In this article, we present a model of technology transfer that emphasizes Nonaka and Takeuchi's (1995) four phases of knowledge creation and incorporates the ideas of innovation diffusion from Everett Rogers and others. In our model, instability occurs as a result of changing environmental expectations that disturb the knowledge equilibrium, as these expectations are now different from the expectations of the existing process. Under the right conditions, this disequilibrium can initiate a process of knowledge creation that can have important benefits. Our model then describes how the knowledge—the technology, in this case—evolves and diffuses to create a new equilibrium state. We apply this model to the development of new manufacturing-process technology in a chemical-blending company, wherein excessive product returns, which at first would appear to be a problem, become instead an opportunity as new knowledge is created. We describe the manufacturing process under study and explain the knowledge creation process at our case company.We also discuss the tangible and intangible benefits that resulted and the conditions in place at the company that made this process possible.