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Enabling Conditions for Organizational Knowledge Creation

The role of the organization in the organizational knowledge-creation process is to provide

the proper context for facilitating group activities

Five-Phase Model of the Organizational Knowledge - Creation Process

Thus far we have looked at each of the four modes of knowledge conversion and the five
enabling conditions that promote organizational knowledge creation. In this section we
present an integrated, five-phase model of the organizational knowledge-creation process,
using the basic constructs developed within the theoretical framework and incorporating the
time dimension into our theory. The model, which should be interpreted as an ideal example
of the process, consists of five phases: (1) sharing tacit knowledge; (2) creating concepts;
(3) justifying concepts; (4) building an archetype; and (5) cross-leveling knowledge .

The organizational knowledge-creation process starts with the sharing of tacit knowledge,
which corresponds roughly to socialization, since the rich and untapped knowledge that
resides in individuals must first be amplified within the organization. In the second phase,
tacit knowledge shared by, for example, a self-organizing team is converted to explicit
knowledge in the form of anew concept, a process similar to externalization. The created
concept has to be justified in the third phase, in which the organization determines if the
new concept is truly worthy of pursuit. Receiving the go-ahead, the concepts are converted
in the fourth phase into an archetype, which can take the form of a prototype in the case of
"hard" product development or an operating mechanism in the case of "soft" innovations,
such as anew corporate value, a novel managerial system, or an innovative organizational
structure. The last phase extends the knowledge created in, for example, a division to others
in the division, across to other divisions, or even to outside constituents in what we term
cross-leveling of knowledge. These outside constituents include consumers, affiliated
companies, universities, and distributors. A knowledge- creating company does not operate
in a closed system but in an open system in which knowledge is constantly exchanged with
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the outside environment. We shall describe each of the five phases in more detail below.

The First Phase: Sharing Tacit Knowledge

As we have mentioned repeatedly, an organization cannot create knowledge by itself. Since

tacit knowledge held by individuals is the basis of organizational knowledge creation, it
seems natural to start the process by focusing on tacit knowledge, which is the rich,
untapped source of new knowledge. But tacit knowledge cannot be communicated or passed
onto others easily, since it is acquired primarily through experience and not easily
expressible in words. Thus, the sharing of tacit knowledge among multiple individuals with
different back-grounds, perspectives, and motivations becomes the critical step for
organizational knowledge creation to take place. The individuals' emotions, feelings, and
mental models have to be shared to build mutual trust.

To effect that sharing, we need a "field" in which individuals can interact with each other
through face-to-face dialogues. It is here that they share experiences and synchronize their
bodily and mental rhythms. The typical field of interaction is a self-organizing team, in
which members from various functional departments work together to achieve a common
goal. Examples of a self-organizing team include Matsushita's Home Bakery team and the
Ronda City team. At Matsushita, team members apprenticed themselves to the head baker at
the Osaka International Hotel to capture the essence of kneading skill through bodily
experience. At Ronda, team members shared their mental models and technical skills in
discussing what an ideal car should evolve into, often over sake and away from the office.
These examples show that the first phase of the organizational knowledge-creation process
corresponds to socialization.

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A self-organizing team facilitates organizational knowledge creation through the requisite

variety of the team members, who experience redundancy of information and share their
interpretations of organizational intention. Management injects creative chaos by setting
challenging goals and endowing team members with a high degree of autonomy. An
autonomous team starts to set its own task boundaries and, as a "boundary-spanning unit,"
begins to interact with the external environment, accumulating both tacit and explicit

The Second Phase: Creating Concepts

The most intensive interaction between tacit and explicit knowledge occurs in the second
phase. Once a shared mental model is formed in the field of interaction, the self-organizing
team then articulates it through further continuous dialogue, in the form of collective
reflection. The shared tacit mental model is verbalized into words and phrases, and finally
crystallized into explicit concepts. In this sense, this phase corresponds to externalization.

This process of converting tacit knowledge into explicit knowledge is facilitated by the use
of multiple reasoning methods such as deduction, induction, and abduction. Particularly
useful for this phase is abduction, which employs figurative language such as metaphors
and analogies. In developing City, for example, the Ronda development team made ample
use of figurative language such as "Automobile Evolution," "man-maximum, machine-
minimum," and "Tall Boy." The quality of dialogue among team members can also be
raised through the use of dialectics, which instills a creative way of thinking into the
organization. It is an iterative and spiral process in which contradictions and paradoxes are
utilized to synthesize new knowledge.

Concepts are created cooperatively in this phase through dialogue. Autonomy helps team
members to diverge their thinking freely, with intention serving as a tool to converge their
thinking in one direction. To create concepts, team members have to rethink their existing
premises fundamentally. Requisite variety helps the team in this regard by providing
different angles or perspectives for looking at a problem. Fluctuation and chaos, either from
the outside or inside, also help members to change their way of thinking fundamentally.
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Redundancy of information enables team members to understand figurative language better

and to crystallize their shared mental model.

The Third Phase: Justifying Concepts

In our theory of organizational knowledge creation, knowledge is defined as justified true

belief. Therefore, new concepts created by individuals or the team need to be justified at
some point in the procedure. Justification involves the process of determining if the newly
created concepts are truly worthwhile for the organization and society. It is similar to a
screening process. Individuals seem to be justifying or screening information, concepts, or
knowledge continuously and unconsciously throughout the entire process. The organization,
however, must conduct this justification in a more explicit way to check if the
organizational intention is still intact and to ascertain if the concepts being generated meet
the needs of society at large. The most appropriate time for the organization to conduct this
screening process is right after the concepts have been created.

For business organizations, the normal justification criteria include cost, profit margin, and
the degree to which a product can contribute to the firm's growth. But justification criteria
can be both quantitative and qualitative. For example, in the Ronda City case, the "Tall
Boy" concept had to be justified against the vision established by top management-to come
up with a product concept fundamentally different from anything the company had done
before and to make a car that was inexpensive but not cheap. It also had to be justified
against the product-line concept articulated by middle management-to make the car "man-
maximum, machine-minimum." More abstract criteria may include value premises such as
adventure, romanticism, and aesthetics. Thus justification criteria need not be strictly
objective and factual; they can also be judgmental and value-laden.

In a knowledge-creating company, it is primarily the role of top management to formulate

the justification criteria in the form of organizational intention, which is expressed in terms
of strategy or vision. Middle management can also formulate the justification criteria in the
form of mid-range concepts. Although the key justification criteria are set by top
management, and to some extent by middle management, this does not preclude other
organizational units from having some autonomy in deciding their own sub criteria. For
example, a committee comprised of 200 young employees within
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Matsushita determined that Matsushita employees in the twenty-first century should become
"voluntary individuals" to adapt to expected social changes, as will be discussed in more detail in
the next chapter. To this extent, a company's justification criteria should be consistent with value
systems or needs of the society at large, which should ideally be reflected in organizational
intention. To avoid any misunderstanding about the company's intention, redundancy of
information helps facilitate the justification process.

The Fourth Phase: Building an Archetype

In this fourth phase, the justified concept is converted into something tangible or concrete,
namely, an archetype. An archetype can be thought of as a prototype in the case of a new-
product development process. In the case of service or organizational innovation, an archetype
could be thought of as a model operating mechanism. In either case, it is built by combining
newly created explicit knowledge with existing explicit knowledge. In building a prototype, for
example, the explicit knowledge to be combined could take the form of technologies or
components. Because justified concepts, which are explicit, are converted into archetypes, which
are also explicit, this phase is akin to combination.

Just as an architect builds a mock-up before starting the actual construction, organizational
members engage in building a prototype of the real product or a model of the actual system. To
build a prototype, they pull together people with differing expertise (e.g., R&D, production,
marketing, quality control), develop specifications that meet everyone's approval, and actually
manufacture the first full-scale form of a newly created product concept. To build a model, say,
of anew organizational structure, people from the affected sections within the organization, as
well as experts in different fields (e.g., human re-sources management, legal, strategic planning),
are assembled to draw up a new organizational chart, job description, reporting system, or
operating procedure. In a way, their role is similar to that of the architect-they are responsible for
developing the blueprint as well as actually building the new form of an organizational concept.
Attention to detail is the key to managing this complex process.

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Because this phase is complex, dynamic cooperation of various departments within the
organization is indispensable. Both requisite variety and redundancy of information facilitate this
process. Organizational intention also serves as a useful tool for converging the various kinds of
know-how and technologies that reside within the organization, as well as for promoting
interpersonal and interdepartmental cooperation. On the other hand, autonomy and fluctuation
are generally not that relevant at this stage of the organizational knowledge-creation process.

The Fifth Phase: Cross-Leveling of Knowledge

Organizational knowledge creation is a never-ending process that up-grades itself continuously.

It does not end once an archetype has been developed. The new concept, which has been created,
justified, and modeled, moves on to anew cycle of knowledge creation at a different ontological
level. This interactive and spiral process, which we call cross-leveling of knowledge, takes place
both intra-organizationally and inter-organizationally.

Intra-organizationally, knowledge that is made real or that takes form as an archetype can trigger
anew cycle of knowledge creation, expanding horizontally and vertically across the organization.
An example of horizontal cross-fertilization can be seen within Matsushita, where Home Bakery
induced the creation of other "Easy & Rich" product concepts, such as a fully automatic coffee
maker within the same division and anew generation of large-screen TV sets from another
division. In these cases, cross-fertilization took place across different sections within a division
as well as across different divisions. An example of vertical cross-fertilization also comes from
Matsushita. The development of Home Bakery inspired Matsushita to adopt "Human
Electronics" as the umbrella concept at the corporate level. This umbrella concept opened up a
series of soul-searching activities within the company to address what kind of company
Matsushita should be in the twenty-first century and how "human" Matsushita employees can be.

These activities culminated in the development of MIT'93 (Mind and Management Innovation
Toward '93), which was instrumental in reducing the number of annual working hours at the
front line to 1,800 hours, thereby freeing up time for people at the front line. In this case,

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knowledge created in one division led to the adoption of an umbrella concept at the corporate
level, which in turn affected the lives of employees at the front line.
Inter-organizationally, knowledge created by the organization can mobilize knowledge of
affiliated companies, customers, suppliers, competitors, and others outside the company through
dynamic interaction. For example, an innovative new approach to budgetary control developed
by one company could bring about changes in an affiliated company's financial control system,
which in turn may trigger a new round of innovation. Or a customer's reaction or feedback to a
new- product concept may initiate a new cycle of product development. At Apple Computer, for
example, when product development engineers come up with ideas for new products, they build
a prototype that embodies those ideas and bring it directly to customers to seek their reaction.
Depending on the reaction or feedback, a new round of development may be initiated.

For this phase to function effectively, it is essential that each organizational unit have the
autonomy to take the knowledge developed somewhere else and apply it freely across different
levels and boundaries. Internal fluctuation, such as the frequent rotation of personnel, will
facilitate knowledge transfer. So will redundancy of information and requisite variety. And in
intra-organizational cross-leveling, organizational intention will act as a control mechanism on
whether or not knowledge should be cross-fertilized within the company.

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