They then say that not only can strategy be reconceptualised, but it must be. Their own thinking about the essence of an organisation has evolved from thinking it is an information processing machine to seeing it as a living organism continually creating new knowledge. They argue that to survive in today’s world, this living organism must be grounded in moral purpose and offer value to customers, contribute to society, live in harmony with nature, and create a better future.

Advances in neuroscience cited by Nonaka and Takeuchi suggest that humans’ most basic need is social connection, stronger even than food, water and shelter. From this and other research cited they conclude that…

…our purpose as human beings is rooted in our universal tendencies to relate to and care for one another, that we share the ability to rapidly adapt to changing circumstances, and that we can imagine together how we might create a better world.

The same sense of purpose and set of capabilities, they say, exists in the living being that is the company. They quote Salesforce cofounder Marc Benioff:

Today’s world is so rife with challenging economic, social, and political issues that it’s no longer feasible for a company to turn away and conduct business as usual. … Over time, your employees and customers, not to mention investors, partners, host communities, and other stakeholders, will want to know your philosophy for doing business. They want to know if you have a soul.

Nonaka and Takeuchi expect that other business leaders will also embrace Benioff’s message, so CEOs must start formulating strategy with their souls and then execute it with their brains. ‘Soul’ is defined in this context as simple truths and principles that guide people to do what is right. Nonaka and Takeuchi contend that by drawing on deeply held values, companies can imagine what kind of future they wish to create, then use their brains to make it happen. For them, the key question then becomes: “How should companies use both souls and brains so that strategy becomes relevant to the world we live in?”

The greater part of this article deals with the authors’ advice on six practices that infuse strategy with soul. It is thus very much about how strategy and organisational culture are indivisible.

1. Cope with complexity

The growing complexity of our world and its many interrelated systems is widely acknowledged. To solve our most pressing problems, Nonaka and Takeuchi argue we must tap into diverse perspectives and sources of expertise across multiple domains. No single approach or field of study will provide the answers. The ability to sit with a complex problem and engage both analytical and intuitive thinking to address it, is increasingly crucial to organisations.

To illustrate their contention, the authors use as an example the development of the Hondajet, notable for the novel mounting of the jet’s engines on the top of its wings. The aircraft designer Michimasa Fujino faced considerable opposition to the concept within Honda’s aircraft division and it was very difficult to get regulatory approval. However, rave reviews and enthusiastic customers underlined for Fujino he was working for the customer, not for the company. His invention was consistent with the soul of the company as described in founder Soichiro Honda’s Three Joys principle—the joy of buying, the joy of selling, and the joy of creating.

2. Adapt to change

The rapid rate of change that characterises the modern world is driven largely by accelerated technological progress. It demands that leaders and organisations anticipate and adapt to new circumstances at an unprecedented pace.

Nonaka and Takeuchi use Microsoft’s renaissance under Satya Nadella to show how a leader who begins by establishing a deeper purpose for their organisation—and is guided by that purpose rather than a strategy of, for example, market dominance—can more clearly see emerging trends and cultural changes and adapt to them successfully. For example, Nadella understood that the technology world was shifting from the proprietary approach long favoured by Microsoft, to ecosystems of partners linked with open systems.

Being adaptive is not possible if strategy is rooted in preserving what was successful in the past. Leaders must therefore be humble—which is, apparently, a distinct characteristic of Nadella’s leadership. Nadella’s approach finds favour with Nonaka and Takeuchi because it shows that grounding strategy in soul is linked to the ideal of servant-leadership, with its focus on the greater good rather than oneself. For one thing, Microsoft under Nadella has shed its reputation as a bully. Internally, Nadella has created a more collaborative culture, leading the organisation through change, starting with clarity of purpose and sense of mission that prioritises innovation to empower users and organisations to ‘do more’.

3. Embrace dynamic duality

In the West, business executives have divided knowledge into explicit knowledge, which can easily be articulated and shared, and tacit knowledge, which is more intuitive and gained from lived experience. They often value the former more highly than the latter. In contrast, the intellectual tradition in Japan stresses oneness of body and mind, of self and other, of humanity and nature. In this tradition, Japanese executives view explicit and tacit knowledge as complementary, with the emphasis placed more on the latter. Tacit and explicit knowledge form a dynamic duality, interacting with each other to create something new.

Nonaka and Takeuchi elaborate on this by referring to Toyota, illustrating several that company’s traits to show how it actively embraces and cultivates contradiction, opposites and paradoxes, making dynamic duality an integral part of its culture.

4. Empathise with everyone

Human survival depends on our ability to organise in mutually supportive groups for food and protection. At the root of this social connection is the ability to empathise with others. It follows, Nonaka and Takeuchi conclude, that facing today’s crises, political and business leaders should unite using this unique human quality. And—to empathise on a deep level—people must develop a keen understanding of others’ perspectives and cultivate compassion in their hearts.

To illustrate this, they refer to Eisai, a leading Japanese pharmaceutical company. Each of its 10,000 employees spends a few days a year with patients in healthcare facilities, learning about their specific ailments and developing empathy for what they are feeling.

5. Tell stories

Effective business leaders understand the power of using stories to communicate the essence of their beliefs and ideals, and to help their organisation internalise strategy. Nonaka and Takeuchi tell the story of the recently retired chairman and CEO of Fujifilm, Shigetaka Komori, who created two guiding narratives about the company.

First, to help people envision a different future for the company while the market was transitioning from photographic film to digital technology, Komori developed a strategic narrative. This identified Fujifilm with the owl of Minerva taking off at the beginning of the new age of digitalisation.

Second, Komori used stories to encourage his employees to use their ‘whole body’ intelligence—not only their five senses but also their intuition. This second narrative drew attention to how people react in a fire. The difference between the people who escape to safety and those who don’t is based not on intelligence but on instinct and intuition. Nonaka and Takeuchi say Fujifilm escaped the ‘fire’ that has destroyed other analogue businesses by extracting the experiential knowledge of all its employees.

6. Live with nature

Complex systems in nature—like Earth’s climate—predate Homo sapiens by more than 3 billion years. The Japanese tradition of ‘oneness of humanity and nature’—also practised by many indigenous cultures around the world—has taken on new relevance as humans seek to repair the damage to the natural environment caused by industrialisation.

Using examples like the nuclear accident at the Fukushima power plant (radioactive contamination of the air, land and water) and oyster farms in Tohoku (affected by polluted river water), Nonaka and Takeuchi draw attention to the phenomenon of symbiosis, a word derived from the Greek for ‘living together’. When we value living with nature, Nonaka and Takeuchi say, we care for the environment—and in turn preserve our livelihoods.

Conclusions

Nonaka and Takeuchi conclude that these six practices must become a way of life if companies are to survive today’s age of ‘unknown unknowns’. They must also become the modus operandi for strategists who seek to meet the unprecedented challenges facing businesses and humankind.

Observing leaders who consistently do these things has taught them the following lessons about strategy:

First, strategy must be driven by human beings. The six practices represent a philosophy of doing business which they call ‘soul’. A company’s customers, employees, suppliers, communities and shareholders want to know whether it has a soul. A soul is essential if there is to be mutual trust and connection.

Second, strategy is driven by wisdom. Mother’s wisdom (what elders teach) and practical wisdom (what lived experience teaches) together enable people to grasp the essence of a matter intuitively and, at the same time, cope with the fast-changing world. Companies must continuously change to survive, so they should focus on becoming a little bit better every day rather than fixate on drawing up a precise plan.

Third, strategy is about future-making. The future is hazy and unpredictable, which is why leaders need to tell stories about where they are headed—it allows others in the organisation to follow. Narratives illustrate a set of beliefs about what a company stands for and what kind of legacy it wants to leave for future generations. These stories bind the
organisation together and help strategy become a way of life for all employees.

Last, but not least, strategy is about making choices. It is about choosing a desired future that must extend beyond the narrow interests of the company. Only then will companies start thinking of themselves as social entities that have been charged with a purpose to create lasting benefits for society and to improve the human condition.

No company will survive long term if it does not start with a moral purpose and offer value to customers, contribute to society, live in harmony with nature, and create a better future.

Notes:

(1) Ikujiro Nonaka and Hirotaka Takeuchi. ‘Strategy as a Way of Life’. MIT Sloan Management Review, August 12, 2021