A Theory of the Firm's Knowledge‐Creation Dynamics

Abstract

The thesis that the apparent success of Japanese firms rests on their ability for creation of organizational knowledge is explored. The Japanese experience is taken as a launching pad for a proposed more general theory of how knowledge is, and can be, created in organizations. Two simultaneous knowledge spirals are identified as evolving over time: first, knowledge is created and expanded through the social interaction between tacit and explicit forms of knowledge in a process that is called knowledge conversion—the different modes and requisite enabling conditions that maintain this knowledge spiral are traced; second, another spiral describes how knowledge created at the individual level is transformed into knowledge at the organizational level through a phased process. As the spirals interact over time, innovation is seen to emerge. Clearly, there is a certain normative bent to this view of knowledge creation, and it implies some important lessons for non‐Japanese firms.