Thus, Nonaka’s concept of a knowledge-creating company resembles the kind of community in which generosity is prevalent, people feel recognized as distinct individuals, and informal, honest communication is commonplace. When designers of knowledge management systems fail to understand this — when they (consciously or not) treat humans as interchangeable parts, receiving and processing data — their expensive, high-tech systems get ignored. This, in a nutshell, is why so many companies have invested hundreds of thousands of dollars in knowledge management systems that fail to deliver innovative results.
Given that a quick Google search of both “knowledge management” and “human capital management” yields almost exclusively references to IT, Nonaka’s observations provide a useful corrective. As more and more companies recognize human capital as their primary resource, the concept of a knowledge-creating company becomes particularly relevant. Such a company cultivates tacit knowledge and deliberately harnesses it, often by making it explicit. Nonaka’s concept of tacit knowledge was influenced by philosopher Michael Polanyi (who called it “tacit knowing”) and by Kitaro Nishida, the great Japanese scholar, who in the early 20th century tried to find common ground between Zen practice and Western philosophical thought. Tacit knowledge is a key component of innovation. It includes the unspoken knowledge that people draw on from within themselves: observations, ingrained habits, inspirations, hunches, and other forms of awareness that are typically not written down or codified, but that live in people’s minds and bodies, and give any organization much of its distinctive edge over competitors.
One evocative story from The Knowledge-Creating Company describes the product launch team at Canon Inc. as it struggled to devise an inexpensive, replaceable photocopier drum, which was an essential part of the company’s strategy of besting the Xerox Corporation by producing an inexpensive copier for homes and small businesses. As things stood, copier drums required regular service by trained technicians; only large companies could afford that service. Team leader Hiroshi Tanaka brought in some beer, drained his can, and held it up. “How much does it cost to manufacture this?” he asked the group. His moment of insight, charged with tacit knowledge, inspired the team to come up with a process for building a low-cost disposable aluminum drum.
In Managing Flow, Nonaka and his coauthors describe a process by which any company can apply tacit knowledge. An example is Seven-Eleven Japan (SEJ). Nonaka points out that, although most analyses of the company (for example, a famous HBR case study) have focused on SEJ’s highly developed point-of-sale information management systems, it is the quality of knowledge that makes the company so successful. Staff members in every store, even part-time clerks, are charged with making continual judgments about the value of merchandise to customers: “Is it moving? If not, why are customers rejecting it? And what are the opportunity costs of a customer who is disappointed?” By drawing on the tacit insights of people on the front lines, SEJ gives its staff an incentive to build relationships with customers, whose behavior and comments provide vital knowledge to the company.
Nonaka notes that such processes flourish in organizations led by individuals who embody tacit and explicit knowledge in their own behavior. These “virtuous artisans,” as he calls them, have also been present in Western culture, dating back to Aristotle’s exploration of the idea of phronesis in his work Nicomachean Ethics. Often translated as “practical wisdom,” phronesis is the ethical yet pragmatic frame of mind held by those who can sense the essence of a situation and respond with creative and timely judgments. In Managing Flow, Nonaka quotes Soichiro Honda, founder of the company that bears his name, who once compared business judgment to making a good joke. “You have to grasp the atmosphere of the occasion,” Honda said, “which exists only for a particular moment. A joke is all in the timing, in understanding what the present evokes. To joke is to understand human emotion and be present for it.”