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The Knowledge Creating Company- Book Review

1 September 2006

Dr. Moria Levy

In 1995, shortly after Peter Drucker coined the term "knowledge workers," the exploration of knowledge management and development began to unfold, marked by Nonaka and Takeuchi’s masterpiece, "The Knowledge-Creating Company."


The authors provide insight into Japanese business culture and present a model that addresses a question that has intrigued many: Why have Japanese companies achieved success? What sets them apart from Western societies, leading to positive bottom-line results? Notably, the book does not delve into Japanese production methods, companies' access to capital, their relationship with the government, or human resource management. Instead, it offers a knowledge-focused model, asserting that the success of Japanese companies lies in their status as knowledge-creating entities.


The book introduces a model and associated principles for transforming into a knowledge-creating society. To elucidate this model, the authors draw upon two disciplines:

  • Epistemology: Information/knowledge management theory. Along the epistemological axis, the authors explore tacit knowledge, explicit knowledge, and the transitions between them, with latent knowledge being subconscious knowledge.

  • Ontology: Mapping theory, particularly organizational mapping in this context. On this axis, the authors examine personal knowledge (Individual), group knowledge (Group), organizational knowledge, and inter-organizational knowledge (Interorganizational).


Knowledge emerges through the interaction between different knowledge elements, and there are four modes of such transitions:

  • Tacit > Tacit: Socialization- the process of sharing tacit knowledge. While knowledge absorption occurs at the individual level, the sharing and transmission of tacit knowledge occur within a group, giving rise to its name. It doesn't always necessitate verbal communication; for instance, an apprentice learning from an artist may transfer knowledge without spoken words.

  • Tacit > Explicit: Externalization- transforming tacit information into explicit knowledge. This involves building conceptual structures, and the details may not always be fully articulated. Sometimes, it consists of presenting metaphors to convey hidden knowledge, illustrating that explicit knowledge doesn't always need to be structured entirely or processed.

  • Explicit > Explicit: Combination- converting information from explicit to explicit& structured. This involves amalgamating distinct pieces of explicit knowledge through various work processes such as writing procedures, developing algorithms, and creating information systems.

  • Explicit > Tacit: Internalization- transforming explicit to tacit knowledge. This signifies an individual's comprehension of a subject by listening to stories, reading procedures, or otherwise assimilating revealed knowledge.


The creation of knowledge asserted, unfolds through a spiral development of social integration, externalization, integration, internalization, and iterative repetition. This can be visually represented in the following diagram:



Let's clarify these processes:

  1. Socialization: Involves a shared discourse within teams about personal knowledge residing in individuals. A significant assertion is made here, emphasizing that while knowledge originates in individuals, its primary development occurs through shared discourse with others.

  2. Externalization: Signifies the transformation of knowledge from tacit to explicit. This process involves structuring knowledge and creating explicit concepts that articulate it.

  3. Combination: Involves leveraging explicit knowledge by amalgamating pieces of open knowledge into a unified entity. For instance, new technologies often result from combining specific models and concepts.

  4. Internalization: Encompasses the application of knowledge, procedures, or technologies individuals develop in a particular manner, thereby re-representing tacit knowledge.


On the epistemological axis, knowledge transitions from hidden to explicit, remains explicit, and reverts to tacit. This dynamic movement occurs with caution. On the ontological axis, knowledge gradually develops from the individual to the group, to the organization, and ultimately to an inter-organizational level. This progression unfolds in a spiral manner as knowledge oscillates between hidden and overt states and vice versa.


Let's examine this text in a refined manner:

The organization aims to provide the necessary tools for knowledge development within the described context. Five primary conditions facilitate this knowledge development:

  1. Clarity and Intention: Well-defined goals in the knowledge domain and a supportive strategy for their realization.

  2. Autonomy: Cultivating an organizational culture empowers individuals in the knowledge domain to act independently within the given conditions.

  3. Fluctuation & Creative Chaos: A challenging notion for organizations is that knowledge flourishes precisely when stability is absent, especially during crises and changes. Managers may even be required to intentionally induce mini-crises to stimulate the creativity inherent in knowledge development.

  4. Redundancy: While organizations often strive to minimize duplication at the process level, those aspiring to develop knowledge must permit knowledge overlap among groups. Embracing excess knowledge is not wasteful; instead, it forms the groundwork for a more profound understanding, allowing individuals to view a system holistically and position specific knowledge within the totality.

  5. Requisite Variety– Necessary Flexibility: Organizations must foster diversity, aligning with environmental demands. This involves well-defined conditions such as computerization with free access to all company information, provision of variable processing capabilities to employees (e.g., data camps for generating diverse reports), and other tools facilitating varied interpretations of existing information. Organizationally, this translates into a flat and flexible structure where diverse partners are connected by an informal network, accommodating environmental differences.


To date, we have explored two pivotal components of the model for companies developing knowledge: an organization where defined processes facilitate transitions between tacit and overt knowledge, encompassing all possible combinations.


In an organization where five conditions are met to foster knowledge development, the third and final component of the model involves implementing five stages to cultivate new knowledge, products, and services propelling the organization forward:

  1. Sharing Tacit Knowledge: The initial and most challenging stage is sharing tacit knowledge, seemingly contradictory. Two conditions are essential for this:

    a. Sharing feelings, emotions, and thought models to establish trust.

    b. A face-to-face dialogue within a team comprising individuals with diverse perceptions and functional knowledge but bound by trust. The team is defined as an independent space with a common goal, facilitating the exchange of experiential pieces and sharing tacit knowledge.

  2. Formation of Perception: The second stage focuses on making knowledge explicit. Latent knowledge is articulated into words and sentences, forming tangible perceptions or concepts.

  3. Validation of Perception: Nonaka and Takeuchi adopt the Greek definition of knowledge- a justified true belief. The organization must validate/justify perceptions. For instance, in a business organization, this involves assessing cost and profit percentage justifications. Management formulates metrics to scrutinize established perceptions, aligning with the defined intention regarding vision and strategy.

  4. Illustrating the Perception: At this stage, perceptions become tangible through physical displays such as prototypes or mock-ups for product development or process simulations for service development. This stage clearly expresses two conditions from the earlier part of the model: necessary flexibility and information duplication.

  5. Longitudinal and Lateral Expansion: Knowledge development extends beyond illustrating concepts and creating the final product. A new knowledge creation cycle occurs in different organizational contexts—longitudinal, transverse, or both. The organization must facilitate the dissemination of knowledge beyond its initial boundaries, representing a crucial stage for a continuous cycle of knowledge development.


Nonaka and Takeuchi provide various examples in their book, applying the model to real cases in Japan. They introduce an organizational structure termed "mid-up-down," combining hierarchical and flat structures for tasks. In conclusion, they address the challenges and adaptations of the model to Western and global societies. According to their experience, global companies have successfully implemented the model, suggesting its evolution from Japanese to universal. Possibly.

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