Knowledge Management in SMEs

Has Knowledge Management made a significant and positive impact on the small and medium-sized enterprise sector in the past decade and is it still relevant today?

Studying the progress of small and medium-sized enterprises (SMEs) is an activity that no country can take lightly because of the sector’s significance in a nation’s economy. In Germany, for example, 97.9% of all companies fall within the SME category (Wickert and Herschel 329) providing 36% of all industrial investments (Wimmer and Wolter, 2000). Likewise, in Australia, SMEs account for 97% of all private sector businesses and produce 30% of the nation’s output (ABS 1). Among the various types of studies conducted within the SME sector, Knowledge Management (KM) is one that has recently seen an increased level of interest. This is mainly due to the realisation of many practitioners and experts such as Desouza and Awazu that SMEs are in a unique situation where their most significant assets are intangibles comprised mainly of knowledge (33).

This paper will examine the progress of the KM movement within the SME sector through the use of findings from studies conducted by experts in the field. First, it will put KM in context by showing its significance as a crucial tool for the sustainability of SMEs. Second, it will present recent data pertaining to the impact of KM within the sector. Finally, this paper will show that, despite its inconsistent outputs within the SME sector, KM is still a mission-critical business component today and will continue to be in the years to come.

The Importance of Knowledge Management to SMEs
Organisational knowledge, in the past decade, has become the most significant source of competitive advantage especially for SMEs. This phenomenon is mainly an effect of the rapid expansion of goods and factor markets (Teece 150) further intensified by the fact that SMEs compete with limited physical assets and are thus forced to maximise the utilization of knowledge: their most abundant internal resource (Desouza and Awazu 33). In a global arena where better access to external resources is expected, organisational knowledge is identified as a strategic asset that is not easily imitated by the competition thereby providing a sustainable competitive advantage for the firm (Bollinger and Smith 8). This means that, in order for SMEs to succeed in their respective markets, they must ensure that they have control over their internal knowledge.

The task of administering organisational knowledge is not without its own difficulties however. With an increasing interest for individual entrepreneurship (Beijerse 162), SMEs continuously face the threat of losing part of their knowledge through leaving employees. Barchan states that when an employee leaves “…you lose more than that person’s knowledge. You also lose any investments you have made in that person’s professional development and competence—unless you find ways to capture it” (11). It is important to note, however, that it is not only through a resigning employee that an organisation can lose knowledge. Restructuring, where an expert in one department is transferred to another, can also cause the same effect. Another problem—particularly common in family-owned SMEs—is that of succession planning, or the lack of it, which can cause potentially irreparable damage particularly when the owner-manager leaves or dies (Wickert and Herschel 330). With so many significant threats, SMEs are compelled to manage their internal knowledge more intently before it is lost forever.

We have just identified the importance of knowledge to the success—or even just the survival—of SMEs. Furthermore, we have also seen that organisational knowledge, like any other resource in a firm, is also under threat from being lost either to competition or otherwise. With these present conditions surrounding SMEs, it is imperative that they maintain an appropriate level of control over what they know. The practice of knowledge management, which is focused on the acquisition, improvement, and retention of organisational knowledge, precisely meets the requirements of the SMEs and is thus a valuable tool for their sustainability.

The Present State of Knowledge Management in SMEs
The results of knowledge management to date, however, have been largely inconsistent, if at all positive. Rosset estimates that the failure rate of KM within all types of organisations could be as high as 70% (1). On the other hand, this estimated value is just a percentage of those firms that have already implemented or attempted to implement knowledge management. The success rate of KM could be significantly lower than 30% if the entire population of SMEs is considered. If we are to take Wong and Aspinwall’s study as an accurate representation of the SME population, or at least as a close approximation of it, then we would find that 76% of SMEs have not implemented any KM system in their respective organisations (“Empirical Study” 69). Based on the above values, we can compute a success rate of 7.2%. From this we are able to obtain a first look at the positive effects of KM which is alarmingly low.

On the other hand, Wong and Aspinwall’s research may be flawed in the sense that each respondent appear to have depended on his or her own definition of KM while answering the questionnaires. If this is the case, then a significant number of the respondents who claim to not implement KM may, in fact, be already be implementing it. The study by Desouza and Awazu suggests that this is the case by stating that all SMEs in their sample implemented KM in some form or another whether they knew it or not (34). Therefore, the positive effects of KM are probably more widespread than what the numbers are saying. On the other hand, it could also mean that since these organisations are not aware of what they are doing then they are not making the most out of what a full-blown KM system can do for them. Such cases are hard to prove at this point in time and more research on the actual impact of KM on the SME sector may be necessary. On the other hand, we can probably say with some degree of confidence that while KM is making its way into SMEs and producing a number of positive results, the sector is yet to take full advantage of this relatively new concept.

There are many causes attributed to the low success rate of KM among SMEs. More prominent among them is the slow adoption by the sector which is, in turn, caused by a lack of understanding of KM itself. The study by Wong and Aspinwall found that most of the respondents did not implement KM because they were “unsure of its potential benefits” or “have never heard of it” or both (“Empirical Study” 69). Ignorance of KM aside, we find that, among those who have employed it in their respective firms, the common reason for failure is the misunderstanding of the concept itself. “The biggest misconception…is that knowledge management is about technology” (Call 20). One example of this comes from an article in the Canberra Times. In this entry the writer presents a KM system where, although he defines “system” in the widest sense comprising of people, procedures, documentation and technology, he proceeds to cite examples of various KM implementations that are limited to tools and technologies (Nielsen 24). Those that do not have a clear understanding of KM often “buried their users in cool gadgets” rather than identifying the problem areas and providing appropriate solutions for them (Call 21). That is, organisations made the users adjust to the tools rather than designing tools to fit the users and how they worked. Wong and Aspinwall (“Empirical Study” 69), through their research, confirms these problems by showing that the majority of SMEs implementing KM do so by focusing mostly on technology. The top three solutions used by those interviewed were “Capturing knowledge electronically in a repository”, “Using information technology to share and transfer knowledge”, and “Using the intranet to publish and access information”.

Advocating Knowledge Management Despite its Shortcomings
The negative findings on the performance of KM practices in the SME sector, however, should not be a reason for abandoning it in favour of other organisational endeavours. Despite early failures, the KM movement did make businesses more aware of the importance of keeping track of its own knowledge base. This realisation is crucial since in the past decade markets have been “increasingly steered by a capricious consumer” (Beijerse 162) which tends to also increase the uncertainties of doing business, and in the ever changing business environment of the present time “knowledge is the most sought after remedy to uncertainty” (Davenport and Prusak 25). As such, KM should continue to be regarded as an effective strategy for success.

It’s important to realise that KM is a relatively new concept to the SME sector and that they are “just beginning to understand how KM might assist them” (Wong and Aspinwell “Characterising KM” 48). Therefore, rather than disregarding the movement at such an early stage, efforts should be placed on clarifying the meaning and scope of KM for SMEs. Beijerse attempts to shed light into the discussions by presenting, first and foremost, a clearer definition of knowledge. He defines it by decomposing it into three elements, namely “information, capacity, and attitude” (162). By viewing knowledge this way, a better understanding of KM emerges and people will begin to understand that it is, by a large part, a “cultural endeavour” (Call 21) as opposed to being just a technological one. Wong and Aspinwell also revealed that most of the KM practitioners recommend that organisations focus on critical success factors such as “management leadership and support” and maintaining a “knowledge-friendly culture” when implementing a KM system. Naturally, the top factors also include the “development of a technological infrastructure” (“Empirical Study” 72). However, some KM practitioners also remind us that in organisations where it has been successful, the use of technology is “mostly limited to acts of automation” and “is never used [by itself] as a means to manage knowledge” (Desouza and Awazu 40).

Conclusion
The result of the Knowledge Management movement within the SME sector in the past decade has been questionable. On the other hand Knowledge Management is a relatively new idea to SMEs and they have yet to fully understand the exact meaning and scope of the concept. Because of this, a certain amount of failure at the onset may be acceptable and should not be a reason for conceding. Rather than abandoning the movement, the SME sector should learn from its mistakes and refine the way it approaches the problem of managing knowledge since KM will continue to be an indispensable tool for their continued sustainability. Furthermore, despite the previously mentioned shortcomings, the KM movement has made one noticeable contribution to SMEs and that is that it has made the sector more conscious about the importance of knowledge as a source of competitive advantage. Even if this was the only thing that KM contributed, it would have already been a good start and a significant achievement.

Works Cited

Australian Bureau of Statistics (ABS). (2001). Small Business in Australia. (Cat. No. 1321.0). Canberra, Australia: Australian Bureau of Statistics.

Barchan, M. “Capture knowledge.” Executive Excellence. 16.9 (1999): p. 11.

Beijerse, R. P. “Knowledge management in small and medium-sized companies: knowledge management for entrepreneurs.” Journal of Knowledge Management 4.2 (2000): pp. 162.

Bollinger, S. Audrey and Robert D. Smith. “Managing organizational knowledge as a strategic asset.” Journal of Knowledge Management 5.1 (2001): pg. 8

Call, Dean. “Knowledge Management – Not Rocket Science.” Journal of Knowledge Management 9.2 (2005): pp. 19-30.

Davenport, Thomas and Laurence Prusak. Working Knowledge: How Organizations Manage What they Know. Boston, MA: Harvard Business School, 2000

Desouza, Kevin C. and Yukika Awazu. “Knowledge Managemenet at SMEs: five peculiarities” Journal of Knowledge Management 10.1 (2006): pp. 32-43.

Kaplan, Simone. “KM the right way.” CIO Magazine. 15 July 2002. 21 Jan 2007. <www.cio.com/archive/071502/right.html>.

Ministry of Economic Development (MOED). “SMEs in New Zealand: structure and dynamics, firm capability team”, Update Report. 5 May 2000. 21 Jan 2007. <www.moed.govt.nz/gbl/bus_dev/smes2/index.html>

Nielsen, Steve. “In the Know.” Canberra Times. 2 October 2001. pg. 24.

Rosset, Allison. (2002), “Best practices, strategies, and case studies for an emerging field.” The ASTD Learning Handbook. 21 Jan 2007. <http://books.mcgraw-hill.com/authors/rossett/km.htm&gt;

Senge, Peter, et al. The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations. New York, NY: Doubleday, 2000

Sparrow, John. “Classification of different knowledge management development approaches of SMEs.” Knowledge Management Research and Practice 3.3 (2005): pp. 136-145.

Teece, David J. “Knowledge and Competence as Strategic Assets.” Handbook of Knowledge Management. Ed. C. W. Holsapple. Heidelberg: Springer, 2003. 129-152.

Wickert, Anja, and Richard Herschel. “Knowledge-management issues for smaller businesses.” Journal of Knowledge Managmenet. 5.4 (2001): pp 329-337.

Wimmer, S. and H. Wolter. “Situationen und Perspektiven des indutriellen Mittelstandes in der Bundesrepublik Deutschland”, <http://www.ifm-bonn.de.ergebnis/77nf.htm&gt; (As quoted by Wickert and Herschel 2000. p 329)

Wong, Kuan Yew, and Elaine Aspinwall “An empirical study of the important factors for knowledge-management adoption in the SME sector.” Journal of Knowledge Management. 9.3 (2005): pp 64-82.

—. “Characterizing knowledge management in the small business environment.” Journal of Knowledge Management 8.3 (2004): pp 44-61.

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5 Comments

Filed under Knowledge Management

5 responses to “Knowledge Management in SMEs

  1. mark, i don’t know your email address. i’d like to send you not only the ppt file of the ICT industry clustering presentation, but also the cluster’s “road map” of sorts.

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