Creating new knowledge the Japanese way

How to create a more fertile environment for new knowledge creation, based on Japanese concepts of leadership.

By Ikujiro Nonaka

The deadly tsunami that struck Japan on March 11, 2011, proved that a little knowledge, far from being a dangerous thing, can be a real lifesaver. Although thousands of people died in the disaster, in one school district, only five of the 2,900 primary and middle school students perished — and only because those five had gone home early that day.

For years beforehand, local experts had been running emergency drills with students in 14 Kamaishi area schools, practicing what to do in the event of a disaster. The lessons were integrated in various subjects, such as calculating tsunami velocity in math class, or the ethics of running for the hills to save yourself rather than heading home in search of your family, which history had shown resulted in more casualties.

When the real catastrophe hit, the well-rehearsed children sprang into action. As one 12-year-old recalled, “I was worried about my house and family, but I ran up to a higher place without thinking.”

They also worked in close cooperation, similarly without having to think too much about what they were doing. When the P.A. system malfunctioned, the older children instinctively grabbed the hands of their younger classmates and led them to safety.

Even the instructor was surprised by the children’s preparedness. “I’ve repeatedly told children in class that we might experience a tsunami larger than ever expected.” Commenting on their escape to hilltops more than two kilometers away from harm, he said, “I’m proud of the children for making (lifesaving) decisions on their own.”

This example illustrates what I call the conversion of the ordinary into the extraordinary. It contains important truths about human knowledge: that it is as much about bodily experience and prior experimentation as it is about logical and analytical thinking. The actual practice of dealing with each situation we face serves to embed the knowledge deep within us, so that our response to new situations, or even crises, can be one of resolute action, not panic or fear.

In 1995, Hirotaka Takeuchi and I coauthored a seminal book on the knowledge-creation process, based on methods pioneered in the ’80s and ’90s by Japanese companies (The knowledge-creating company: How Japanese companies create the dynamics of innovation). My contention, then as now, is that strategic management has tended to overemphasize logical and analytical thinking, focusing almost exclusively on the acquisition, accumulation and utilization of existing knowledge, particularly at the top of the organization, while paying little or no attention to the process of new knowledge creation.

Recent years have seen renewed interest in organizational knowledge creation theories. Given the sweeping changes happening across the business world with regard to more collaborative forms of learning and open innovation, companies are increasingly looking for better ways to foster new knowledge, seeing it as a key source of value creation and competitive advantage.

This article draws upon years of research I have conducted into Japanese firms. It follows on from a seminar on “Tacit Knowledge and Knowledge Conversion” that I delivered at IESE Business School on November 17, 2011. It also follows the launch of the Nonaka Institute of Knowledge, which aims to pursue basic research on knowledge and innovation.

Here I will outline a series of steps that companies and their leaders can take to create a more fertile environment for new knowledge creation.

Creating knowledge through practice

How we relate to others, and how we perceive the world that surrounds us, changes according to the situation, since both we and the world are in constant motion.

In such case, management is not merely formulated by analysis based on universal rules. Instead, management emerges through practices devised to deal with the particular problems that a firm faces. It is more art or craft than science because it is based on insight, vision and intuition, and relies on experience.

In our book, Takeuchi and I proposed that knowledge is created from the continuous interaction of both:

• tacit knowledge, that which is intuitive, ambiguous and nonlinear; and
• explicit knowledge, that which is laid down in manuals, analyzed and taught.

An organization develops knowledge in a four-stage process that we refer to as SECI, which stands for Socialization, Externalization, Combination and Internalization.

Put simply, the tacit knowledge possessed by individuals is externalized and transformed into explicit knowledge (Externalization), so that it can be shared with others (Socialization) and enriched by their individual viewpoints to become new knowledge (Combination). This is then internalized once again by a larger number of individuals as new, richer, subjective knowledge (Internalization), which becomes the basis for starting another cycle of knowledge creation.

Ba: the petri dish for creative interaction

Contrary to what some theories may hold, knowledge cannot be created in a vacuum. It needs a place or context that enables the sharing and interpretation of information to construct meaning and become knowledge. In Japan, we refer to that place as ba.

The notion of ba, which translates literally into English as place, space or field, originates in the concept of basho developed by the Japanese philosopher Nishida Kitaro and later refined by Hiroshi Shimizu.

Like a petri dish for the cultivation of ideas, ba is a temporary container for creative interaction, a shared space for emerging relationships among individuals and between individuals and their environment.

Although it may be easier to see ba as a physical space (such as an office or a meeting room), it should be understood as a multilevel state in which interactions occur at specific times and in specific places. This could include:

• working groups, project teams, informal circles and temporary meetings.
• virtual spaces, such as email groups and social media sites.
• frontline contacts with customers.

The most important feature is that the participants are sharing and building here-and-now relationships.

The importance of “indwelling”

Let’s take an example. In the late ’90s, Takaki bakery decided to upgrade its manufacturing processes. Before undertaking any action, however, managers sought advice from Mayekawa, the firm that had provided almost all of Takaki’s original systems since the ’60s.

Although Mayekawa already had considerable knowledge of dough-making, in order to serve Takaki better, Mayekawa felt it needed to understand the entire bread-making process better. To this end, four independent divisions of Mayekawa’s food products division joined forces with each other and with Takaki, dispatching engineers to Takaki’s factory to learn how to make bread.

By “indwelling” at Takaki’s factory, Mayekawa’s cross-functional teams were able to identify the root cause of manufacturing inefficiencies: Takaki’s complicated processes of sales and shipping to customers, which were creating complications on the production line.

The problems, it soon became apparent, would not be overcome by improvements inside the factory alone. A complete overhaul of all major processes was needed. With Takaki senior managers fully on board, action was swiftly undertaken.

The end result was a completely new production system that enabled Takaki to run its wholesale and retail business factories in a much more flexible, integrated way. Not only was the bread-making process improved, but a better-tasting bread was achieved, and many other processes at the factory were made more efficient.

This transformation was possible thanks to the temporary but powerful alliance formed between both companies. Such active collaboration allowed participants to share contexts, combine respective insights, learn together and create new meanings through these interactions, leading to the creation of new knowledge that was mutually beneficial for both partners. This is ba.

Locating decision-making closest to knowledge sources

Another factor at play was Mayekawa’s customer orientation, not just toward Mayekawa’s immediate customer (Takaki), but also the customer’s customer, that is, the final customer of the bread products.

This customer closeness was made possible by Mayekawa’s versatile organizational structure made up of many small independent entities, known as doppo. Each doppo employs between 10 and 15 people, and serves a particular region or focuses on a specific market.

The idea behind this structure is to locate decision-making where the relevant knowledge and information resides. Environmental sensitivity and entrepreneurial innovation are increased by creating an organization that leverages the knowledge and ideas of all employees, not just those of senior management.

Each doppo is responsible for its own business and is self-sufficient. It handles all its own functions, such as design, installation, sales, marketing, maintenance, accounting and personnel, and produces its own financial statements.

Being autonomous and self-sufficient does not mean that each doppo is isolated from the other. Far from it: the doppos often work together and sometimes form blocks, by industry or region, via which they share information and technologies, supplementing each other’s work on a project that is too large for just one, while each retains its uniqueness.

Losing the self to find the self

Mayekawa describes ba as a world that appears when the relevant people “open themselves to each other to deepen their relationship … To open oneself means to lose oneself, and the more you do so, the more you will be able to grasp ba.”

This philosophical notion of “losing the self to find the self ” is not simply the shedding of preconceptions and biases to perceive reality more clearly. It is about overcoming one’s self-centered worldview and seeing oneself in terms of one’s relationships with others, particularly clients and customers.

This approach has helped transform Mayekawa from a simple supplier of physical products and parts, to a provider of total solutions — innovations created through a process of close interaction with both the client and the wider environment.

All Mayekawa employees are encouraged to spend time out of the office and on the factory floor. After all, customer needs and solutions to their problems are often not clear and can be difficult to articulate. As one manager noted, “Customers themselves don’t know what they want … Only after we talk to them many times, or dwell in and around their shop floor, do we come to understand (their problems).”

This “indwelling” approach is essential to be able to discern appropriate answers from the blurred, complex reality.

Globalizing Japanese knowledge-creation practices

Mayekawa is just one of many Japanese companies exporting ba-based practices through their dealings with European and North American customers. Seven-Eleven Japan and the design store Muji are two examples whose global expansions have been characterized by constant dialogue and close collaboration with partners, along with the sharing and synthesis of knowledge about production, the market and customers.

In addition, much of the success of Canon and Toyota can be put down to their leaders’ abilities to tear down divisional walls and create ba where new ideas and knowledge can flourish.

Encouraging cross-divisional communication and collaboration, and fostering open environments where opinions and ideas can be freely expressed, exchanged and followed up on, is certainly familiar business practice in the West, as companies increasingly seek to acquire, utilize and build knowledge resources.

In general, European and North American companies have been quick to embrace knowledge management as an essential element of business. Particularly companies in fast-changing sectors that demand constant innovation, like technology, show a greater appreciation of the value of tacit knowledge and take a more holistic view of knowledge management.

However, there is a tendency among Western firms to focus on explicit knowledge, that which is already out in the open and available for shared use or consumption. Western firms also tend to centralize the knowledge-creation process, which misses out on the spontaneous side of creativity.

6 essential features for knowledge creation

What can companies and their leaders do to nurture a fast-flowing, knowledge-friendly environment? How can they build organic structures of ba that allow people to interact with each other and optimize their knowledge creation potential?

Ba does not materialize simply because someone has provided the space and gathered the people. There are six main features that companies must put in place in order for ba to be an effective place for knowledge creation.