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How has Japan become a major economic power, a world leader in the automotive and electronics industries, among others? What is the secret of their success? The concensus has been that, though the Japanese are not particularly innovative, they are exceptionally skillful at imitation, at improving products that already exist. But now two leading Japanese business experts, Ikujiro Nonaka and Hirotaka Takeuchi, turn this conventional wisdom on its head: Japanese firms are successful, they contend, precisely because they are innovative, because they create new knowledge and use it to produce successful products and technologies. In The Knowledge-Creating Company, Nonaka and Takeuchi provide an inside look at how Japanese companies work and reveal how Japanese business methods allow them to create new knowledge. The authors point out that there are two types of organizational knowledge: explicit knowledge, contained in manuals and procedures, and tacit knowledge, learned only by experience, and communicated only indirectly, through metaphor and analogy. U.S. managers, wedded to such approaches as "benchmarking" and "best practices," focus on explicit knowledge. The Japanese, on the other hand, focus on tacit knowledge. And this, the authors argue, is the key to their success--the Japanese have learned how to transform tacit into explicit knowledge, and to disseminate it throughout the organization. To explain how this is done--and illuminate Japanese business practices as they do so--the authors range from Zen Buddhism, to classical economists, to modern management gurus, illustrating the theory of knowledge creation with cases studies drawn from such firms as Honda, Canon, Matsushita, NEC, Nissan, 3M, GE, and even the U.S. Marines. For instance, using Mitsushita's development of the Home Bakery (the world's first fully automated bread-baking machine for home use), they show how tacit knowledge can be converted to explicit knowledge: when the designers couldn't perfect the dough kneading mechanism, a software programmer apprenticed herself with the master baker at Osaka International Hotel, gained a tacit understanding of kneading, and then conveyed this information to the engineers. In addition, the authors show that, to create knowledge, the best management style is neither top-down nor bottom-up, but rather what they call "middle-up-down," in which the middle managers form a bridge between the ideals of top management and the knowledge acquired on the frontline. Likewise, the best organizational structure is what they call a "hypertext" organization, which takes the best aspects of bureaucratic and task force approaches (they point to Sharp as a successful example of hypertext organization). Because the competitive environment and customer preferences change constantly, knowledge perishes quickly. With The Knowledge-Creating Company, managers have at their fingertips years of insight from Japanese firms that reveal how to blend the best of East and West, to create knowledge, and to use it to make successful new products and services.