How have Japanese companies become world leaders in the automotive and electronics industries, among others? What is the secret of their success? Two leading Japanese business experts, Ikujiro Nonaka and Hirotaka Takeuchi, are the first to tie the success of Japanese companies to their ability to 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 go about creating this new knowledge organizationally. The authors point out that there are two types of 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 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. To explain how this is done--and illuminate Japanese business practices as they do so--the authors range from Greek philosophy to Zen Buddhism, from classical economists to modern management gurus, illustrating the theory of organizational knowledge creation with case studies drawn from such firms as Honda, Canon, Matsushita, NEC, Nissan, 3M, GE, and even the U.S. Marines. For instance, using Matsushita'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 withthe 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 chaotic realities of the frontline. As we make the turn into the 21st century, a new society is emerging. Peter Drucker calls it the "knowledge society," one that is drastically different from the "industrial society," and one in which acquiring and applying knowledge will become key competitive factors. Nonaka and Takeuchi go a step further, arguing that creating knowledge will become the key to sustaining a competitive advantage in the future. Because the competitive environment and customer preferences changes constantly, knowledge perishes quickly. With The Knowledge-Creating Company, managers have at their fingertips years of insight from Japanese firms that reveal how to create knowledge continuously, and how to exploit it to make successful new products, services, and systems.

The knowledge-creating company

I NCENTIVES ARE the essence of economics. Despite many wide-ranging claims about their supposed importance, there has been little empirical assessment of incentive provision for workers. The purpose of this paper is to critically overview existing work on the provision of incentives. Since the interests of workers and their employers are not always aligned, a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm's interest. This literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers. These include piece rates, options, discretionary bonuses, promotions, profit sharing, efficiency wages, deferred compensation, and so on. My objective here is to evaluate this literature in the light of a growing empirical literature on compensation. Where possible, I will address the literature from two perspectives. First, an underlying assumption of this literature is that individuals respond to contracts that reward performance. Accordingly, I consider whether agents behave in this way, and whether these responses are always in the firm's interest. Second, I address whether firms write contracts with these responses in mind. In other words, do contracts look like the predictions of the theory? Incentives are provided to workers

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The Provision of Incentives in Firms

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The Theory of Industrial Organization

Economics Of Discrimination

We survey the empirical literature analyzing the process of enterprise restructuring in transition economies. The survey provides new insights into the relative effectiveness of different reform policies, and into how this effectiveness varies across regions. We study the effects of privatization, the importance of different types of owners, the effects of foreign and domestic competition, the consequences of soft budgets, and the role of managerial incentives and managerial human capital, on enterprise restructuring.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=238716

Enterprise Restructuring in Transition: A Quantitative Survey

The authors report the first results for Japanese firms on the effects of employee stock-ownership plans (ESOPs) and bonuses by estimating production functions using new panel data. They find that the introduction of an ESOP will lead to a 4-5 percent increase in productivity; this productivity payoff takes three to four years. There is a modest productivity gain from the bonus system. The authors also find evidence that the productivity effect of bonuses is enhanced by the existence of ESOPs, suggesting that ESOPs may create a climate conducive to profit-sharing by enhancing long-term commitment and peer monitoring.	 Copyright 1995 by American Economic Association.

The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data

Using comprehensive financial and accounting data on China's listed firms from 1998 to 2002, augmented by unique data on CEO turnover, ownership structure and board characteristics, we estimate Logit models of CEO turnover. We find consistently for all performance measures including both stock return and various accounting measures that: (i) overall, CEO turnover is significantly and inversely related to firm performance though the magnitude of the relationship is modest; (ii) CEO turnover-performance link is stronger when the percentage of company shares owned by the largest shareholder is larger. Furthermore, insofar as stock performance is concerned, (iii) turnover-performance link is found to be weaker for listed firms still controlled by the state; (iv) the appointment of independent directors enhances turnover-performance link; (v) the listing suspension mechanism, i.e., the ST designation, adopted by China's securities regulatory agency appears to be effective in improving turnover-performance tie; and (vi) listed firms with CEOs holding additional positions in the controlling shareholders have weaker turnover-performance link. Consistent with the "law and finance" approach to corporate governance and the literature on economic transition, our findings suggest that any fundamental improvement in China's corporate governance will require a broad program that encompasses not only privatization but also laws and their effective implementation to provide better protection for investors.

CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data

This article provides evidence on how executive compensation relates to firm performance in firms listed in the Shanghai and Shenzhen Stock Exchanges in China. Using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, we find for the first time statistically significant sensitivities and elasticities of annual cash compensation (salary and bonus) for top executives with respect to shareholder value in China. In addition, sales growth is shown to be significantly linked to executive compensation, and Chinese executives are penalized for making negative profits, although they are neither penalized for declining profits nor rewarded for rising profits insofar as profits are positive. Perhaps more important, we find that the ownership structure of China’s listed firms has important effects on the pay‐performance link in these firms. Specifically, state ownership of China’s listed firms weake...

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Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges

Executive turnover and its link to firm performance can provide a crucial measure of how effectively a firm solves the two sets of principal-agent problems: (a) the diverging interests between top management and shareholders, which may result in managerial entrenchment; and (b) the diverging interests between controlling shareholders and minority shareholders, which may lead to the expropriation of the latter by the former or “tunneling,” as referred to in the literature. Tying the personal fortune of top executives to the firm’s performance aligns the interests of shareholders and those of management. It also breaks up the “insider” alliance between the controlling shareholder and management, thereby helping protect the interests of minority shareholders. Although there is a large literature on executive turnover in Western firms, research on executive turnover in non-Western firms is limited, and this paper is the only one on China. A closer look at the executive turnoverperformance link in China (one of the two major internal discipline mechanisms in corporate governance) is particularly relevant, since effective markets for corporate control are missing in China, the largest developing and transitional economy in the world. Furthermore, China is an interesting case because both types of agency problems are acute due to poorly defined property rights and weak investor protection, which result largely from its command economy legacy.

Takao Kato

Papers

The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data

CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data

Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges

Executive Turnover and Firm Performance in China

CEO Turnover, Firm Performance, and Enterprise Reform in China: Evidence from New Micro Data