The Journal The Authority on Global Business in Japan

Picking up The Wise Company, I was pleased to see that, unlike several management books I’ve read, it was dedicated to the young leaders who are continuing the search for know­ledge and wisdom that drives successful business. The authors are legendary manage­ment gurus Ikujiro Nonaka, a professor emeritus of Hitotsubashi University’s Graduate School of International Corporate Strategy, and Hirotaka Takeuchi, a professor in the Strategy Unit at Harvard Business School. This volume­—a follow up to The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation, their management must-read from 25 years ago—has thought-provoking, practical advice for today’s business leaders.
Although their previous work sparked the birth of the field of knowledge management and was the first to provide valuable insights into how Japanese companies of the day created new knowledge and used it to produce successful products and technologies, it lacked a practical roadmap for the disruptive, fast-paced, and uncertain world in which today’s companies and business leaders must compete.

Triple Threat
The authors point out that the problems behind the recent major corporate failures and global crises were threefold. We were not:

■ Harnessing the right kind of knowledge
■ Practicing the art of making the future
■ Cultivating the right kind of “wise” leaders

It is important for executives to balance their reliance on explicit, easily codifiable, measurable, and general knowledge with tacit, personal, and contextual knowledge.
Throughout the book, Nonaka and Takeuchi emphasize—through relatable case studies of successful business leaders and entrepreneurs—that the world needs a new type of wise leader, who prioritizes long-term sustainability in pursuit of the common good for society over short-term results.

Know and Tell
The book, which focuses on the art of knowledge practice, highlights the concept of phronesis—a Greek term meaning practical wisdom or prudence. It is “the experiential knowledge that enables people to make prudent judgments in a timely fashion, and to take actions guided by values, principles, and morals.”
Explaining the Greek philosopher Aristotle’s knowledge triangle—episteme (scientific knowledge), techne (technical know-how), and phronesis (practical wisdom), they assert that, if the first two are about “know-why” and “know-how,” then the third is knowing “what-should” be done.
The authors credit another prominent philosopher, Hungarian Michael Polanyi (1891–1976), with helping them establish their knowledge creation theory and the socialization, externalization, combination, and internalization (SECI) process. Polanyi once said, “We know more than we can tell.” Nonaka and Takeuchi say that, without this brilliant insight and Polanyi’s concept of tacit knowledge, SECI would not exist.

Theory in Action
They build on this theory to develop the first modern model of knowledge creation and practice, presenting three case studies of this new model in real-world use.
The one that fascinated me most was the recent spectacular turnaround of Japan Airlines Co., Ltd. (JAL) by Kazuo Inamori, the Japanese philanthropist, entrepreneur, and founder of Kyocera Corporation and KDDI Corporation. He was 79 when called in to help the struggling airline.
The SECI process can be traced throughout the case study:

■ Socialization—Inamori visited airports, hangars, and sales offices across Japan to meet and talk with people to gain tacit knowledge of the reasons for the airline’s failure.
■ Externalization—With this first-hand knowledge, he set to work using the Amoeba Management System that he developed during his days at Kyocera. He split JAL’s workforce into small units of about 10 members each, giving them responsibility for their own profits and losses. This created a sense of ownership and allowed employees to see where the company was losing money, as well as how they could improve the situation. Further, establishing the JAL philosophy, he created a sense of accomplishment and pride among the team.
■ Combination—The explicit knowledge of the amoeba teams enhanced the overall company performance.
■ Internalization—This all started to sink in on the personal level and initiated a change in behavior that was evident from pilots who stopped using paper cups to mechanics who began reusing gloves to save costs. The most touching moment for then-JAL President (now Chairman) Yoshiharu Ueki was when a flight attendant once declared that she had a smile on her face when informing her colleagues that the plane was full. Previously she had done this with a scowl, because the fully booked flight meant more work for them.

Sense of Purpose
In the second half of the book, the authors explain the six leadership practices that are critical to the creation of a wise company. They assert that a narrow view of capitalism has prevailed in recent years, one that focuses on maximizing shareholder value and making profits. Although capitalism is still an unparalleled economic and social system for meeting human needs, improving efficiency, and creating jobs and wealth, a failure to harness its full potential and meet society’s challenges is not acceptable. Wise leaders do good not only for the company but also society. They need to grasp the essence to see the true nature of events and people. As an example, they cite the late Steve Jobs’ relentless attention to detail and big-picture thinking.
Using the Japanese concept of ba (place, space, or field), they highlight the importance of wise leaders using the “here-and-now” to construct new meanings and create a shared sense of purpose for human interaction. Wise leaders must cultivate a practice of communicating the essence of all situations—complicated ones in particular—with the help of metaphors and stories so that people can grasp things quickly and intuitively.
The authors posit that wise leaders should be willing to exercise “political” power to bring people together and spur them into action. To quote Fast Retailing Co., Ltd. founder Tadashi Yanai’s advice, “Be a devil; be a Buddha,” leaders should be willing to push hard if unsatisfied with their employees’ low standards. But, at the same time, they should keep their best interests at heart and tell them how well they have done.
Finally, phronesis must be distributed by wise leaders throughout the organization through apprenticeship and mentoring. This enables a knowledge-creating company to transform into a wise company.
The Wise Company is a well-written and an engaging read for those looking for inspiration and guidance on leading businesses of the future.



Oxford University Press
304 pages
Published October 2019

Robert Heldt is president and co-founder of Custom Media, publisher of The ACCJ Journal.
Wise leaders do good not only for the company but also society. They need to grasp the essence to see the true nature of events and people.