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Implementation of knowledge management in small and medium 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) from the author’s findings will be discussed and critically analyzed in this paper. Finally a conclusion of the issues related to KM shall be included.

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. Simon 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.

KM is seen as a key factor in realizing and sustaining organizational success for improved efficiency and innovation (Handzic, 2006). Further, 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.

Figure 1: Data, Information, and Knowledge (Handzic, 2005)

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).

Micro Enterprise

Small Enterprise

Medium Enterprise

Manufacturing, Manufacturing-related Services and Agro-based Industries

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

Sales turnover between Rm250,000 and less than Rm10 million or full time employee between 5 and 50

Sales turnover between Rm10 million and RM25 million or full time employee between 51 and 150

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

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

Sales turnover between RM200,000 and less than Rm1 million or full time employee between 5 and 19

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; Simon 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 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 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 Ilesami (2007), the development of a truly visionary KM strategy and creation of a business driven IT-based knowledge information system is often neglected. According to him, 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, 2005). In Malaysia for instance, a simple KM system with access to the internet, email and website hosting (for example; Unifi package offered by Telekom Malaysia Berhad) may serve as a cost effective start. With these facilities, SMEs shall able to create, store, share and distribute knowledge amongst the employees. Also, important factors that must be considered in the development of a KM system include 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. The strengths and weaknesses were primarily focus on SMEs’ management, structure, culture and human resource [Table 2].

Strengths

Weaknesses

SMEs’ management

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.

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’ Structure

Simple and flat structures give the advantage for the managers to implement KM compare to complex structure in large organization.

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

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.

SMEs’ Human Resource

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

Small organization has problem to retain skill and experience employees as most of them will jump to bigger organizations for better job opportunities.

Table 2: Strengths and weaknesses of SMEs in implementing KM over the large organizations

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 when implementing KM.

In 2005, Wong and Anspinwall 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 [Appendix A]. 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].

In 2010, two similar kinds of approaches have been conducted on SMEs in Malaysia and Pakistan by Rehman et al. and in Iran by Valmohammadi. Rehman et al. and Valmohammadi had derived twelve CSFs and accomplished CSFs ranking list through questionnaire surveys. Very interesting, the SMEs 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’ UK in previous studies. [Table 4]

No

Critical Successful factors

Overall Mean

1

Management leadership and support

1.25

2

Culture

2.00

3

Strategy and purpose

3.25

4

Resources

4.25

5

Process and activities

4.50

6

Training and education

6.50

7

Human resource management

6.75

8

Information technology

8.50

9

Motivational aids

8.75

10

Organizational infrastructure

9.25

11

Measurement

11.00

Table 3: Overall mean ranked for eleven CSFs based on a survey conducted by Wong and Aspinwall, 2005

No

Critical Successful Factor

Average Score

1

Top management support

2.07

2

Knowledge friendly culture

3.33

3

Financial resources

3.63

4

Technological infrastructure

5.73

5

Communication between all levels

of management

6.33

6

Human Resource Development

6.73

7

Hiring and retention of

knowledgeable people

7.63

8

Strategy of KM

8.57

9

Rewards to encourage KM

practices

8.73

10

Systematic KM processes and

activities

8.93

11

Core values of business

8.97

12

Organizational infrastructure

10.37

Table 4: Overall mean rank for twelve CSFs based on a survey conducted by Rehman et al., 2010.

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.

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.

Figure 2: KM strategy for an organization

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 shrouded in one factor: their culture resistance to change. Hylton (2005) has the same conclusion when she finalized her article related to SMEs’ KM implementation issues. These SMEs have to change the current working culture and environment prior to implementing KM. The change of attitudes, recognition and reward schemes introduced 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)

Appendix A – List of Critical Success Factors together with their sources.

No

Critical Success Factors

Source

1

Management leadership and support

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

2

Culture

Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; Liebowitz, 1999; APQC, 1999; Mc Dermontt and O’Dell, 2001

3

Information technology

Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; Hasanali, 2002, APQC, 1999; Alavi and Leidner, 2001

4

Strategy and purpose

Skyrme and Amidon, 1997; Davenport et al., 1998; Liebowitz, 1999; APQC, 1999; Zack, 1999.

5

Measurement

Hosapple and Joshi, 2000; Davenport et al., 1998; Hasanali, 2002; APQC, 1999 Ahmed et al., 1999

6

Organizational infrastructure

Davenport et al., 1998; Liebowitz, 1999; Hasanali, 2002; Herschel and Nemati, 2000

7

Processes and activities

Skyrme and Amidon, 1997; Holsapple and Joshi, 2000; Davenport et al., 1998; Bhatt, 2000

8

Motivational aids

Davenport et al., 1998; Liebowitz, 1999; Yahya and Goh, 2002; Hauschild et al., 2001

9

Resource

Holsapple and Joshi, 2002; Davenport and Volpel, 2001; Wong and Aspinwall, 2004

10

Training and education

Horak, 2001; Yahya and Goh, 2002; Hauschild et al., 2001

11

Human resource management

Yahya and Goh, 2002; Wong and Aspinwall, 2004; Brelade and Harman, 2000

12

Rewarding and motivation

Davenport et al., 1998; Yahya and Goh, 2002; Al-Busaidi and Olfman (2005); Wong and Aspinwall, 2005; Akhavan and Jafari (2006)

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