Knowledge Management For SMEs In Developing Countries
Iftikhar Hussain ¹, Steven Si ¹, Adnan
Ahmed ²
¹ Shanghai University, China ,
² Muhammad Ali Jinnah
University, Pakistan
ABSTRACT:
Knowledge management helps in increasing productivity, effectiveness and
efficiency in operations. Overlooking KM can seriously hamper the growth and
prosperity of a SME. A comprehensive literature study was undertaken. The study
accessed the status of KM in SMEs in developing
countries and also examined the factors that influence the adoption of KM for SMEs in developing countries. Many organizations have
profited from KM because they recognize the importance of the KM in business
growth and development. However the study found SMEs,
in developing countries have not realized this importance and still are
vulnerable. The study takes this factor into consideration and proposed a KM
approach specific to SMEs in developing countries.
The study contributes on KM and SMEs literature in
developing countries and is one of the few studies conducted in developing
countries.
Keywords: Knowledge
management, SME, Developing countries, Organization
1. Introduction
KM helps in increasing productivity, effectiveness and efficiency in
operations. Overlooking KM can seriously hamper the growth and prosperity of an
SME. KM creates alternate profitable prospects for SMEs.
The study considered the literature on KM with a view to ascertaining how this
might be applied to SMEs in developing
countries. This is important because KM
have received renewed interest with the emergence of the knowledge economy.
Many organizations have profited from KM because they recognize the importance
of the KM in business growth and development. However the study found SMEs, in developing countries have not realized this
importance and still are vulnerable. The study takes this factor into
consideration and proposed a KM approach specific to SMEs
in developing countries. The study contributes on KM and SMEs
literature in developing countries and is one of the few studies conducted in
developing countries.
The potential which KM offers in improving efficiency and innovation has
been cited as a key source of competitive advantage (MacKinnon et al., 2002).
Despite this pressing need, it is widely accepted that small companies – even
the most knowledge-intensive ones – are characterized by a lack of uptake of KM
initiatives (Nunes et al., 2006). Perhaps due to the
reason that KM systems are expensive to purchase, use and maintain. The aim of
this study was to propose an alternative approach to developing KM systems for SMEs in developing economies. Instead of usual approaches,
where KM needs heavy financial and other resources, study suggested solution
centric approach (Patrick & Dotsika, 2007).
Small and medium enterprises (SMEs) make
substantial contributions to national economies and are estimated to account
for 80 percent of global economic growth (Pavic et
al., 2007). Today the business environment has become more competitive than
ever before. In this competitive environment knowledge is thought to be the
primary resource. The conventional factors of production have become secondary.
It is straightforward to obtain them, provided there is knowledge (Chen et al.,
2006). Davidson and
The study consists of six sections. Following introduction, section 2
contains literature about knowledge, KM, SMEs, and KM
& SMEs. Section 3 discussed the role of SMEs in developing countries and the need for KM in SMEs. Section 4 highlighted the benefits of KM for SMEs and section 5 contains the research findings. Section
6 concludes the paper and provides future research directions.
2. Literature Review
2.1. Knowledge
Knowledge has been defined in multiple ways.
Samuel (1775) wrote in his early dictionary "Knowledge is of two kinds:
we know a subject ourselves, or we know where we can find information upon it”.
Knowledge can be divided into two categories: tacit and explicit. Explicit
knowledge refers to the knowledge which can be articulated in formal language
such as grammatical statements, mathematical expressions, specifications,
manuals, and thus can be transmitted across individuals formally and easily. On
the contrary, tacit knowledge refers to the knowledge which is hard to
articulate with formal language, but is personal knowledge embedded in
individual experience and involves intangible factors such as personal belief,
perspective, and value systems (David, 2006; Nonaka
& Takeuchi, 1995).
2.2. Knowledge Management
KM involves knowledge identification, creation, acquisition, transfer,
sharing and exploitation. KM is vital for efficiency and organizational
competitiveness (Egbu, 2001). Boh
(2007) described that KM is a systematic process for acquiring, organizing,
sustaining, applying, sharing and renewing both the tacit and explicit
knowledge of employees to enhance organizational performance and create value. Menkhoff et al., (2002) defined KM as the task of
developing and exploiting both tangible and intangible knowledge resources of
an organization. Pillania (2006c) defined KM as “a
systematic, organized, explicit and deliberate ongoing process of creating,
disseminating, applying, renewing and updating the knowledge for achieving
organizational objectives''. KM is a process which involves the management of
explicit and tacit knowledge (Nonaka & Takeuchi,
1995).
2.3. SMEs
And Their Role In Developing Countries
According to OECD (2000) SMEs make-up the largest
proportion of businesses all over the world and play tremendous roles in
employment generation, provision of goods and services, creating a better
standard of living, as well as immensely contributing to the gross domestic
products (GDPs) of many countries. The
European Commission gave rise to the term SME in 1996 and defined the term as
organizations employing fewer than 250 people (Burns, 2001). In developing
countries, SMEs are defined differently for various
countries. The term SME covers a heterogeneous group of businesses in a
developing economy, ranging from a single artisan working in a small shop
making handicrafts for a village market to sophisticated engineering firms
selling in overseas markets (Fischer & Reuber,
2003). Generally SMEs
in developing countries have not more than 250 employees. Some important
characteristics of SMEs include:
Ø
The company is characterized by
the entrepreneur who very often also is the owner of the company.
Ø
The entrepreneur normally is the
“general manager”, thus he acts on his own risk.
Ø
The entrepreneur has a network of
personal contacts to customers, suppliers and the relevant public sector. So
the contact is close and rather informal.
Ø
The company usually acts very
local.
Ø
The products offered can be very
individual to the customer’s needs.
Ø
The form of organization is rather
informal and flat.
Ø
The company can react quickly to
changes in the environment.
Ø
The company is not dominated or
ruled by another company, e.g. part of big business concern.
Ø
The market share is normally
small.
Ø
The products are little
diversified.
Ø
About 36% of the SMEs are not older than 10 years (specific development
stage).
SMEs are the backbone of the industrialization
process of many developing countries and play a vital part in expanding a
country's economy. In Thailand, SMEs account
for more than 90% of the total number of establishments, 65 per cent of
employment and 47 per cent of manufacturing value added while in Philippines, SMEs comprise 99 per cent of the total manufacturing
establishments and contribute 45 per cent of employment and 18 per cent of
value added in the manufacturing sector. Across the
According to economic survey of
SMEs’ contain various advantages in income growth,
entrepreneurial training, creation of technological capabilities, greater
flexibility to changing market circumstances, job creation and lower wage inequality
and dispersion of industry away from urban areas and regional development
(Berry, 1998; Katrak and Strange, 2002). Other
benefits of promoting SMEs in a developing country
like Pakistan are: i) SMEs
foster an entrepreneurial culture and provide resilience in the economy ii)
contribute to exports iii) poverty reduction through employment generation iv)
facilitate learning geographically and across the sectors v) Their efficiency
in resource allocation is higher vi) reduce inequalities in the economy by
distribution of wealth (Mahmood, 2008).
3. The Need For KM In SMEs
Both large and small firms, require continuous generation, sharing and
implementation of knowledge in order to maximize their competitiveness and
survival chances in the modern information society (Nunes
et al., 2006; Pillania, 2008b). However SMEs relatively need more focused approach towards KM as
they face severe competition. Saloja et al., (2005)
described that a more conscious and systematic approach to KM enhance SMEs performance and competitive advantage. KM also
promotes innovation and business entrepreneurship, help manage change, and
empower employees (Nonaka & Takeuchi, 1995). Zanjani et al., (2008) stated that SMEs
need to make operational, tactical and strategic decisions and without accurate
information they are unable to undertake this role.
The knowledge of employees of an organization is an important asset and such
knowledge should be garnered for the ultimate good of the company. Wong and Aspinwall (2004) described two complementary perspectives
about KM importance in SMEs. "Pull"
perspective, which identifies the potential benefits or improvements that are
crucial for small businesses, include for example improved competency,
efficiency, innovation, learning and knowledge sharing. And "push"
perspective, which deals with the external or environmental thrusts that push
them to the forefront of KM, include amongst others, competitive pressure,
globalization, movement of large companies toward knowledge based organizations
(Davenport & Prusak, 1988). There are some other
underlying reasons for which SMEs need to manage
their knowledge resources. i) SMEs
compete on the basis of their competencies and knowledge is an important
resource to be competent, hence have to use knowledge more than traditional
resources. ii) The owner of SMEs, usually are also
manager needs to transfer knowledge to employees. iii) SMEs
usually did not find or unable to retain good minds; hence they must settle for
less qualified but motivated human resources. iv) Key
stake holders like lending institutions, investors, suppliers, and customers,
judged SMEs on the basis of their knowledge and
strategies to put knowledge in right use. (Zanjani, Mehrasa & Modiri, 2008). Another factor, which explains the emergence
of KM concepts, is the continuous ‘rightsizing’ trend. Starting in the 1980s,
corporate downsizing measures led to the loss of valuable information and
knowledge resources and subsequently to the emergence of KM as strategic
countermeasure.
The driving forces like globalization have lead individuals and
organizations to appreciate the important role of knowledge in an increasingly
competitive world market (Davenport & Prusak,
1988). SMEs as a part of business sectors are no
different from any other business sector. KM plays an important role for many
SME companies in gaining competitive advantage and business survival. Knowledge
in a company should be properly managed and controlled to be effective and
competitive, therefore, there is no excuse or option to them to manage
individual and organizational knowledge to continuously improve their process
and compete in market.
By and large, SMEs have a set of distinctive needs
as described earlier that call for the deployment of a KM system for generating,
sharing, and refining organizational knowledge. However, in practice, SMEs are still very
reluctant to take KM principles into their strategic thinking and daily
routines (McAdam & Reid, 2001; Nunes et al., 2006).
SMEs usually lack resources such as land, labor,
and capital. Therefore, SMEs must do more with less (Desouza & Awazu, 2006). SMEs need to be creative in working in order to manage
knowledge with limited resources (Zanjani et al.,
2008). Though SMEs in developing
countries, in comparison with large enterprises are on back step for the
availability of resources to manage knowledge. SMEs
do have certain advantages in KM practice. i) SMEs flat structure and short decision making process
allows shorter and faster information flow which can improve communication, as
well as easier to permeate new change initiatives. ii) SMEs
flexible culture provides a good foundation for a change, for example the
practices of quality initiatives. iii) People dominated together with organic behaviour, rather than bureaucratic and system dominated,
and this helps improve the chances of success for new initiatives. iv) The high incidence of innovativeness can nurture a
continuous improvement culture. Knowledge, if properly harnessed, enables SMEs to stand out in the competition and outperform their
rivals, thus maintaining a competitive edge (Wong, 2005).
4. Challenges For KM
Organizations have a wealth of knowledge which, is embedded in people’s
head, work practices, and systems. The challenge for organization is to be able
to capture that knowledge and to leverage it throughout the organization.
Spender (2002) asserts that the intangible nature of knowledge makes it harder
to identify and manage; consequently it cannot be treated in the same way as
other organizational assets. SMEs in developing
countries have to face many challenges regarding KM adoption. Many SME
owner-managers lack even fundamental concepts about KM and are unaware about
underlying benefits of KM. Cultural barriers such as distrust, 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’.
Organizational culture plays a critical role in adoption and successful implementation
of KM in SMEs. Von Krogh (1998) stated “high
organizational care culture” as a key element in KM development as its helps
people to share ideas, information and knowledge. Developing KM competencies
and visionary leadership is also challenging for SMEs.
Other challenges SMEs face regarding KM are; i) SMEs rarely have a KM policy
on strategic level; ii) Delegation of decision-making authority; iii) use of
more sophisticated KM tools (Von Krogh, 1998). Handzic
and Hasan (2003a) identify two major challenges for
KM: achieving an objective picture of the field, based on formal and sound
research, which integrates diverse perspectives of researchers and
practitioners; and bridging the gap between theory and practice, thereby
providing well-established KM strategies, tools and procedures for managers.
Consequently such challenges and resistance to change in KM adoption and
successful implementation is natural. This resistance was manageable as it was
because of lack of KM knowledge and lack of training about KM implementation.
5. KM Strategy For SMEs In Developing Countries
KM strategy depicts the general approach an organization aim to take to
align its knowledge resources and capabilities to the intellectual requirements
of its strategy, thus reducing the knowledge gap existing between what a
company must know to perform its strategy and what it does know. (Zanjani et al., 2008)
Considering the nature and requirements of SMEs in
developing countries, researchers proposed personalization strategy for KM.
Personalization is a strategy to manage the knowledge that is formed via human
communication. Personalization strategy focuses on dialogue between
individuals, not knowledge objects in a database. It is a person-to-person
approach where knowledge is shared not only face-to-face, but also by
electronic communications, thus building networks of people (Cendan et al., 2007). Personalization, on the other hand,
provides a rich medium for communication, as it is concerned with the use of
people as a mechanism for sharing knowledge (Boh,
2007). If the business strategy focuses on generating new or customer specific
solutions or product innovations the personalization strategy should be chosen
rather than the codification strategy (Greiner et al., 2007). Personalization
strategy is more suitable for SMEs conducting tasks
that are more innovative in nature (Zanjani et al.,
2008).
Through the suggested KM strategy of personalization, SMEs
will able to leverage upon its tangible and intangible assets, to learn from
past experiences, whether successful or unsuccessful, and to create new
knowledge. This KM strategy needs to implement at three different levels in SMEs, people level, organizational level and technological
level as described in figure 1. At the people level, KM needs to emphasis on
the competencies, education and learning abilities of organizational members to
create KM awareness and make them more creative and innovative. At
organizational level, KM is concerned about the development of a visionary leadership
and a sound organizational culture to ensure maximum sharing of innovative and
creative knowledge. Chan and Mauborgne (2003) also suggested constructive
leadership behavior and development of a healthy organizational culture as
important enabler of KM. Technologically, effective KM requires the efficient
organization of a suitable communication and information infrastructure (e.g.
intranet) based on suitable and relevant taxonomies and knowledge repositories
(where applicable).
Figure 1: KM Strategy For SMEs
6. Conclusion
SMEs in developing countries have done very
little for KM development in their organizations. It’s not necessary that KM
development will solve all the problems SMEs
presently face. However SMEs will be in position to
deal effectively with demands of present competitive era by managing individual
and organizational knowledge. SMEs in
developing countries need to make knowledge resources more productive with the
help of proposed KM strategy.
SMEs in developing countries need to create such
an environment which can boost interaction between individuals and teams,
ensure maximum participation and a high level of motivation to become more
creative, innovative and competitive. The proposed strategy will help them in
achieving stated objectives. In summary,
the KM personalization approach is most relevant to SMEs
in developing countries because this has the greatest potential for the sharing
of valuable tacit knowledge.
The governments in developing countries also need to develop specific policy
to help SMEs in their countries to built KM
awareness. Government agencies, chambers of commerce and SMEs
need to commit more resources and work collectively to make the KM more
profitable for SMEs. Also the owners and managers of SMEs need to change their attitudes and think positively
about adopting new changes like KM adoption to remain competitive.
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About the Authors:
Iftikhar Hussain is a
PhD candidate at
Steven Si, Professor and Dean,
Adnan Ahmed, Project Development Officer at Read
Foundation Islamabad and M.Phil Scholar at Muhammad
Ali Jinnah University Islamabad