C. O. Scharmer: Professor Nonaka, why and when did you become interested in knowledge creation?

Ikujiro Nonaka: It's a long story. Originally, I was interested in information processing. I spent five and a half years at UC Berkeley in the M.B.A. and Ph.D. programs and finished my Ph.D. dissertation in 1972.

A turning point from information to knowledge came when I participated with my colleagues Hirotaka Takeuchi and Ken-ichi Imai in the Harvard Business School 75th Anniversary Colloquium on productivity and technology. We agreed to do a joint project to study the innovation processes at several Japanese companies. What we found was that the existing theory of information processing is not enough... Innovation process is not simply information processing. It's a process to capture, create, leverage, and retain knowledge…. In very simple terms, information is the flow, and knowledge is the stock…

Drawing especially on Polanyi, I conceptualized knowledge in terms of two types, tacit knowledge and explicit knowledge. Tacit knowledge is personal, context-specific, and therefore hard to formalize and communicate. Explicit knowledge, on the other hand, is transmittable in formal and systematic language.

This dynamic process is the key to organizational knowledge creation. This interaction between the two types of knowledge brings about what we call four modes of knowledge conversion – that is, socialization, externalization, combination, and internalization (see Figure 1).

I emphasize the positive roles of middle managers. In the U.S., middle managers are denigrated as cancer. We see middle managers playing a key role in facilitating the process of organizational knowledge creation. They serve as the strategic "knot" that binds top management with front-line managers. They work as a "bridge" between visionary ideals of the top and the often chaotic realities of business confronted by front-line workers.… In the middle-up-down (MUD) model, top management creates a vision or a dream, while middle management develops more concrete concepts that front-line employees can understand and implement. The MUD model is not an either-or approach; it is an interactive process of both top-down and bottom-up.

A hypertext organization is the dynamic synthesis of the bureaucratic structure and the task-force structure, and it reaps benefits from both…. Moreover, it adds another layer, the knowledge base, that serves as a "clearinghouse" for the new knowledge generated in the bureaucratic structure and the task force…

There are five enabling conditions in my theory: intention, autonomy, fluctuation/creative chaos, redundancy, and finally requisite variety… Fractal or holographic structures…

It seems to me that organizational learning theories do not comprehend the whole dynamic process of knowledge creation. I see learning as related to the mode of internalization, namely conversion from explicit knowledge to tacit knowledge. Learning theories cannot explain the innovation process or the total process of organizational knowledge creation.

My criticism of learning perspectives are twofold: First, they have not developed any comprehensive theory. They lack the view on the fundamentals of epistemology: what is knowledge, the nature of knowledge, and what constitutes learning.… They are focused on the relationship between individuals and groups, but not clear about the relationships between individuals, groups, organizations, and inter-organizations. Second, they generally consider learning as an adaptive process: They are trapped in the behavioral concept of stimulus-response.

Knowledge has something to do with truth, goodness, and beauty. Then the question is what is true? In management, it is determined by the size and height of justification. How much personal belief or aspiration can be approved by a group, an organization, a community, and a global society...

This conversation with Ikujiro Nonaka outlines the context in which he developed his pathbreaking theory of knowledge creation. He also talks about two key managerial and organizational concepts that he and his coauthor Hiro Takeuchi presented in The Knowledge Creating Company: middle-up-down management (MUD) and the hypertext organization. A hypertext organization can be thought of as having three distinct layers: the business system layer, the project layer, and the knowledge-base layer. The hypertext organization can be thought of as operating in two modes: driven and integrated by top management (top management appoints the project teams), or more distributed by all individuals, who each participate in all three layers. In his book Nonaka described the first mode. In the interview he says that the second mode could be developed in the West..