Life with purpose
Balancing Altruism and Self-Interest – with Ikujiro Nonaka
Ikujiro Nonaka
The Purpose of Capitalism

Balancing Altruism and Self-Interest – with Ikujiro Nonaka

How can organisations be profitable and bring value to society? Ikujiro Nonaka thinks Japanese business philosophy might have an answer.

Ikujiro Nonaka is an organisational theorist and Professor Emeritus at the Graduate School of International Corporate Strategy at Hitotsubashi Business School. He co-wrote ‘The New New Product Development Game’, which was influential in developing the Scrum framework. He was named as one of the most influential people on business thinking by the Wall Street Journal, and was included in The Economist’s ‘Guide to Management Ideas and Gurus’.

TBT:  You often say management is not a dry technical science, but a human project of practical wisdom. Why is it so important to understand management in this way? 

Nonaka: In my view, management has two fundamental aspects: creative and ethical. Management is a highly creative act because each company exists to create a new value to society–to realise the future they want to see. Management is also about bringing the common good for society. Companies should not just pursue the general self-interest of maximising profit or stockholders’ values, but rather strive to make society a better place.

TBT: You’ve said that wise leaders succeed by understanding their higher purpose, and staying grounded in the Gemba. Can you tell us more about the style of leadership?

Nonaka: ‘Gemba’ means the place of action, or where everything happens in reality. Staying grounded in Gemba simply means staying connected to that dynamic reality–the reality of oneself, along with the reality of ones’ fellow teammates. This allows a leader to be pragmatic while pursuing an ideal. 

The importance of purpose is illuminated in a story cited by Peter Drucker. Once upon a time there were three bricklayers building a cathedral. They were asked: “why are you laying bricks?” The first bricklayer answered, “because my boss told me to.” The second replies, “to earn money”. The third said, “I’m building a cathedral that lasts for generations”. 

Like the third bricklayer, a wise leader ensures that everybody knows the purpose of what they are doing. Unless there is a greater purpose or a vision that answers questions like ‘what do we exist for?’ or ‘what kind of story do we want to tell?’, it’s difficult for employees to understand the work they are doing, and do it to the best of their ability.

Management is a highly creative act because each company exists to create a new value to society–to realise the future they want to see.

With a combination of purpose and reality, the wise leader has a mindset of what we call “both-end” thinking or “dynamic duality” (as opposed to “either or” thinking). Having this mentality allows leaders to effectively tackle challenges, treating two issues as complementary rather than contradictory.

Finally, a wise leader is not afraid to distribute authority to empower their fellow team members. They understand that for people to be creative and adaptive, they need to make decisions and take actions on their own. 

TBT: Why is empathy so important for knowledge creation at individual firms and business in general? 

Nonaka: Knowledge creation starts from empathy–from putting yourself in others’ shoes. 

Empathy is the ultimate source of meaning and value; it constitutes the foundation of human perception and experience. It is a uniquely human capability that AI doesn’t possess. 

What’s essential in this upcoming era is for organisations to ask: how do we co-create new meaning and values through empathy? How do we tell a story by realising the common good? How do we stay focused on the truth, goodness, and beauty in the here and the now? These are the critical questions we all have to explore.

Long before the world started to focus on SDGs, many Japanese companies were already striving to create a sustainable and harmonious future, even if doing so would risk their short-term financial gains.

TBT: Do you believe there is anything distinctive about the way that Japan does business compared to the West? 

Nonaka: Long before the world started to focus on SDGs, many Japanese companies were already striving to create a sustainable and harmonious future, even if doing so would risk their short-term financial gains.

Traditionally, Japanese management has been well endowed with a sense of morality and balance, as evidenced by ‘Sanpo Yoshi’, or three way satisfaction–a concept that advocates for bringing the benefit for all – the buyer, seller and society. 

Japanese companies bring about these ethical values and vision in a quite pragmatic way, by promoting a certain set of commendable behaviours and actions. For example, the Kyocera is grounded in the philosophy of its founder, Kazuo Inamori, which has been distilled into 78 key sayings. It includes mantras like ‘always be creative in your work’ and ‘position yourself in the centre of the whirlpool’. These serve as a concise behavioural script that employees can apply in specific situations. 

TBT: What does Shibusawa Eiichi mean to you? 

Nonaka: I consider Shibusawa to be the founding father of Japan’s ethical capitalism. He believed that companies must also be public servants, where they contribute to make society a better place. He believed that entrepreneurs had a tremendous power to propel the nation’s economy forward and improve the living standard of all the people. 

So in the 19th century, he created over 500 companies across all industries in Japan, to boost its economy. He advocated that companies must exist to contribute to society, but this doesn’t mean that they can’t make a profit too. Indeed, he said that nothing is more joyful than integrating profit-making into the act of bringing altruistic value to society.

Traditionally, Japanese management has been well endowed with a sense of morality and balance, as evidenced by ‘Sanpo Yoshi’, or three way satisfaction–a concept that advocates for bringing the benefit for all – the buyer, seller and society.

TBT: Have you observed any interesting ways Japanese and Western thinking converge?

Nonaka: Although I have argued in the past that Eastern philosophy has a general orientation towards tacit knowledge–such as practice and action–while Western philosophy typically focuses on explicit knowledge–such as a concept, and models, my understanding of tacit knowledge was in fact greatly informed by Western philosophy, such as American pragmatism, phenomenology and the work of Michael Polanyi. If you are interested in these ideas, I recommend you look at Chapter Two of The Wise Company. It’s a book I co-authored with Hirotaka Takeuchi of Harvard Business school last fall.

TBT: Is there a problem with capitalism today?

Nonaka: In my view, the problems with modern management practices are threefold: over planning, over-analysis and over compliance. These toxic practices all neglect the value of human agency within our economy. They all depend on pre-made assumptions about social tension and reality, before striving to truly see the dynamic reality right in front of them.

TBT: How would you fix or remake capitalism?

Nonaka: We need to focus on empathy as the primary source of business and enterprise. Doing this will promote collaboration rather than competition. With deep empathy, we’ll be able to see each other–whether within an organisation or outside–as an ally. We can all find a common ground in each other and be creative to achieve something great together. 

TBT: Do you have any advice for young managers and business people?

Nonaka: We all are here to make the world a better place. To do so we must strive to cultivate our own wisdom or ‘phronesis’. We must sharpen our sense of morality, expand our empathetic capacity, and practice intuition.

The Purpose of Capitalism: Lessons from Japan premiered on CNBC in October.

This interview took place as part of The Purpose of Capitalism: Insights from Japan . The documentary takes an inside look at some of the largest and oldest Japanese companies to find the answer.

To read more about the film click here.