Ikujiro Nonaka’s research while affiliated with Hitotsubashi University and other places

Plain language summary Globalization has transformed the international business environment into an increasingly more complex, uncertain, and diverse entity. Multinational enterprises are under greater pressure to develop their dynamic capabilities to not only adapt to, but also proactively cope with, the speed and complexities of the fast‐changing environment. Some research suggests that dynamic capabilities are closely correlated with top management functions, while counterarguments stress that dynamic capabilities are embedded in organizational activities. From the perspective of organizational knowledge creation, making a distinction between the creative and adaptive aspects of dynamic capabilities, this article argues that ‘creative’ dynamic capabilities are rooted in the activities of teams in middle levels of the organization. The article also presents leadership practices that are favorable to fostering dynamic capabilities. Technical summary This article examines the theoretical foundations of an organization's dynamic capabilities—sensing, seizing, and transforming—from the perspective of organizational knowledge creation. Making a distinction between the creative and adaptive aspects of dynamic capabilities, this article argues that the foundation of creative aspect is ‘meso:’ it stems from team‐level interactions of frontline workers' capabilities facilitated by middle managers, rather than from individual‐level (or micro‐level) capabilities. In this middle‐up‐down management model, top management sets the vision of the organization, but middle managers grasp and solve the gap between the top and the frontline by facilitating team‐level dialectic interactions of employees. The leadership practices of both top and middle management that facilitate this process are illustrated with four Japanese multinational companies—Fujifilm, Eisai, Mayekawa Manufacturing, and Toyota. Copyright © 2016 Strategic Management Society.

This paper is a part of our attempt to build a new knowledge-based theory of the firm and organization to explain the dynamic process of knowledge creation and utilization. For this, we revisit the theory of knowledge creation through the SECI process and ba, and try to advance them further by incorporating the dialectic thinking. In this paper, knowledge creation is conceptualized as a dialectical process, in which various contradictions are synthesized through dynamic interactions among individuals, the organization, and the environment. With the view of a firm as a dialectic being, and strategy and organization should be re-examined as the synthesizing and self-transcending process instead of a logical analysis of structure or action. An organization is not an information-processing machine that is composed of small tasks to carry out a given task, but an organic configuration of ba. Ba, which is conceptualized as a shared context in motion, can transcend time, space, and organization boundaries to create knowledge.

How can a company become sustainably innovative? We propose that the company needs to have organizational forms that achieve a dynamic synthesis of knowledge exploration and exploitation. In this paper, we present the “dynamic fractal organization” as a new organizational model. This model departs from the conventional information processing paradigm. Instead, we present a new frontier in organizational theory: the “dynamic fractal organization based on dynamic ‘ba’.” Dynamic fractal organizations build and utilize a triad relationship of knowledge that integrates and synthesizes tacit and explicit knowledge and creates a third type of knowledge, phronesis. The triad relationship is an upward spiraling process of converting tacit and explicit knowledge, and propels sustainable knowledge transformation across the diverse boundaries within and between organizations, and their environments.

This article describes how the distributed dynamic dimensions of human capital (HC) are developed and utilized in knowledge-creating companies. It perceives HC as the most important resource for a firm, and argues that a firm's sustainable competitive advantage comes from its ability to create knowledge in a changing environment. Because knowledge is created by people in their interactions with each other and the environment, it is important to understand the nature of human beings in order to keep creating knowledge and make knowledge a sustainable competitive advantage of the firm. Compared to other resources, HC is different because humans are subjective, interrelated beings who make value judgments. The article builds on the philosophical concept of phronesis to describe the development and utilization of distributed, dynamic HC. It provides a review of HC literature and discusses the characteristics of human agents drawing from interpretative philosophy.

Presents an ultimate theory of knowledge-based management and organizational knowledge creation based on empirical research and an extensive literature review. It explores knowledge management as a global concept and is relevant to any company that wants to prosper and thrive in the global knowledge economy. © Ikujiro Nonaka, Ryoko Toyama and Toru Hirata 2008. All rights reserved.

In previous chapters we have discussed how a firm creates knowledge through dialogue and practice, guided by its knowledge vision and following a driving objective. We have also looked at ba, knowledge assets, and the ecosystem as the foundation for knowledge creation. The question remains: what drives the entire process? We believe it is a leadership capability that can coherently synthesize, direct, and implement the various elements that foster knowledge creation. However, in the knowledge-based firm, leadership is not exclusive to an elite few. It is distributed throughout the organization among individuals who can exercise phronesis to make decisions and act appropriately to each situation to realize a common good. Knowledge-based management requires management of both internal and external knowledge creation activities, case-by-case, because knowledge is created both inside the organization as well as in dynamic interaction with the external environment. In other words, companies exist in an ecosystem of knowledge. Therefore, leaders must be capable of immediate decision-making in response to the ba that continuously emerge and vanish both inside and outside the organization. This would be impossible in an organization where leadership is fixed.

Breakthrough occurs in knowledge creation not only in the form of radical innovation in a product or service, but also in the form of gradual innovation through everyday practice. In this chapter, we shall examine the operations of the retail companies Seven-Eleven Japan Co., Ltd and Ryohin Keikaku Co., Ltd, where dialogue and practice driven by a shared objective and corporate philosophy have resulted in superb operations that differentiate these companies from their competitors.

As discussed in the previous chapter, knowledge is created in the dynamic interaction between subjectivity and objectivity. Knowledge emerges from the subjectivity of actors embedded in a context and is objectified through the social process. Knowledge is created from the synthesis of thinking and action by individuals interacting both within and beyond organizational boundaries. This knowledge then forms a new praxis for interaction that becomes the basis for generating new knowledge again, through the knowledge-creation spiral.

In the previous chapter we discussed the dynamic model in which a firm creates knowledge through interactions with its environment. The driver of this entire dynamic process is leadership. Leadership plays a variety of roles in the knowledge-creating process, such as: providing knowledge-vision and a driving objective; developing and promoting the sharing of knowledge assets; creating, energizing, and connecting ba; and enabling and promoting the continuous spiral of knowledge creation through dialogue and practice. At the base of such leadership is phronesis, that is, practical wisdom to make the necessary decisions and take the appropriate action with the right timing to achieve a common good.

We are currently in the midst of great change, a condition which Lester Thurow (2003) called the third industrial revolution. It is a shift towards a knowledge-based economy, where knowledge is the most important resource, superseding the traditional management resources of land, capital, and labor (Drucker, 1993). This has stimulated more active discussion about the theory and practice of “knowledge management.” Yet most firms still have serious difficulty understanding the knowledge resource, and we still lack an effective theoretical framework for understanding the operations of the firm in the knowledge-based economy.