The article ‘The Knowledge-Creating Company’ (Nonaka, 1991) is an eye-opening piece because it illustrates the seemingly intangible processes through which Japanese companies have established themselves as leaders in innovation and continuous learning. The article uses examples that are interesting and easily comprehensible to take the reader through the strategies and processes that any organization can implement in any part of the world.
The most interesting point of the article is that how the capability of the Japanese organizations to use ambiguity and uncertainty as a stimulus to creativity has enabled them to become leading innovators in their industry. A clear example given in this article is that of Sharp (Nonaka, 1991, p. 103) that became the leader by combining optical technologies and microprocessing technologies in a way that no other company had been able to conceive.
I feel that this is an excellent example for all organizations to emulate because it shows that whatever the strengths of an organization, it can attain leadership in innovation if it is capable of finding creative ways of pairing up its strengths to develop new products. It would be better for an organization to adopt this strategy particularly where those strengths cannot be imitated by rival organizations. The organization can use this as a source of competitive advantage to continuously derive supernormal profits over a long term. However, as the article illustrates, the long term may be quite shorter than in the past because new technologies are emerging very rapidly and organizations may need to innovate on shorter time horizons (Nonaka, 1991, p. 96). Therefore, companies like Sharp and other innovative organizations will need to develop new strengths continuously. This is where the importance of knowledge creation comes in. Knowledge creation allows an organization to increase its knowledge base through external and internal sources and to use it as a source of competitive strength.
Some interesting processes of knowledge creation in the organization have been explained in this article. Through the use of metaphors, analogies and models (Nonaka, 1991, p. 101), one comes to know how the Japanese are able to regularly come up with innovative ideas and products. This approach illustrates how organizations make the transition from identifying tacit knowledge to incorporating it into the explicit and implicit knowledge of the employees. Several examples mentioned in the article, e.g. the personal photocopier deriving inspiration from a beer can and the creation of the Honda City clearly show how a creative approach to understanding the needs of the market and the potential of technology can give rise to innovative products. As demonstrated in the case of Canon, such ideas can often rescue the organization from sinking under the weight of its legacy technologies and saturated markets (Nonaka, 1991, p. 101).
Another insight that this article provides is the idea that innovation is not just about technological development. Rather, it is also about organizational and employee development. When employees think about creative ideas, such as in the case of Ikuko Tanaka of Matsushita (Nonaka, 1991, p. 98), their ideas not only shape the market and technology of the future; in fact, their ideas also reflect on how they perceive their ideal world. Developing a knowledge-creating company is then an effective way of increasing employee commitment if they can exercise their creativity and realize their personal vision of the world as it should be.
This brings us to the role of management in shaping such an organization. Naturally, employees need to feel empowered and free to take the initiative and propose creative ideas. Therefore, senior management should demonstrate total commitment to knowledge creation and develop greater tolerance for redundancy and ambiguity (Nonaka, 1991, p. 102).
Nonaka, I., 1991. The Knowledge-Creating Company. Harvard Business Review, Nov-Dec 1991, pp. 96-104.