Implementation of Knowledge Management in Small ...

Article Review: Implementation of Knowledge Management in Small and Medium Size Enterprises

Prepared by: Salasiah Rashidi University of Technology MARA, Malaysia

Table of Contents Introduction ..................................................................................................................... 4 Definition of KM ........................................................................................................... 2 Figure 1: Data, Information, and Knowledge ............................................................... 3 Definition of SMEs ....................................................................................................... 3 Knowledge as a competitive advantage ...................................................................... 4 Reasons for not implementing KM in SMEs .................................................................... 5 Strengths and weaknesses of SMEs in implementing KM compare to large organizations ................................................................................................................... 7 Critical Successful Factors (CSFs) for Implementation of KM in SMEs........................... 9 Conclusion .................................................................................................................... 13 Appendix A – List of Critical Success Factors descriptions. .......................................... 16 Appendix B – List of Critical Success Factors together with their references ................ 18 Bibliography .................................................................................................................. 19

IMPLEMENTATION OF KNOWLEDGE MANAGEMENT IN SMALL AND MEDIUM SIZE ENTERPRISES

Abstract: This paper reviews ten literatures related to the topic of Implementation of Knowledge Management (KM) in Small and Medium Size Enterprises (SMEs). Three of the articles literature reviews on issues and barriers that lead the managers and owners of SMEs for not implementing KM and other were about the empirical studies on Critical Successful Factors for implementing KM. The studies were conducted on SMEs at Malaysia, Pakistan, Iran, Nigeria and United Kingdom. First this paper shall highlight the definition of Knowledge Management and the barriers faced by SMEs in implementing KM. Secondly, it shall highlight about the Critical Successful Factors (CSFs) that influence the implementation of KM in SMEs. Finally a conclusion of the issues related to KM’s critical successful factors shall be discussed.

Keywords:

Small Medium Size Enterprises, Knowledge Management, Critical Success Factors

Introduction Malaysian’s small and medium size enterprises (SMEs) play an important role in the Malaysia economy in terms of economic growth and providing employment. They have become the prime mover and also the backbone of industrial development in Malaysia (Smecorp, 2010). The same fact is also preview in other develop or developing countries. It is very important for SMEs to continue competitive and sustain in today dynamic economy. Handzic (2006) raise the concern to establish and sustain good knowledge management practices in SMEs in order to ensure their competitiveness in the new business environment. Hylton (2006) prevails it is essential

for the SMEs to implement knowledge management strategies in order to gain a competitive advantage in the knowledge economy. SMEs should seek the best methods to audit and capture knowledge regarding both the explicit and tacit knowledge within the enterprises. SMEs also should improve their ability to acquire and create new knowledge quickly. Simion and Radu (2009) emphasized that the knowledge have gained important role in the development of SMEs while the environment gets more competitive and complex and permanently requires change and innovation.

Definition of KM What is Knowledge Management (KM)? There have been many definition made on the

topic

of

knowledge

management

within

the

organization.

KM

can

be

comprehensively defined as “an emerging set of organizational design and operational principles, processes, organizational structure, applications and technologies that helps knowledge workers dramatically leverage their creativity and ability to deliver business value” (Wong and Aspinwall, 2005). The basic assumption on KM is that the organizations that manage organizational and individual knowledge better will deal more successfully with the challenges of the new business environment. According to Handzic (2006), KM is seen as a key factor in realizing and sustaining organizational success for improved efficiency, innovation and too important to be ignored by managers. Hylton (2006) added a knowledge management process involves: knowledge capture; knowledge organizing and knowledge sharing. Ultimately, successful knowledge management results in the best possible means to apply and leverage the knowledge that has been captured, organized and shared for company’s core business and competitive intelligence strategy. Figure 1 shows the correlation between data, information and knowledge. According to Handzic (2005), knowledge is very distinct from data and information. Whereas data are a collection of facts, measurements and statistics, information is organized or processed data that are timely and accurate. Knowledge is information that is contextual, relevant, and actionable.

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INFORMATION Processed Relevant and actionable

DATA

KNOWLEDGE

Relevant and actionable data

Figure 1: Data, Information, and Knowledge Handzic. M. “Knowledge management in SMEs.” Confederation of Asia Pacific Chambers of Commerce and Industry Journal. Vol1, 2006. pg:29.

Definition of SMEs Definition for SMEs varies from country to country. Still there are basic criteria for the classification of SMEs on which almost all countries and organizations agree. Those include number of employees, annual sales turnover and total assets. Malaysian SMEs are categorized into micro, small and medium enterprises on the basis of number of employees and annual sales turnover. For example, SMEs classify under micro have less than five employees and sales turnover less than RM 200,000.00 annually (Smidec, 2010). Pakistan based SMEs are categorized into small and medium levels and does not include micro level as is the case with Malaysian SMEs. Criteria used by government of Pakistan to categorize SMEs are number of employees, total assets and annual sales turnover (Rehman et al., 2010).

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Manufacturing, Manufacturingrelated Services and Agro-based Industries

Micro Enterprise Sales turnover of less than RM250,000 or full time employees less than 5

Services, Primary Agriculture and Information & Communication Technology (ICT)

Sales turnover of less than RM200,000 or full time employee less than 5

Small Enterprise Sales turnover between Rm250,000 and less than Rm10 million or full time employee between 5 and 50 Sales turnover between RM200,000 and less than Rm1 million or full time employee between 5 and 19

Medium Enterprise Sales turnover between Rm10 million and RM25 million or full time employee between 51 and 150 Sales turnover between RM1 million and RM5 million or full time employee between 20 and 50

Table 1: Definition of SMEs by SME Corp Malaysia Source: SMIDEC, 2009

Knowledge as a competitive advantage Many researchers and scholars (Handzic 2006; Wong and Aspinwall 2005; Hylton 2006; Simion and Radu 2009) are of the opinion that knowledge is the foundation for competitive advantage. This SMEs need to keep up with the knowledge requirements and rapid changing global market where the development of innovative services; products and solutions is required to attract and prolong customers and overtake the competition. What is strategic advantage and how can SME use knowledge to secure a strategic advantage? Strategic advantage means to possess long-term advantage over ones’ opponents and for SME owners it is an essential key to help keep one stay ahead in competition among peers (Handzic, 2006). Concisely, it is about generating greater value through the knowledge in products, services, people and business process. For instance, a SME company has a competitive advantage over its opponents by producing high quality products with lower price due to it minimum cost of operations small number of employees with skills and experiences. Thus, a competitive advantage enables the company to create superior value for its customers and superior profits for 4

itself. To sustain this competitive advantage, one of the initiative is the owner needs to ensure the seniors to share their skills and know-how knowledge with the junior employees through periodical training sessions or informal meetings. In other words, the tacit knowledge needs to be transferred as organizational knowledge for long-terms benefits. Irrespective of the size and nature of an organization, KM is important for the success of an organization. Therefore, it is very important for the SMEs to implement KM as soon as possible. This paper in the next section will discuss about the reasons for not implementing KM in SMEs, strengths and weaknesses of SMEs in KM implementation compare to large organization, and follow with the critical success factors (CSFs) for the implementation of KM in SMEs.

Reasons for not implementing KM in SMEs There are various reasons for SMEs still lack in the implementation of KM. The following are some of the reasons discussed by the authors in their articles which are related to KM un-readiness, lack of information on KM’s benefits, limited KM resources and financial constraints. SMEs un-readiness to accept KM is still very apparent. Hylton (2006) mentioned that generally KM software developers and vendors did not target SMEs for their tools and viewed SMEs as not a ready market due to SMEs hesitant to accept KM. KM is still very much viewed by small-sized companies as a “big boys thing,” or even as “luxury item,” that only the large organizations can afford to indulge in. Some of the SMEs adopt the attitude of “wait and see” position with regards to the uptake of KM. She emphasized regardless of the lack of attention given to SMEs by the vendors or software developers, SMEs are urgently needs to capture and intelligently exploit its knowledge. Rehman et al. (2010) raised the issues that SMEs owners do not encourage their employees to share their knowledge nor they do it by themselves as the owners do not trust their employees in a sense that their employees will leave them as soon as they find a better opportunity. The owners consider knowledge sharing as a threat but at the

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same time by blocking outflow of knowledge in this manner they are ruining the opportunity of getting new knowledge. A survey done by Wong and Aspinwall (2005) for 300 SMEs in UK had ranked unsure of KM’s potential benefits and never heard of KM as the first reasons SMEs for not implementing KM at their companies. Interestingly, an empirical study done by Rehman et al. (2010) for 60 SMEs in Malaysia and Pakistan had ranked first reason SMEs for not implementing KM is due to SME owners do not know what KM is? i.e., top management lacks of the understanding of KM. These reasons point to the fact that most SMEs owners are not exposed to the potential benefits of KM and they still lack a sound conceptual foundation or public exposure about KM. It is suggested the responsible government agencies in respective countries to play their roles effectively especially to raise the awareness of KM’s benefits to SMEs. Lack of expertise and professional knowledge in an organization due to managers or owners are not always aware of the technical development regarding KM in SMEs. The majority of SMEs do not make use in their day-to-day business of various KM tools such as maintaining a customer database, having discussions with customers, conducting market surveys and so on. As stated by Apulu and Lathan (2009), the development of a truly visionary KM strategy and creation of a business driven IT-based knowledge information system is often neglected. According to them, as example some SMEs in Nigeria have computers and Internet service but still store customers’ information on papers. It is suggested for the SMEs to actively participate in IT-based knowledge events as many literatures emphasizes that SME’s with a more favorable attitude toward adopting IT-based technology will attain effective knowledge management. At the same time, the SMEs shall enjoy the benefits of productivity improvements due to the enhance usage of IT-based technology into their business process. It has been observed that most SMEs under invest in KM related technology due to financial constraints. Rehman et al. (2010) found out 60 SMEs in Malaysia and Pakistan had ranked financial limitation as second reason why they do not implement KM in the organizations. Most SMEs feel that the knowledge management return on investment (ROI) figures do not generally add up, so knowledge management is relegated to the level of a lavish tool and therefore something to be considered in the future (Hylton, 6

2005). In Malaysia for instance, a simple KM system with access to the Internet, email and website hosting (for example; Soho package offered by Telekom Malaysia Berhad) may serve as a cost effective setup. With these facilities, SMEs shall able to create, store, share and distribute knowledge amongst the employees.

Also, an important

factor that must be considered in the development of a KM system is simplicity of technology, ease of use, and suitability to users’ needs (Hylton, 2005). Regardless of the reasons, in general the SMEs owners do realize the importance of KM in their organization. For example, 20 SMEs owners attending the National Business Conference for SMEs in 2002, held in Wilayah Persekutuan Labuan, Malaysia, were asked to respond to questions whether the respondents had any experiences which related to the lack of a knowledge management approach. 100% of respondents had an experience where decision making process had to be postponed several times due to unavailability of responsible persons, and 87.5% agreed that they did face problems in acquiring information because the person in charge or the data involved was not available at the time and place needed (Hamzah and Woods, 2003).Therefore, it is very important for the SMEs owners to take proactive actions and formulate activities to establish KM culture in their organizations.

Strengths and weaknesses of SMEs in implementing KM compare to large organizations There has been much literature on the practice of KM within large organizations and little information available on SMEs.

Modern day KM has been targeted at large

companies and large organizations. However, in practice, KM within giant enterprises has been mainly departmental. ….”Most often the size of and style of operations in large organization mirrors to a small-sized company.” (Hylton, 2005).

In other words,

implementation of KM in SMEs will be much simpler and easier as it is only as the same size of departmental of large organizations. Rasheed (2005) made a brief comparison of KM in SMEs and large organizations. The comparisons were appropriate to be interpreted as the strengths and weaknesses of SMEs in implementing KM. To summarize, the strengths and 7

weaknesses were primarily focus on SMEs’ management, structure, culture and human resource [Table 2].

Strengths Managers are in the most cases the owners, which imply decision making is centralized and fewer layers of management. This means decision making is shorter than in large organizations. Simple and flat structures give the advantage for the managers to implement KM compare to complex structure in large organization.

Weaknesses Managers have to look after every aspect of the business which gives them limited time to focus on the strategic issues related to KM.

SMEs’ Culture

Small number of employees under the same beliefs and values, which implies that it easier for SMEs to change and implement KM than the large ones.

SMEs’ Human Resource

In a small organization, it is easy to identify capable employee and mandate the responsibility to implement KM.

Small organization beliefs & values can be influenced by the owner. It can be the decision of the owner to obstruct the development of knowledge rather than develop it. Small organization has problem to retain skill and experience employees as most of them will jump to bigger organizations for better job opportunities.

SMEs’ management

SMEs’ Structure

Simple and flat structures have limited the level of specialization in managers’ roles. End up the managers have no expertise in KM.

Table 2: Strengths and weaknesses of SMEs in implementing KM over the large organizations Source: Rasheed. N., “The impact of KM on SMEs.” Knowledge Board. 7 Jul. 2005.

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It is vital for the SMEs’ to take advantage on its strengths and formulate strategies to address its weaknesses in implementing KM. For instance, the owner can use Intranet as a KM tool to facilitate knowledge sharing – to create, capture, organize, access, and distribute information among its small number of employees. The Intranet is only require an elementary administration and maintenance as the structure of the organization is simple and small, at minimum one KM officer is required to facilitate the KM tool. To prevent employee to migrate to a bigger organization, the owner should recognize and reward its staff for their participation and contribution in KM activities.

Critical Successful Factors (CSFs) for Implementation of KM in SMEs There are certain factors or areas which are vital for KM implementation in SMEs. These factors are known as Critical Successful Factors (CSFs). Rehman et al. (2010) defined CSRs as area, matters or actions which are useful in the successful implementation of a plan, process, project or business. The CSFs are derived from an in-depth review and comparative study of existing studies on CFS of KM from different authors and scholars. In this section, the results of CSFs ranking surveys from Wong and Aspinwall (2005), Rehman et al. (2010) and Valmohammadi (2010) will be analyzed. The CSFs act as a list of items for organizations, particularly for SMEs to address and focus when implementing KM. In 2005, Wong and Aspinwall have proposed eleven CSFs to form the basis for KM adoption in the SME sector: leadership and support; culture; information technology; strategy and purpose; measurement; organizational infrastructure; processes and activities; motivational aids; resources; training and education; and human resource management. A survey was conducted on 300 SMEs in UK, asking them to rate the level of importance of the 11 CSRs using a six-point Likert scale (1 = not important at all up to 6 = extremely important). As the result, the top three factors according to the SMEs were “senior management support and leadership”, “culture” and “a clear strategy for managing knowledge” [Table 3].

9

No

Critical Successful factors

Overall Mean

1

Management leadership and support

4.948

2

Culture

4.871

3

Strategy and purpose

4.518

4

Resources

4.361

5

Process and activities

4.344

6

Training and education

4.081

7

Human resource management

4.196

8

Information technology

3.975

9

Motivational aids

3.841

10

Organizational infrastructure

3.772

11

Measurement

3.551

Table 3: Overall mean ranked for eleven CSFs based on survey on SMEs in UK Source: Wong Y. K. and Aspinwall E., “An empirical study of the important factors for knowledge-management adoption in the SME sector.” Journal of Knowledge Management. Vol. 9 no.3, 2005. Pg. 73.

In 2010, two similar kinds of approaches have been conducted on SMEs in Malaysia and Pakistan by Rehman et al. [Table 4] and in Iran by Valmohammadi [Table 5]. Rehman et al. and Valmohammadi had derived twelve CSFs (based on their individual literature reviews) and accomplished their individual CSFs ranking list through questionnaire surveys. Very interesting, the SMEs in the respective surveys had ranked “management leadership and support” and “knowledge-friendly culture” as top two critical factors in implementing KM which is similar to the top two factors ranked by SMEs’ in UK from the previous studies.

10

No

Critical Successful Factor

Average Score

1

Top management support

2.07

2

Knowledge friendly culture

3.33

3

Financial resources

3.63

4

5.73

11

Technological infrastructure Communication between all levels of management Human Resource Development Hiring and retention of knowledgeable people Strategy of KM Rewards to encourage KM practices Systematic KM processes and activities Core values of business

12

Organizational infrastructure

5 6 7 8 9 10

6.33 6.73 7.63 8.57 8.73 8.93 8.97 10.37

(Note: Lower the average score is, higher the significance will be) Table 4: Overall mean rank for twelve CSFs based on a survey on SMEs in Malaysia and Pakistan Source: Rehman, M., et al., “Implementation of Knowledge Management in Small and Medium Enterprises.” Journal of Knowledge Management Practice, Vol. 11, No. 1, March 2010.

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No

Critical Successful Factor

Average Score

1

Management leadership and support

5.243

2

Organizational culture

5.064

3

KM strategy

4.901

4

Removal of resource constraints

4.874

5

Processes and activities

4.744

6

Human resource management

4.702

7

Organizational infrastructure

4.668

8

Performance measurement

4.611

9

Training and education

4.611

10

Information technology

4.107

11

Rewarding and motivation

3.882

12

Benchmarking

4.599

Table 5: Overall mean rank for twelve CSFs based on a survey on SMEs in Iran Source: Valmohammadi C., “Identification and prioritization of critical success factors of knowledge management in Iranian SMEs: An experts’ view.” AfricanJournal of Business Management, Vol. 4(6), June 2010, pg.919

It is a fact that leadership plays a key role in ensuring success in almost an initiative within an organization especially for a new discipline – Knowledge Management. It will be greater impact or influence on an organization when leaders model the behavior they are trying to promote among employees. From a practical standpoint, to create knowledge friendly culture is not easy, especially if the organization consist of employee from different beliefs and values. The managers and owners of SMEs need to be creative to create the KM culture such – give briefing about the benefits of KM, construct informal communication sessions, and offer rewarding system for employees that participate in knowledge sharing.

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The respective authors agree that the prioritize set of CSFs will be useful to both managers and owners of SMEs. Since companies may not able to manage all aspects of KM at the same time, an ordered list of CSFs will provide a clue to SME to prioritize and adjust their KM practices accordingly. In order words, the implementation of KM practices can be deployed in stages according to availability of resources (time, money, infrastructure, human resource, etc). This has given the advantages for the managers and owners the opportunities to evaluate and assess KM’s accomplishment at each stage.

Conclusion The managers or owners of SME must play important role and preserve high commitment towards the KM activities or processes to ensure the success of KM implementation in its organization. As described by Handzic (2005), the KM activities or KM strategy [Figure 2] involves many activities and these activities must be supported by the top management commitment. She suggested the KM implementation or KM strategy to be complemented by the top management commitment through economic and strategic planning, training and skill development, compensation and rewards, and etc. Consequently, the knowledge friendly-culture will not be so hard to establish as the employees are motivated and encouraged by the participation and commitment from top management. The Knowledge friendly-culture will motivate the employees to communicate, to collaborate, to share and to reuse information.

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Figure 2: KM strategy for an organization Source: Handzic. M. “Knowledge management in SMEs.” Confederation of Asia Pacific Chambers of Commerce and Industry Journal. Vol1, 2006. pg:30.

In fact, the government especially Malaysia is supportive and commits to assist the SMEs to be competitive, innovative and productive in products and services through various economic programs and financial incentives. The SMEs are urged to take these opportunities to strategize their KM implementation activities such as to adopt ICT into their business processes and to upgrade the training and skill development programs for the employees, etc. This is to ensure the tacit knowledge is kept as organizational knowledge for everyone benefits. In conclusion, SMEs are open for various opportunities to implement KM in their organization. The most vital barrier against the implementation of KM is wrapped in one factor: their culture resistance to change. Hylton (2005) has stated similar conclusion when she finalized her article related to SMEs’ KM implementation issues. These SMEs have to change their negative thinking about knowledge, change the current working culture and environment prior to implementing KM. The change of attitudes towards knowledge sharing, participation recognition and introduce reward schemes for 14

employees are some of the vital initiatives. In such environments, such changes usually have to take place at the top of the organizational structure and flow down. If senior members of the organization were to promote a culture whereby knowledge sharing is promoted and awarded, it is more likely that people down the chain will follow. Finally, the SMEs need to be proactive and better manage their intellectual asset in order to sustain their competitive advantage in rapid changing business world. I end this paper with the following quotes: ……”If you have knowledge, let others light their candles with it” (Winston Churchil, 1874-1965, British politician). … “Of central importance is the changing nature of competitive advantage - not based on market position, size and power as in times past, but on the incorporation of knowledge into all of an organization's activities.” (Leif Edvinsson, Swedish Intellectual Capital guru in Corporate Longitude, 2002)

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Appendix A – List of Critical Success Factors descriptions. No 1

Critical Success Factors Management leadership and support

2

Culture

3

Information technology

4

Strategy and purpose

5

Performance Measurement

6

Organizational infrastructure

7

Processes and activities

8

Benchmarking

9

Resource

10

Training and education

11

Human resource management

Descriptions Leaders act as catalysts for KM. Management acts as role model to exhibit the desired behavior. Leaders encourage knowledge creation, sharing and use. Having a culture that values knowledge seeking and problem seeking. The collaboration among employees important. Encouragement of teamwork among employees. The use of an appropriate KM system. Utilization of the internet and intranet Appropriate knowledge structures or categories for repository. Having a common vision that people support? To align KM strategy with the business strategy? The identification of the potential value to be achieved? Measurement of the benefits of a KM initiative. Track the progress of a KM initiative Evaluation of the impact of KM on financial performance. Appointment of knowledge leader Establishment of a knowledge team or group Specification of roles and responsibilities for performing KM tasks. Documentation of key knowledge and lessons learned. Having efficient processes for classifying and storing knowledge Effective communication among employees. Encouragement of employees to benchmark other organization’s best practices. Establishment of internal benchmark on coordination of strategy, budget, and HR systems Considering resources availability when investing in KM Proper budgeting and allocation of resources for KM Sufficient financial resources for building a technology system Training on the concepts of knowledge and KM Building awareness of KM among employees through training Training on using the KM system and tools Recruitment of employees to fill knowledge gaps Hiring people who have a positive orientation to 16

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Rewarding and motivation

knowledge Professional development activities for employees Provision of the right incentives to encourage the behavior for KM Motivation of employees to seek for knowledge Rewarding employees with an emphasis on group performance

Appendix A: List of KM success factors - descriptions. Source: Valmohammadi C., “Identification and prioritization of critical success factors of knowledge management in Iranian SMEs: An experts’ view.” AfricanJournal of Business Management, Vol. 4(6), June 2010, pg.923

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Appendix B – List of Critical Success Factors together with their references No Critical Success Factors Management leadership 1 and support

2

Culture

3

Information technology

4

Strategy and purpose

5

7

Performance Measurement Organizational infrastructure Processes and activities

8

Benchmarking

9

Resource

10

Training and education

11

Human resource management Rewarding and motivation

6

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Researchers Skyrme and Amidon, 1997; Holsapple and Joshi, 2000; Davenport et al., 1998; Liebowitz, 1999; Hasanali, 2002; American Productivity & Quality Center, 1999; Ribiere and Sitar, 2003 Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; Liebowitz, 1999; APQC, 1999; Mc Dermontt and O’Dell, 2001 Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; Hasanali, 2002, APQC, 1999; Alavi and Leidner, 2001 Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; APQC, 1999; Zack, 1999. Hosapple and Joshi, 2000; Davenport et al., 1998; Hasanali, 2002; APQC, 1999 Ahmed et al., 1999 Davenport et al., 1998; Liebowitz, 1999; Hasanali, 2002; Herschel and Nemati, 2000 Skyrme and Amidon, 1997; Holsapple and Joshi, 2000; Davenport et al., 1998; Bhatt, 2000 Davenport et al., 1998; Liebowitz, 1999; Yahya and Goh, 2002; Hauschild et al., 2001 Holsapple and Joshi, 2002; Davenport and Volpel, 2001; Wong and Aspinwall, 2004 Horak, 2001; Yahya and Goh, 2002; Hauschild et al., 2001 Yahya and Goh, 2002; Wong and Aspinwall, 2004; Brelade and Harman, 2000 Davenport et al., 1998; Yahya and Goh, 2002; AlBusaidi and Olfman (2005); Wong and Aspinwall, 2005; Akhavan and Jafari (2006)

Appendix B: List of KM success factors. Source: Valmohammadi C., “Identification and prioritization of critical success factors of knowledge management in Iranian SMEs: An experts’ view.” AfricanJournal of Business Management, Vol. 4(6), June 2010, pg.917

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