Ikujiro Nonaka and his colleagues have derived insights into knowledge creation by studying ideas-led firms like Toyota, Canon, Honda and Kumon - exploring how Japanese companies with consistently superior results develop innovative products and services by harnessing the power of knowledge and innovation. Unlike the prevailing Anglo-Saxon model where knowledge management is generally regarded as an IT function, Nonaka sees it as a resource created by people interacting with each other.

Practical Wisdom

Nonaka uses Aristotle's concept of Phronesis - practical wisdom - as a key to leadership at all levels of an organisation. He describes this as an ethical yet pragmatic mindset developed over many years through continuous practice and experience. The case studies in the book show how leaders develop a deep sense of their organisation, their customers and the markets in which they operate through their efforts to perfect their craft. Nonaka also describes how successful leaders have a sense of 'goodness' and contribution that gives them a purpose beyond the creation of profit alone.

Innovation through Experience

As an example, Nonaka looks at Eisai, a Japanese pharmaceuticals company that stated a commitment of innovation to deliver products that meet the needs of patients. This was an unusual step in an industry where most companies focus on the needs of doctors and pharmacists. All Eisai employees were encouraged to spend time in clinical situations with elderly patients to gain a sympathetic understanding of their medical needs, their experience and their feelings as they cope with the challenges of their condition. Understanding this deeper dynamic allowed Eisai to develop an unparalleled feel for their end-customer, appreciate the value of their work to society and develop medicines best suited to address the needs of the patient.

Sustaining Innovation - Four Stages of Knowledge Creation

Socialisation - sharing experiences with customers and others in the market to develop a deep empathy with a wider population who use your product or services. For example, spending in-depth time with customers or end users as described above.

Externalisation - bringing to awareness and sharing learning and understandings with others. For example, a manager might invite a seasoned team to design a training manual that describes the skills they have acquired over years without being consciously aware of it.

Combination - connecting tacit or subjective knowledge with much bigger dynamics like markets, politics and the prevailing economic climate. For example, thinking of such subjective experiences in the context of the growing demographic of elderly people in need of specific types of care.

Internalisation - returning explicit knowledge back into daily practice, but with an added awareness of a bigger context and more complex realities. For example, the employees exploring with their project teams how their experiences in geriatric wards might reshape their R&D practices led to innovations that have made Eisai very successful in fields like the treatment of Alzheimers.

"In the act of creating, people argue. They get heated. They get upset! Without real exchange, you can't create knowledge. Knowledge creation is a human activity."