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 / Winter 2008 /Issue 53(originally published by Booz & Company)


The Practical Wisdom of Ikujiro Nonaka

Nonaka shifted his research methods, breaking with Simon’s view that any method allowing for subjective reflection or observation — for example, asking people to describe how their innovative breakthroughs had occurred — would contaminate the conclusions. Nonaka, in fact, began seeking out such stories, and when his team presented the findings, it created a significant buzz. He and Takeuchi followed in 1986 with their “New New Product Development Game” HBR article, which argued that conventionally sequential product development methods had become obsolete. This in turn paved the way for their research into the development of knowledge-creating companies.

A Model That Incorporates Subjectivity
In their current book, Managing Flow, Nonaka and his colleagues trace the developmental path to knowledge creation in robust detail. The companies in the book follow a spiraling course, with four basic stages:

Socialization involves mobilizing people for face-to-face communication and immersing them in shared experiences that help them develop empathy for customers. For example, when developing its Fit vehicle, Honda sent a team to visit various European cities. Their mission was to experience the life of urban Europeans, using cars in ways that echoed daily experience. Unloading a shopping cart full of groceries plus six bottles of wine in a parking lot in heavy sleet gave team members more consumer insight than an objective survey could have offered.

Externalization entails the translation of tacit experience into words and images that can be shared with a larger group. For example, a manager might in­vite a seasoned team of frontline workers to design a training manual that describes their own tacitly acquired skills. Metaphors can be highly effective in conveying the feeling of workplace experience. A product team at Matsushita Electric Industrial Company charged with building a high-speed clothes dryer that operated by means of centrifugal force used the image of stir-frying in a Chinese wok to describe the quick, short bursts of movement that would make a rotating drum efficient.

Combination is the extension of tacit knowledge into explicit forms that can then be disseminated throughout the organization. Thomas Ueno, a self-described “friend of JAIMS” and the principal of a forensic accounting firm in Honolulu, uses this part of the spiral to encourage people in his company to “think about big things outside our control, like markets, politics, the regulatory environment. The more we can connect [our tacit knowledge] with day-to-day challenges like marketing, the greater the competitive advantage we will have.”

Internalization is the reabsorption of explicit knowledge back into daily practice. This means returning to the realm of the tacit, but with an awareness of larger and more complex issues. At Eisai, employees who had been sent to observe the elderly in hospital wards came back and talked in their project teams, exploring how the insights they had gained might reshape their own R&D practices. In time, their observations became embodied in the organization’s unconscious.

These stages reinforce one another. Nonaka quotes Katsuaki Watanabe, president of Toyota, as saying that “it is the continual dynamic synthesis of actual experience and abstract expertise [meaning tacit and explicit knowledge, respectively] that enables an organization to sustain innovation.”

This spiral path is one of several imperatives that Nonaka proposes for organizations seeking to become better at creating knowledge. Another is cultivating ba by setting aside time and space for people to come to a deeper understanding of one another through conversation. He also suggests that companies assiduously map and diagram the distinctive sources of knowledge that enable them to create value in the marketplace. These include experiential knowledge assets such as people’s skills and relationships; process knowledge assets such as routines embedded in daily operations; conceptual knowledge assets such as product designs and brand equity; and systemic knowledge assets such as patents, licenses, intellectual property, and databases. Identifying them enables an organization to more effectively coordinate its resources in the service of bringing something new to the world.

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  1. Aristotle, Nicomachean Ethics, translated by Terence Irwin (Hackett, 1999): Original source on phronesis and other concepts that Nonaka draws upon.
  2. Denise Caruso, “The Real Value of Intangibles,” s+b, Autumn 2008: The case for standards for appraising the worth of nonphysical assets like brands, human capital, and tacit knowledge.
  3. Kevin Dehoff and John Loehr, “Innovation Agility,” s+b, Summer 2007: Knowledge creation lies at the heart of Toyota’s groundbreaking product development process.
  4. Peter Drucker, Adventures of a Bystander (HarperCollins, 1991): Autobiography of the great management writer, with a chapter on the Polanyi family.
  5. Michael Farber, Tom Greenspon, and Jeffrey Tucker, “The Practical Visionary,” s+b, Spring 2008: The new role of the chief information officer may make it easier to implement knowledge management as a process centered in human conversation.
  6. Tim Laseter and Rob Cross, “The Craft of Connection,” s+b, Autumn 2006: Discusses how organizational network analysis is helping companies share knowledge worldwide, one natural broker at a time.
  7. Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation (Oxford University Press, 1995): Nonaka’s first major inside look at knowledge creation, primarily at Japanese companies.
  8. Ikujiro Nonaka, Ryoko Toyama, and Toru Hirata, Managing Flow: A Process Theory of the Knowledge-Based Firm (Palgrave, 2008): In-depth theory of knowledge-based management with an emphasis on the practical wisdom called phronesis.
  9. Jeffrey Rothfeder, “Jeffrey Liker: The Thought Leader Interview,” s+b, Summer 2008: A lean process expert explains why companies without ba find it so hard to emulate Toyota.
  10. Ikujiro Nonaka’s Web site, Hitotsubashi ICS Business School: Includes a bibliography of Nonaka’s published work.
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