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Communications of the ACM

Communications of the ACM

Knowledge Management in Small and Medium-Sized Enterprises


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Knowledge has long been recognized as a crucial competitive tool for organizational survival and competition. In practice, many organizations that are adept in leveraging and capitalizing their knowledge resources experience business success and performance improvement [4]. Despite dedicated attempts to follow the prescribed knowledge management (KM) guides and success path, small and medium-sized enterprises (SMEs) often encounter uncertainties and face the threat of possible failure or unmet KM results, which are little known and attended [11]. This study on KM capability was motivated with a view to filling this knowledge gap and in consideration of the important economic role played by SMEs in many countries. In Hong Kong, SMEs represent 98% of business establishments and 50% of total employment according to Hong Kong Government statistics circa 2007. In comparison with the large enterprises, SMEs could be even more nimble and flexible in adapting their systems and structures for KM purposes, with fewer problems of communication, implementation, and replacement costs [11].

As suggested by Gold et al. [3], effective KM is primarily influenced by two types of KM capabilityinfrastructure and process that have to be deployed and harnessed to sustain organizational competitiveness. This article reports the findings of survey research that adapts the measurement items from Gold et al. [3] (see Table 1). Our sample is drawn from 68 SMEs with KM initiatives launched in the past few years. In this study, we consider any organizations that employ fewer than 200 employees as SMEs [9]. Key informants in the surveyed organizations completed the questionnaires, and the profiles and background information of the organizations (such as organization size) and respondents (job position) are aggregated in Table 2. The results show the mere presence of KM awareness or KM operation plans are no guarantee the KM programs will automate and be successful as expected. Organizations must harness a balanced deployment of culture, technology, and structure infrastructure, together with adequate capability to acquire, combine, apply, and create knowledge. Some specific recommendations based on the study with particular reference to individual capability dimensions are provided later in this article.

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Knowledge Management Goals

With regard to the keen competition and dramatic changes in the business environment, most SMEs claim they are attracted to the KM promises, with its proven impacts on productivity and profits in many other organizations [11]. Nearly half (49.2%) of the respondents stated that the primary goal in pursuing KM in their organizations is to manage knowledge resources and the sources, then, to increase profit (44.4% ), to reduce duplication of work (44.4%), and lastly, to gain competitive advantages (41.3%). In contrast, controlling information overload, improving business processes, and inspiring innovation received the least attention or may be considered out of their business agenda.

Particularly due to the limited human capital and relatively small organizational size, most respondents described that the KM goals in their organizations remain elementary or least inspiring. For example, some respondents described that their organizational members, particularly those at junior or operational levels, usually show minimum interest in KM such as in sharing ideas. They seem to be passive and prefer management or seniors to provide instructions on the kind of knowledge that has to be explored, the resources or contact persons needed, and new product or service ideas to be discussed. In essence, they claimed that KM is relatively new and abstract; therefore, a "wait and see" attitude can minimize the chance of committing mistakes.

Other respondents claimed their top management takes an "assembly" approach to set the goal, and then shifts the KM responsibility to the information technology department/colleagues to follow up. The respondents further commented that their management is too preoccupied in developing business opportunities, and assume the IT department is able to convert the explicit KM vision into corresponding KM activities and programs. On the other hand, the IT departments often emphasize their technical specialization, and claim they have no time to consider management issues (such as what knowledge can be considered the core to business survival). Without a common discourse of KM goals, the IT departments cannot grasp an appropriate working definition of knowledge, while treating KM as another type of IT project, falsely expecting that the systems can automate the KM processes, (such as storing all of what the employees know into a giant database that can promote knowledge sharing). As such, among those respondents with KM systems used in their organizations, more than 50% of the respondents assert that the KM systems they used (such as knowledge sharing and repository platform) are not useful to the end users because of undue system functions (difficult to search useful information from volumes of documents) and poor interfaces (difficult to locate the functional key buttons).

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Infrastructure Capability

From the perspective of social capital, it is believed that new knowledge can be effectively developed through the connection and interaction of people, networks, and norms [3]. Three specific dimensions of the infrastructure capabilities have been investigated in the current study: technology, structure, and culture. The SMEs are found with financial capital constraints, which directly affect their KM systems in place.

Forty-eight respondents (70.6%) stated their organizations neither possess nor intend to install any KM-related technical support such as corporate yellow pages and groupware. A plausible explanation is that their senior management is technocratic but fails to appreciate the positive impacts of technology that can improve the business processes. Of the 20 respondents, 50% stated that document management system and yellow pages are widely adopted as KM systems to facilitate knowledge capture and storage. Despite the presence of awareness toward the indispensability of information technology to organizational success, the respondents revealed they do not often utilize the existing KM systems in their organizations. Some expressed their fear with regard to job security, saying if they adopt more technology in their work process, management may consider substituting manpower with technology.

The relatively flat owner-manager role and informal structure of SMEs are generally regarded as conducive to prompt intimate communication across organizations. More than half (61.8%) of the respondents stated their organizations have a favorable and simple structure that promotes collective rather than individual behavior, thus encouraging interpersonal interaction and sharing of knowledge among employees. However, the results showed that a contentious reward system was often employed to achieve the goals of the company. In line with this, 54% of the respondents were found unwilling to share knowledge as they do not feel or sense the benefits of doing so. They stated that knowledge is scarce and can be considered as personal capital; therefore, it should not be shared or traded unless adequate rewards are provided. In addition, a number of respondents (44.4%) have been working in their present organizations and present positions for a long period of time. They have developed a good understanding of their roles and job responsibilities and have been content with them. Yet, they have little interest in knowing what others are doing as they perceive the more they know, the more duties will be designated to them. Therefore, it discourages the creation of new knowledge as they minimize their efforts to engage in cross-functional learning or sharing.

Interestingly, it was found that the SMEs demonstrate a paradoxical culture capability on individual knowledge development. Culture capability as defined by Gold et al. [3] refers to the "shared and widely accepted values and visions that permeate in mind to direct work practice or facilitate necessary changes." The findings revealed the majority of the respondents (80.5%) held a positive perception and feeling toward the importance of KM in leveraging organizational performance and competitiveness, in particular if knowledge can be used within their working groups, teams, or departments. However, it was also found that such KM vision is not communicated effectively throughout the entire organization. In practice, some managers are influenced by their personal values in assessment of performance based on an individual's expertise and experience, instead of group contribution and team effectiveness. Therefore, more than 80% of the 68 respondents claimed their employees are willing to participate or have been engaged in various on-the-job training sessions as these sessions can directly improve their skills, efficiency, and organizational performance.

It is also interesting to note that while the KM culture is promoted extensively, more than half (51.5%) the respondents stated it is a flamboyant deed, as senior management support and dedication to KM could be inadequate and sporadic. For example, the KM vision is infrequently reviewed once it was established; the essential knowledge of business success may not be incorporated. Some other respondents (38.2%) stated their KM philosophy is presumed to allow making mistakes as the pathway of learning. However, a lot of their employees found that cases of failure are often associated with or perceived as incompetence (or incompetent staff), wasting organizational resources and having an adverse effect on their performance evaluation. Thus, it reaffirms our prior finding (in the discussion of KM goals) that employees are neither highly proactive nor motivated to KM endeavors.

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Process Capability

Taking into account the synergy and integration of organizational resources, it is believed that knowledge can be created through a dedication of acquisition, conversion, application, and protection of knowledge assets [3]. Most of the respondents stated that various kinds of knowledge are present and do exist in different repositories. However, they encounter problems in capturing knowledge in terms of quantity, place, time and people. In fact, a majority of the respondents (75%) complained against information overload or the excessive influx of information that is not systematically sorted or filtered. More than two-thirds of the respondents (69%) claimed there is no unanimous or systematic mechanism to store knowledge captured from various employees. Given the relatively informal organizational structure, the majority (88%) stated that they are required to spend a lot of time doing additional work that is not specified in their job description. As such, they can hardly find time to engage in knowledge sharing or discovery.

In the comparison of different possible knowledge sources, nearly half of the respondents (48%) stated that employees in their organizations (particularly those who are novices) rely mostly on an internal network (that is, with peers and colleagues) for learning or acquisition of expertise where trust and reliability are rooted. Those employees with long tenures of work are usually perceived as experienced and experts. In contrast, they stated that there are few mechanisms or processes formulated to acquire or obtain knowledge from suppliers or business partners, not withstanding that they have intimate relationships with them. Some SMEs are designated the original equipment manufacturers for renowned brand products of international firms yet they seldom engage in joint collaboration with external parties for acquiring or sharing production and design knowledge.

Many successful KM practices reveal that once useful knowledge is identified and acquired, organizations should devote efforts and motivate employees to make it accessible and explicit to others who need it or have not learned yet. More than 70% of the respondents mentioned that they can usually communicate and discuss the explicit knowledge such as procedures in manipulating machines However, while dealing with tacit knowledge such as sales experience, judgment of competitors' moves or actions, more than half of the respondents (58%) stated that it is difficult to express their minds in a comprehensible format (analogy or framework). In addition, most respondents expressed that their organizations have been in their respective industries for more than 15 years. They claimed their management is sensitive toward business changes and does not risk taking on changes. Therefore, the employees in the organizations agree to "generally accepted knowledge," and prefer to seek "predictability and visibility," maintaining status quo or ensuring stability of their work. Moreover, more than 50% put emphasis on the value of "face" and status, therefore, are unwilling to share ideas and learning experiences from past failure or disappointment. They also do not have clear processes for replacing outdated knowledge or incorporating knowledge from business partners. In addition, they are cautious and skeptical to new knowledge before they integrate it into daily work.

An exceptional finding identified is that despite the uncompromising scenario as described previously, approximately 19% of the respondents reported there are "informal" working teams (with small group sizes) that actively discuss among team members, sharing the latest information or effective workflow procedures. Other than knowledge conversion, it is important for organizational members to apply knowledge to new problems or link prior knowledge to stimulate new ideas on products or services. Approximately 71% of the respondents said their management has put more attention on initiating KM programs, while there are inadequately formulated plans to direct employees on what or how to apply knowledge to improve efficiency or regulate strategic direction. As discussed previously, the management style of the SMEs somewhat affects the inclination of employees toward KM. More than 50% of the respondents stated the employees in their organizations are inclined to maximize their efficiency within their scope of expertise or skills. They are tasked to exploit their existing knowledge and apply it to similar problems and challenges.

Another human factor that impedes the extensive usage of knowledge is caused by experts within organizations. More than half the respondents expressed that those experienced or highly regarded as experts in organizations usually have strong beliefs in their experience and become less open to new perspectives or knowledge. They prefer others, particularly the new employees or their apprentices to take on their ideas and instructions in a rigid manner. However, the respondents also revealed there is possibility for a slight change in knowledge application in the event of keen competition, frequent changes in business environments, or succession of younger management. Some (22%) of the respondents stated their organizations have initiated a substantial change in business processes (such as streamlining the coordination among departments) in the past year. Moreover, 16% of the respondents declared their organizations have encouraged innovation by adopting a breakthrough in applying knowledge (such as competitors' design as an external knowledge source and stimuli) to the existing product designs and functionality.

To capitalize on the value of knowledge, management should not overlook the importance of knowledge protection from inappropriate use, possession, and distribution. In relation to this, our respondents reported their management does not have a comprehensive mind-set on protecting intellectual capital or properties. In general, most of the respondents (80%) stated their organizations have some form of control to limit the designated parties to access explicit organizational knowledge such as product design and manufacturing procedures. However, there are various complaints of knowledge loss due to staff retirement or leaving. Approximately 66% of the respondents said their organizations do not have formal and effective plans concerning knowledge succession and they do not hold exit exercises with departing key or important knowledge personnel. Therefore, the situation of transferring knowledge from a company to the competitor becomes very common, resulting in a certain threat to the prior organizations. In addition, most respondents revealed that their management does not have a strong intention to undertake close supervision and monitoring of how knowledge is being used or stored within the organizations. More than 60% of the respondents stated that the information, documents, or resources in computers are not well protected or secured as the management usually has unwarranted faith and trust toward employees. For example, there are certain occasions when employees share their passwords with others when asking someone to help in accessing or transferring some files.

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The Way Ahead

Knowledge is generally regarded as a strategic asset, which is valuable and inimitable by competitors, and hence crucial to maintain competitive edge. Developing adequate capability to manage knowledge is therefore important. The examination of KM capability in the current study reveals that SMEs would need to devote more effort and attention in order to harness the values of knowledge effectively. It is considered that effective KM requires unified and coherent KM preconditions. In other words, it is our view that the two categories of KM capabilities, namely infrastructure and process capabilities as external and internal thrusts should be more balanced and deployed systematically (see the figure here). Management of SMEs should understand that effective KM practices require considerable time and efforts to take effect, given the distinct business characteristics and competence of their organization. Here, we describe specific recommendations for actions SMEs should consider when pursuing further improvements of the various capability dimensions.

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Infrastructure Capability

Technology. In general, the technology capability needs to be further strengthened. It has been found that most SMEs are underinvested in KM-related technology due to financial constraint. Therefore, the SMEs should consider seeking assistance from government funding schemes for preliminary IT deployment. A simple set of a KM system with access to the Internet, email, and database management may serve as a cost-effective start. For those SMEs with unwelcome or underutilized IT applications, management has to reconsider the role of people vis-à-vis the KM systems [4, 8]. More end-user computing and collaborative design, communications, and continuous evaluation can facilitate mutual understandings, and increase the sense of acceptance of the new technology.

Structure. It is necessary to supplement the KM-prone organization structure of SMEs (by virtue of their small size and simple structure) with suitable incentive schemes and reward systems to encourage more knowledge sharing among the employees [6, 12]. In addition, management can set up a steering committee or invite experienced key speakers to promote KM programs within the organization. It is recommended that clear responsibilities be assigned to various KM roles or specializations to enable effective evaluation. Furthermore, management should provide a transparent report on the KM progress, and publicize the progress and development of KM activities tailored to all employees to increase interest in getting involved in the designated KM tasks.

Culture. The SMEs are found to possess an awareness of KM for business competitiveness. However, it is necessary to further strengthen management support and monitoring of KM visions and goals. Management can infuse knowledge vision to everyone visibly, regularly, and extensively. Being a role model in KM programs, management can demonstrate to employees that KM is not just management jargon, but is a course of action to identify and share everyone's skills and experience in order to foster organizational competence. Moreover, management should be open to various ideas, opinions, and innovations.

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Process Capability

Acquisition. For most SMEs, designated plans are needed to be in place to ensure systematic capture, screening, categorization, and storage of useful knowledge or relevant information from internal networks as well as from suppliers and business partners. Employees need to be provided with extra time to engage in knowledge sharing and discovery [2]. Management and employees may jointly identify the working definitions of knowledge, skills, and competence that are critical to differentiate their own business from that of the competitors. It is believed that a common discourse and unanimous understanding of knowledge can easily diffuse KM to everyone within organizations.

Conversion. Management can play a facilitating role to involve everyone to convert what they know into what others can learn or what others may have to know into comprehensible formats [6, 7]. More encouragement has to be communicated to employees that knowledge is not confined to a certain group of people or to experienced staff. Frequent free-ranging discussions can be conducted in order to promote creative ideas and generate innovative thinking from different employees. Management may make use of intranets to enable employees to share experiences, disseminate new findings from other competitors' practices, or collaborate to work out novel views on product design or business development.

Application. Employees may be provided with more opportunities to utilize and experiment with their knowledge on various occasions. Explicit rewards such as promotion and implicit incentives such as recognition in organization publications and events can be used to encourage employees to apply what they know or learn, or combine various sources in solving new problems and design new products or reconfigure business processes [5, 7]. Management may likewise try to adopt new ideas to be implemented in existing workflows or business processes in order to support more knowledge experimentation from conceptual ideas to practical actions. It should be noted that committing mistakes is part of the learning process, thus management should avoid penalizing employees if some new ideas do not work as expected. Otherwise, employees will have less motivation to devise innovative endeavors and will retain the old practices in order to maintain their performance and job security.

Protection. Management has to attend to knowledge protection at various organizational levels. There should be well-formulated plans for knowledge succession and prevention of knowledge loss due to staff departure. Exit exercises can be adopted to take note of the important knowledge from the employees, and then store it in appropriate systems [1, 10]. In addition, management must formulate regulatory control or monitoring systems (such as identifying extraordinary email correspondence between employees and external parties) to protect information or business secrets from being inappropriately used by the employees. Moreover, some effective reward systems can be provided in order to increase employees' loyalty toward organizations, thus helping to retain knowledge within organizations, and enabling knowledge to be exploited to a greater extent.

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References

1. Burrows, G.R., Drummon, D.L., and Martinsons, M.G. Knowledge management in China. Commun. ACM 48, 4 (Apr. 2005), 7376.

2. Edvardsson, I.R. Knowledge management in SMEs: The case of Icelandic firms. Knowledge Management Research and Practice 4, 4 (Apr. 2006), 275282.

3. Gold, A.H., Malhotra, A., and Segars, A.H. Knowledge management: An organizational capabilities perspective. Journal of Management Information Systems 18, 1 (Jan. 2001), 185214.

4. Griffith T.L., Sawyer, J.E., and Neale, M.A. Virtualness and knowledge in teams: Managing the love triangle of organizations, individuals, and information technology. MIS Quarterly 27, 2 (Feb. 2003), 265287.

5. King, W.R., Marks, Jr., P.V., and McCoy, S. The most important issues in knowledge management. Commun. ACM 45, 9 (Sept. 2002), 9397.

6. Mason D. and Pauleen D.J. Perceptions of knowledge management: A qualitative analysis. Journal of Knowledge Management 7, 4 (Apr. 2003), 3848.

7. Nonaka, I. A dynamic theory of organizational knowledge creation. Organization Science 5, 1 (Jan. 1994), 1437.

8. Quan, J., Hu, Q., and Wang, X.A. IT is not for everyone in China. Commun. ACM 48, 4 (Apr. 2005), 6972.

9. U.S. Small Business Administration; www.sba.gov.

10. Wasko, M.M. and Faraj, S. Why should I share? Examining social capital and knowledge contribution in electronic networks of practice. MIS Quarterly 29, 1 (Jan. 2005), 3557.

11. Wong, K.Y. and Aspinwall, E. An empirical study of the important factors for knowledge-management adoption in the SME sector. Journal of Knowledge Management 9, 3 (Mar. 2005), 6483.

12. Zhu, Z.C. Knowledge management: Toward a universal concept or cross-cultural contexts? Knowledge Management Research and Practice 2, 2 (Feb. 2004), 6779.

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Authors

Ivy Chan (ccivy@polyu.edu.hk) is a lecturer at the Hong Kong Community College, the Hong Kong Polytechnic University.

Chee-Kwong Chao (kchao@ouhk.edu.hk) is an assistant professor in School of Business and Administration, Open University of Hong Kong.

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Footnotes

DOI: http://doi.acm.org/10.1145/1330311.1330328

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Figures

UF1Figure. Unity of knowledge management capability.

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Tables

T1Table 1. Survey items extracted from the questionnaire.

T2Table 2. Profile of the respondents in SMEs.

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