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FEATURE
                                                    Conversation with
                                                    Ikujiro Nonaka
                                                    C. Otto Scharmer




                                          C. Otto Scharmer (COS): Why did you become interested in knowledge creation?

                                          Ikujiro Nonaka: Originally, I was interested in information processing. At the University
                                          of California, Berkeley, my major was marketing. I studied consumer decision processes
                                          under Francisco Nicosia. His major contribution was the conceptualization of consumer
                                          decision processes from the perspective of information processing. My interest shifted
                                          from marketing to organization theory after I took a sequence of three sociology courses
                                          from Neil Smelser’s theoretical viewpoint and Arthur Stinchcomb’s methodological view-
                                          point—a beautiful marriage of theory and method. We had to construct our own social
                                          theory, so I proposed a theory on centralization versus decentralization.
                                               The turning point in my transition from information to knowledge came when I par-
     Ikujiro Nonaka                       ticipated with my colleagues Hirotaka Takeuchi and Kenichi Imai in a Harvard Business
     Professor
                                          School colloquium on productivity and technology in March 1984. I found that the ex-
     Hitotsubashi University
     Xerox Distinguished Professor        isting theory of information processing was not adequate. The process of innovation is
     of Knowledge                         not simply information processing; it’s a process to capture, create, leverage, and retain
     University of California, Berkeley   knowledge. I was beginning to theorize how an organization creates knowledge.

                                          COS: What brought you to the insight that information processing is insufficient? Was it
                                          your exposure to companies, to particular pieces of literature, or was it your thinking?

                                          Ikujiro Nonaka: When we talked with individuals in innovative organizations, they al-
                                          ways started with their beliefs. A belief about images of the world, which you may call a
                                          mental model, is subjective. They tried to convert this subjective belief into objective lan-
                                          guage. They also tried to justify it within their organizations and finally realize it in a con-
24
                                          crete form. The whole process originated in their subjective beliefs.
                                               But as you know, Herbert Simon’s information processing paradigm tries to separate
                                          facts and values. Value problems are always avoided in “science,” which has to be based
                                          on facts. So in his theory, Simon intentionally excludes value problems. He treats value
                                          as a given because it is subjective. Information processing excludes our beliefs and im-
                                          ages of reality. But an innovation comes from a subjective belief or an image of the world.
                                               I tried to differentiate two types of information, namely, syntactic and semantic in-
     C. Otto Scharmer
     Lecturer, MIT Sloan School of
                                          formation, and wrote The Corporate Evolution: Managing Organizational Information
     Management                           Creation. I shifted from information processing to information creation. With this in
     University of Innsbruck, Austria     mind, I continued research on the innovation process and discovered that information
     Research Partner, Generon            creation is not enough. Finally, I came up with the idea of knowledge creation.
     Consulting
                                          COS: What is the difference between information creation and knowledge creation?

     © 2000 by C. Otto Scharmer.          Ikujiro Nonaka: In simple terms, information is the flow, and knowledge is the stock.
     McKinsey & Co. sponsored the         Information is the flow of a message, while knowledge is created by accumulating infor-
     interview, which was conducted       mation. Thus, information is a necessary medium or material for eliciting and construct-
     in February 1996.                    ing knowledge.



                                                                                                           Volume 2, Number 2, REFLECTIONS
SCHARMER
      Another difference is that information is something passive. When I switch on a TV,
information comes, regardless of my commitment. But knowledge comes from my be-
lief, so it’s more proactive.
      I emphasize the nature of knowledge as “justified belief and skill.” I consider knowl-
edge to be a dynamic human process of justifying personal belief toward the truth. More




                                                                                                                                    Conversation with Ikujiro Nonaka
broadly, knowledge has to do with goodness, beauty, and truth. I found this aspect of knowl-
edge while studying the innovation process. When you look into the innovation process, it
really has to do with developing a justified true belief. The innovation process is not simply
information creation, but starts from our beliefs and aspirations and is finally crystallized
within and between organizations through collaboration.
      In the West, there is a long history of philosophical
inquiry into knowledge or epistemology, from Plato to            . . . knowledge has to do with
Descartes to Michael Polanyi. Drawing especially on
Polanyi, I conceptualized knowledge in terms of two             goodness, beauty, and truth.
types, tacit knowledge and explicit knowledge. Tacit
knowledge is personal, context-specific, and therefore
hard to formalize and communicate. Explicit knowledge, on the other hand, is transmit-
table in formal, systematic language.
      Tacit knowledge and explicit knowledge are not totally separate but are mutually
complementary entities. Without experience, we cannot truly understand. But unless we
try to convert tacit knowledge to explicit knowledge, we cannot reflect upon and share
it organizationally. Through this dynamic interaction between the two types of knowl-
edge, personal knowledge becomes organizational knowledge. And the knowledge or in-
tellectual infrastructure of an organization encourages its individual members to develop
new knowledge through new experiences.
      This dynamic process is the key to organizational knowledge creation. The interaction
between the two types of knowledge brings about what I call four modes of knowledge con-
version, that is, socialization, externalization, combination, and internalization (figure 1).
      Socialization is a process of creating common tacit knowledge through shared expe-
riences. For socialization, we need to build a field of interaction, where individuals share
experiences and space at the same time, thereby creating common unarticulated beliefs
or embodied skills.
      Externalization is a process of articulating tacit knowledge into such explicit knowl-
edge as concepts and/or diagrams, often using metaphors, analogies, and/or sketches.
This mode is triggered by a dialogue intended to create concepts from tacit knowledge.
Creating a new product concept is a good example.
      Combination is a process of assembling new and existing explicit knowledge into a
systemic knowledge, such as a set of specifications for a new product prototype. Often,
a newly created concept should be combined with existing knowledge to make it mate-
rialize it into something tangible.                                                                                                      25
      Internalization is a process of embodying explicit knowledge into tacit, operational
knowledge such as know-how. “Learning by doing or using” triggers this mode. Explicit
                                                                                                 Figure 1 Four modes of knowledge
knowledge documented into text, sound, or video formats facilitates the internalization
                                                                                                 creation.
process. Therefore, manuals, a quintessential example of
explicit knowledge, are widely used for internalization.

COS: On the one hand, you are criticizing approaches to
learning that are overly centered in the mind, that lack
“learning by doing.” On the other hand, you relate learn-
ing concepts to internalization, which primarily is learn-
ing by doing. How do those two go together?

Ikujiro Nonaka: I would like to talk about the differ-
ences between organizational learning and knowledge
creation later. But in the theory of organizational
knowledge creation, we have to go through all four
modes dynamically. It seems to me that organizational



REFLECTIONS, Volume 2, Number 2
SCHARMER

                                   learning theories do not comprehend this whole dynamic process. I limit learning to in-
                                   ternalization alone, namely, conversion from explicit knowledge to tacit knowledge.
                                   Learning theories cannot explain the innovation process or the total process of organiza-
                                   tional knowledge creation.
Conversation with Ikujiro Nonaka




                                   COS: From what I know about the work of the Society for Organizational Learning (SoL),
                                   I would say that Peter Senge’s concept of generative learning is essentially about the pro-
                                   cess of creating. It starts with what people want to create and focuses on the creative ten-
                                   sion between aspiration, on the one hand, and current reality, on the other. So his whole
                                   notion of personal mastery is based on the methodology of the creative arts. I would like
                                   to focus on your work and on the architecture of your theory first, and then discuss how
                                   that relates to learning theories and SoL. I think SoL’s work is in tune with your theory.
                                        In middle-up-down management, there is a differentiation between roles, and people
                                   have only one role. There is a functional differentiation, where different people play dif-
                                   ferent roles and come together in a team for knowledge creation. In the hypertext organi-
                                   zation, there is another type of differentiation, and the people participate in all three roles.
                                        As I see it, the hypertext organization is much more related to twenty-first century
                                   thought than middle-up-down management, which is more traditional, in my view, be-
                                   cause you are saying there are three roles and different people play different roles. So
                                   my questions are: How does middle-up-down management relate to the hypertext orga-
                                   nization? How do the three levels integrate? What is the integration between the three
                                   structural levels and between the three roles?

                                   Ikujiro Nonaka: First of all, I emphasize the positive roles of middle managers. In the US,
                                   middle managers are denigrated as cancer. The Japanese see middle managers as key to
                                   facilitating the process of organizational knowledge creation. They serve as the strategic
                                   knot that binds top management with front-line managers. They are a bridge between the
                                   visionary ideals of the top and the often chaotic realities of business confronted by front-
                                   line workers. They are the true “knowledge engineers” of the knowledge-creating company.
                                        In the middle-up-down model, top management creates a vision or a dream, while
                                   middle management develops more concrete concepts that front-line employees can
                                   understand and implement. Middle managers try to solve contradictions between what
                                   top management hopes to create and what actually exists. In other words, top
                                   management’s role is to create a grand theory, while middle management tries to create
                                   a mid-range theory that it can test empirically within the company with the help of front-
                                   line employees. The middle-up-down model is not an either-or approach; it is an inter-
                                   active process of both top-down and bottom-up.

                                   COS: Middle managers have to integrate the whole system, right?
26
                                   Ikujiro Nonaka: Yes. So to promote integration structurally, the hypertext organization
                                   comes in. It is the dynamic synthesis of the bureaucratic structure and the task-force
                                   structure, and it reaps benefits from both. The bureaucratic structure efficiently imple-
                                   ments, exploits, and accumulates new knowledge through combination and internaliza-
                                   tion, while the task force is indispensable for creating new knowledge through
                                   socialization and externalization. The efficiency and stability of the bureaucratic struc-
                                   ture are combined with the effectiveness and dynamism of the task force in a hypertext
                                   organization. Moreover, another layer, the knowledge base, serves as a clearinghouse for
                                   the new knowledge generated in the bureaucratic structure and the task force.

                                   COS: I think I understand this. But what is much less clear to me is the knowledge-base
                                   layer. Sometimes you call it the corporate university and sometimes the knowledge base.

                                   Ikujiro Nonaka: The knowledge-base layer includes such intellectual capital as corporate
                                   vision, organizational culture, databases, and individual knowledge. Once the cross-func-
                                   tional team completes its task, team members move down to the knowledge-base layer
                                   and make an inventory of newly created knowledge. Then team members return to the
                                   business layer for routine operations until called to another project.


                                                                                                    Volume 2, Number 2, REFLECTIONS
SCHARMER
                                                                                                                                      Conversation with Ikujiro Nonaka
                                                                                               Figure 2 The hypertext organization.
                                                                                               Source: Ikujiro Nonaka and
                                                                                               Hirotaka Takeuchi, The Knowledge-
                                                                                               Creating Company, Oxford
                                                                                               University Press, 1995, p. 169;
                                                                                               reprinted with permission of the
                                                                                               publisher.




COS: So it would not include, for instance, space for reflection? You suggested institution-
alizing reflection in action. Would that be a part of the corporate university?

Ikujiro Nonaka: Before going into that, let me add what I call “enabling conditions” for
organizational knowledge creation. There are five enabling conditions in my theory—in-
tention; autonomy; fluctuation or creative chaos; redundancy; and, finally, requisite vari-
ety. Intention is embodied in an organizational vision. Autonomy increases the chance of
serendipity. Fluctuation and creative chaos stimulate interaction between organizations.
The benefits of creative chaos are possible only if members can reflect on their actions;
otherwise, chaos leads to destruction. Redundancy includes intentional overlapping of
information about business activities, management responsibilities, and the company.
Requisite variety means a minimum internal variety for the purpose of organizational in-
tegration and a maximum internal variety for an effective adaptation to the environment.
Organizational information and knowledge must match the external complexity.

COS: Different levels of knowledge may require different infrastructures and methods?
                                                                                                                                           27
Ikujiro Nonaka: A hypertext organization is a structural device that incorporates these
enabling conditions. What is unique about a hypertext organization is that three totally
different layers or contexts coexist within the same organization (figure 2).

COS: I am wondering if you would agree to my putting this in different terms. The first
row is about knowledge creation. The second row is about knowledge application. And
the third row is about knowledge dissemination.

Ikujiro Nonaka: Yes, so the three layers are interactive.

COS: In that sense, wouldn’t the corporate university, because it’s dealing with dissemi-
nation, include all the infrastructures dealing with capacity building and creating new
capabilities? I would have drawn that the other way around. Knowledge creation, knowl-
edge application, and, in between, knowledge dissemination. Because the basic dialectic
is between these two, and the other is in between. That, in a way, is a major innovation
conceptually, because the task force level has been thought about before.

Ikujiro Nonaka: You may be right. That’s an interesting idea and good suggestion.



REFLECTIONS, Volume 2, Number 2
SCHARMER



                                                                       COS: Concerning your five stages or model of organizational knowledge creation, from the
                                                                       view of Western companies, the most crucial ones are steps one and five (figure 3). In your
                                                                       writings and based on your experience, you are focusing mostly on externalization, which
                                                                       is also very important. But I think steps one and five are even more important.
Conversation with Ikujiro Nonaka




                                                                       Ikujiro Nonaka: Socialization, right?

                                                                       COS: Yes, because you have the infrastructure in place in Japanese companies, whereas
                                                                       the infrastructure is missing in US and European companies. In the US, there are differ-
                                                                       ent conditions. How could you create such an infrastructure to give a point of departure
                                                                       for the whole process?

                                                                       Ikujiro Nonaka: First, I’ll answer your question about organizational structure. I wrote a
                                                                       Japanese-language book on the US Marine Corps. The Marine Corps has a unique orga-
                                                                       nizational system called the Marine Air-Ground Task Force (MAGTF). The idea is to keep
                                                                       the air, land, and logistical elements together as an integrated team.

                                                                       COS: . . . fractal structure, right?

                                                                       Ikujiro Nonaka: Yes. It moved very quickly from a group to an organization without los-
                                                                       ing the basic functions of an organization. Without a fractal configuration, the organiza-
                                                                       tion has to dissolve.
                                                                            Most cross-functional teams in Japanese companies consist of 10 to 30 members with
                                                                       diverse backgrounds, and there are 4 to 5 core members, each with multiple functional
                                                                       backgrounds. Is socialization crucial? Yes, but companies like 3M or Hewlett-Packard are
                                                                       very team-oriented and individual-oriented. Organizationally, Japanese companies en-
                                                                       force the formation of cross-functional teams, but in 3M’s case, it’s more voluntary, spon-
                                                                       taneous, or autonomous. But the difference is a matter of degree, not kind.
                                                                            I have to admit that socialization is difficult to achieve in the US because of its indi-
                                                                       vidualism and incentive systems. The Japanese incentive system is more team-oriented,
                                                                       and, in principle, we don’t lay off people. Consequently, it is relatively easy to share ex-
                                                                       periences at Japanese companies. I admit there are infrastructural differences, but none-
                                                                       theless, socialization is possible in the US. With socialization, American teams are
                                                                       stronger than Japanese ones, because Americans are strong individuals. Strong individu-
                                                                       als and a strong team are complementary. Japanese teams may not necessarily be so.
                                                                            To institutionalize team-oriented spirit, however, US organizations may need strong
                                                                       corporate cultures, such as those at 3M, HP, or the Marine Corps. For the Japanese, it’s
                                                                       relatively easy to do that without strong organizational cultures.
28




                                   Figure 3 Five-phase model of the
                                   organizational knowledge-creation
                                   process.
                                   Source: Ikujiro Nonaka and
                                   Hirotaka Takeuchi, The Knowledge-
                                   Creating Company, Oxford
                                   University Press, 1995, p. 84;
                                   reprinted with permission of the
                                   publisher.



                                                                                                                                      Volume 2, Number 2, REFLECTIONS
SCHARMER
COS: In the process model, is cross-leveling really a fifth phase, or is it a higher level of
the previous four? SoL has had success in some projects, but in organizationwide dissemi-
nation of learnings and results, the whole corporate system reacts. The dissemination
process does not work right.




                                                                                                         Conversation with Ikujiro Nonaka
Ikujiro Nonaka: Again, fractal or holographic structures help.

COS: What exactly does fractal mean in terms of different functions or different hierar-
chical levels?

Ikujiro Nonaka: Both are related. Autonomous individuals function as part of the fractal
or holographic structure, in which the whole and each part share the same information
and knowledge. Original ideas emanate from autonomous individuals, diffuse within the
team, and then become organizational ideas. In this respect, the self-organizing indi-
vidual assumes a position that is analogous to the core of nested Russian dolls. From the
viewpoint of knowledge creation, an organization is more likely to maintain greater flex-
ibility in moving from an individual to a group, to a department, a division, and corpora-
tion, and again back to the individual.
      What we call the hypertext organization is made up of interconnected layers or con-
texts: the business system, the project team, and the
knowledge base. In the case of Sharp, the Urgent Project
System gives its members, who could be recruited from
any section or department, the same “gold badge” au-
                                                                  . . . the self-organizing individual
thority as corporate directors during the project period.        assumes a position that is analogous
Once the team develops a concept and a prototype, they
are quickly transferred to the relevant divisions for crys-      to the core of nested Russian dolls.
tallization. In the hypertext organization, you have to
have strong support from top management to form this type of team.

COS: You sometimes define a hypertext organization as the ideal situation in which its
members can switch to the context they need. But in your examples, it’s not that flex-
ible. If I’m appointed by the president to a top-priority team, that doesn’t mean that I can
switch the context whenever I choose. I haven’t seen this instant switch in your ex-
amples. I have seen it only in your definition.

Ikujiro Nonaka: Of course, changing the context within the company is constrained by
management. But the friction among individuals and groups in setting their task bound-
aries is greater and more dynamic in the hypertext organization. Once top management
approves the members of the Urgent Project Team, they are empowered to do whatever                            29
they like to complete the project within a limited time. Also, they closely interact with
top management. The roles and functions of top, middle, and lower-level managers may
rotate depending on the context within this compressed process. For example, a project
leader may take the role of a top manager, and a CEO can be below him or her, depend-
ing on the phase of the project.
     Why knowledge creation? The most fundamental idea is that we can synthesize vari-
ous theories and methods from the perspective of knowledge or knowledge creation. In
neoclassical economics, the market is conceptualized as the place for competition,
mainly in terms of price. What has not been explored so far is that the market can be
viewed as a reservoir of knowledge. As Friedrich Hayek pointed out, the most critical
knowledge in the market is contextual, namely, tacit knowledge.
     How to build a system to convert tacit knowledge in the market to explicit knowl-
edge and finally crystallize it into a product is an organization’s fundamental function.
Organization design can be conceptualized totally from the perspective of knowledge
creation.
     We can also reconceptualize business strategy from the knowledge-creation perspec-
tive, that is, how to capture, create, leverage, disseminate, and retain intellectual capital or
knowledge. Leadership processes are also conceptualized from the perspective of initiating,


REFLECTIONS, Volume 2, Number 2
SCHARMER

                                                                                   promoting, and maintaining the four modes of knowledge
                                                                                   creation. Knowledge engineering is the key process of lead-
                                                                                   ership behavior. Corporate culture is further conceived from
                                                                                   the perspective of shared experiences of acquiring, creating,
                                                                                   exploiting, and retaining knowledge. Furthermore, it may be
Conversation with Ikujiro Nonaka




                                                                                   possible to construct basic disciplines of knowledge cre-
                                                                                   ation, such as the economics, sociology, or psychology of
                                                                                   knowledge creation.

                                                                                   COS: Your criticism of Western theoreticians such as Peter
                                                                                   Senge is that they lack theory. So you’re using an argu-
                                                                                   ment that Western folks usually use against, for instance,
                                                                                   Japanese approaches.

                                                                                   Ikujiro Nonaka: The learning model is rooted in the Skin-
                                   © Gene Beyt                                     nerian behavioral paradigm, but our theory is rooted in
                                                                                   epistemology.

                                                 COS: I agree that learning concepts are about combination and internalization. But the
                                                 work at SoL includes the externalization piece. For instance, dialogue plays a critical role
                                                 in SoL’s work. Dialogue, based on the work of David Bohm, is understood as collective
                                                 inquiry into underlying assumptions and shared mental models. For Bill Isaacs, the di-
                                                 rector of the Dialogue Project, developing a theory of dialogue is essential. This is a field
                                                 theory, so it describes the factors that determine the quality of the field. This is, especially
                                                 for US and European companies, crucial because that’s where the problem is in many
                                                 cases.
                                                      For instance, there was a highly successful project at Ford, but the larger system re-
                                                 sisted, so the dissemination process was not successful. Research has found that one
                                                 leverage to improve quality and team learning is to improve the level of trust among
                                                 team members. In SoL’s work, I see all four angles that you describe in your work. How-
                                                 ever, your criticism may also shed some new light on what SoL is doing.

                                                 Ikujiro Nonaka: Since the introduction of our theory, I have seen a number of papers
                                                 from the learning school incorporating the four modes of knowledge creation with differ-
                                                 ent labels. I have two criticisms of learning perspectives:
                                                      First, they have not developed any comprehensive theory. They lack a view on the
                                                 fundamentals of epistemology: what is knowledge, what is the nature of knowledge, and
                                                 what constitutes learning. They are not clear about how the knowledge is captured, cre-
                                                 ated, leveraged, and disseminated. They tend to focus on methods and tools of internal-
30                                               ization. They are focused on the relationship between individuals and groups, but are
                                                 not clear about the relationships between individuals, groups, organizations, and
                                                 interorganizations.
                                                      Second, they generally consider learning to be an adaptive process. They are trapped
                                                 in the behavioralistic concept of stimulus-response. They lack an active stance toward
                                                 the environment. They view “double loop learning” as a special task.

                                                 COS: I agree with your criticism of the learning school, but I think that you are referring to
                                                 only one part of the learning field. I see four paradigms of learning. One reason I was so in-
                                                 trigued by your work is because of your basic dimensions with ontological and epistemologi-
                                                 cal distinctions. I also used those distinctions in my dissertation thesis, but in a different way.
                                                      In my thesis, the epistemological axis is the distinction between idea and experience.
                                                 The ontological axis is the distinction between materialism and spiritualism, which could
                                                 be called simple modernity and reflective modernity. Then you have four paradigms: the
                                                 rationalistic view, the adaptive concept of learning, the emergent concept of learning, and
                                                 the generative concept of learning. Senge’s approach would be the latter in my view. And
                                                 the Skinnerian approach is the adaptive approach. It is experienced-based or actual be-
                                                 havior, but only in the mode of simple modernity. So it is only the materialistic, external
                                                 view, not the spiritualistic, internal view.


                                                                                                                    Volume 2, Number 2, REFLECTIONS
SCHARMER
                                      Your criticism of Senge is that the emergent type of learning is less emphasized and
                                  the main emphasis is on the generative concept of learning. But that concept also in-
                                  cludes knowledge creation. You imply that Senge does not take into account the embodi-
                                  ment and unity of mind and body. Some of the new writings shed light on practical
                                  experiences. In The Fifth Discipline Field Book, Senge and others show that there is a lot




                                                                                                                                   Conversation with Ikujiro Nonaka
                                  of collective inquiry, to use your terminology, in the externalization mode.

                                  Ikujiro Nonaka: In our framework, learning is internalization.

                                  COS: Would you agree that there is a need for deeper theoretical reflection? The main
                                  focus of SoL’s work is not to create consistent theory, but to create a new . . .

                                  Ikujiro Nonaka: . . . practice.

                                  COS: Yes. To cooperate with real companies. To create a group of companies that has
                                  practical experiences in projects. In other words, to generate data that could generate a
                                  new theory.

                                  Ikujiro Nonaka: American pragmatism is fine. Everything is packaged. That’s something
                                  that is a fundamental difference between pragmatism and epistemology. We have to go
                                  back to Plato and Descartes.

                                  COS: I agree. But the American contribution may come from a philosophical tradition that
                                  is primarily based on pragmatism and an action orientation.

                                  Ikujiro Nonaka: Yes.

                                  COS: There may be other contributions from Japan and Europe that could develop the
                                  epistemological foundation on a global scale.

                                  Ikujiro Nonaka: You may be right, and I understand that Dr. Senge has a more profound
                                  philosophy behind the developed techniques.

                                  COS: There are also many other approaches toward organizational development and learn-
                                  ing. Russ Ackoff makes the following distinction: First, there is data, then information, then
                                  knowledge. So information is about know what, and knowledge is about know how. The
                                  next level in his terminology is understanding, or know why. To transfer knowledge, you
                                  use training; to disseminate understanding, you use education. Would you agree with
                                  Ackoff’s distinction between knowledge and understanding?
                                                                                                                                        31
                                  Ikujiro Nonaka: Understanding is built in knowledge. In our dynamic theory of organiza-
                                  tional knowledge creation, know how is acquired mainly in socialization, know why is in
                                  externalization and combination, and understanding is achieved after internalization.
                                  Through one cycle of the knowledge spiral, we truly understand. We view knowledge as a
                                  dynamic human process of justifying personal belief toward the truth. The complete cycle
                                  across four modes is a transcendental process in which individual knowledge becomes
                                  group, organizational, and interorganizational knowledge, and then back to the individual.




REFLECTIONS, Volume 2, Number 2

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Hypertext organization ikujiro nonaka interview

  • 1. FEATURE Conversation with Ikujiro Nonaka C. Otto Scharmer C. Otto Scharmer (COS): Why did you become interested in knowledge creation? Ikujiro Nonaka: Originally, I was interested in information processing. At the University of California, Berkeley, my major was marketing. I studied consumer decision processes under Francisco Nicosia. His major contribution was the conceptualization of consumer decision processes from the perspective of information processing. My interest shifted from marketing to organization theory after I took a sequence of three sociology courses from Neil Smelser’s theoretical viewpoint and Arthur Stinchcomb’s methodological view- point—a beautiful marriage of theory and method. We had to construct our own social theory, so I proposed a theory on centralization versus decentralization. The turning point in my transition from information to knowledge came when I par- Ikujiro Nonaka ticipated with my colleagues Hirotaka Takeuchi and Kenichi Imai in a Harvard Business Professor School colloquium on productivity and technology in March 1984. I found that the ex- Hitotsubashi University Xerox Distinguished Professor isting theory of information processing was not adequate. The process of innovation is of Knowledge not simply information processing; it’s a process to capture, create, leverage, and retain University of California, Berkeley knowledge. I was beginning to theorize how an organization creates knowledge. COS: What brought you to the insight that information processing is insufficient? Was it your exposure to companies, to particular pieces of literature, or was it your thinking? Ikujiro Nonaka: When we talked with individuals in innovative organizations, they al- ways started with their beliefs. A belief about images of the world, which you may call a mental model, is subjective. They tried to convert this subjective belief into objective lan- guage. They also tried to justify it within their organizations and finally realize it in a con- 24 crete form. The whole process originated in their subjective beliefs. But as you know, Herbert Simon’s information processing paradigm tries to separate facts and values. Value problems are always avoided in “science,” which has to be based on facts. So in his theory, Simon intentionally excludes value problems. He treats value as a given because it is subjective. Information processing excludes our beliefs and im- ages of reality. But an innovation comes from a subjective belief or an image of the world. I tried to differentiate two types of information, namely, syntactic and semantic in- C. Otto Scharmer Lecturer, MIT Sloan School of formation, and wrote The Corporate Evolution: Managing Organizational Information Management Creation. I shifted from information processing to information creation. With this in University of Innsbruck, Austria mind, I continued research on the innovation process and discovered that information Research Partner, Generon creation is not enough. Finally, I came up with the idea of knowledge creation. Consulting COS: What is the difference between information creation and knowledge creation? © 2000 by C. Otto Scharmer. Ikujiro Nonaka: In simple terms, information is the flow, and knowledge is the stock. McKinsey & Co. sponsored the Information is the flow of a message, while knowledge is created by accumulating infor- interview, which was conducted mation. Thus, information is a necessary medium or material for eliciting and construct- in February 1996. ing knowledge. Volume 2, Number 2, REFLECTIONS
  • 2. SCHARMER Another difference is that information is something passive. When I switch on a TV, information comes, regardless of my commitment. But knowledge comes from my be- lief, so it’s more proactive. I emphasize the nature of knowledge as “justified belief and skill.” I consider knowl- edge to be a dynamic human process of justifying personal belief toward the truth. More Conversation with Ikujiro Nonaka broadly, knowledge has to do with goodness, beauty, and truth. I found this aspect of knowl- edge while studying the innovation process. When you look into the innovation process, it really has to do with developing a justified true belief. The innovation process is not simply information creation, but starts from our beliefs and aspirations and is finally crystallized within and between organizations through collaboration. In the West, there is a long history of philosophical inquiry into knowledge or epistemology, from Plato to . . . knowledge has to do with Descartes to Michael Polanyi. Drawing especially on Polanyi, I conceptualized knowledge in terms of two goodness, beauty, and truth. types, tacit knowledge and explicit knowledge. Tacit knowledge is personal, context-specific, and therefore hard to formalize and communicate. Explicit knowledge, on the other hand, is transmit- table in formal, systematic language. Tacit knowledge and explicit knowledge are not totally separate but are mutually complementary entities. Without experience, we cannot truly understand. But unless we try to convert tacit knowledge to explicit knowledge, we cannot reflect upon and share it organizationally. Through this dynamic interaction between the two types of knowl- edge, personal knowledge becomes organizational knowledge. And the knowledge or in- tellectual infrastructure of an organization encourages its individual members to develop new knowledge through new experiences. This dynamic process is the key to organizational knowledge creation. The interaction between the two types of knowledge brings about what I call four modes of knowledge con- version, that is, socialization, externalization, combination, and internalization (figure 1). Socialization is a process of creating common tacit knowledge through shared expe- riences. For socialization, we need to build a field of interaction, where individuals share experiences and space at the same time, thereby creating common unarticulated beliefs or embodied skills. Externalization is a process of articulating tacit knowledge into such explicit knowl- edge as concepts and/or diagrams, often using metaphors, analogies, and/or sketches. This mode is triggered by a dialogue intended to create concepts from tacit knowledge. Creating a new product concept is a good example. Combination is a process of assembling new and existing explicit knowledge into a systemic knowledge, such as a set of specifications for a new product prototype. Often, a newly created concept should be combined with existing knowledge to make it mate- rialize it into something tangible. 25 Internalization is a process of embodying explicit knowledge into tacit, operational knowledge such as know-how. “Learning by doing or using” triggers this mode. Explicit Figure 1 Four modes of knowledge knowledge documented into text, sound, or video formats facilitates the internalization creation. process. Therefore, manuals, a quintessential example of explicit knowledge, are widely used for internalization. COS: On the one hand, you are criticizing approaches to learning that are overly centered in the mind, that lack “learning by doing.” On the other hand, you relate learn- ing concepts to internalization, which primarily is learn- ing by doing. How do those two go together? Ikujiro Nonaka: I would like to talk about the differ- ences between organizational learning and knowledge creation later. But in the theory of organizational knowledge creation, we have to go through all four modes dynamically. It seems to me that organizational REFLECTIONS, Volume 2, Number 2
  • 3. SCHARMER learning theories do not comprehend this whole dynamic process. I limit learning to in- ternalization alone, namely, conversion from explicit knowledge to tacit knowledge. Learning theories cannot explain the innovation process or the total process of organiza- tional knowledge creation. Conversation with Ikujiro Nonaka COS: From what I know about the work of the Society for Organizational Learning (SoL), I would say that Peter Senge’s concept of generative learning is essentially about the pro- cess of creating. It starts with what people want to create and focuses on the creative ten- sion between aspiration, on the one hand, and current reality, on the other. So his whole notion of personal mastery is based on the methodology of the creative arts. I would like to focus on your work and on the architecture of your theory first, and then discuss how that relates to learning theories and SoL. I think SoL’s work is in tune with your theory. In middle-up-down management, there is a differentiation between roles, and people have only one role. There is a functional differentiation, where different people play dif- ferent roles and come together in a team for knowledge creation. In the hypertext organi- zation, there is another type of differentiation, and the people participate in all three roles. As I see it, the hypertext organization is much more related to twenty-first century thought than middle-up-down management, which is more traditional, in my view, be- cause you are saying there are three roles and different people play different roles. So my questions are: How does middle-up-down management relate to the hypertext orga- nization? How do the three levels integrate? What is the integration between the three structural levels and between the three roles? Ikujiro Nonaka: First of all, I emphasize the positive roles of middle managers. In the US, middle managers are denigrated as cancer. The Japanese see middle managers as key to facilitating the process of organizational knowledge creation. They serve as the strategic knot that binds top management with front-line managers. They are a bridge between the visionary ideals of the top and the often chaotic realities of business confronted by front- line workers. They are the true “knowledge engineers” of the knowledge-creating company. In the middle-up-down model, top management creates a vision or a dream, while middle management develops more concrete concepts that front-line employees can understand and implement. Middle managers try to solve contradictions between what top management hopes to create and what actually exists. In other words, top management’s role is to create a grand theory, while middle management tries to create a mid-range theory that it can test empirically within the company with the help of front- line employees. The middle-up-down model is not an either-or approach; it is an inter- active process of both top-down and bottom-up. COS: Middle managers have to integrate the whole system, right? 26 Ikujiro Nonaka: Yes. So to promote integration structurally, the hypertext organization comes in. It is the dynamic synthesis of the bureaucratic structure and the task-force structure, and it reaps benefits from both. The bureaucratic structure efficiently imple- ments, exploits, and accumulates new knowledge through combination and internaliza- tion, while the task force is indispensable for creating new knowledge through socialization and externalization. The efficiency and stability of the bureaucratic struc- ture are combined with the effectiveness and dynamism of the task force in a hypertext organization. Moreover, another layer, the knowledge base, serves as a clearinghouse for the new knowledge generated in the bureaucratic structure and the task force. COS: I think I understand this. But what is much less clear to me is the knowledge-base layer. Sometimes you call it the corporate university and sometimes the knowledge base. Ikujiro Nonaka: The knowledge-base layer includes such intellectual capital as corporate vision, organizational culture, databases, and individual knowledge. Once the cross-func- tional team completes its task, team members move down to the knowledge-base layer and make an inventory of newly created knowledge. Then team members return to the business layer for routine operations until called to another project. Volume 2, Number 2, REFLECTIONS
  • 4. SCHARMER Conversation with Ikujiro Nonaka Figure 2 The hypertext organization. Source: Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge- Creating Company, Oxford University Press, 1995, p. 169; reprinted with permission of the publisher. COS: So it would not include, for instance, space for reflection? You suggested institution- alizing reflection in action. Would that be a part of the corporate university? Ikujiro Nonaka: Before going into that, let me add what I call “enabling conditions” for organizational knowledge creation. There are five enabling conditions in my theory—in- tention; autonomy; fluctuation or creative chaos; redundancy; and, finally, requisite vari- ety. Intention is embodied in an organizational vision. Autonomy increases the chance of serendipity. Fluctuation and creative chaos stimulate interaction between organizations. The benefits of creative chaos are possible only if members can reflect on their actions; otherwise, chaos leads to destruction. Redundancy includes intentional overlapping of information about business activities, management responsibilities, and the company. Requisite variety means a minimum internal variety for the purpose of organizational in- tegration and a maximum internal variety for an effective adaptation to the environment. Organizational information and knowledge must match the external complexity. COS: Different levels of knowledge may require different infrastructures and methods? 27 Ikujiro Nonaka: A hypertext organization is a structural device that incorporates these enabling conditions. What is unique about a hypertext organization is that three totally different layers or contexts coexist within the same organization (figure 2). COS: I am wondering if you would agree to my putting this in different terms. The first row is about knowledge creation. The second row is about knowledge application. And the third row is about knowledge dissemination. Ikujiro Nonaka: Yes, so the three layers are interactive. COS: In that sense, wouldn’t the corporate university, because it’s dealing with dissemi- nation, include all the infrastructures dealing with capacity building and creating new capabilities? I would have drawn that the other way around. Knowledge creation, knowl- edge application, and, in between, knowledge dissemination. Because the basic dialectic is between these two, and the other is in between. That, in a way, is a major innovation conceptually, because the task force level has been thought about before. Ikujiro Nonaka: You may be right. That’s an interesting idea and good suggestion. REFLECTIONS, Volume 2, Number 2
  • 5. SCHARMER COS: Concerning your five stages or model of organizational knowledge creation, from the view of Western companies, the most crucial ones are steps one and five (figure 3). In your writings and based on your experience, you are focusing mostly on externalization, which is also very important. But I think steps one and five are even more important. Conversation with Ikujiro Nonaka Ikujiro Nonaka: Socialization, right? COS: Yes, because you have the infrastructure in place in Japanese companies, whereas the infrastructure is missing in US and European companies. In the US, there are differ- ent conditions. How could you create such an infrastructure to give a point of departure for the whole process? Ikujiro Nonaka: First, I’ll answer your question about organizational structure. I wrote a Japanese-language book on the US Marine Corps. The Marine Corps has a unique orga- nizational system called the Marine Air-Ground Task Force (MAGTF). The idea is to keep the air, land, and logistical elements together as an integrated team. COS: . . . fractal structure, right? Ikujiro Nonaka: Yes. It moved very quickly from a group to an organization without los- ing the basic functions of an organization. Without a fractal configuration, the organiza- tion has to dissolve. Most cross-functional teams in Japanese companies consist of 10 to 30 members with diverse backgrounds, and there are 4 to 5 core members, each with multiple functional backgrounds. Is socialization crucial? Yes, but companies like 3M or Hewlett-Packard are very team-oriented and individual-oriented. Organizationally, Japanese companies en- force the formation of cross-functional teams, but in 3M’s case, it’s more voluntary, spon- taneous, or autonomous. But the difference is a matter of degree, not kind. I have to admit that socialization is difficult to achieve in the US because of its indi- vidualism and incentive systems. The Japanese incentive system is more team-oriented, and, in principle, we don’t lay off people. Consequently, it is relatively easy to share ex- periences at Japanese companies. I admit there are infrastructural differences, but none- theless, socialization is possible in the US. With socialization, American teams are stronger than Japanese ones, because Americans are strong individuals. Strong individu- als and a strong team are complementary. Japanese teams may not necessarily be so. To institutionalize team-oriented spirit, however, US organizations may need strong corporate cultures, such as those at 3M, HP, or the Marine Corps. For the Japanese, it’s relatively easy to do that without strong organizational cultures. 28 Figure 3 Five-phase model of the organizational knowledge-creation process. Source: Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge- Creating Company, Oxford University Press, 1995, p. 84; reprinted with permission of the publisher. Volume 2, Number 2, REFLECTIONS
  • 6. SCHARMER COS: In the process model, is cross-leveling really a fifth phase, or is it a higher level of the previous four? SoL has had success in some projects, but in organizationwide dissemi- nation of learnings and results, the whole corporate system reacts. The dissemination process does not work right. Conversation with Ikujiro Nonaka Ikujiro Nonaka: Again, fractal or holographic structures help. COS: What exactly does fractal mean in terms of different functions or different hierar- chical levels? Ikujiro Nonaka: Both are related. Autonomous individuals function as part of the fractal or holographic structure, in which the whole and each part share the same information and knowledge. Original ideas emanate from autonomous individuals, diffuse within the team, and then become organizational ideas. In this respect, the self-organizing indi- vidual assumes a position that is analogous to the core of nested Russian dolls. From the viewpoint of knowledge creation, an organization is more likely to maintain greater flex- ibility in moving from an individual to a group, to a department, a division, and corpora- tion, and again back to the individual. What we call the hypertext organization is made up of interconnected layers or con- texts: the business system, the project team, and the knowledge base. In the case of Sharp, the Urgent Project System gives its members, who could be recruited from any section or department, the same “gold badge” au- . . . the self-organizing individual thority as corporate directors during the project period. assumes a position that is analogous Once the team develops a concept and a prototype, they are quickly transferred to the relevant divisions for crys- to the core of nested Russian dolls. tallization. In the hypertext organization, you have to have strong support from top management to form this type of team. COS: You sometimes define a hypertext organization as the ideal situation in which its members can switch to the context they need. But in your examples, it’s not that flex- ible. If I’m appointed by the president to a top-priority team, that doesn’t mean that I can switch the context whenever I choose. I haven’t seen this instant switch in your ex- amples. I have seen it only in your definition. Ikujiro Nonaka: Of course, changing the context within the company is constrained by management. But the friction among individuals and groups in setting their task bound- aries is greater and more dynamic in the hypertext organization. Once top management approves the members of the Urgent Project Team, they are empowered to do whatever 29 they like to complete the project within a limited time. Also, they closely interact with top management. The roles and functions of top, middle, and lower-level managers may rotate depending on the context within this compressed process. For example, a project leader may take the role of a top manager, and a CEO can be below him or her, depend- ing on the phase of the project. Why knowledge creation? The most fundamental idea is that we can synthesize vari- ous theories and methods from the perspective of knowledge or knowledge creation. In neoclassical economics, the market is conceptualized as the place for competition, mainly in terms of price. What has not been explored so far is that the market can be viewed as a reservoir of knowledge. As Friedrich Hayek pointed out, the most critical knowledge in the market is contextual, namely, tacit knowledge. How to build a system to convert tacit knowledge in the market to explicit knowl- edge and finally crystallize it into a product is an organization’s fundamental function. Organization design can be conceptualized totally from the perspective of knowledge creation. We can also reconceptualize business strategy from the knowledge-creation perspec- tive, that is, how to capture, create, leverage, disseminate, and retain intellectual capital or knowledge. Leadership processes are also conceptualized from the perspective of initiating, REFLECTIONS, Volume 2, Number 2
  • 7. SCHARMER promoting, and maintaining the four modes of knowledge creation. Knowledge engineering is the key process of lead- ership behavior. Corporate culture is further conceived from the perspective of shared experiences of acquiring, creating, exploiting, and retaining knowledge. Furthermore, it may be Conversation with Ikujiro Nonaka possible to construct basic disciplines of knowledge cre- ation, such as the economics, sociology, or psychology of knowledge creation. COS: Your criticism of Western theoreticians such as Peter Senge is that they lack theory. So you’re using an argu- ment that Western folks usually use against, for instance, Japanese approaches. Ikujiro Nonaka: The learning model is rooted in the Skin- © Gene Beyt nerian behavioral paradigm, but our theory is rooted in epistemology. COS: I agree that learning concepts are about combination and internalization. But the work at SoL includes the externalization piece. For instance, dialogue plays a critical role in SoL’s work. Dialogue, based on the work of David Bohm, is understood as collective inquiry into underlying assumptions and shared mental models. For Bill Isaacs, the di- rector of the Dialogue Project, developing a theory of dialogue is essential. This is a field theory, so it describes the factors that determine the quality of the field. This is, especially for US and European companies, crucial because that’s where the problem is in many cases. For instance, there was a highly successful project at Ford, but the larger system re- sisted, so the dissemination process was not successful. Research has found that one leverage to improve quality and team learning is to improve the level of trust among team members. In SoL’s work, I see all four angles that you describe in your work. How- ever, your criticism may also shed some new light on what SoL is doing. Ikujiro Nonaka: Since the introduction of our theory, I have seen a number of papers from the learning school incorporating the four modes of knowledge creation with differ- ent labels. I have two criticisms of learning perspectives: First, they have not developed any comprehensive theory. They lack a view on the fundamentals of epistemology: what is knowledge, what is the nature of knowledge, and what constitutes learning. They are not clear about how the knowledge is captured, cre- ated, leveraged, and disseminated. They tend to focus on methods and tools of internal- 30 ization. They are focused on the relationship between individuals and groups, but are not clear about the relationships between individuals, groups, organizations, and interorganizations. Second, they generally consider learning to be an adaptive process. They are trapped in the behavioralistic concept of stimulus-response. They lack an active stance toward the environment. They view “double loop learning” as a special task. COS: I agree with your criticism of the learning school, but I think that you are referring to only one part of the learning field. I see four paradigms of learning. One reason I was so in- trigued by your work is because of your basic dimensions with ontological and epistemologi- cal distinctions. I also used those distinctions in my dissertation thesis, but in a different way. In my thesis, the epistemological axis is the distinction between idea and experience. The ontological axis is the distinction between materialism and spiritualism, which could be called simple modernity and reflective modernity. Then you have four paradigms: the rationalistic view, the adaptive concept of learning, the emergent concept of learning, and the generative concept of learning. Senge’s approach would be the latter in my view. And the Skinnerian approach is the adaptive approach. It is experienced-based or actual be- havior, but only in the mode of simple modernity. So it is only the materialistic, external view, not the spiritualistic, internal view. Volume 2, Number 2, REFLECTIONS
  • 8. SCHARMER Your criticism of Senge is that the emergent type of learning is less emphasized and the main emphasis is on the generative concept of learning. But that concept also in- cludes knowledge creation. You imply that Senge does not take into account the embodi- ment and unity of mind and body. Some of the new writings shed light on practical experiences. In The Fifth Discipline Field Book, Senge and others show that there is a lot Conversation with Ikujiro Nonaka of collective inquiry, to use your terminology, in the externalization mode. Ikujiro Nonaka: In our framework, learning is internalization. COS: Would you agree that there is a need for deeper theoretical reflection? The main focus of SoL’s work is not to create consistent theory, but to create a new . . . Ikujiro Nonaka: . . . practice. COS: Yes. To cooperate with real companies. To create a group of companies that has practical experiences in projects. In other words, to generate data that could generate a new theory. Ikujiro Nonaka: American pragmatism is fine. Everything is packaged. That’s something that is a fundamental difference between pragmatism and epistemology. We have to go back to Plato and Descartes. COS: I agree. But the American contribution may come from a philosophical tradition that is primarily based on pragmatism and an action orientation. Ikujiro Nonaka: Yes. COS: There may be other contributions from Japan and Europe that could develop the epistemological foundation on a global scale. Ikujiro Nonaka: You may be right, and I understand that Dr. Senge has a more profound philosophy behind the developed techniques. COS: There are also many other approaches toward organizational development and learn- ing. Russ Ackoff makes the following distinction: First, there is data, then information, then knowledge. So information is about know what, and knowledge is about know how. The next level in his terminology is understanding, or know why. To transfer knowledge, you use training; to disseminate understanding, you use education. Would you agree with Ackoff’s distinction between knowledge and understanding? 31 Ikujiro Nonaka: Understanding is built in knowledge. In our dynamic theory of organiza- tional knowledge creation, know how is acquired mainly in socialization, know why is in externalization and combination, and understanding is achieved after internalization. Through one cycle of the knowledge spiral, we truly understand. We view knowledge as a dynamic human process of justifying personal belief toward the truth. The complete cycle across four modes is a transcendental process in which individual knowledge becomes group, organizational, and interorganizational knowledge, and then back to the individual. REFLECTIONS, Volume 2, Number 2