Knowledge Management in the Small and Medium Enterprises:A Literature Review

By

Antonio N Sy JrIn partial fulfillment of the requirement for ISE 543

I. Introduction

The world is now a very complex place to live in. And the complexity of this world has made it a very difficult environment to deal with. The sheer amount of information available and the sheer complexity of the relationships amongst them is the world small and medium enterprises (SMEs) are facing in the beginning of this century. The explosion of available technologies has helped the world economy extensively, but it has also exacerbated the amount and velocity of information that is available out there. The purpose of this paper is to understand how knowledge management is envisioned to make sense of this complexity for SMEs. In particular, the paper will focus on the problems SMEs now face in this new complex environment; how SMEs are different from large complex organizations and how it affects KM efforts amongst SMEs, the critical success factors to consider for a successful KM implementation, what KM tools are available and appropriate for SMEs and future knowledge management efforts amongst SMEs.

The study will start with a review of some of the literature on knowledge management implementation in SMEs and the conclusions that results from the said review. One case study will be discussed to see how KM was implemented in the said SME.

First, what are small and medium enterprises (SMEs)? There are many definitions but most of it is centered on the number of employees hired by the enterprise. In the definition of the European Commission, the current definition categorizes companies with fewer than 10 employees as "micro", those with fewer than 50 employees as "small", and those with fewer than 250 as "medium". There are also many other definitions that are based on the concept of turnover and assets but there is no one common standard by which we can define whether an enterprise can be considered small or medium by its turnover and assets. Small and medium enterprises make up the bulk of all business enterprises in any country's economy. They usually make up more than 95% of all enterprises and they usually make more than 50%of an economy's employment. As an example, Taiwan and Hong Kong have 97.63% and 77.12%; and 98% and 50% respectively for the ratio of SMEs to all enterprises and employment percentage accordingly.

Knowledge Management is the management of the intellectual assets of an organization for the creation and retention of the value proposition of an

organization. This includes the creation, collection, compilation, organization, transformation, codification, distribution, communication, application and protection of the intellectual assets of the organization. To achieve this endeavor, infrastructure and culture must be installed and nurtured in order to support the knowledge processes aforementioned.

II. Why Knowledge Management for SMEs

Most small and medium enterprises operate in a highly pervasive risk environment, much more so than a large stable organization. In a study quoted by Patrick Lambe (2002) from a study made by Storey and Cressey3, between 50-80% of SMEs will have failed by the 5-year mark.

The competitive landscape has also changed considerably for the last 50 years. During the industrial era, big or small firms compete basically on the basis of producing quality products within the delivery time required. As quality and efficiency has increased, competition has shifted to a company’s ability to innovate in the market. Innovation entails information and the ability to take action on the information. Knowledge then becomes a key resource in allowing small and medium companies to compete effectively.

SMEs generally have a wealth of knowledge embedded in the owners and their employees, work processes and systems. But in SMEs, it is the tacit knowledge embedded that is the most important asset of the organization. It is this tacit knowledge that needs to be harnessed, transferred and codified for the survival of the enterprise.

III. Knowledge in Large Organizations and SMEs

In the same study by Patrick Lambe (2002), he mentioned the paradigm of most knowledge management assumptions is generally biased towards large corporations. “Knowledge asset management and the collaboration enablement for the exchange or assetization of tacit knowledge are key concepts that assumes there is knowledge already in place to be managed, which is typical of large enterprises. Most SMEs are operating in a quick moving environment, one of smart interaction with a hostile environment, garnering enough knowledge to make good decisions sufficient to the needs of the moment, and disposing a positive bias for the future. The notion of knowledge assets, central to the official discourse, is peripheral to

most small enterprises, because the acquisition, storage and retrieval of knowledge presupposes (for most) stability and a resource base they do not possess. Collaboration and knowledge-sharing for business activities both strategic and tactical is, by and large, a given.”

It is worthy to note that the acquisition of knowledge alone is not enough for SMEs, given that as it is, they are unable to have the resources to accumulate and store said knowledge. It also requires the ability to contemplate and act on the acquired knowledge in a very risky and uncertain environment. The consequence of such action should be at the minimum, to not increase the risk to the business and at most, maximize the advantages and the potential benefit to the SME. This is basically the tacit knowledge called experience. One must also remember that owner/managers of SME relies a lot more on their social capital or relational capital for their external sources of information due to the limitation in their resources. Owner/Managers are also more open to double loop learning as compared to other entities. They tend to question assumptions and try to understand underlying concepts and rationale. It is this ability to aggregate and synthesize this knowledge that forms their tacit knowledge not easily replicable.

As described by Desouza and Awazu (2006), there are five distinct peculiarities of SMEs vs. large organizations: (1) owner/managers are usually the knowledge repository; (2) common knowledge amongst SME employees or members eases knowledge transfer, sense making and application; (3) knowledge loss is generally less as social ties in SMEs are closer; (4) SMEs exploits external sources of knowledge easily and (5) technology is consider more of a tool for knowledge repository and processes rather than as an end in itself.

Wong and Aspinwall (2004) has further characterized small firms in the context of KM implementation in the following ways: owner/managers will be the central figure in deciding whether to implement KM, the small firm organization structure of generalist employees influences KM configuration, Culture factors in small firms characterized by strong owner personalities, formal and informal systems and processes; and staffing constraints. (See Fig 1 for details.)

It is in this context that knowledge management implementation in SMEs must be approached differently from that of large enterprises, although the

conceptual underpinnings may be the same.

What are the critical success factors to consider in the implementation of knowledge management in organizations? In a study by Wong and Aspinwall (2005), they mentioned 11 critical success factors. These are: senior management leadership and support, a knowledge sharing culture, development of a technological infrastructure, a clear strategy and purpose for managing knowledge, measurement of the effectiveness of KM, roles and responsibilities in a KM oriented organizational structure, effective KM processes and activities, motivational aids to encourage KM activities, Allocation of resources for KM, appropriate training and education and effective human resource management.

But is there a difference regarding which are the most important factors for a large enterprise and for SMEs? In Davenport’s paper (1998), the four most critical success factors for large organizations would be culture, organizational infrastructure, motivational aids and management support. Wong and Aspinwall propose the four most critical factors for SMEs would be management leadership and support, culture, strategy and purpose and resources. Although all the critical success factors are important, the difference in the rankings reveals at which stage of a firm’s life cycle the large firms and SMEs are. SMEs usually have owner/managers who must have a clear grasp of the advantages of KM implementation to implement a KM strategy that will complement the business strategy, will be supportive of a knowledge sharing culture (atypical of usual SMEs) with the limited resources at his disposal. Large bureaucratic organizations can function on automatic pilot even if there is no clear leader, for as long as the management leadership supports the initiative, provides the infrastructure and motivational aids and supports the knowledge sharing culture throughout the organization. These findings clearly impact how KM is to be implemented in SMEs.

Note that other factors are no less important. Developing the KM processes and activities are pretty critical in KM implementation in SMEs but do note that information technology is not high on the priority list. This indicates the resource constraint in SMEs and processes and activities does not have to be too “high-tech” in order to achieve the same result of a knowledge sharing culture. Given the limited resources and considering the size of the organization, this is not surprising.

IV. Implications on KM Implementation in SMEs

What will then be crucial in KM implementation in SMEs? Evangelista (2010) proposes three areas in developing KM practices: Management of market knowledge, (2) management of technology knowledge and (3) management of relational knowledge.

In most cases SMEs acquire knowledge rather than create them. Managing the market knowledge will be one of the key competitive advantages they will have. Their limited resources require management of their technological knowledge by using the appropriate KM tools given their size. Management of relational knowledge is important, as the limited resources will require collaboration efforts amongst the suppliers and even customers. In essence, KM implementation in SMEs must play to the SMEs’ strengths and mitigate SMEs’ weaknesses.

IV. The Hierarchy of Evolutionary Knowledge Management

In a paper by Mones, Ortega, et al. (2003), knowledge management tools can be categorized in a hierarchical evolutionary basis. By evolution, it is also meant as stepping-stones for implementing KM tools in the organization, starting from the obvious to the complex. These levels are Document Management (Individual), Workflow Management (Group), Groupware Management (Organization), Customer Relationship Management (Customer), Competitive Intelligence Management (Competitors) and Knowledge Assets Management (Environment).

The key knowledge processes of SMEs mentioned by Fink and Ploder (2009) are knowledge identification, knowledge acquisition, knowledge distribution and knowledge disposition. Each of these knowledge processes will map to methods that supports these four processes.

Knowledge identification methods can include balance scorecard and knowledge balance. Knowledge acquisition methods encompass search engines and mind mapping. Knowledge distribution methods include best practices, wikis and groupware. Knowledge disposition methods include communities of practice, expert systems and document management systems. (See figure 2)

Fink and Ploder (2009) suggests that by understanding the required

knowledge processes, auditing the available knowledge tools used in the SMEs, we may be able to better match the proper knowledge management tool to the knowledge process involved.

There are four steps that needs to be taken to try and implement the technical or information technology aspect of knowledge management. Step 1 is to define the SME according to its characteristics. Step 2 is to define the knowledge processes involved by modeling the knowledge processes in the SME. Step 3 is to define the knowledge method repository required by the SME by matching knowledge methods to the knowledge processes and Step 4 is to design the tool repository by identifying the cost efficient software that would support the knowledge methods and tools design for the SME.

V. The Knowledge Management tools

Fink and Ploder (2009) described for us the different types of KM tools that can be matched against the particular knowledge processes SMEs would be actively engaged in.

These are the methods repository for each knowledge process:

A. Knowledge Acquisition1. Balanced Scorecard2. Knowledge Balance3. Skandia Navigator4. Market Asset Value Method5. Tobin’s q

B. Knowledge Acquisition 1. Search Engine2. Brainstorming3. Knowledge Network4. Mind Mapping5. Email Systems6. Scenario Technique7. System Simulation8. Business Games9. Synektik

C. Knowledge Distribution1. Email Systems2. Handbook FAQs3. Communities of Practice4. Groupware5. Questionnaires6. Best Practice7. Checklist8. Lessons Learned9. Knowledge Maps10. Story Telling11. Chat Room12. Micro-Article

D. Knowledge Disposition1. Database2. Mind Mapping3. Document Management Systems4. Checklist5. Content Management6. Project Reviews7. Expert Systems8. Conceptualization9. Neural Networks

Most of the knowledge methods repository in the market presently addresses the knowledge acquisition, distribution and disposition processes. Knowledge identification is certainly an important process but SMEs generally look to external sources in knowledge (a knowledge acquisition process). Knowledge identification is almost a non-entity in SMEs because they do not have the time nor the resources to identify the knowledge they have or they may require. What is important for SMEs is the ability to efficiently process any knowledge they gain from external sources and exploit this knowledge by immediately internalizing and diffusing the knowledge to the other members of the organization. It is suggested that if knowledge identification were actively pursued, the SME would become more efficient as they know what their goals are in acquiring knowledge.

V. Problems and Issues in Knowledge Management Implementation in

SMEs

Sparrow (2001) said that KM issues are not just being a smaller version of the large organizations experiences and pitfalls. Small firms have their own unique problems and issues.

There are many challenges facing SMEs in implementing KM in their respective organizations. In a paper by Menkoff, Chay and Lo (2004), they described several challenges facing Singaporean SMEs. Typical SME owner/managers are unable to understand the conceptual underpinnings of knowledge management and its potential benefits to the organization, as well the KM tools used and the formalization of the knowledge sharing culture. SMEs, though they are familiar with the tools used everyday commonly cited by KM like email systems, are nonetheless challenged by their not having a knowledge management vision and overall strategy and policy for the development and management of their knowledge resources. This may be due to the lack of understanding aforementioned as well as limited resources typical of SMEs. SMEs, though they do have an advantage over large organizations due to their common knowledge base across employees, nonetheless may have problems due to the lack of a formal knowledge sharing culture. This may be due to a “lack of trust, lack of recognition and communication, knowledge is power mindsets, retrenchment concerns and so forth act as demotivators with regard to effective knowledge sharing and utilization of ‘what we know’.” Most of the issues being mentioned are mainly in the socio-cultural and economic aspect of knowledge management implementation rather than in the technical aspect. This is not surprising as most of the SMEs have probably adopted some of the typical tools that are prevalent in the knowledge management world and in most cases, installation (or lack thereof) of said any new tools would be a function of the SMEs limited resources. In addition, Von Krogh (1998) also mentions the inability to delegate decision making authority, the adoption of an open culture and the use of more sophisticated IT based KM tools are additional challenges in the adoption of knowledge management.

As can be seen from the above, the key to an successful KM implementation for an SMEs rest primarily in the ability of the SME owner/manager to change their mindset and fully understand and accept the concept and benefits of knowledge management.

John Sparrow’s (2005) states four distinct configurations of KM practices amongst SMEs and they must be considered in the approach to any new KM implementation amongst SMEs. These configurations are mainly classifications of how they treat and view knowledge in their workplace. The challenge is to identify which amongst the four configurations is the SME most applicable. These are the ‘unengaged’ businesses, ‘comprehensive KM practice’ businesses, ‘knowledge ownership oriented’ businesses and the ‘learning and co-production oriented’ businesses.

Since SMEs gets their sources of information from the external marketplace, Chen, Duan, et.al. (2003) suggest a boundary paradox wherein tradeoffs between knowledge sharing and knowledge security occur in the inter-organizational knowledge transfer process. Furthermore, they propose a knowledge transfer model to clarify and allow SMEs to take the appropriate strategy given their unique circumstances.

Other key issues highlighted by Wickert and Herschel (2001) include the problems of key personnel leaving the organization and the succession process.

Knowledge renewal in SMEs can also be a problem in organizations, particularly if the organization has a high employee turnover rate.

VI. KM Implementation Methodology for SMEs

Pimentel and Albino (2009) propose a methodology that can be used for KM implementation. KM implementation must be done in phases. This plan is a generic blueprint SMEs can follow since, as supported by Sparrow’s paper (2005), KM has different configurations.

There are 7 phases:

Phase 0 : Global Evaluation and Scope LimitationPhase 1 : Initial DiagnosisPhase 2 : Define Basic StructurePhase 3 : Define KM ProjectPhase 4 : Define Motivation programsPhase 5 : Define indicators, schedules and budgetsPhase 6 : Define Evaluation systemsPhase 7 : Real Application

Senthilkumar suggests another framework in his paper “Knowledge Management for Small and Medium Enterprises”. He suggests a filtering process from the external environment to declutter the information received from outside the firm and in this filtering process, the conversion of data/information takes place to form the basis of any operational strategy by senior management. (See Fig 2 in Appendices.)

Nada and Ghanem (2008) introduced a third framework of KM implementation for SMEs. It showed a more detail description on how KM implementation needs to be done in an organization. There are three main stages: Implementation Strategy, Implementation Planning and Implementation Execution.

VII. Conclusions from the literature review and future prospects

Based on the various reviews made, it seems to me that the common thread amongst them is the seemingly wide gap between knowledge management in large organizations and SMEs. In particular, in most literature, the initial comments made by the writers indicate the dearth of research papers on knowledge management in the world of SMEs.

This is certainly not a surprising state of affairs as most SMEs, and in particular, the owners/managers themselves, do not understand conceptually how knowledge management will be a major competitive advantage for their firms. Moreover, the lack of such understanding hampers the operationalization of the different knowledge management tools that are available in the marketplace at the present time.

SMEs function in a very fluid, but knowledge rich environment. The problem of most SMEs are due to the resource constraints required to start a knowledge management project, assuming the hurdle of management support is overcome. Notwithstanding available monetary resources, a constraint in the availability of personnel to implement and maintain knowledge management system and train personnel in the use of the said system may pose an additional issue for SMEs. A second problem, gleaned from all the various readings, indicates the lack of intra-organizational communication from a learning perspective. The owners learn from the external environment and yet, will not necessarily pass on all the knowledge learned to the rest of the organization. The socio-cultural

aspect of knowledge management implementation needs to have further research as this highly impacts the success of any KM project.

Given the nascent research of knowledge management for SMEs, several frameworks have been introduced by Senthilkumar, Pimentel and Albino, and Nada and Ghanem to help guide SMEs in planning their own knowledge management projects. Several other frameworks will probably be developed in the future that will refine their work.

In the last 10 years, most enterprise system vendors have conglomerated the various knowledge management tools to allow a seamless transfer of information between employees in an organization. ERP, CRM, Dashboards & Data Mining tools have all been developed to enable firm wide use. The problem with these tools is that they are not cost efficient for the SMEs.

In the past few years, quite a number of cost efficient tools have been introduced into the market in the form of shareware and freeware. Email client systems like Thunderbird, Search tools like Google and Yahoo and even Enterprise resource Planning Tools like OpenERP has been introduced into the market to cater to the small and medium enterprise market.

The future for collaboration tools seem to point to cloud computing as the next wave of knowledge management tools that can be used by SMEs. Such tools as Gmail, Adobe Connect, GoToMeeting, online data repositories and backup systems like DropBox and Carbonite, Online Learning platforms like Academic Earth, Wiki boards and forums, etc. all points to the next direction of knowledge management tools. How these tools will be conglomerated into a single user interface platform for SMEs would probably be in the form of a Knowledge Portal that can be developed for SMEs that will access these tools.

In the end, the most important lesson we can learn from this is the idea that every SME is a unique organization with its own specific needs and culture. In implementing knowledge management in the organization, it is important to be cognizant of these needs in order to have a successful knowledge management implementation.

VIII. A Sample Case Study

Arbor Technology is a company that manufactures custom-made industrial PCs used in a wide variety of industrial application controls. They have decided to embark on a knowledge management program because they feel that they have a lot of design experience that remains untapped because the knowledge is not apparent, although it is available in the company. They also want to become more effective competitors by being able to collaborate with their customers in the design of the products and at the same time be able to design in a most efficient manner.

With this in mind, they have decided to undergo through the process of knowledge management implementation by following the framework envisioned by Nada and Ghanem (2008). (See Fig 5). The end result of this process is the development of two models: the Design and Build To Deliver model and the Time to Market Service Model. Both these models allow collaboration between the customers and the company. A Knowledge Map was also developed that allowed the company to find gaps in their knowledge base. These two models were supported by the deployment of a KM infrastructure in the company to allow collaboration amongst designers and customers effectively. Because of the technical and knowledge database, the company was able to develop a range Computer on Module techniques.

The project success was indicated by an increase in the company’s revenues by 30%, faster deployment of its custom products, a more adaptive and flexible organization was created, knowledge was not wasted, less duplication of effort and employees are now more motivated and loyal.

It is important to note that the success of this knowledge management implementation is a result of the alignment of company vision and strategy to its KM strategy, the involvement of all people employed by the company, including vigorous management support, and the partnerships with the customers, making them feel more valued and loyal.

Appendix

Figure 1 : Advantages and Disadvantages in KM Implementation in Small Firms

Implementation Strategy

Implementation Planning

Implementation Execution

formulating clear objectives; obtaining executive commitment; and tackling organizational resistance to knowledge sharing

details best practices to identify knowledge consumers and subject matter experts; assess KM-related business needs; determine the first step of the implementation; collate and create knowledge content; and design effective workflow processes.

planning the project; managing a flexible scope; balancing schedules with objectives; keeping the user community involved; and selling the KM initiative to all the SME stakeholders.

Figure 3. Nader and Nada’s Detailed KM Framework for an SME

Figure 4. Senthilkumar’s Framework

Figure 5. Arbor Technology Implementation Phases in Detail

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