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 Towards a new theory of innovation management: A case study comparing Canon, In

and Apple Computer, Inc. Ikujiro Nonaka Institute of Business Research, Hitotsuhashi University, Kunitachi, Tokyo, Japan Martin Kenney Department of Applied Behavioral Sciences, University of California, Davis, CA 95616, USA


This paper argues that innovation can be best understood as an information process which is then concretized as a product that meets demand. Two very different firms, Canon Inc. and Apple Computer Inc., are used as case study illustrations. Innovation does not proceed through logical deduction, but rather is furthered by the use of metaphors and analogies. The bureaucratic and staid structures of the firm can be challenged and broken up to provide the space for innovations to emerge. The leader’s role in the innovating firm is as a catalyst and facilitator, not as an allknowing despot. The importance of innovations is not merely in the new product, but also the “ripple” effects of innovations which can propel the firm into a self-renewal process. Keywords: Innovation management, High-technology, Case study.

1. Introduction

Increasingly, corporate competitive success is hinging upon the effective management of innovation. Innovation has been the object of considerable academic study from a variety of perspectives. However, innovations are usu- ally considered as objects. We choose to look at innovation differently. For us, innovation is a process by which new information is created, and it is this information that is embodied in the product. To understand this process we conceptualize human beings not merely as information processors (Galbraith, 1973), but more importantly as information creators. Inherently, innovation is the process by which new information emerges and is concretized in a prod-

1 uct that meets human needs . The healthy firm is a negative-entropy system 1 For one of the most interesting treatments of the process by which the inventor or innovator imagines the new development, see Uswhich constantly creates new order and structure in its struggle to survive and2 grow

 Approaches to

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innovation We break with the model posited by Simon (1969) and elaborated by Abernathy (1978) of innovation as problem-solving. In fact, most important in the innovation process is the problem creation moment. That is, the positing of the correct problem, which allows the solution to be discovered (information to be created). The key to the creation process is information. Information can be divided into two categories: syntactic and semantic (Machlup and Mansfield, 1983; Nonaka, 1987). Syntactic information can be reduced to a digital form which has no inherent meaning. This is exemplified by the discrete type of information used in computers and which can be manipulated through logical operation. The process of interpreting the results gives this type of information3 value and meaning . Semantic information is qualitative; what is important here4 is the meaning or content of the information .

Semantic information is more holistic and capable of evolving and transforming. It is not created in the traditional deductive model hypothesized as the way Western science operates,5 but rather through insights which allow the creation of new models . The tools in this creation process are often metaphors and analogies (i.e., devices to help in rethinking or even discarding old ways of thinking). Throughout this paper

“information” refers to semantic rather than syntactic information. Thus, information creation is used synonymously with meaning creation. Product innovation can be considered as a restricted subset of this creation process. However, it would be a mistake to think that the meaning creation process either can be or should be restricted to product development; in a larger sense, the “culture” of the firm is semantic information. Informa- 2 This analogy, however, is not that of the Parsonian structural functionalism. See, for example, Parsons (1951). Rather, we are using chaos models, or what one might term "emergence" models, more in keeping with Prigogine ( 1980 ). See also Prigogine and Stengers (1984). For further discussion, see Nonaka (1988a). 3 Artificial intelligence is the technique being applied to make the more routine aspects of interpretation amenable to machine control. See Daft and Weick (1984) tor a discussion of organizations as interpretation systems. 4 This type of information is in sharp contrast to that manipulated by traditional academic economists which is assumed to be based on so-called "hard" data. The real world of business is more often predicated on hunches, "gut" feelings and inarticulable experience. 5 "There is an increasing literature in the sociology and history of science which argues that the traditional deductive model of science does not describe the way science is actually done. See, for example, Latour and Woolgar (1979), and Rose and Rose (1976).her (1954). 0923-4748/91/$03.50 ( 1991—Elsevier Science Publishers B.V.


69 6 tion creation can and must go on at every level and in every part of the firm . For example, the development of new process innovations within quality control circles is an aspect of information creation. To remain competitive any firm must constantly be creating new strategies, new products, and new ways of manufacturing, distributing and selling. Constant reexamination, reconceptualization and reorganization are necessary—and this entails and requires the constant creation of new meanings. The newly created information must then be diffused throughout the firm setting off further innovations. This diffusion within the firm is important because it allows the firm to reap more of the benefits of its newly created information. As Schumpeter observed, new innovations trigger other innovations in an effect that resembles the dropping of a stone in a still pond. If the

company can internalize some of the resulting “ripples”, then it can secure greater economic benefits. It should also be noted that often the “ripple” effects that emerge cannot be predicted, but result in major economic advantage. Thus, the innovation process becomes a moment in the constant evolution and transformation of the firm. Though different from that of Schoonhoven and Jelinek (1990, p. 107), we provide a model for conceptualizing the “output” of the “quasi-formal structure” of the firm. It is from this quasi-structure of teams, task forces and/or committees that new meaning (semantic information) emerges. The formal structure is devoted to transmitting syntactic information, necessary for operating the firm, but unable to create the new meanings necessary for growth and development. Hence, we find ourselves in agreement with Schoonhoven and Jelinek, but believe that the “ad hocracy” proposed by Burns and Stalker (1961) provides valuable insight into the operation of the quasi-formal structure. In this paper we compare the product development process in two firms that have reputations for innovation. We will show how the information creation process operated and how that assisted in the self-renewal of the firms.

The Japanese case study is the development of the Mini Copier by Canon. The U.S.

case study is the development of the Macintosh Computer by Apple

Computers. For each company these were crucial product developments. The discussion following the presentation of the cases will reflect upon the dynamics of the information creation process in both companies and the lessons for management. Further, we will discuss the advantages and disadvantages of the Canon and Apple methods of organizing and encouraging the creation process. 6 In many American firms information creation is limited to the top executives and perhaps their strategic management group. They then transmit the new information down through middle-level managers who are seen as information channels and not information creators. This perspective of middle-level managers is critiqued in Nonaka (1988b). For another critique of this style of management, see Peters (1988).

71 accelerate information creation Canon has had a policy of hiring mid-career personnel from other firms to create “counter-cultures” or diversity within Canon to increase the potential for new information creation.

In Fall 1970 Canon began internal development of a plain paper copier (PPC ) technology. In the early days divers)fication into PPCs was opposed by many in the company, some going so far as to advocate discontinuation of the entire effort, recommending instead that Canon concentrate on its camera industry. But in 1969 Canon introduced a PPC that used completely original technology and did not violate any of Xerox's over 600 patents. By 1982, however, demand for PPC was leveling off and of fice market saturation appeared to be complete. Rather than view the market as mature, though, Canon began a process of reconceptualizing the entire PPC market. Canon came to think of the copier market not in terms of firms

(i.e., does the firm have a copier), but rather in terms of individual of fices. With this new perspective the market appeared for larger. If small offices could use a copier, so might small businesses, and perhaps even home use would become prevalent. Further, large firms which had already purchased a PPC might also be interested in purchasing a desk-side model. Apparently, there would be an enormous market for a small copier. A small copier (Mini Copier or MC) would require very different characteristics from traditional

PPCs. Obviously, the copier must produce clear copies, and be lightweight and compact (less than 50 pounds). More problematic was that the MC might be used only rarely and thus the cost of regular servicing would be exorbitant on a per copy basis. Because of this, the MC must require either extremely simple maintenance or none at all. Moreover, the initial price must be no more than 200,000 yen (approximately $1,000 at that time). These constraints imposed a heavy burden on the design team. Initially, a feasibility study team was formed to examine what would be



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