Managing Industrial Knowledge Creation, Transfer and Utilization Ikujiro Nonaka & David J. Teece eBook covers_pj orange.indd 36 30/1/08 12:13:30 pm MANAGING INDUSTRIAL KNOWLEDGE MANAGING INDUSTRIAL KNOWLEDGE Creation, Transfer and Utilization edited by Ikujiro Nonaka and David J. Teece SAGE Publications London · Thousand Oaks · New Delhi Editorial direction Ø Ikujiro Nonaka and David J. Teece 2001 Chapter 1 Ø Ikujiro Nonaka, Ryoko Toyama and Noboru Konno 2001 Chapter 2 Ø John Seely Brown and Paul Duguid 2001 Chapter 3 Ø Claus Otto Scharmer 2001 Chapter 4 Ø Charlan Jeanne Nemeth and Lauren Nemeth 2001 Chapter 5 Ø Kaiping Peng and Satoshi Akutsu 2001 Chapter 6 Ø David J. Teece 2001 Chapter 7 Ø Robert M. Grant 2001 Chapter 8 Ø Charles Leadbeater 2001 Chapter 9 Ø Fiona E. Murray 2001 Chapter 10 Ø Henry W. Chesbrough and Ken Kusunoki 2001 Chapter 11 Ø Charles E. Lucier and Janet D. Torsilieri 2001 Chapter 12 Ø Seija Kulkki and Mikko Kosonen 2001 Chapter 13 Ø Haruo Naito 2001 Chapter 14 Ø Kazue Kikawada and Dan Holtshouse 2001 Chapter 15 Ø Hirotaka Takeuchi 2001 Chapter 16 Ø Ikujiro Nonaka and David J. Teece 2001 First published 2001 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may be reproduced, stored or transmitted in any form, or by any means, only with the prior permission in writing of the publishers or, in the case of reprographic reproduction, in accordance with the terms of licences issued by the Copyright Licensing Agency. Inquiries concerning reproduction outside those terms should be sent to the publishers. SAGE Publications Ltd 6 Bonhill Street London EC2A 4PU SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320 SAGE Publications India Pvt Ltd 32, M-Block Market Greater Kailash ± I New Delhi 110 048 British Library Cataloguing in Publication data A catalogue record for this book is available from the British Library ISBN 0 7619 5498 8 ISBN 0 7619 5499 6 (pbk) Library of Congress catalog record available Typeset by Mayhew Typesetting, Rhayader, Powys Printed and bound in Great Britain by Athenaeum Press, Gateshead Contents Preface vii Introduction 1 PART I KNOWLEDGE, CREATION AND LEADERSHIP 13 1 SECI, Ba and Leadership: a Uni®ed Model of Dynamic Knowledge Creation 13 Ikujiro Nonaka, Ryoko Toyama and Noboru Konno 2 Structure and Spontaneity: Knowledge and Organization 44 John Seely Brown and Paul Duguid 3 Self-transcending Knowledge: Organizing Around Emerging Realities 68 Claus Otto Scharmer 4 Understanding the Creative Process: Management of the Knowledge Worker 91 Charlan Jeanne Nemeth and Lauren Nemeth 5 A Mentality Theory of Knowledge Creation and Transfer: Why Some Smart People Resist New Ideas and Some Don't 105 Kaiping Peng and Satoshi Akutsu PART II FIRMS, MARKETS AND INNOVATION 125 6 Strategies for Managing Knowledge Assets: the Role of Firm Structure and Industrial Context 125 David J. Teece 7 Knowledge and Organization 145 Robert M. Grant 8 How Should Knowledge be Owned? 170 Charles Leadbeater 9 Following Distinctive Paths of Knowledge: Strategies for Organizational Knowledge Building within Science-based Firms 182 Fiona E. Murray vi Managing Industrial Knowledge 10 The Modularity Trap: Innovation, Technology Phase Shifts and the Resulting Limits of Virtual Organizations 202 Henry W. Chesbrough and Ken Kusunoki PART III MANAGING KNOWLEDGE AND TRANSFORMATION 231 11 Can Knowledge Management Deliver Bottom-line Results? 231 Charles E. Lucier and Janet D. Torsilieri 12 How Tacit Knowledge Explains Organizational Renewal and Growth: the Case of Nokia 244 Seija Kulkki and Mikko Kosonen 13 Knowledge is Commitment 270 Haruo Naito 14 The Knowledge Perspective in the Xerox Group 283 Kazue Kikawada and Dan Holtshouse 15 Towards a Universal Management of the Concept of Knowledge 315 Hirotaka Takeuchi 16 Research Directions for Knowledge Management 330 Ikujiro Nonaka and David J. Teece Index 336 Preface This volume of collected papers came out of the second and third annual University of California, Berkeley, Forums on Knowledge and the Firm held in autumn 1998 and 1999. Berkeley is a great centre of learning and in the past has excelled at linking together different disciplines and cul- tures. The Knowledge Forums were no exception, bringing together faculty members from across disciplines and continents, as well as senior execu- tives from around the world. The Forums have self-consciously endeavoured to advance several themes, which the editors trust are re¯ected in this book. One is that knowledge assets now form the basis of competitive advantage among global ®rms. The ability to create, protect, transfer and utilize knowledge assets is at the core of commercial progress and wealth creation today. Second, knowledge management involves much more than the development and deployment of new IT-based knowledge management systems. Third, we believe that the amount of disturbance technological and marketplace innovation is delivering is such that society needs new frameworks and models to explain the practices and future requirements of knowledge-based ®rms and organizations. Fourth, because of the poor state of knowledge about knowledge management, it is important at this stage to generate new ideas and frameworks rather than focus on the rigorous empirical testing of hypotheses. There will be plenty of scope for that later. The co-editors wish to thank the ®nancial sponsors of the forums, which have included Fuji Xerox, Xerox Corporation, Fujitsu Limited, Fujitsu Research Institute, Fujitsu Business Systems, and Eisai Corporation, as well as grant funds from the Alfred P. Sloan Foundation and the Air Force Of®ce of Scienti®c Research. The Institute of Management, Innovation and Organization (IMO) at University of California Berkeley was not just a ®nancial sponsor, but also provided the able staff to make it happen. These included Anita Patterson, Athena Katsaros, Janet Mowery, Stuart Graham, Satoshi Akutsu and Ryoko Toyama. We would like to especially thank Patricia Murphy, the Assistant Director of IMO. Without her sel¯ess dedication, keen eyes, in®nite patience and warm heart, neither the forums nor this book were possible. Ikujiro Nonaka David J. Teece Introduction Ikujiro Nonaka and David J. Teece Historical Background Perhaps one of the most remarkable developments of our time is the `discovery' that knowledge is the key, not just to economic progress, but also to business and corporate success. This discovery is in many ways simply a rediscovery. At least with respect to economic progress, economic historians have long recognized that technological progress is the key to prosperity. However, with respect to ®rm-level competitive advantage, widespread recognition that knowledge is the key has come much more recently. Understanding that knowledge is an asset and needs to be protected is nevertheless not new. In past centuries, alchemists and artisans alike would frequently endeavour to protect their `industrial' secrets. Indeed, the patent system had its origins in the desire to protect the design and trade secrets of the guildsmen. Even the American Constitution (Article I, Section 8) recognized the bene®ts of inventions by authorizing Congress to enact patent legislation, which it did in 1790. In the nineteenth century, Britain imposed restrictions on the migration of skilled craftsmen to the Continent in a vain effort to keep the knowledge associated with the Industrial Revolution at home. While there has been a small group of academics and others consistently beating the drum as to the importance of knowledge assets, widespread realization that this is the main game is quite recent. Indeed, some might say it is still emergent. There is also a great tendency to try and squeeze new developments into old frameworks. This frequently leads to the dismissal of `inconvenient' facts and ideas as they are too hostile to traditional frameworks and theories. However, the failure to properly conceptualize just how ®rms and management are impacted by the grow- ing importance of knowledge assets is likely to have costly consequences, especially to incumbent ®rms. Intangible Assets, Tangible Assets and Information At the outset, we wish to point out that this is a book about knowledge management, not simply information management. This is an important 2 Managing Industrial Knowledge distinction, which is too frequently overlooked. Information is data. Sometimes it is old, sometimes it is new. New information modi®es the expectations of the recipient. For example, information that oil prices have increased is most important ± it will affect expectations about the pro®t- ability of oil companies and the strength of the economy. Knowledge, on the other hand, involves the understanding of how something works. Clearly, knowledge might be impacted by the arrival of new information; but it fundamentally involves the understanding of interrelationships and behaviour. It is context-dependent. Knowledge assets are intangible and quite different from tangible assets. These differences are summarized in Table I.1. First, knowledge has aspects of what economists refer to as `public goods' ± consumption by one individual does not reduce the amount left for another. This is especially true for scienti®c knowledge. One engineer's use of Newton's laws does not subtract from the ability of others to use the same laws. However, the distinction erodes quickly as one moves towards industrial knowledge and away from scienti®c knowledge. While multiple use need not take away from knowledge ± indeed, it may well be augmented in the process of learning by using ± the economic value may well decline with simultaneous use by multiple entities. This is saying little more than the obvious. Imitators can dramatically lower the market value of knowledge by aug- menting its supply in the market. Competition simply drives down the price, even though the utility of the product has not declined.