The Knowledge Creating Company [Nonaka]

Marvin Weisbord’s Productive Workplaces came up in a conversation I was having this week. If you’re into Organizational Design, this book is a must read. But when asked about my biggest insight from the book, I came to a surprising conclusion. My insight wasn’t about a particular concept that the book covered. My insight was a tangible sense of the fragility of human knowledge. Reading through the 80-year history and evolution of the Organizational Design field from Fredrick Taylor circa 1910 to Weisbord’s approach circa 1990, my most glaring insight was how much we seem to have forgotten in the 25 years since then. And how much of our “new” insights are just rediscovering of insights first discovered as early as the 1950s and 1960s.

Today’s paper, referenced in one of the IEX whitepapers I covered a couple of weeks ago, is a real gem, first published in 1991:

The Knowledge-Creating Corporation by Ikujiro Nonaka

Nonaka frames the discussion perfectly:

In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. When markets shift, technologies proliferate, competitors multiply, and products become obsolete almost overnight, successful companies are those that consistently create new knowledge, disseminate it widely throughout the organization, and quickly embody it in new technologies and products.

Nonaka makes the key distinction between explicit knowledge (seen, understood, easily communicated, captured in documentation and processes) and tacit knowledge (unseen, habits, hands-on skills, subjective insights and intuitions). Recognizing that tacit knowledge is core to what a company is, stems from the idea that:

A company is not a machine but a living organism. Much like an individual, it can have a collective sense of identity and fundamental purpose. This is the organizational equivalent of self-knowledge — a shared understanding of what the company stands for, where it is going, what kind of world it wants to live in, and, most important, how to make that world a reality.

He then lays out a framework for knowledge processing which distinguishes between 4 types of knowledge transitions (depicted above) — Socialization, Externalization, Combination, and Internalization. SECI for short:

  • Socialization (Tacit → Tacit): Knowledge is passed on through practice, guidance, imitation and observation. Example: a novice cook takes an apprenticeship with a well-known chef.
  • Externalization (Tacit → Explicit): Tacit knowledge is codified into documents, manuals, processes, technology, etc. so that it can spread more easily through the organization and outside of the organization. Example: a product manager communicates her vision for the product using a spec.
  • Combination (Explicit → Explicit): Codified knowledge sources are combined to create new knowledge. Building the full picture from the parts. Example: a comptroller puts together a financial dashboard for the company based on the dashboards of the various departments.
  • Internalization (Explicit → Tacit): As explicit sources are used and learned, the knowledge is internalized, modifying the user’s existing tacit knowledge. Example: an employee applies a new technique that he learned from a book to her day-to-day work.

Nonaka’s key insight is that new knowledge is created in the transitions from tacit to explicit (externalization), and from explicit to tacit (internalization). 

Of those two, Nonaka drills deeper into the less understood process of externalization, and outlines three interim stages in this process — metaphor, analogy, and model:

Indeed, because tacit knowledge includes mental models and beliefs in addition to know-how, moving from the tacit to the explicit is really a process of articulating one’s vision of the world — what it is and what it ought to be.

One kind of figurative language that is especially important is metaphor. 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 without the need for analysis or generalization. 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 creative process in the early stages of knowledge creation…

But while metaphor triggers the knowledge-creation process, it alone is not enough to complete it. The next step is analogy. Whereas metaphor is mostly driven by intuition and links images that at first glance seem remote from each other, analogy is a more structured process of reconciling contradictions and making distinctions. Put another way, by clarifying how
the two ideas in one phrase actually are alike and not alike, the contradictions incorporated into metaphors are harmonized by analogy. In this respect, analogy is an intermediate step between pure imagination and logical
thinking.

Finally, the last step in the knowledge creation process is to create an actual model. A model is far more immediately conceivable than a metaphor or an analogy. In the model, contradictions get resolved and concepts become transferable through consistent and systematic logic.

I’ll wrap up with three insights from Nonaka that are more directly tied to Organizational Design, covering the roles of organizational redundancy, reflection, and teams in knowledge-creating:

The fundamental principle of organizational design at the Japanese companies I have studied is redundancy — the conscious overlapping of company information, business activities, and managerial responsibilities. To Western managers, the term “redundancy,” with its connotations of unnecessary duplication and waste, may sound unappealing. And yet, building a redundant organization is the first step in managing the knowledge-creating company. Redundancy is important because it encourages frequent dialogue and communication. 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 also spreads new explicit knowledge through the organization so it can be internalized by employees.

The key to doing so is continuously challenging employees to reexamine what they take for granted. Such reflection is always necessary in the knowledge-creating company, but it is especially essential during times of crisis or breakdown, when a company’s traditional categories of knowledge no longer work. At such moments, ambiguity can prove extremely useful as a source of alternative meanings, a fresh way to think about things, a new sense of direction. In this respect, new knowledge is born in chaos.

Teams play a central role in the knowledge-creating company because they provide a shared context where individuals can interact with each other and engage in the constant dialogue on which effective reflection depends. Team members create new points of view through dialogue and discussion. They pool their information and examine it from various angles. Eventually, they integrate their diverse individual perspectives into a new collective perspective. This dialogue can — indeed, should — involve considerable conflict and disagreement. It is precisely such conflict that pushes employees to question existing premises and make sense of
their experience in a new way.
“When people’s rhythms are out of sync, quarrels occur and it’s hard to bring people together,” acknowledges a deputy manager for advanced technology development at Canon. “Yet if a group’s
rhythms are completely in unison from the beginning, it’s also difficult to achieve good results.”

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The Knowledge Creating Company [Nonaka]

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