Determining The Knowledge Management Strategy For SME Commerce Essay

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This literature review begins by describing the way in which Knowledge Management has emerged. This is followed by the discussion of the concepts of Knowledge Management and how KM strategies used by small to medium enterprises. Furthermore the review concentrates on identifying and discussing the codification and personalization KM strategies and presents arguments or debates or accepts works from authors in order to identify gaps. Finally, concluding with the possible research areas or directions identified for from the gaps.

What is Knowledge Management?

With knowledge comes wisdom, but due to the unclear and intangible nature, defining knowledge accurately is difficult. Nonaka (1994) describes Knowledge as a credence that boosts an individual's or unit's ability for being effective. The knowledge gained or acquired needs to be managed in an effective way to be able to use it for strategic gain.

Knowledge Management has been practiced for centuries in the form of hunters, craftsmen and family business owners passing down their skills and knowledge to family members, apprentices and to the younger generation (Hansen et al, 1999). But in the past decade or two businesses has realized the importance of Knowledge Management. Knowledge Management efforts in general, focus on organizational objectives such as enhancing performance, sharing experiences or lessons learned, competitive edge, innovation and continuously enhancing the business processes to become more streamlined. KM consists of vast strategies and that are used by an organization to identify, create, represent, distribute, and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either embodied in individuals or embedded in organizational processes or practice. An organization uses KM to identify and leverage from its collective knowledge to gain competitive advantage by developing into innovators (von Krogh 1998; Hackbarth, 1998).

There are two types of Knowledge; tacit knowledge (key knowledge that is difficult to transfer to another person by means of writing it down or verbalising it) and explicit knowledge (key knowledge that is articulated and stored for later reuse) (Polanyi, 1966; Hansen et al, 1999).

Knowledge Management Strategies:

There are two types of KM strategies that is used for capturing knowledge i.e., codification strategy and personalization strategy. Codification strategy refers to explicit key knowledge of a company which is articulated, codified and stored in a computer system where as personalization strategy is used for the knowledge that is difficult to translate into a system. Codification strategy requires investment into IT in order to be able to codify, store and transfer explicit knowledge to all those within the organisation, while a personalisation strategy will require far less IT investment as technology is only required to facilitate social relationships  within the organization (Hansen et al, 1999). The type of KM strategy implemented by an organisation need to best accommodate the way individuals create and transfer knowledge (Crossan et al, 1999).

Knowledge Management and SME's:

In the past two decades KM has emerged as an important pillar for businesses due to the reshaping of the economy and organizational communities. The increase in demand for better products, services and technology has very open competitive field for SMEs (Rasheed, 2005). Knowledge plays a crucial role in determining a firm's innovation capability and in enhancing the working life quality of knowledge workers (Corso, Martini, Pelligrini, & Paolucci, 2002). Managing knowledge is vital because knowledge is can be used as a strategic weapon to potentially help increase profits (Choi and Lee, 2003). SMEs are not able to command economies of scale in the same way as larger organizations due to their lack of dimension and monetary scale (Desouze, & Awazu, 2006). Knowledge in SMEs is gained through the experiences and associated tacit and explicit learning of a specific individuals (Carson, & Gilmore, 2001; Wong, & Radcliffe, 2000).

Most studies that have been conducted on SMEs rely upon qualitative methods that focus on small samples (Zhou, Tan and Uhlaner, 2007). This presents an opportunity for researchers to explore the KM strategies in SMEs using quantitative research methodology. Desouze, & Awazu, 2006 describes that exploiting external sources of knowledge is a key practice for SMEs mainly because of their resource constraints

Zhou, Tan and Uhlaner (2007 reveals that Knowledge sharing includes two aspects external acquisition and internal knowledge sharing. It is shown by empirical research that instead of creating knowledge in-house through research and development, SMEs acquire new knowledge through individual interaction or through socialization with external sources. This is shown by Tan in their empirical quantitative study which involved nearly 500 SMEs and models to draw relationships. However they themselves admit that there is lack of empirical evidence from researches conducted within SMEs.

In order to decide the strategy that is suitable for particular SMEs is dependant on the type of the organization. According to Shackelford and Sun (2009) a SMEs strategy for KM needs to fit with the formation of the business, in the way they interact and form relationships with customers and in general how strongly their business and IT strategies are aligned.

SME usually have a limited financial scope (Zhou, Tan and Uhlaner, 2007). This is a huge setback when wanting to implement a codification KM strategy as strong investment into IT based KM software are needed in order to be able to capture, store and excess the knowledge in the right formats. Moreover, the lack of financial scope in SMEs could be another reason as to why they tend to implement personalization KM strategy. This is however very debatable as in Hansen at el (1999) it was shown that face-to-face interaction and socialization could be costly. Hansen however uses two large consulting firms (Ernest &Young and Bain).

The structure of an organization is important to determine the type of KM strategy to implement. The IT and Business infrastructure and the IT and Business strategies need to be properly aligned and cross functional to achieve a strategic fit (Henderson N. Venkatraman, 1993).

Implementing Codification Strategy in SMEs':

Some examples of codified information include manuals, fact sheets, charts and diagrams. This codified or explicit knowledge then can be stored using software applications such as Microsoft SharePoint.

Codification strategy seems to be undermined by most studies (find). The creative and innovative characteristics of SMEs type organisations lead them to manage and acquire knowledge through a socialization approach. This however could be arguable as different scale of operations within SMEs and how these businesses operate (business and IT strategic alignment) could determine or might even lead to a codification approach to store the explicit knowledge. But generally the requirements for IT based systems and technologies in SMEs are low but the need for creativeness and innovation is high.

There is some form of establishment that knowledge management strategies have been developed for large businesses or organizations, such as the codification and personalization strategies. But the choice of strategy suited for SMEs is somewhat unknown. There are very few empirical studies conducted that examines knowledge management within SMEs.

Implementing Personalization Strategy in SMEs':

(Nonaka, 1994, p.16) illustrates personalization or tacit knowledge as the knowledge that can be transmitted in formal and systematic language.

Zhou, Tan and Uhlaner (2007) indicated in their study by analysing nearly 500 SMEs, that more than half of the sample acquired knowledge through contacts with external professionals. This can again be arguable in context to the changing world that we live in. Break-thorough in IT can change the way codification is performed or even lower the cost for the IT softwares and knowledge needed to operate the softwares. Desouze and Awazu (2006), in an intensive qualitative investigation of 25 SMEs, found that socialization is a dominant factor in the knowledge management cycle. This however does not mean that that the internal sharing of knowledge should be minimized. A potential area of research to look into would be the description of socialization. Does making friends with an external professional on Facebook for example and sending messages be regarded as socialization? If so, then is it not a more codification process instead? This is due to the interaction or socialization is taking place via an IT based web platform that contains a backend database where the messages are stored and can be retrieved for future reference. The nature of our changing world is causing SMEs to reengineer their business processes often to keep their business and IT strategies aligned for competitiveness. This may eventually lead to a more hybrid strategy for KM in future.

Socialization is the medium for knowledge transfer in tacit form between individuals in SMEs. This was again seen in the research study conducted by Zhou, Tan and Uhlaner (2007). They discovered approximately 80% of the Dutch SME sample reports that they rested had knowledge shared via face-to-face communication. The proposed reason for the emphasis on these people-based approaches was maybe due to the fact that much of knowledge in SMEs remains in tacit form.

Tacit knowledge can also be acquired by externalization amongst colleagues as well as through relating with experts and professionals by interaction or socialization (Davenport, & Prusak, 1998; Nooteboom, 2001).

The major hurdle with tacit knowledge and in adopting personalization strategy is that the key to the knowledge and knowledge sharing is the individual that is holding it. There may be certain skills that are personal or unique to that individual who may not want to reveal it to others. The individual could see this knowledge within him as a competitive advantage over other individuals or employees in the business. This knowledge or skill could however be reflected on the work done by the employee. This skill would be hard to articulate, but the business still has that knowledge within the business. However there this knowledge is like a ticking time bomb. The business has the knowledge but has limited control over it. If the employee, leaves the business the knowledge simply walks out with the employee. Even having an employee with certain skill does not imply that that skill would be used and shared with effect. There is a need for high level of motivation to encourage the employees to work effectively and efficiently. The tacit knowledge gained from the employees can only be created by socialization and from experience gained from internal and external parties (Coulson-Thomas, 2004; Nonaka, 1994; Tsoukas, 2001).


To become innovative means to gain competitive advantage by creating a unique product, service or process that adds a new economic value to the SMEs. Knowledge plays a crucial role in determining a firm's innovation capability and in enhancing working life quality of knowledge workers (Corso, Martini, Pelligrini, & Paolucci, 2002).

A problem that can arise from codification strategy is the lack of new knowledge or innovation. Liebowitz (2005) mentions that by reuse, innovation is achieved. This is arguable as reusing will lead to less creative thinking hence no innovation. Creative minds and new knowledge are what leads to innovation.

SMEs hunger to compete and to survive is why they seek for innovation. Innovation is major factors that can help SMEs develop into larger businesses or firms. This is the reason that the KM strategy that is adopted by SMEs should be carefully chosen as it can be seen from Hensen et al (1999), in the CSC Index consulting company example that a business can risk failure by switching between the KM strategies (i.e., codification and personalization strategy) or by trying to adopt both strategies equally.

Gaps identified:

Shackelford and Sun (2009) study shows that the best suited KM strategy for SMEs is personalization strategy. However, they do admit that this field is wide open to investigate as there are few empirical researched that explores the knowledge management conducted SMEs. The choice of the right strategy for SMEs is critical due to SMEs as they are limited on financials and a wrong strategy will be disastrous.

Alavi and Leidner (2001) states that owners and managers of SMEs view their success differently with the frequently mentioned criteria as the profit obtained, the profitability, the quality of the products and services offered and the knowledge obtained from hiring of new staff. There is a limited number of staff that SMEs can hire and not all of them will have new knowledge within them. Some staff will require training. Careful selection of staff can be a costly and lengthy process for SMEs. Hence, a method of value or measurement need to be developed to gauge the value in codification and personalization strategy.

(Zhou, Tan and Uhlaner, 2007) mentions that there have been very few studies carried out that uses quantitative research methodology. Typically the most studies use qualitative case studies or very small samples. This maybe identified as a gap as well as it can not be used to predict the future trend of which KM strategy will lead to be more effective as we live in a constantly changing world. If a stronger valuation can be determined than this could be used to predict the better KM strategy that SMEs should invest in, thus SMEs then do not have to worry about re-implementing their KM strategy to keep up with the changes in the businesses strategy in future. This could help save a lot of finance and efforts.


From the literatures reviewed I will conclude that most typically SMEs manage their knowledge via more socialization approach, that compliments their innovative and creative characteristics. The scale of operations within SMEs the availability of knowledgeable staff, the funds available and the strategic alignment of the SME would be some factors that need to be considered before deciding on which strategy best suits SMEs. The biggest limitation for SMEs to adopt the codification strategy is lack of financial scope. However, in larger firms like Ernest & Young who uses codification strategy tend to get better profit margins then Bain. But Bain produces unique solutions (Hansen et al, 1999).

While there are many studies conducted on which is the better strategy for SMEs (i.e., codification and personalization strategies), the correct answer to this is relatively unknown.

Furthermore, there are very few empirical studies on KM within SMEs. Hence this proposes an open field for researching into.

A Possible future research area may also be a hybrid KM strategy. This is due to the fact that we live in a changing world and that businesses adjust to these changes in order to compete. But if a hybrid is used then what percentage of each strategy should be used? This question arises as from Hensen et al (1999) we can see that that a business can risk failure by switching between the KM strategies or by trying to imply both equally.

There can be very useful and interesting information gained from researching for the best KM strategy by removing the limited finance barrier in SMEs or developing a solution to overcome this issue. Would more SMEs choose the codification strategy, if the financial risks and costs are lowered?