Kellogg Magazine | Features

Knowledge Creation Expert Shares the Key to Succeeding in an Innovation Economy

Editor's note: This article was produced for Kellogg Alumni Club of Japan by H&K Global Connections. H&K President Katy Horiuchi ’96 served as content editor.

Face-to-face conversations are a major source of energy that drives today’s innovation economy. The idea that harnessing the synergies and collective wisdom gained from interpersonal communications can bring about the world’s next big things has accelerated the regional clustering of industries over the past decade. It has also inspired architectural designs that splurge on inviting lounges in coworking spaces and academic and research facilities, including the Kellogg Global Hub, the school’s flagship building on Northwestern University’s main campus.

But long before this became a trend, many Japanese corporate executives were already fiercely promoting personal engagement as their core business strategy, following an internationally celebrated scholar, Ikujiro Nonaka’s "organizational knowledge creation theory." Haruo Naito ’74 CEO of Eisai, one of the world’s leading pharmaceutical companies, and Tadahiro Yoshida ’72, a board director and former chairman and CEO of YKK, a top global zipper brand, were both early adopters of this theory, which has aided them in continuously leading their companies to new heights of success to this day.

So, how have they done it?

Kellogg Alumni Club of Japan’s luncheon seminar, held in December 2019, in Tokyo, to commemorate Dean Francesca Cornelli’s visit to Japan, brought together these trailblazers in knowledge creation to talk about just that. Serving as the guest speaker was Nonaka, professor emeritus at the Graduate School of International Corporate Strategy of Hitotsubashi University in Tokyo. He delivered his talk based on his latest book, “The Wise Company: How Companies Create Continuous Innovation,” which he co-wrote with Professor Hirotaka Takeuchi of Harvard Business School, while Naito and Yoshida shared their management experiences featured in the book with nearly 50 fellow Kellogg alumni in attendance.

Exercise empathy to tap into each other’s ‘tacit knowledge’

Nonaka believes humans’ ability to empathize with others is fundamental to knowledge creation. That’s because, he said, creating new knowledge involves more than simple attainment of objective information, such as scientific facts and statistical data. It also requires drawing from one’s highly subjective experience and skills, which are difficult to fully articulate and communicate.

Nonaka described the process of creating knowledge in four stages: "socialization, externalization, combination, and internalization," or SECI, for short.

The individuals would then try to articulate the tacit knowledge and "externalize" or conceptualize it. Once made explicit, knowledge can be more easily shared among a larger number of people. This allows them to synthesize, or "combine," different knowledge to formulate new knowledge. People put that knowledge into practice in the "internalization" phase. Through the actions they take, the knowledge sinks in, and they gain their own perspectives and insights from it. Their newly gained tacit knowledge can then set off a new cycle of the "SECI spiral" for more knowledge to be created, Nonaka explained.

Nonaka also stressed the usefulness of metaphorical language and narratives in communicating tacit knowledge. It helps people understand and share the context behind an issue at hand, he said. They would then draw upon their own insights to conceptualize the issue, triggering the knowledge to evolve. One exemplar is Honda’s founder, Soichiro Honda, who used concrete metaphors and memorable narratives to describe his visions for the future, and to make employees feel motivated to move together towards the company’s goals, Nonaka said.

But none of this would happen if people didn’t have the occasions to empathize with others. This is why all departments at Kyocera, a Japanese multinational ceramics and electronics manufacturer, routinely hold a "compa," a Japanese-style party, Nonaka said. In Kyocera’s compa, people enjoy more than casual conversation; it’s a venue for an intellectual combat. They commit to have honest, open discussions about problems at work, synthesizing ideas, while enjoying hot pot together in a tatami (traditional grass mat) room. While doing so, workers of all ranks pour sake into each other’s cups. They are prohibited from filling their own cups as it symbolizes egoism, Nonaka said.

They use tatami rooms because people can sit on a flat tatami floor and be physically close to each other, Nonaka explained. Tatami rooms don’t have the distinct physical boundaries between the people that normally exist in a typical desk-and-chair room. In tatami rooms, the people can move together and feel the synchronicity with one another, Nonaka said.

One could call those tatami rooms a "ba," a Japanese word for "place" or "space" that Japanese philosopher Kitaro Nishida used to describe the effect of social space in relationship building. Nonaka has adapted the concept of "ba" to enrich the SECI model of knowledge creation, according to his article published in a 1998 issue of Berkeley Management Review.

Nonaka received both his MBA and PhD in business administration from the University of California, Berkeley, and has taught at the university. However, he reflected that he felt profound affinity to the Kellogg Club of Japan’s gathering, knowing how Cornelli believes teamwork and innovation go hand in hand.

"The SECI spiral model seems very close to the Kellogg way of managing organizations and developing people’s talents,” Nonaka said. “SECI is not about innovation by individuals. It’s about innovation by teams and organizations."

Sliding into patients’ shoes to build trusting relationships

"Socialization" isn’t just an activity for coworkers. At Eisai, the first phase of the SECI spiral is all about learning from patients.

In fact, the company mandates its more than 10,000 employees worldwide to spend 1 percent of their work hours – about 2.5 work days per employee annually – engaging with some of the patients who have health conditions that Eisai is trying to solve, according to Naito, the CEO.

What Naito has observed in socialization exercises have been powerful displays of employees’ empathy. He’s seen a grown man, visiting from the U.S., cry, thinking about a young Japanese cancer patient he had just spent a day with. In the U.K., a female employee and a nonverbal person she had visited at a facility for people with developmental disabilities were seen smiling at each other. Empathy transcends all kinds of barriers, including language and generational gaps, Naito said.

These interpersonal experiences enable Eisai employees to "hypothesize" what makes patients feel happy or frustrated, and that constitutes the "externalization" phase, Naito said. For example, their 20 years of interaction with people with dementia taught them that the patients are most interested in knowing three things: when the potential symptoms will likely manifest; how they could minimize advancement of the disease; and how they could avoid being a burden to their families.

In the next phase, staff "combine" their knowledge to develop strategies – or business models – to address these issues. "Internalization" means implementing the strategies and doing the actual work.

If a strategy works, the workers will “further reinforce it” by continuing with the process of the SECI spiral, he said.

"If it doesn’t work well, we go back to the first step and socialize with the patients again to find out whether our initial perceptions were right or wrong," Naito said.

Eisai’s "human health care" concept, which was adopted as part of the Article of Incorporation at their General Shareholders Meeting in 2005, reflects the company’s belief in human dignity. It calls for employees to think from the perspectives of patients and their families, Naito said. The SECI spiral model is a powerful tool for implementing that concept. Eisai has used the model to build an "ecosystem" that serves people with dementia. The ecosystem is designed to bring together all resources – such as clinical trial data and the use of artificial intelligence to analyze the data – as well as stakeholders, ranging from patients to researchers to businesses that want to hire seniors or are looking for funding to provide dementia friendly services. Many patients volunteer their information and receive individualized tips on how to live with dementia. This wouldn’t be possible without the trusting relationships the company has built with them through socialization, according to Naito.

"This trust contributes to business innovations, and that leads to social innovations," Naito said.

Carrying forward goodness through SECI spiral

YKK’s focus on empathy goes back to Tadao Yoshida, who founded the company in 1934 as the first person to successfully mechanize zipper production in Japan. His family believed that treating workers as their equal partners, as well as giving back to employees, customers, business partners and society as a whole, were the keys to business growth. His philosophy, the "Cycle of Goodness©" – which serves as the guiding principle for the company’s management and operations – explains why the company’s stock is mostly held by its employees today.

Tadahiro, the founder’s son, believes the SECI spiral perfectly fits with YKK’s pursuit of "coexistence" with all stakeholders. He pointed out that creating quality zippers isn’t as easy as it may seem. Zippers are a small but critical component of garments and many other products. YKK’s clients often ask YKK to create unique zippers specifically designed to give their products a competitive edge. Fulfilling these requests constantly requires an amassing of all employees’ ideas and expertise.

Now a global corporate group with some 46,000 employees in more than 70 countries and regions, YKK consists of the zipper manufacturing and architectural product businesses. They also develop all technologies and equipment necessary to support those businesses. Despite the scale of its operation, YKK regularly brings its employees to Japan in groups from around the world as part of its ongoing effort to promote workers’ face-to-face interactions and collaborative knowledge creation.

"A couple of days ago, 300 to 400 people got together," Yoshida said. "We are still doing it in a very, very old-fashioned way of communication, and (the employees) understand its value."

The company’s leaders, including its chairman and CEO, also routinely hold small round-table talk sessions with different groups of employees to get to know them on a personal level. The company also uses such events as the "40,000 Employee Forum," in which employees from around the world meet to discuss various issues, to promote personal engagement and relationship building.

With the company now shifting its focus to the fast fashion segment, Yoshida believes the company’s practice of the SECI spiral model steeped in their tradition will enable them to reach their newest segment goal yet again.

Empathy for setting your brand apart from others

Companies practice the SECI spiral model not only to create knowledge but also to contribute to the greater good of society. Though that in itself represents no monetary value, corporate leaders should not worry that their noble initiatives would put off shareholders, Naito said. At one of Eisai’s shareholders’ meetings where the executives explained the company’s "ecosystem" project that provides various services to patients free of charge, attendees expressed their enthusiastic support for it.

Empathy isn’t a word that one would expect to find in business school textbooks. But it has always been central to Kellogg’s teaching, according to Cornelli.

" When I read Nonaka-san’s book, I thought it captures the exact spirit of Kellogg," Cornelli said.

People often compare different business schools on alumni salaries. But the true value of a business school lies in its culture and impact on alumni perspectives on management, their contribution to society and their sense of reward from their jobs, Cornelli said. Kellogg’s emphasis on collaborations and empathy sets the school apart from its counterparts, she added.

Nonaka believes a focus on empathy will continue to be key in today’s economy – and even for the development of effective AI. The importance of emotional IQ seems obvious to corporate leaders who haven’t adopted the SECI spiral model, as well, including Shigeru Uehara ‘06, CEO of Taisho Pharmaceutical. The fourth-generation successor of the 107-year-old family business said the company’s motto of "honesty, " in addition to "diligence" and "passion, has been paramount in building trusting relationships with customers as well as employees. This policy and his effort to get to know individual workers and their different cultural backgrounds are now helping Uehara develop relationships with the presidents of Taisho’s subsidiaries around the world, he said.

Today, Japanese corporations tend to rely excessively on data and other objective information and downplay the power of essential human capabilities, such as empathy and intuition. Those companies often end up engaging in "overplanning, overanalysis and overcompliance," Nonaka said.

"We have to restore a more balanced, human-centric view of knowledge creation," he said.