Competitiveness of Japanese Companies and Industries: Implications for Thailand Hirotaka Takeuchi Hitotsubashi University Graduate School of International Corporate Strategy (ICS) World Bank Institute Seminar May 19, 2006 Bangkok, Thailand ©Hirotaka Takeuchi, 2006

A Once - in years Change Is Taking Place Industrial Society Knowledge Society ©Hirotaka Takeuchi, 2006

The Next Society will be a knowledge society. Peter F. Drucker ©Hirotaka Takeuchi, 2006 Knowledge will be its key resource… ©Hirotaka Takeuchi, 2006

5 The Means of Production Set the Two Societies Apart Industrial Society Knowledge Society Machinery Robots Assembly line “HEAD” and “HAND” of every employee

6 ©Hirotaka Takeuchi, 2006 “Explicit Knowledge” and “Tacit Knowledge” Explicit Knowledge （ HEAD ） Tacit Knowledge （ HAND ） l Words l Numbers l Data l Formula l Sound l Pictures l 5 Senses l Experience l Insight, hunch, intuition l Emotions, feelings l Ideals, beliefs, values

7 ©Hirotaka Takeuchi, 2006

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9 Top Three Most Frequently Cited Publications Ranked by Straight Count Rank Author/s Publication (Year) Score 1.Nonaka & Takeuchi The Knowledge-Creating Company (1995) Davenport & Prusak Working Knowledge (1998) 58 3.StewartIntellectual Capital (1997) 55

10 ©Hirotaka Takeuchi, 2006 Top Three Most Frequently Cited Authors Ranked by Straight Count Rank Author/s Current Affiliation Score 1.Nonaka, I. Hitotsubashi Univ. ICS (Japan) Davenport, T.H.Babson College (U.S.) Takeuchi, H. Hitotsubashi Univ. ICS (Japan) Bontis, N.McMaster Univ. (Canada) 128

©Hirotaka Takeuchi, 2006

20 ©Hirotaka Takeuchi, 2006 Breath of “Ah-Un”

21 ©Hirotaka Takeuchi, 2006 The Knowledge Conversion Process (1) Tacit Explicit

22 ©Hirotaka Takeuchi, 2006 SECI:The Knowledge Conversion Process Socialization Empathizing Externalization Articulating Explicit Combination Connecting Explicit Internalization Embodying Tacit Explicit Tacit TacitKnowledge ExplicitKnowledgeExplicitKnowledge

23 ©Hirotaka Takeuchi, 2006

24 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② (Individual) (Group) (Organization) (Community) The Knowledge Conversion Process (2)

25 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (1) A company is viewed as a living organism rather than a machine for information processing

26 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (2) Knowledge is defined as “a dynamic process of justifying human belief toward the truth”

27 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (3) Tacit knowledge is emphasized over explicit knowledge, which is seen as the tip of the iceberg

28 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (4) Self-organizing teams are recognized as playing a key role in facilitating a dynamic and intensive interaction among team members and providing a shared context for everyone

29 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (5) Middle managers are seen as knowledge engineers who resolve the contradiction between top management and the front line

30 ©Hirotaka Takeuchi, 2006 Middle-up-down Knowledge-creation Process Solving contradiction Contradiction Cross-leveling of Knowledge Reality (What is) (Top) Mid-range theory (Middle) Grand Theory (What ought to be) (Front-line)

31 ©Hirotaka Takeuchi, 2006 新しい「知」を創造するには … ② Japanese Approach to Knowledge (6) Knowledge is acquired from the outside and utilized effectively to amplify the knowledge spiral

32 ©Hirotaka Takeuchi, 2006 Internal BA Individual contexts are shared at Ba, and the shared context and individual contexts expand themselves through such interaction

33 ©Hirotaka Takeuchi, 2006

34 ©Hirotaka Takeuchi, 2006

35 ©Hirotaka Takeuchi, 2006

36 ©Hirotaka Takeuchi, 2006 External BA Customer Government Supplier Competitor Firm University Local Communities

First Professional Road Racing Team Shimano-Frandria(Belgium)in 1973 Sponsoring of Racing Team

Totally against the existing common senses Nothing but Don’ts

Champion in 2004 Lance Armstrong （ USA) (Winner of 6 th consecutive TdF ) Sponsoring of Racing Team

43 ©Hirotaka Takeuchi, 2006 Containing paradoxes Cultivating contradictions Embracing dualities Containing paradoxes Cultivating contradictions Embracing dualities 新しい「知」を創造するには … ③ The Essence of Knowledge Creation Lies in Embracing Opposites Tyranny of the “OR” and the genius of the “AND”

44 ©Hirotaka Takeuchi, 2006 Knowledge – creating Companies Are Dialectic Companies Thesis Antithesis Synthesis

“Dialectics” at U.S. Marines Source: Freedman, D.H., Corps Business: The 30 Management Principles of the U.S.Marines, Harper Business, 2000 Embracing paradox Dealing with complex environments calls for a nonsimplistic, non- extreme mindset, and the tension between traits can provide the needed subtlety and variation in outlook. Cultivate opposing traits A need to risk failure / A need to succeed Being empowered / Respecting the hierarchy Having well-defined plans and processes / Needing to improvise Being disciplined / Being creative Having a core job / Handling different functions Carefully analyzing / Acting quickly Having to compete against other Marines Having to place their success above your own / ©Hirotaka Takeuchi, 2006

46 ©Hirotaka Takeuchi, 2006 East / West Practice / Theory New / Old Small / Large Cooperation / Competition Public / Private Have’s / Have-not’s “Dialectics” at Hitotsubashi ICS

©Hirotaka Takeuchi, 2006

Great Thinkers ©Hirotaka Takeuchi, 2006

Great Lovers ©Hirotaka Takeuchi, 2006

52 ©Hirotaka Takeuchi, 2006 in One Person “Intellectual Muscle” in One Person “Intellectual Muscle”

53 ©Hirotaka Takeuchi, 2006 Change in the Source of Competitive Advantage of Japanese Firms Industrial Society Knowledge Society

©Hirotaka Takeuchi, 2006

56 ©Hirotaka Takeuchi, 2006 New Learning about Competitiveness of Japanese Firms OperationalEffectivenessOperationalEffectivenessStrategicPositioningStrategicPositioning better Doing things betterOE different Doing different thingsSP

©Hirotaka Takeuchi, 2006

58 ©Hirotaka Takeuchi, 2006 Japanese Companies Established the World Standard on OE OperationalEffectivenessOperationalEffectiveness Best practices Benchmarking Zero defects Lean production Outsourcing TQM Kaizen Kanban Speed

60 ©Hirotaka Takeuchi, 2006 OE is Necessary to Achieve Superior Sustainable Profitability, but NOT Sufficient OperationalEffectivenessOperationalEffectiveness Competitive Convergence Absolute, but not relative improvement A “must” or a “given”

61 ©Hirotaka Takeuchi, 2006 The Key to Achieving SSP Lies in SP Doing different things from others Choosing “what not to do” StrategicPositioningStrategicPositioning (SSP: Superior Sustainable Profitability)

©Hirotaka Takeuchi, 2006

69 ©Hirotaka Takeuchi, 2006 Role of Government in the Knowledge Economy Encouraging innovation and entrepreneurship

70 ©Hirotaka Takeuchi, 2006 Top 10 manufacturing performers (ROIC) in Japan ROIC

71 ©Hirotaka Takeuchi, 2006 Top 10 service (excluding Financial Services) performers (ROIC) in Japan ROIC * Denotes industry sets added by author.

Hard-to-imitate innovations are based on tacit knowledge ©Hirotaka Takeuchi, 2006

73 ©Hirotaka Takeuchi, 2006 Hard-to-imitate Innovation Examples Canon Mini-copier Matsushita’s bread-making machine Canon Mini-copier Matsushita’s bread-making machine

Jeff Immelt (GE): “Abyss called commodity hell” commodity hell” ©Hirotaka Takeuchi, 2006

Crisis is the mother of innovation ©Hirotaka Takeuchi, 2006

76 ©Hirotaka Takeuchi, 2006 Internal BA Individual contexts are shared at Ba, and the shared context and individual contexts expand themselves through such interaction

77 ©Hirotaka Takeuchi, 2006 External BA Customer Government Supplier Competitor Firm University Local Communities

Innovations are made, not born. ©Hirotaka Takeuchi, 2006

79 ©Hirotaka Takeuchi, 2006 Knowledge – creating Companies Are Dialectic Companies Thesis Antithesis Synthesis

Companies don’t innovate; people do. ©Hirotaka Takeuchi, 2006

81 ©Hirotaka Takeuchi, 2006 in One Person “Intellectual Muscle” in One Person “Intellectual Muscle”

Tom Friedman: “Key to innovation “Key to innovation is talent” is talent” ©Hirotaka Takeuchi, 2006

l Connectedness l Open Sourcing l Collaboration/co-creation ©Hirotaka Takeuchi, 2006

War for Talent War for Capital War for Ideas ©Hirotaka Takeuchi, 2006