Reprint: R0707N

In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. Yet, few managers understand the true nature of the knowledge-creating company—let alone know how to manage it.

According to this 1991 article by Japanese organizational theorist Ikujiro Nonaka, the problem is that most Western managers define knowledge—and what companies must do to exploit it—too narrowly. They believe that the only useful knowledge is “hard” (read “quantifiable”) data. And they see the company as a kind of machine for information processing.

Nonaka shows us another way to think about knowledge and its role in business organizations. He uses vivid examples from highly successful Japanese companies such as Honda, Canon, NEC, and Sharp. Managers at these companies recognize that creating new knowledge is not simply a matter of mechanistically processing objective information. Rather, it depends on tapping the tacit and often highly subjective insights, intuitions, and ideals of employees. The tools for making use of such knowledge are often “soft”—such as slogans, metaphors, and symbols—but they are indispensable for continuous innovation.

The reasons Japanese companies are especially adept at this holistic kind of knowledge creation are complex. But the key lesson for managers is quite simple: Much as manufacturers worldwide have learned from Japanese manufacturing techniques, companies that want to compete on the knowledge playing field must also learn from Japanese techniques of knowledge creation.