 169 226 23334 236 241 at Kao 17179 versus matrix structure 17071 234 at Sharp 17992 and electronic organizer development 19092 Hypertransformations 245 IBM 4 5 97 ikiy 28 Imai K 78 193n Individualorganization dichotomy 2 39 40 Index 267 Individuals See also Commitment Employees autonomy within organization 7576 need in Japanese companies 244 in bottomup organization 12627 240 3M example of 13031 13539 creation of chaos by 80 role in concept justification 87 role in knowledge conversion 61 225 role in organizational knowledge creation 13 59 72 225 229 236 23940 sharing of tacit knowledge of as phase in organizational knowledge creation 85 synthesis with organization 23940 tacit knowledge of 72 80 122 in topdown organization 126 Induction Heating IH Rice Cooker development by Matsushita 110 Inductively derived knowledge 22 6465 Indwelling Polanyi 60 Infinitely flat organization 162 193n Infiniti 209 See also Nissan Motors development o f Primera Informal groups 90n Information broad access to importance of 82 in organizational knowledge creation theory 5 8 5 9 reconfiguring through combination 67 redundancy of importance of 8182 94 n relationship to knowledge 5759 90n semantic aspect of 58 sticky von Hippel 223n syntactic aspect of 58 90n transfer of See Communication Knowledge conversion Socialization zero 232 Information creation externalization from viewpoint of 91 n Information networks use in combination 67 92n Informationprocessing paradigm versus creative chaos approach 79 Simons 3739 42 Informationprocessing perspective o f top down management model 125 Information sharing at Kao 17273 178 Information society 43 Initiative of individuals 3Ms encouragement of 13638 Innovation continuous in Japanese industry 5 246 at 3M 13540 141f relationship to knowledge creation and competitive advantage 6 desire for among Matsushita employees after success of Home Bakery 110 Drucker on 4 3 4 4 Honda Accord as example of 17 Honda City as example of 1112 in Japanese companies 3 5 knowledge creation and 56 70 90 23536 outputs of knowledge creation that enable 11314 relationship to tacit knowledge 10 syntheses of false dichotomies and 237 use of project teams for 76 771 Insight in business strategy 54n as part of knowledge 9 239 Intention and archetype building 88 in concept creation phase of organizational knowledge creation 86 and concept justification 87 as condition for knowledge creation 7475 225 and crossleveling of knowledge 89 enhancement by goal setting at Matsushita 121 individual in Matsushita Cooking Appliances Division integration 98 in Matsushita Cooking Appliances Division integration 98100 organizational clearer need in Japanese companies 244 in development of Matsushita Home Bakery 103 108 enhancement by goal setting at Matsushita 122 knowledge vision and 22728 in Matsushita corporate vision reestablishment 116 in Matsushita MIT93 workhour reduction program 120 in sharing of tacit knowledge phase of organizational knowledge creation 85 Internalization in bureaucracy 162 226 241 268 Index Internalization contd in development of Matsushita Home Bakery 155 emphasis in Japanese organizations 198 in hypertext organization 170 knowledge conversion by vii 57 62 62 6970 225 23839 in Matsushita M IT93 workhour reduction program 120 and operational knowledge 72fy 72 role in knowledge creation 7071 91n in topdown and bottomup management models 126 226 Internal market organizational structure 162 194n International competitiveness of Japanese companies 4 Interpretative equivocality 7980 Intrafirm positionoffering system at Sharp 192 196n Intrapreneurs Pinchot 137 230 Intuition as part of knowledge 9 239 in Senges learning organization model 45 Inventors employees as 3M example of 135 13738 Inverted pyramid organizational structure 162 Itakura Nori 21820 22930 244 Itami H 55n 193n ItoYokado as Japanese company run like American company 24445 Iwabuchi A 14849 Jacques E 194n James William 27 52n Jantsch E 93n94i Japan business groupings in v government interventionism in v industrial organization in v intellectual tradition of 2732 versus Western philosophical tradition 2021 2832 military in World War II organizational structure of 160 163 16365 165f 194n Japanese companies See also specific companies diversity and 197 220 innovation in 3 4 246 knowledge accumulation in during times of uncertainty 5 6 as knowledgecreating companies on global scale 246 knowledgecreation process of 48 success of resourcebased approach to strategy theorists on 4748 suggestions for learning from Western knowledgecreation approaches 24344 value placed on redundant information in 8182 Western view of 3 4 Japanese epistemology 2728 See also Knowledge creation organizational Japanese approach to Japanese Imperial Army 163fy 16365 194n Japanese Imperial Navy 163 16365 194i Japanese language ambiguity in 31 53n ease of gaining consensus in 31 53n epistemological attitudes revealed in 28 Johnson L W 128 Johnson M 92n JohnsonLaird P N 60 Jones D T 208 Jordan J N 50n Justification See Concept justification Kaku Ryuzaburo 79 144 149 Kamata S 165i Kanai T 158n Kant Immanuel 24 51 n 92n Kanter Rosabeth 127 Kanungo R N 158n Kao Corporation 8283 171 194n crossdivisional project teams at 174 75 175 ECHO customer contact system of 179 five scientific areas at 17577 176 f fluid division system of 17274 knowledge domain of 22728 organizational structure of 8284 83f hypertext 161 17179 175f 234 philosophical principles at 17779 surface active science concept of 156 22728 umbrella concept of 156 Kaplan R E 158n Kawamoto Nobuhiko 15758 Kawamura T 158n keiretsu v Kekule F A 92n Index 269 Kitajima Mitsutoshi l i t Knowledge abductive 30 66 86 accumulation in Japanese companies during times of uncertainty 5 6 analog 60 6l in Barnards organizational theory 3 6 37 behavioral Barnard 3637 in business organization vi as competitive resource 6 7 152 conceptual 71 72 contents of 7073 hypertext organization and 17071 crossleveling of See Crossleveling of knowledge deductive 22 6 4 6 5 definition o f in organizational knowledge creation theory 58 Platos 21 51 n diffusion within organization 15 Drucker on 4 3 4 4 in economic affairs Marshalls view of 323 3 explicit See Explicit knowledge firm as repository of 343 5 in garbage can model of organization 3 9 4 0 Hayeks view of 3334 identification o f type required importance of 96 inductive 22 6 4 6 5 versus information 575 9 Japanese concept of 27 29 See also Tacit knowledge versus Western understanding of 8 11 as justified belief 58 as justified true belief 21 58 8687 in management theories 32 3542 in neoclassical economic theory 3233 nonlogical 30 operational 71 1 2 f organizational transformation from personal 1314 in organizational culture theories and studies 42 in organizational learning theory 45 in organization theories 334 2 personal conversion to organizational 1314 relationship to action in organizational knowledge creation theory 5859 90i Western concept of 2627 in Western philosophy 2627 as resource 227 in resourcebased approach to strategy 48 in scientific business strategy theories 4041 in scientific management and human relations theory 3536 scientific versus humanistic view of in economic theories 32 35 in management and organization theories 32 35 attempts to synthesize 3637 4 2 45 in Simons informationprocessing paradigm 3739 sympathized 71 1 2 f systemic 72 72 tacit See Tacit knowledge theories about vi in theory o f sensemaking 3 9 4 0 in Western economic theories 3235 53 n Western philosophical traditions on 2027 51n problems within 51 n rationalism versus empiricism in 2 1 26 51 n Knowledgebased intellect Quinn 7 Knowledgebase layer in hypertext organization 16771 233 241 at Kao 17579 at Sharp 180 Knowledge conversion 6162 225 238 and ACT model knowledge transformation 6162 in bureaucracy and task force organizational structure 116 16263 from explicit to tacit neglect in Western theories 49 from external to internal 6 11 highdensity field for 231 in hypertext organization 171 Kaos mechanisms for 17273 at Sharp 186 188 189 o f knowledge from outside organization in hypertext organization 171 234 modes of vii 57 62f 6270 91ny 225 235 contents yielded by 71 72 238 270 Index Knowledge conversion modes of conid knowledge engineer facilitation of 152 15455 in Matsushitas reestablishment of corporate vision 116 realized by three management models 130i 150 226 shifts among 7071 71 f role in organizational knowledge creation theory 56 236 role of knowledge engineers in 15455 230 role of middle managers in 16 in middleupdown management model Canon example 150 as social process 61 from tacit to explicit Honda City as example of 1112 in topdown and bottomup management models 126 226 in West 198 Knowledgecreating crew 15158 Knowledge creation versus assumptions of organizational learning theory 45 and building and managing synthesis 237 in bureaucracies and task forces 161 63 epistemological dimension of 56 57f 57 5960 8990 243 spiral 72 73 23536 knowledge engineer facilitation of 155 externalization and 6467 7073 71 72f 19798 222 individual relationship to organizational knowledge creation 59 235 23940 interactions between tacit knowledge and explicit knowledge in vii 6162 7073 23031 See also Explicit knowledge Knowledge conversion Knowledge spiral Tacit knowledge Japanese versus Western approaches to 19899 199 226 key characteristics of 1214 key players in 1415 levels of vii at Matsushita Home Bakery development as example of 9 5 113 ontological dimension of 57 57 59 72 73 8990 24344 spiral 72 73 8990 226 23536 knowledge engineer facilitation of 155 organizational v iv ii 70 22426 See also Knowledge creation spirals in bottomup organization 12527 130i 15051 in bureaucracy 241 continuous at Matsushita corporatelevel 1 1 3 20 enhancement of enabling conditions for 12022 as source of competitiveness 96 at corporate level first cycle of Matsushita example 1 1 4 16 knowledge officers and 152 156 second cycle of Matsushita example 11620 cyclical and iterative nature of 96 1001 1089 109 22526 definition of 3 enabling conditions for 7383 225 See also Autonomy Chaos Fluctuation Intention Redundancy Requisite variety continuous enhancement of 96 at Matsushita 12022 examples of design of Honda Accord 17 design of Honda City 1216 on global scale 197200 American football product development approach for 211 conditions for 222 development of Nissan Primera as example of 20012 Shin CaterpillarMitsubishis REG A project as example of 212 22 in hypertext organization 16971 19293 241 Kao as example of 17279 Sharp as example of 17992 188f individuals role in 13 59 72 225 229 23940 interactiveness of 1011 70 225 236 Japanese approach to 811 Japanese versus Western approach to 811 19899 199 226 243 synthesis of 24346 key players in 15Π 15152 management models of 124 comparison of 12527 130 150 51 Index 271 management of in bottomup organization 12527 in topdown organization 12526 middle management role in 233 See also Middleupdown management middle management in in middleupdown management 12730 129 130 15051 233 middle management role in 127 29 Canon example 150 newproduct development as core of 231 as organizational selfrenewal 10 organizations role in 7375 phases of 8489 84 91n 96 in Matsushita corporate vision reestablishment 116 116 in Matsushita Home Bakery development 104 106 108 1089 109 practical implications of 22635 relationship to continuous inno vation and competitive advantage 6 versus resourcebased approach to strategy 48 role in economic crisis 4 role of individuals in 13 59 role of teams in 1314 225 23940 synthesis o f Japanese and American approaches to 24346 with task force structure 241 theoretical implications of 23546 theory of 5690 distinctions from Western epistemology 58 need for 50 in topdown management 12526 130 15051 universal model of 22635 Western approach to 19899 199 243 process of See Knowledge creation organizational phases of Knowledge creation organizational spirals spirals 71 ft 72 73 8990 155 2 2 5 26 23536 in development of Matsushita Home Bakery 96 1009 104fn 106 108 epistemological dimension of 72 73 155 23536 interaction of 90 236 knowledge engineer facilitation of 15556 in Matsushita voluntary individuals corporate vision program 116 116 119 119 ontological dimension of 72 73 90 155 226 23536 at Sharp 186 188f Knowledge crew 227 22930 See also Teams in hypertext organization 23334 Knowledge development See also Knowledge creation in organizational learning theory 45 55n Knowledge domain and strategy 22728 Knowledge engineers 49 151 15152 15456 219 222 22930 diversity among need in Japanese companies 244 middle managers as in middleupdown management 128 233 Knowledge network with outside world 23435 Knowledge officers 151 151 152 156 58 Knowledge operators 15253 Knowledge practitioners 151 151 1 52 54 Knowledge refineries Brown 91 n Knowledge set LeonardBarton 55n Knowledge society Drucker 6 4344 22628 Knowledge specialists 15254 209 Knowledge spiral 71 72 73 8990 See also Knowledge creation spirals Knowledge vision 22728 Knowledge worker Drucker 7 43 152 227 Kobayashi Taisuke 80 Kohno H 112 Kokinw akashu 28 52n Konno N 169f Kraft General Foods micro merchandising POS system of 68 development team 154 Kraut A I 158n Kumakura C 28 Kume Yutaka 79 206 Lakoff G 92n Language figurative in concept creation phase 86 272 Index Language figurative contd role in knowledge conversion 13 66 Japanese ambiguity in 31 53n epistemological attitudes revealed in 28 relationship to action 92n Larsen D R 215 244 Laserbeam printers Canons 149 156 Lawler E E Ill 128 158i Lead time in Japanese versus US and European product development 210 214 223n Learning by doing as internalization 6970 239 in knowledge creation spiral 71 f in garbage can model of organization 39 Japanese versus Western beliefs about 9 1 0 in organizational learning theory 4 5 46 55n ways of individuals versus formal organizational 90i Learning I and II Bateson 44 Learning organization Senge 10 44 23839 Lehr Lew 136 139 1591 LeonardBarton D 55n Levitt B 53n 55n Levitt T 9 Life Creator System Sharp 190 235 Likert R 161 Line managers as knowledge practitioners 152 Liquid crystal technology Sharps development of 184 195i196i Liquid Crystal View Com video camcorder Sharps development of 195i Living experiment system Sharp 190 Locke John 24 b ln Logic processes differences between US and Japanese engineers in Shin CaterpillarMitsubishi REGA project 216 Luckmann T 59 MA 245 Machlup F 58 Macmillan I C 158i Magami H 146 14849 159i Management Japanese vi Management systems innovation and 114 at Matsushita 11718 Management theories Western Cartesian split in 32 concepts of knowledge in 3542 scientific versus humanistic approaches in 3537 Managers role in knowledge creation 1516 in Taylors scientific management 3536 Manuals for knowledge transfer use in Shin CaterpillarMitsubishi REGA project 218 244 Manufacturing cooperation with sales Matsushita MTM communication system enhancement of 121 M anyohshu 27 52n March J G 38 39 53n bbn Market as highdensity field 231 Marketing in American product development process 214 combining explicit knowledge in 6 7 68 92i93i crossdivisional teams for 174 Marketing researchers as knowledge specialists 154 Market Metrics Supermarket Solutions system 92n MarketOriented Total Management System MTM Matsushita 120 21 Marshall Alfred 3233 53n Maruta Yoshiro 17778 195i Marx Karl 25 b ln Masking tape 3M development of 137 Masumura Ikuji 98 100 1231 Matrix structure 194n versus hypertext organization 17071 234 in Shin CaterpillarMitsubishi REGA project 215 Matsushita Electric Industrial Company 6364 96 ACTION 61 reorganization plan of 9 6 97 bicycle division of fitting scale of 235 continuous knowledge creation at corporatelevel 11320 in development of Home Bakery 9 6 113 225 enhancement of enabling conditions for 12022 Index 273 Cooking Appliances Division effects o f Home Bakery success in 10911 integration of 97100 development of coffee brewer with integrated mill 110 development of Gaoh TV set 11213 development of Home Bakery 6364 66i 70 71 95 1 3 105 107ft 109 122 225 230 background to 96100 combination in 103 106 commercialization phase 1069 concept creation in 103 105 concept justification in 103 106 108 crossleveling of knowledge after 10913 111 effects within company of 10913 externalization in 103 1056 108 first cycle of 1013 102 104f functional backgrounds o f team members l i t as horizontal crossfertilization 88 knowledge engineering in 15455 knowledge specialists in 153 organizational intention in 103 108 other products inspired by 88 110 13 prototype 1016 102 104 second cycle of 1036 106 socialization in 6 364 85 105 108 sympathized knowledge in 71 third cycle of 1069 108 development of IH Rice Cooker 110 household appliance business in 1980s 9 6 9 8 9 8 9 9 Human Electronics concept of 11113 MIT93 workhour reduction program of 11720 as internalization 7071 as vertical crossfertilization 8 8 8 9 1994 Revival Plan of 12122 voluntary individuals concept development as corporate vision 87 11416 operationalizing of 11620 Maturana H R 76 91 n Mayo George Elton 36 Mazda development of rotary engine as example of qualitative justification o f vision 157 development of RX7 6465 68 157 functional backgrounds of team members l i t McCulloch W 81 McGregor D 161 McKenny 158n McKnight W illiam 13637 139 Meaning externalization and 67 and knowledge 58 shared creating 92n See also Externalization Meaning structures Simon 38 Meetings See also Brainstorming camps Camp sessions as highdensity fields 230 interplant in Shin Caterpillar Mitsubishi REGA project 217 222 244 of Japanese supervising engineer with American workers in Shin CaterpillarMitsubishi REGA project 219 230 244 at Kao 17273 at Microsoft via personal computers 245 at Sharp 18185 19192 1951 230 virtual 245 Mental models JohnsonLaird 60 sharing of 62 6971 91n 225 238 See also Socialization Tacit knowledge sharing of Mental processes nonlogical Barnards theory of 5 3 n 5 4 n Mentors top management as at 3M 1 3 0 3 1 1 3 8 3 9 Mercedes Benz 205 210 MerleauPonty Maurice 26 52n 91 n Merton R K 161 Metaphor role in knowledge conversion 13 6467 66f 71 92n 225 231 examples of 66 Micromerchandising marketing program at Kraft 68 71 Microsoft 235 as American company run like Japanese company 24445 Middle management See also Knowledge engineers Project leaders in bottomup organization 127 in Japanese companies 19899 in knowledgecreating company 151 154 as knowledge engineers 15456 knowledge vision and 228 in middleupdown management model 1 2 7 2 9 158n 23233 274 Index Middle management contd Canon MiniCopier development example 14850 integrative function of Canon Mini Copier development example 14849 knowledge conversion and creation of at Canon 150 negative Western views of 12728 158i 233 in resourcebased approach to strategy 4849 role in combination 68 role in concept justification 87 role in fostering employee commitment to organizational intention 75 role in knowledge creation 1516 154 55 233 See also Middle management in middleupdown management model on global scale 222 in topdown organization 125 127 Middleupdown management 49 124 15051 158 226 23233 Canon case study of 14051 communication in 151 conversion from topdown and bottom up styles to 236 hypertext organizational structure and 160 171 knowledge creation in 12730 129f 130 15051 management of creative chaos with 23233 middle management in 12729 150 23233 24041 integrative function of Canon Mini Copier development example 14849 knowledge creation and conversion function of at Canon 150 top management in 12829 Canon example of 140 149 Midrange concepts in American football versus rugby style of product development 211 and concept justification criteria 87 integration with grand concepts in combination 6869 in knowledge creation spiral 73 Nissans creation of in development of Primera 2012 Military organizational structure of Japanese versus US in World War II 160 16366 Milliken knowledge creation policy of 1011 Mills C W 161 Mills D Quinn 193n Mind See also Body and mind learning with Western emphasis on 10 MiniCopier Canon See Canon development of MiniCopier Minimum critical specification principle Morgan 76 Ministry of International Trade and Industry MIT v 83 Minnesota Mining and Manufacturing Company 159n See also 3M Mintzberg H 54n 158n 193i Mistakes tolerance of 136 139 232 MIT See Ministry of International Trade and Industry Mitarai Hajime 149 Mitsubishi Heavy Industries See also Shin CaterpillarMitsubishi joint venture with Caterpillar 21215 Mitsubishi Research Institute 113 MIT93 workhour reduction program Matsushita 70 8 8 8 9 1 1 7 2 0 Miyajima Shigeki 229 Mizuno Hiroyuki 111 Model operating mechanism as archetype 8788 Models in knowledge conversion 6667 Modular corporation concept 11 Mohrman 128 M ono no aware 28 Morgan G 76 Moser P K 50i51i Motorcycle industry Japanese 5 MTM M arketOriented Total Management System MTM Matsushita Multimedia Matsushitas shift to 121 Multinational companies See Shin CaterpillarMitsubishi Murai H 165 Murasaki court lady 52n Murphy D M 220 Nagashima Shigeo 9 Nagumo task force of World War II 194n Naito Kazuo 149 Nakae Chohmin 52n Nakamura Yujiro 28 52n Nakanishi Hiroshi 19192 Nat A V 50i51i Natural frequencies 194i Index 275 NEC 97 BITINN customer service center of 64 234 CC computers and communications concept of 68 156 core technology knowledge base of 74 75 156 development of PC8000 personal computer 64 68 234 functional backgrounds of team members 771 knowledge domain of 75 228 strategic technology domain STD concept of 74 7 5 228 Neisser U 93n Nelson R R 343 5 Neoclassical economics view of knowledge in 3233 Network organization 193n NEWING products Sharp 18485 New Jersey Bell Telephone Company 36 Newproduct development See also Product development characteristics of 23132 Newproduct ideas 3M support of 139 40 141 Newproduct usage use of internalization for 72 N ew sw eek Knowledge Is Power 7 Nippon Telegraph and Telephone NTT 64 Nisbet R A 66 Nishida Kitaro 2930 52λ5 3 ι Nissan Motors development of Primera American football product development approach in 24243 crosscultural backgrounds of key players in 229 design stage 2057 engineertest drivers in 2067 as global knowledge creation example 198 200212 knowledge creation in 20912 midrange concept creation in 2012 product concept creation and communication in 2024 2031 2 0 4 242 production in Britain 2 078 reception in Europe Japan and North America 208 9 test driving in 2067 230 organizational reform at 206 product development organization at 200 201 promotion of creativity at 7980 test driver group Yazaki group of 2067 as knowledge operators 153 Nitanda Hiroshi 14244 14850 154 229 Nitobe Inazo 29 52n NMUK Nissan Motors UK 2078 Noise order out of 79 93λ in topdown and bottomup management models 126 Nommunication 151 Nonaka I 14 19ny 61 78 7879 81 82 91 n 93η 94n 158i 165 16 9 193λ1 9 5 λ 208 214 216 220 242 Nonexperts role in newproduct development 232 Nonhierarchy 81 94i Nonlogical knowledge acquisition 30 Nonlogical mental processes Barnard on 53i54n Norman D A 93n NP1100 copier Canon 140 Numagami T 82 184 194η195λΐ Officeautomation equipment Canons market in effect of MiniCopier success on 149 Ohmae K 54n Ohtake Yoshiharu 202 Ohtaki S 194n Ohtsubo T 195m 214 216 220 Olsen J P 39 Oneness of body and mind Japanese tradition of 2931 239 Oneness of humanity and nature Japanese tradition of 2729 Oneness of self and other Japanese tradition of 3132 The One TV set See Matsushita Electric Industrial Company development of Gaoh TV set Onthejob training as socialization 63 OnwardKashiyama 153 235 Open floor allocation system at Kao 17273 230 Open meetings at Kao 17273 Operational knowledge 7 2 72 238 in hypertext organization 170 Operational systems innovation of 114 at Matsushita 117 11920 276 Index Optoelectronics Sharps development of 18586 187 228 Order out of chaos 79 93m9 4 m Organization ability to enhance enabling conditions continuously 96 ability to identify type of knowledge required 96 biofunctiontype of structure 8283 83 building redundancy into 8182 concept justification in 8687 garbage can model of 3940 interaction with external environment 78 as mechanism for information processing 56 relationship to environment Simon on 3839 requisite variety in 8283 83f role in organizational knowledge creation 7375 Simons theory of 3739 synthesis with individuals 23940 Western versus Japanese conception of 9 Organizational culture in hypertext organizational structure 167 233 241 theories and studies of 42 Organizational evolution theory 165 Organizational intention See Intention organizational Organizational learning theories 4446 55 n Organizational sensemaking W eicks theory of 3940 42 Organizational structure See also Hierarchy Middleupdown management Nonhierarchy of bottomup organization 12527 bureaucratic 16063 193n in Japanese military during World War II 16366 designing 8788 for requisite variety 8283 83f flat 127 162 17374 193m at GE 132f hypertext 16061 16671 169 226 23334 at Kao 17179 versus matrix structure 17071 at Sharp 17992 and electronic organizer development 19092 of Japanese military during World War II 160 163 16365 165 194m at Kao 8283 83f 161 17179 175f at 3M 141 f matrix 17071 194m in Shin CaterpillarMitsubishi REGA project 215 new models of 16062 193n194n pyramidal 125 at Sharp 161 171 17992 synthesis of bureaucracy and task force models example of US Marines during World War II 163 165 66 synthesis of bureaucracy and task force models in 16061 163 166 170 See also Organizational structure hypertext task force 16063 193m in Japanese military during World War II 194m in US military during World War II 16566 194m of topdown organization 125 o f US military during World War II 160 163 16566 194m Organizational theory Western concepts of knowledge in 3742 238 critique of 4950 Organizations Simon 38 Organizing Weick 40 Orr J E 90m Osaka International Hotel 1045 Outside constituents 84 89 Overadaptation to past successes in Japanese organizations 165 198 2 2 2 m Overseas trips for personnel in Nissans development of Primera 204 2068 Paralysis by analysis syndrome 198 Parmenides 51m Pascale R T 53m Pearl Harbor battle at 194m Pedigo 158m Penrose Edith T 34 46 53m Perrow C 193m Personal computers See also Apple Computer Microsoft NEC development of PC8000 personal computer meetings via 245 Index 277 Personal copiers See Canon development of MiniCopier Personality whole in Japanese concept of knowledge 29 Personnel change fluid at Kao 17273 Peters Tom J 42 127 137 Pfeifer J 42 Phenomenological reduction Husserl 252 6 Phenomenology 2526 52n Piaget J 93n PIMS model See Profit Impact of M arketing Strategy PIMS model Pinchot Gifford 137 139 Pisano G 47 Planning process Penrose on 34 Plato epistemological thought of 2122 51n PointOfSales POS system 92n93n of ItoYokado 245 of Kraft General Foods 68 Polanyi Karl 91 n Polanyi Michael 38 5960 66 75 91n 223n Policy implementation use of internalization for 70 71 Porter Μ E 5 41 POS See PointOfSales POS system PostCapitalist Society Drucker 43 Postit Notes 3M invention of 135 137 38 PPM See Product Portfolio Management Pragmatism philosophical tradition of 27 Prahalad C K 4 6 4 9 Prigogine I 93n Primera See Nissan Motors development of Primera Printers laserbeam Canons 149 156 Problem solving brainstorming for Canon MiniCopier example 14243 example 63 for customer complaints computerized system for at General Electric GE 69 garbage can model of 3940 Simons theory of 3 739 Procedural knowledge 6162 9 In Product concept See also Concept creation Product development in American football versus rugby style of product development 21112 creation and communication of in Nissans Primera development 2024 203 Product development See also specific product American football approach to 21112 24243 building redundancy into 81 characteristics of 23132 combination in examples of 6869 concurrent engineering process of 119 20 223n customers and 64 effect of Matsushita MTM communication system on 121 externalization in Canon MiniCopier as example of 6566 as illustration of knowledge creation spiral 73 innovation during crisis Honda Accord design as example of 17 Japanese versus American styles of 214 Japanese versus European styles of for highend automobiles 20911 211 Japanese versus US approaches to in Shin CaterpillarMitsubishi joint venture 21315 at 3M 13540 o f Matsushita Gaoh TV set 11213 of Matsushita Home Bakery 1009 102 107 metaphor and analogy in 66 66 Nissans organization of 200 201f 20910 See also Nissan Motors development of Primera overlapping 78 210 See also Product development rugby approach to phase systems of types of 78 78f relay approach to 78 78 21012 214 24243 rugby approach to 78 78f y 81 93n 20912 214 24243 disadvantages of 118 210 sequential See Product development relay approach to at Sharp 18185 190 195n electronic organizer example 19092 socialization in examples of 6364 studies of recognition of tacit knowledge in 49 using knowledge conversion in Honda City design as example of 1112 using redundancy in 14 using teams for 7678 93n94n Product ideas new 3M support of 1 39 40 141f 278 Index Production personnel involvement in design in Nissans development of Primera 207 Production process use of internalization for 71 Productivity human relations theory view of 36 of knowledge and service workers Drucker on 4344 Matsushitas Revival Plan to increase effect of 12122 Matsushitas workhour reduction program to enhance 11720 Product Portfolio Management PPM 40 54n Profit Impact of Marketing Strategy PIMS model 4041 Project leaders in American football product development approach 21112 in universal knowledge creation model 22930 Project management use of internalization for 71 Project teams in hypertext organization 16771 in Japanese companies 19899 at Kao 17172 17475 at Sharp 17980 18385 191 Prototype as archetype 87 customer trials of 89 245 See also Customers interaction with development of See also Product development in hypertext organization Sharps electronic organizer example 19092 Matsushita Home Bakery example 1026 Pure consciousness Husserl 25 Pure experience Nishida 2930 52n Purpose of organization 93n See also Intention Pyramidal organizational structure 125 Quinn James B 6 7 43 12728 193n Rafarga Honda 15556 Rationalism 2126 30 61 Continental 2324 Rationality and explicit knowledge 60 6 It RCA GE purchase of 13435 RD See also Research as lead in product development process Japanese preference for 214 RD scientists See also Researchers as knowledge specialists 15354 Reality Japanese versus Western view of 3132 Recession reaction of Japanese companies to 4 Recontextualization in hypertext organization 167 233 at Kao 17577 at Sharp 186 Redundancy building into organization 8182 in concept creation phase of organizational knowledge creation 86 as condition for knowledge creation 8082 225 of information and archetype building 88 in concept creation phase of organizational knowledge creation 86 and concept justification 87 and crossleveling of knowledge 89 in development of Matsushita Home Bakery 103 importance of 8082 94n in Matsushita communication infrastructure 12021 in Matsushita Cooking Appliances Division integration 99 in Matsushita corporate vision reestablishment 116 in Matsushita MIT93 workhour reduction program 120 in sharing of tacit knowledge phase of organizational knowledge creation 85 need to reduce in Japanese companies 244 role in organizational knowledge creation 14 Reexperiencing 69 Reflection collective 6465 71 231 and creative chaos 7980 REGA series of hydraulic shovels See Shin CaterpillarMitsubishi development of REGA hydraulic shovels Index 279 Reich Robert 6 7 15253 Relay approach to product development 78 78 21012 214 synthesis with rugby approach 24243 Relayrugby dichotomy 24243 Renown 153 235 Requisite variety and archetype building 88 in bureaucratic and hypertext organizations 194 n in concept creation phase of organizational knowledge creation 86 as condition for knowledge creation 808 2 225 and crossleveling of knowledge 89 in development o f Matsushita Home Bakery 103 diversity as source of 197 220 229 enhancement by instant retail information at Matsushita 121 and Matsushita ACTION 61 reorganization plan 979 9 in Matsushita corporate vision reestablishment 116 in Matsushita M IT93 workhour reduction program 120 nonexperts as source of 232 of team members in sharing of tacit knowledge phase of organizational knowledge creation 85 Research Sharps organization of 1 81 90 182f electronic organizer example of 1 90 92 Researchers in Kaos hypertext organization 173 as knowledge specialists 15354 in Sharps hypertext organization 186 Resourcebased approach to strategy 4 6 49 Restructuring to maintain requisite variety 83 Reverse concept Canon 144 145f Rhythms in bureaucratic task force and hypertext organizations 194n in teams highdensity field as synchronization site for 231 management of 14243 Rice cooker with induction heating IH system development by Matsushita 110 Roethlisberger F J 36 Romer P M 53n Rosch E 52i53i Rotary engine Mazda development of 157 Rotation o f personnel throughout organization 81 83 at Kao 173 Rugby approach to product development 78 78 81 93n 20912 214 disadvantages of 118 210 synthesis with relay approach 24243 Russell B 2425 50i51i RussoJapanese War 164 RX7 sports car Mazda See Mazda RX 7 64 Ryle G 91i Saeki 189 Saito Kei 14243 14750 159λ Sakai Shigeru 202 207 Sakakibara K 194n Sakuma Shoji 121 123n Salas E 91 n Sales cooperation with manufacturing Matsushita MTM communication system enhancement of 121 Sales management using combination 68 71 Sam urai education on acquisition of knowledge 29 239 Sano Keimei 99 101 104 1067 110 123i Santana automobile 200 Sanyo 153 235 Sartre JeanPaul 26 52t Sashim i system of team product development 78 78 Satellite organizational structure 162 1931194 Scheflen A E 92i Schein E H 42 Schon D A 4546 7980 Schumpeter Joseph A 34 Science o f business strategy model 4 0 4142 Scientific management Taylor 3536 236 Scotch tape 3M invention of 137 Searle J R 59 92n Sears Roebuck 4 5 SED Sales engineering and development team system 7677 Seki Masaki 196 Selby W 232 280 Index Self Japanese concept of 31 Selforganization o f individuals 76 of system 93n of teams 76 85 93i Selznick P 161 Semiconductor industry Japanese competitiveness in 4 Senge Peter 10 4445 23839 Sensory perception role in knowledge formation 2125 Sequential knowledge 61 611 SevenEleven 245 Shannon C E 58 90i Sharp 1 7 9 8 1 195i196n development of electronic organizer 184 19092 195i196i gold badge system of 184 191 230 hypertext organizational structure of 161 171 17992 234 interaction with consumers at 18990 235 knowledge domain of 228 knowledge specialists at 154 Life Creator System of 235 new life strategy of 196n optoelectronics development at 18586 187 228 RD organization at 18192 182f strategy of as dynamic conversion of component technology and product concept 186 188f 196n 228 tacit knowledge base at 18689 Trend Leader System consumer focus groups at 190 235 Urgent Project System for product development at 18385 191 92 Shibata Tsuneo 1067 123n Shin CaterpillarMitsubishi development of REGA hydraulic shovels 21 2 13 230 as example of global knowledge creation 198 200 externalization in 218 implications for knowledge creation 22122 introduction to market 221 JapaneseAmerican clashes in 2 1 3 16 JapaneseAmerican exchange of lessons in 21820 organizational learning in 21718 organization of 21516 standardization issues in 21417 as synthesis of Japanese and American strengths 222 24344 use of design drawings in 21718 Shiozawa S I l l Shuen A 47 Shulman L E 4648 Silver Spence 137 Simon Herbert 8 3739 50 125 Singleloop learning Argyris and Schon 44 Singley Μ K 6162 skepticism in Western epistemological thought 21 23 Skills See also Technical skills accumulation by knowledge operators 152 Drucker on 44 in resourcebased approach to strategy 46 48 55n as sympathized knowledge 71 Slater R 131 13435 Smithers Ames 13839 Socialization in American football product development approach 212 crosscultural 209 See also Socialization in Nissans development of Primera Socialization in Shin Caterpillar Mitsubishi REGA project emphasis in Japanese organizations 198 and global knowledge creation 19798 209 212 222 in hypertext organization 170 knowledge conversion by vii 57 62f 6264 92n 225 238 in Matsushita corporate vision reestablishment 116 in Matsushita Home Bakery development 105 122 155 in Matsushita MIT93 workhour reduction program 120 in Nissans development of Primera 200 204 2089 212 244 overreliance on in rugbystyle product development approach 118 between product developers and customers 64 role in knowledge creation 7073 72f 91 n 155 and sharing of tacit knowledge phase of organizational knowledge creation 84 Index 281 in Shin CaterpillarMitsubishi REGA project 215 219 22122 244 and sympathized knowledge 71 72 f in task force structure 162 226 241 in topdown and bottomup management models 126 226 Socrates 5In Sofina skincare product development of 173 Software American strength in 244 Software development process 232 Software engineers as knowledge specialists 153 Sony 4 camcorder 113 Space Japanese versus Western concept of 28 Spender J C 55n Spiders web organizational structure 162 193n Sponsorship management as at 3M 13940 Sproull L S 44 Squire L R 91n SR20DE engine Nissans development of 206 Staff specialists as knowledge specialists 153 Stalk G 4 6 4 8 Stalker G M 193n Standardization global in Shin CaterpillarMitsubishi REGA project 21417 Starburst organizational structure 162 193i194n Stengers I 93 n Stewart 158n Stewart R 128 158i Sticky information von Hippel 223n Stories role in internalization 6 9 70 Strategic assets in resourcebased approach to strategy 46 55 n Strategic business unit SBU tyranny of 4 7 4 8 Strategic equivocality 79 Strategic management theories 4041 54 n critiques of 41 54 n Strategic planners as knowledge specialists 153 Strategic rotation o f personnel throughout organization 81 Strategic technology domain STD concept at NEC 74 1 5 f Strategy corporate as vehicle for organizational intention 74 86 resourcebased approach to 4649 Stratford S 1591 Sugino T 1651 Super Excellent SE Products Sharp 18485 Suppliers transfer of engineers to in Nissans production of Primera 208 Suzuki Masao l i t Symbolic analysts Reich 7 15253 Sympathized knowledge 71 12f 238 in hypertext organization 170 Synthesis of false dichotomies 23637 Synthesis Hegel 24 Systemic knowledge 12fy 72 238 in hypertext organization 170 Sharp example of 186 Systems thinking in learning organization Senge on 45 2 3 8 39 tabula rasa Locke 24 Tacit knowledge vi 22425 See also Knowledge conversion in bottomup management model 126 cognitive dimensions of 8 Polanyis concept of 5960 in commercialization stage o f product development Matsushita Home Bakery example 106 communication of 91 0 60 conversion to explicit knowledge See also Extemalization example of 1112 role of middle managers in 16 conversion to tacit knowledge See also Socialization emphasis in Japanese companies 198 versus explicit knowledge 8 9 6061 61 Polanyis concept of 5960 interaction with explicit knowledge vii 6 162 7073 238 See also Extemalization Internalization Knowledge conversion Knowledge creation epistemological dimension of in Japan 198 226 in West 198 Japanese emphasis on 8 198 237 243 282 Index Tacit knowledge contd in knowledge creation spiral 72 73f knowledge operators and 15253 in market 231 mobilization of 72 neglect in Western theories 49 Polanyi on 5960 9In problems with communicating cross culturally Shin Caterpillar Mitsubishi REGA project example of 216 redundancy and 81 relationship to explicit knowledge vii 61 236 relationship to innovation 10 70 role in organizational knowledge creation theory 56 72 sharing of 81 8485 in development of Matsushita Home Bakery 103 in Matsushita M IT93 workhour reduction program 119 Spenders classification of 55n synthesizing with explicit knowledge 23738 technical dimension of 8 Polanyis concept of 60 and technology transfer 223n Tacit knowledge base at Kao 17779 at Sharp 180 18589 Takeuchi H 14 78 78f 81 93n 242 Tale ofG en ji Murasaki 28 52n Tall Boy concept development of 12 65 7115456 tama dashi kai 63 82 230 Tanaka Hiroshi 6566 140 14344 146 150 157 159n 229 Tanaka Ikuko 63 101 1034 122 123ny 15455 Tanaka Osamu 117 123n Tanii Akio 111 Tape 3M development of 137 Task force as organizational structure 241 synthesis with bureaucracy 241 Task forces for Canon AE1 camera 14546 for Canon MiniCopier development 14450 147f multidisciplinary nature of 14648 as organizational structure 16063 166 193n 226 233 236 240 in hypertext organizations 170 194n in Japanese military during World War II 194n at Sharp 183 in US military during World War II 16566 194n Taskforce principle 193n Taylor Frederick W 8 3536 53n 125 Teams See also Honda City design Knowledge crew Task forces autonomous 76 93n 120 240 commercialization Matsushita Home Bakery example 101 106 core members in 76 crossdivisional at Kao 17475 175f crossfunctional 70 7677 I l f as highdensity fields 230 at Matsushita 1012 development for Nissan Primera 2 0 1 2 feasibility for Canon MiniCopier 142 44 at GE 159n as highdensity fields 230 human resource development at Kao 17475 managing rhythms of Canon Mini Copier example 14243 members as knowledge specialists 153 54 new product development at Kao 174 pilot Matsushita Home Bakery example 100 1023 project 7678 232 in hypertext organization 16771 at Kao 17475 175 redundant competing within one organization 14 81 role in organizational knowledge creation 1314 225 selforganizing 76 85 93n 157 222 232 23940 Technical skills sharing of 6264 71 238 Technology in hypertext organization 167 233 241 Technology transfer See also Knowledge conversion Socialization across organizational and national boundaries 223n Teece D J 47 223n Televisions See Matsushita Electric Industrial Company development of Gaoh TV set Teramoto Y 165 Test drivers at Nissan 2067 as knowledge operators 153 Thinsulate 3M development of 139 Index 283 Thomas Aquinas St 51 n Thompson E 52n53n Thompson J D 193n Thomson SA deal with GE 135 Threecircles concept GE 132 132 f 3M acceptance of failure and mistakes at 136 139 230 bottomup management of 13540 141 f individual initiative at 13538 new product ideas obsession at 13940 top managers as mentors at 13839 Threeself spirit concept Canon 148 Tichy Noel 158n159n Time Japanese versus Western concept of 28 TK80 microcomputer kit 64 234 Tobe R 165 Toffler Alvin vi 6 8 Tokiwa Fumikatsu 173 177 194n TopdownBottomup dichotomy 24041 Topdown management synthesis with bottomup management 24041 Topdown management model 12427 130 15051 226 236 GE case study of 13035 15051 Top management in bottomup organization 127 3M example 13031 135 13839 creation o f knowledge vision by 22728 effect of Matsushita Home Bakery success on 111 in hypertext organization 169 171 Kao as example of 17375 17778 in knowledgecreating company 151 knowledge creation by 125 as knowledge officers 15658 as mentors 3M example of 13031 13839 in middleupdown management model 1 2 8 2 9 2 3 2 3 3 Canon example of 140 149 in organizational knowledge creation on global scale 222 in resourcebased approach to strategy 4 8 4 9 role in combination 68 role in concept justification 87 role in fostering employee commitment to organizational intention 75 role in knowledge creation 1516 in topdown organization 12527 150 51 240 GE example of 13035 15051 in universal model of knowledge creation 22728 Torikoshi 1012 106 Transcendental idealism Kant 2425 Tregoe B B 54n Trend Leader System focus groups Sharp 190 235 Triad database system 92n93n Trust in organizational knowledge creation on global scale 222 Truthfulness as component o f knowledge 74 Tsuda Yasuhisa 200202 229 Tsuji 18589 192 195n Uenohara Michiyuki 74 ukiyoe painting 28 Umbrella concepts 156 See also Grand concepts Knowledge domain Uncertainty knowledge accumulation during times of in Japanese companies 5 6 in Matsushita corporate vision reestablishment 116 reaction of Japanese companies to 4 246 United Kingdom See Britain United States attention to safety among manufacturers in 21314 economy of shift to service base of 43 54 n Japanese observation teams sent to from Matsushita Cooking Appliances Division 99100 military in World War II organizational structure of 160 163 16566 194n United States Marines 193n in World War II 16566 United States Navy 193n in World War II 194n Unlearning Hedberg 45 Urgent Project System Sharp 18385 195n electronic organizer example of 19192 Utah International 134 Value chain model Porter of business strategy 41 Values for concept justification 87 156 justification of See also Concept justification by top management 15657 and knowledge 41 42 284 Index Values contd in organizational knowledge creation theory 59 80 in organizational intention 7475 top management responsibility for establishing 156 Varela F J 5 2 n 5 3 n 76 91 n Variety requisite See Reqmsite variety Virtual corporation concept 11 Virtual meetings at Microsoft 245 Vision in business strategy 41 54n 227 construction into knowledge in organizational knowledge creation theory 59 corporate in combination 6869 in hypertext organization 167 169 233 241 Matsushitas reestablishment of 114 16 at Sharp 186 top management responsibility for 15657 as element of corporate strategy 74 87 equivocality of 157 228 intentionally ambiguous 7980 knowledge 22728 in middleupdown management model 129 in topdown management model GE example of 13132 135 Volkswagen 200 Voluntary individuals concept Matsushita development as corporate vision 87 11416 operationalizing of 11620 von Foerster H 93n von Hippel E 49 223n Wakabayashi Naoki 97 Waldrop Μ M 94n Watanabe Hiroo 12 65 70 78 80 92ny 129 154 229 239 Waterman R H Jr 42 137 Weaver W 58 Weber Max 125 161 193i Weick Karl 3940 45 55n 93n 158r Weiss A 55n Welch Jack 13035 15051 158n159i 198 Western companies suggestions for learning from Japanese knowledgecreation approaches 24344 Western Electric Hawthorn experiments at 36 Western epistemology 2127 51 n See also Knowledge creation organizational Western approach to versus organizational knowledge creation theory 58 versus Polanyis theory of knowledge 60 Western philosophical tradition versus Japanese intellectual tradition 2 0 2 1 2 8 3 2 Westley F R 158n William of Occam 51n Winograd T 78 Winter S G 3435 Wittgenstein Ludwig 2627 52n 91 n Womack J P 208 Wooldridge B 158n Workhour reduction effects of Matsushita example 11720 WorkOut program GE 133 159n World War II US and Japanese military organizational structures during 16066 Writing as externalization 64 Wundt Wilhelm 52n Xerox 10 See Fuji Xerox Yamamoto Kenichi 157 Yamanashi Toshihaya 112 Yamanouchi Akio 149 Yamanouchi Teruo 140 142 Yanagida K 97 Yazaki Yoshi 206 Yazaki Group 153 2067 209 Yoshida Hiroshi l i t Young employees and development of Canon MiniCopier 148 150 Yuasa Y 2930 Zen Buddhism influence on Japanese concept of knowledge 2930 239 Zero information state of 232 K n o w l e d g e c r e a t i o n i s t o t h e 9 0 s w h a t e x c e l l e n c e w a s t o t h e 8 0 s I c a n t i m a g i n e a b e t t e r b o o k o n o r g a n i z a t i o n a l d e s i g n f o r i n n o v a t i o n N o r c a n 1 i m a g i n e a b e t t e r c o m m o n f o c u s f o r m a n a g e r s a n d s c h o l a r s T h i s i s t h e b e s t a n d m o s t o r i g i n a l b l e n d o f o r g a n i z a t i o n a l t h e o r y a n d p r a c t i c e w e a r e l i k e l y t o s e e f o r s o m e t i m e K a r l E W e i c k S c h o o l o f B u s i n e s s A d m i n i s t r a t i o n U n i v e r s i t y o f M i c h i g a n T h i s i s t h e m o s t c r e a t i v e b o o k o n m a n a g e m e n t t o c o m e o u t o f J a p a n T h e s a m e a u t h o r s w h o i n t r o d u c e d t h e r u g b y a p p r o a c h t o n e w p r o d u c t d e v e l o p m e n t n o w b r i n g u s a m y r i a d o f n e w c o n c e p t s t a c i t k n o w l e d g e t h e o n e n e s s o f m i n d a n d b o d y m i d d l e u p d o w n m a n a g e m e n t h y p e r t e x t o r g a n i z a t i o n t o n a m e a f e w T h e i n s i g h t s f o r t h i s b o o k o r i g i n a t e d i n J a p a n b u t t h e m a n a g e r i a l i m p l i c a t i o n s a r e u n i v e r s a l I t i s a m u s t r e a d f o r m a n a g e r s c o m p e t i n g i n t h e b o r d e r l e s s w o r l d K e n i c h i O h m a e O h m a e A s s o c i a t e s N o n a k a a n d T a k e u c h i t a k e o n a s u b j e c t t h a t i s t r u l y o n t h e f r o n t i e r o f m a n a g e m e n t t h e p r o c e s s b y w h i c h c o m p a n i e s l e a r n a n d c r e a t e c o m p e t i t i v e l y v a l u a b l e k n o w l e d g e W h a t i s r e f r e s h i n g a b o u t t h i s b o o k i s t h a t N o n a k a a n d T a k e u c h i g o b e y o n d t h e s l o g a n s t h a t h a v e c h a r a c t e r i z e d m u c h o f t h e p r e v i o u s w o r k o n t h i s s u b j e c t a n d d e l v e i n t o t h e s p e c i f i c o r g a n i z a t i o n s t r u c t u r e s a n d p r o c e s s e s i n v o l v e d i n o r g a n i z a t i o n a l c r e a t i v i t y a n d l e a r n i n g T h e y b r i n g a w e a l t h o f s p e c i f i c i n d e p t h c o m p a n y e v i d e n c e t o b e a r o n t h e t a s k T h e r e s u l t i s a n i m p o r t a n t b o o k w h i c h w i l l a d v a n c e b o t h t h e l i t e r a t u r e a s w e l l a s c o r p o r a t e p r a c t i c e M i c h a e l E P o r t e r C R o l a n d C h r i s t e n s e n P r o f e s s o r o f B u s i n e s s A d m i n i s t r a t i o n H a r v a r d U n i v e r s i t y T h i s b o o k p r o v i d e s t h e b e s t a n d d e e p e s t i n s i g h t s i n t o h o w J a p a n e s e c o m p a n i e s i n n o v a t e F o r t h e f i r s t t i m e e v e r W e s t e r n m a n a g e r s w i l l b e a b l e t o l e a r n h o w H o n d a C a n o n M a t s u s h i t a a n d o t h e r s t a p t h e i n t e l l e c t u a l c a p i t a l o f t h e i r w o r k e r s t o c r e a t e a n d e x p a n d k n o w l e d g e A t t h e s a m e t i m e t h e b o o k s h o w s w h a t J a p a n e s e m a n a g e r s a r e l e a r n i n g f r o m W e s t e r n c o m p a n i e s t o c o m p e t e m o r e e f f e c t i v e l y i n t h e e m e r g i n g k n o w l e d g e s o c i e t y T h e b o o k t a p s t h e b e s t o f t w o w o r l d s l i k e n o o t h e r b o o k I h a v e e v e r r e a d Y o t a r o K o b a y a s h i C h a i r m a n a n d C E O F u j i X e r o x C o L t d ISBN 0 1 9 5 0 9 2 6 9 4