598 Book reviews strength in CEECs have not taken place. The French experience presented by Garrouste and Villeval demonstrates the role of management consulting services and technology centres as external source for learning, training and knowledge building. From empirical evidence in Hungary, Poland and the Czech Republic Havas concludes that opportunities associated with foreign direct investment often do not materialise as expected. However there are examples of supplier upgrading through trade relations with foreign ventures. Holmes points out the ambiguous incentive framework of the EU towards CEECs. While transition countries have to apply European standards their access to the Common Market which is important for technology transfer is not guaranteed. Bzhilianskaya sees opportunities to converse Russia's large defence sector in specific areas of dual-use technology, e.g. in which success is based on original Russian developments or niches can be occupied. Cases of spin-offs and new SMEs which have brought advanced technologies into industrial application are a sign of small-scale viable technological restructuring. Under the difficult conditions of research on technology and science policy in CEEC, the book gives a founded overview on some major challenges to science and technology systems in CEECs and illustrates the urgent need for action. Applying the insights of the theory of technological change, the precondition for technological renewal and innovation is to adapt individual competencies and adequate organisation of the science and technology sector. As several articles have shown, countries in transition have to develop an appropriate technology policy response, especially to realise the opportunities arising from international technology transfer. For the support of CEECs, the publication demonstrates again that there is no single way of modernisation and the limited effects of methods and tools for doing so. Providing experiences and judgements will remain the major tasks herein. Ulrike Bross Fraunhofer Institute for Systems and Innovation Research Breslauer Strasse 487 6139 Karlsruhe, Germany I. Nonaka & H. Takeuchi, The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation (Oxford University Press, London & New York, 1995), 284 pp., $25.00, ISBN 0 19 509269 4. In 'The Knowledge-Creating Company' Ikujiro Nonaka and Hirotaka Takeuchi set out not only to 'present a new theory of organizational knowledge creation' and 'provide a new explanation for why certain Japanese companies have been continually successful in innovation' but also 'to develop a universal model of how a company should be managed'. Critical to Nonaka and Takeuchi's view of knowledge creation is the distinction between explicit and tacit knowledge, between 'knowledge of the mind' and 'knowledge of the body'. Nonaka and Takeuchi maintain that the Western philosophical tradition of separating the subject who knows from the object that is known has restricted development of a theory of knowledge creation. In their view knowledge is created by interaction between four modes of knowledge creation: socialization, the conversion of tacit into tacit knowledge; internalization, from explicit to tacit; combination, from explicit to explicit and externalization, from tacit to explicit. In particular they maintain that Western organizations, and management research, has underemphasized the importance of externalization as a factor in knowledge creation. As well as attempting to bridge the dichotomy between tacit and explicit knowledge, Nonaka and Takeuchi aim to synthesize a theory that mediates between the individual and the organization, between top-down and bottom-up management, between bureaucracy and 'task forces' and ultimately between East and West. Nonaka and Takeuchi are not the first to stress the importance of linking tacit and explicit knowledge in the study of innovation. Von Hippel (1994) also draws Polanyi's distinction between tacit and explicit in explaining sources of 'stickiness' in information transfer during information based innovation. Ouchi (1981) contrasts Japanese and American attitudes towards tacit knowledge and Morgan (1986) explains how these same differences assist Japanese companies in understanding and reaffirming values in a process of double loop learning. Book reviews Nonaka and Takeuchi may also be guilty of selective interpretation of at least some aspects of the 'traditional' view of management science. For example, their description of the focus of systems thinking and the learning organization as being on 'learning with the mind, not with the body' ignores the rich systems tradition of model-building and 'management flight simulators', 1 of creating learning environments within which learning with the body reinforces learning with the mind. The model of externalization that Nonaka and Takeuchi present, of association through metaphor and analogy to articulate tacit knowledge, is an approach that has been richly developed in the mainstream management science literature over the past 20 years. 2 To explain how Japanese organizations approach innovation, and the new product development process in particular, Nonaka and Takeuchi synthesize the individual components and dichotomics of knowledge creation into innovative and compelling concepts. These concepts are captured through phrases such as the 'spiral of organizational knowledge creation' and ' m i d d l e - u p - d o w n ' management. To illustrate these concepts in practice, Nonaka and Takeuchi draw upon a variety of case studies of Japanese organizational innovation. Some of their examples very effectively convey the concepts they describe. The Matsushita Home Bakery development, for example, illustrates the repeated cycling between all four modes of knowledge creation. The story of the development of the Nissan Primera shows the lengths to which companies may need to go in managing socialization. Yet it is in illuminating the concept of externalization, the knowledge creation mode that Nonaka and Takeuchi feel is so poorly understood, that their examples seem the weakest. It is hard to understand how slogans such as 'Let's gamble', 'Man-maximum, Machine-minimum' and 'Tall Boy' effectively make tacit concepts explicit. When Nonaka and Takeuchi go on to reconstruct the role of middle management in terms of translating between the For example Morecroft (1988) stresses the role of modeling as part of an iterative learning process, as part a process of translation between tacit and explicit modes of learning. z For example Morgan, 1986, op cit. 599 slogans of top management ('Let's gamble') and objectives for design engineers ('Tall Boy') it becomes even more difficult to grasp the range of activities that 'knowledge engineers' discharge. Only by digging beneath the slogans can we understand exactly what the skilled knowledge engineer role involves. The authors manage this best in their description of the externalization process Matsushita engineers undertook to capture the tacit knowledge of a master baker and embody this in the explicit design principle of a 'twisting stretch'. A key area in which I feel Nonaka and Takeuchi's frameworks and case examples fall short is in explaining how their model of knowledge creation develops over time, across and between individual new product developments. Utterback (1994) and Christensen (1992) among others stress the importance of looking at innovation over multiple innovation cycles as organizations and approaches that have succeeded during one innovation cycle fail in the next. While Nonaka and Takeuchi set out to explain 'why certain Japanese companies have been continually successful in innovation' [italics added] all of their examples focus upon single product developments or upon the application of similar concepts and approaches in linked product developments. It is in the organizational dimension, the design of organization structures to span multiple innovation and knowledge creation cycles, that managing over time is most important. Nonaka and Takeuchi do not explain how organizations should re-invent their knowledge and abilities but instead hold out the 'hypertext organization', simultaneously bureaucratically efficient yet able to put together innovative task forces, as a universal organizational solution. Nonaka and Takeuchi propose a seven step program 3 to put their theory of knowledge creation into practice. The authors acknowledge that the process of change is complex but fail to address many of the critical barriers to change in an innovative organiza- 3 (1) Create a knowledge vision, (2) Develop a knowledge crew, (3) Build a high-density field of interaction at the front-line, (4) Piggyback on the new-product development process, (5) Adopt middle-up-down management, (6) Switch to a hypertext organization and (7) Construct a knowledge network with the outside world. 600 Book reviews tion. To take one example, Katz (1993) illustrates the range of factors that can limit the impact of 'highperformance teams' even when their goals are aligned with those of the organization. Nonaka and Takeuchi recommend team-based, task force approaches but do not address how these factors may restrict their applicability. They give an example of the way 'between the lines' 4 development approaches may be required even within Sharp's 'perfected' hypertext organization yet fail to draw out lessons as to why on this occasion the hypertext approach failed. Nonaka and Takeuchi would be among the first to admit that no organization structure or approach is 'perfect' in all circumstances. Taken in this frame of mind their recommendations have much merit, especially insofar as they apply to individual teams and developments. 5 Their recommendations are also a refreshing counterweight to the prevailing logic of efficiency and the elimination of 'unnecessary activity' that is typified by the re-engineering movement. If Nonaka and Takeuchi remind managers of the value of tacit information and of an appropriate level of organizational redundancy then their book has been of tremendous practical value. Unsurprisingly it is hard to conclude that Nonaka and Takeuchi have produced a 'universal model of how a company should be managed'. They have, however, provided a range of new insights into the process of organizational knowledge creation. In particular through their synthesis of modes of knowledge transfer into frameworks and the range of new concepts they present there a wealth of ideas to integrate with our developing models of the innovation process. Ultimately it may be that many of the shortcomings of 'The Knowledge-Creating Company' arise from its brevity and intended audience. The authors' earlier published work (for example, Imai et al., 1988) introduces many of their concepts and provides a greater depth of supporting data. Perhaps one of the best measures of their success in this text is the degree to which they stimulate interest in this and the work of those other scholars they draw upon. 4. 1.e., Continuing R&D or product development after a project has been officially terminated. 5 i.e., Steps 1 through 4 and arguably 7. References Christensen, C.M., 1992, Exploring the Limits of the Technology S-Curve: Parts I & II, Production and Operations Management 1, 4:335-366. Imai, K., I. Nonaka and H. Takeuchi, 1988, Managing the New Product Development Process: How Japanese Companies Learn and Unlearn, in: M.L. Tushman and W.L. Moore (Editors), Readings in the Management of Innovation (Harper Business, New York, NY), pp. 533-561. Katz, R., 1993, Managing Technological Leaps: A Study of DEC's Alpha Design Team, Research in Organizational Change and Development, 7:217-234. Morecroft, J.D.W., 1988, System dynamics and microworlds for policy makers, European Journal of Operational Research, 35:301-320. Morgan, G., 1986, Images of Organization (Sage, Beverly Hills, CA). Ouchi, W., 1981, Theory Z, (Addison-Wesley, Reading, MA). Utterback, J.M., 1994, Mastering the Dynamics of Innovation-How Companies Can Seize Opportunities in the Face of Technological Change (Harvard Business School Press, Boston, MA). Von Hippel, E., 1994, 'Sticky Information' and the Locus of Problem Solving: Implications for Innovation, Management Science 40, 4:429-439. G.F. Pisano. "The development factory: Unlocking the potential of process innovation", Publication date: 4 / 1 1 / 9 6 , Price: $35 hard cover, Length: 368 pages, ISBN: 0-87584-650-5, Publisher: Harvard Business School Press, Boston, Mass. USA This important book takes a long overdue look at process innovation - that is, changes in how a firm produces its outputs rather than the outputs themselves. Its focus is particularly on process innovation in high technology environments, and it places considerable emphasis on the mechanisms for managing and maximising organisational learning which successful firms deploy. The research on which the book is based involved in-depth studies of advanced pharmaceutical companies over an extended time period. The book begins with a detailed review of process development and its potential for providing competitive advantage. This draws extensively upon the groundwork of Abernathy and Utterback with their product life-cycle model and argues that, whilst still a powerful framework for understanding patterns of