Why Is Knowledge Management Useful

Published Date: 02 Nov 2017

Knowledge management is essentially about getting the right knowledge to the right person at the right time. This in itself may not seem so complex, but it implies a strong tie to corporate strategy, understanding where and in what forms knowledge exists, creating processes that span organizational functions and ensuring that initiatives are accepted and supported by organizational members. Knowledge management may also include new knowledge creation or it may solely focus on knowledge, storage and refinement. It is important to remember that knowledge management is not about managing knowledge for knowledge's sake; the overall objective is to create value and to leverage, improve and refine the firm's competences and knowledge assets to meet organizational goals and targets. Implementing knowledge management thus has several dimensions including:

Organizational: The right processes, environments, culture and systems.

Managerial: The right leadership, strategy etc.

Technological: The right systems, tools and technologies - properly implemented

Political: The support to implement and sustain initiatives that involve virtually all organizational functions; that may be costly to implement (both from the perspective of time and money); and which often do not have a directly visible return on investment.

3.1 Defining Knowledge, Information, Data

Before discussing about knowledge management (KM), first defining the meaning of the word "knowledge". It is important to understand what constitutes knowledge and what falls under the category of information or data. Unfortunately, this is a more difficult task than may be apparent at first. Within everyday language, within specific fields and even within the same disciplines, the word "knowledge" often takes on a variety of meanings.

3.1.1 Perspectives on Knowledge, Information, Data

In everyday language we use knowledge all the time. Sometimes we mean know-how, while other times we are talking about wisdom. On many occasions we even use it to refer to information. Part of the difficulty of defining knowledge arises from its relationship to two other concepts, namely data and information. These two terms are often regarded as lower denominations of knowledge, but the exact relationship varies greatly from one example to another.

Within more technologically oriented disciplines, particularly involving information systems, knowledge is often treated very similarly to information. It is seen as something one can codify and transmit and where IT plays a pivotal role in knowledge sharing. For instance, the encyclopedia at fact-archive.com defines it as: "information that has a purpose or use."

This kind of simplistic view of knowledge was particularly widespread during the 90s when information technology became increasingly more common. However even today, some KM systems are little more than information management systems using knowledge as a virtual synonym for information. To illustrate, Theirauf (1999) defines the three components as follows: data is the lowest point, an unstructured collection of facts and figures; information is the next level and it is regarded as structured data; finally knowledge is defined as "information about information".

However, increasingly one sees definitions that treat knowledge as a more complex and personal concept that incorporate more than just information. The Longman online dictionary has one definition that begins to approach the way that knowledge is usually regarded within KM. It states "the information, skills and understanding that you have gained through learning or experience." Although still closely associated with information, concepts like skills, understanding and experience begin to surface.

3.1.2 Definitions of Data, Information and Knowledge

Data: Facts and figures which relay something specific, but which are not organized in any way and which provide no further information regarding patterns, context etc.

Information: For data to become information, it must be contextualized, categorized, calculated and condensed (Davenport & Prusak 2000). Information thus paints a bigger picture; it is data with relevance and purpose (Bali et al 2009). It may convey a trend in the environment or perhaps indicate a pattern of sales for a given period of time. Essentially information is found "in answers to questions that begin with such words as who, what, where, when and how many" (Ackoff 1999).

IT is usually invaluable in the capacity of turning data into information, particularly in larger firms that generate large amounts of data across multiple departments and functions. The human brain is mainly needed to assist in contextualization.

Knowledge: Knowledge is closely linked to do and implies know-how and understanding. The knowledge possessed by each individual is a product of his experience and encompasses the norms by which he evaluates new inputs from his surroundings (Davenport & Prusak 2000).

"Knowledge is a fluid mix of framed experience, values, contextual information, expert insight and grounded intuition that provides an environment and framework for evaluating and incorporating new experiences and information. It originates and is applied in the mind of the knower. In organizations it often becomes embedded not only in documents or repositories, but also in organizational routines, practices and norms."

3.1.3 Types of Knowledge

Over the centuries many attempts have been made to classify knowledge and different fields have focused on different dimensions. This has resulted in numerous classifications and distinctions based in philosophy and even religion. Within business and KM, two types of knowledge are usually defined, namely explicit and tacit knowledge. The former refers to codified knowledge, such as that found in documents, while the latter refers to non codified and often personal experience-based knowledge.

Some researchers make a further distinction and talk of embedded knowledge. This way, one differentiates between knowledge embodied in people and that embedded in processes, organizational, routines etc. (Horvath 2000). Below there is an overview of these categories.

3.1.3.1 Explicit Knowledge

This type of knowledge is formalized and codified and is sometimes referred to as know-what (Brown & Duguid 1998). It is therefore fairly easy to identify, store and retrieve (Wellman 2009). This is the type of knowledge most easily handled by KMS, which are very effective at facilitating the storage, retrieval and modification of documents and texts. From a managerial perspective, the greatest challenge with explicit knowledge is similar to information. It involves ensuring that people have access to what they need; that important knowledge is stored; and that the knowledge is reviewed, updated or discarded.

Many theoreticians regard explicit knowledge as being less important (e.g. Brown & Duguid 1991, Cook & Brown 1999, Bukowitz & Williams 1999, etc.). It is considered simpler in nature and cannot contain the rich experience based know-how that can generate lasting competitive advantage.

Although this is changing to some limited degree, KM initiatives driven by technology have often had the flaw of focusing almost exclusively on this type of knowledge. Explicit knowledge is found in: databases, memos, notes, documents etc.

3.1.3.2 Tacit Knowledge (Embodied Knowledge)

This type of knowledge was originally defined by Polanyi in 1966. It is sometimes referred to as know-how (Brown & Duguid 1998) and refers to intuitive, hard to define knowledge that is largely experience based. Because of this, tacit knowledge is often context dependent and personal in nature. It is hard to communicate and deeply rooted in action, commitment and involvement (Nonaka 1994).

Tacit knowledge is also regarded as being the most valuable source of knowledge and the most likely to lead to breakthroughs in the organization (Wellman 2009). Gamble & Blackwell (2001) link the lack of focus on tacit knowledge directly to the reduced capability for innovation and sustained competitiveness. KMS have a very hard time in handling this type of knowledge. An IT system relies on codification, which is something difficult / impossible for the tacit knowledge holder.

Using a reference by Polanyi (1966), imagine trying to write an article that would accurately convey how one reads facial expressions. It should be quite apparent that it would be near impossible to convey our intuitive understanding gathered from years of experience and practice. Virtually all practitioners rely on this type of knowledge. An IT specialist for example will troubleshoot a problem based on his experience and intuition. It would be very difficult for him to codify his knowledge into a document that could convey his know-how to a beginner. This is one reason why experience in a particular field is so highly regarded in the job market.

The exact extent to which IT systems can aid in the transfer and enhancement of tacit knowledge is a rather complicated issue. But, we can say that successful KM initiatives must place a very strong emphasis on the tacit dimension, focusing primarily on the people involved and they must understand the limitations imposed by computerized systems. Tacit knowledge is found in the minds of human stakeholders. It includes cultural beliefs, values, attitudes, mental models etc. as well as skills, capabilities etc.

3.1.3.3 Embedded Knowledge

Embedded knowledge refers to the knowledge that is locked in processes, products, culture, routines, artifacts or structures (Horvath 2000, Gamble & Blackwell 2001). Knowledge is embedded either formally such as through a management initiative to formalize a certain beneficial routine or informally as the organization uses or applies the other two knowledge types.

The challenges in managing embedded knowledge vary considerably and will often differ from embodied tacit knowledge. Culture and routines can be both difficult to understand and hard to change. Formalized routines on the other hand may be easier to implement and management can actively try to embed the fruits of lessons learned directly into procedures, routines and products.

IT's role in this context is somewhat limited but it does have some useful applications. Broadly speaking, IT can be used to help in mapping organizational knowledge areas; as a tool in reverse engineering of products (thus trying to uncover hidden embedded knowledge); or as a supporting mechanism for processes and cultures. However, it has also been argued that IT can have a disruptive influence on culture and processes, particularly if implemented improperly.

Due to the difficulty in effectively managing embedded knowledge, firms that succeed may enjoy a significant competitive advantage. Embedded knowledge is found in: rules, processes, manuals, organizational culture, codes of conduct, ethics, products etc. It is important to remember that while embedded knowledge can exist in explicit sources (i.e. a rule can be written in a manual), the knowledge itself is not explicit, i.e. it is not immediately apparent why doing something this way is beneficial to the organization.

3.1.4 Sources of Knowledge

There are two sources of Knowledge are:

Internal sources emerging from the operations of the organizations’ internal sources include the organizational operations such as design, development, engineering, sales, marketing, manufacturing, customer contact etc. This is the basic source of organizational information, which is controllable. In the absence of any formal mechanism, this knowledge remains in the minds of organization members and usually, disappears with them.

External sources such as Industry/Professional Associations, Commercial web sites etc. There are many professional bodies such as IEEE, academic bodies such as universities, research institutions, industry associations and commercial organizations. These sources usually make the knowledge available through web sites and some times through publications. Some of them could be free services and some could be for a fee. A well designed KM should be able to take advantage of both the sources to create and maintain it and allow members to easily access the knowledge stored inside it.

3.1.5 Defining Knowledge Management

KM is about making the right knowledge available to the right people. It is about making sure that an organization can learn and that it will be able to retrieve and use its knowledge assets in current applications as they are needed. In the words of Peter Drucker, it is "the coordination and exploitation of organizational knowledge resources, in order to create benefit and competitive advantage" (Drucker 1999).

Bukowitz and Williams (1999) link KM directly to tactical and strategic requirements. Its focus is on the use and enhancement of knowledge based assets to enable the firm to respond to these issues.

A similarly broad definition is presented by Davenport & Prusak (2000), which states that KM "is managing the corporation's knowledge through a systematically and organizationally specified process for acquiring, organizing, sustaining, applying, sharing and renewing both the tacit and explicit knowledge of employees to enhance organizational performance and create value."

3.1.5.1 Knowledge Management Definition

Knowledge management consists of the initiatives and systems that sustain and support the storage, dissemination, assessment, application, refinement and creation of relevant knowledge. This definition of knowledge management is adequate, but it relies on an understanding of the word "relevant". In this case, it implies a strong tie to organizational goals and strategy and it refers to knowledge that is considered useful for some purpose.

It involves the understanding of: where and in what forms knowledge exists; how to make the right knowledge available to the right people; what the organization needs to know; how to best generate or acquire new relevant knowledge; how to promote a culture conducive to learning, sharing and knowledge creation; how to manage all of these factors so as to enhance performance in light of the organization's strategic goals and short term opportunities and threats.

Knowledge management must therefore create/provide the right tools, people, knowledge, structures (teams, etc.), culture etc. so as to enhance learning; it must understand the value and applications of the new knowledge created; it must store this knowledge and make it readily available for the right people at the right time; it must continuously assess, apply, refine and remove organizational knowledge in conjunction with concrete long and short term factors.

3.1.6 Why is knowledge management useful?

Why is knowledge management useful? It is useful because it places a focus on knowledge as an actual asset rather than as something intangible. In so doing, it enables the firm to better protect and exploit what it knows, to improve and focus its knowledge development efforts to match its needs.

In other words:

It helps firms to learn from past mistakes and successes.

It better exploits existing knowledge assets by re-deploying them in areas where the firm stands to gain something, e.g. using knowledge from one department to improve or create a product in another department, modifying knowledge from a past process to create a new solution, etc.

It promotes a long term focus on developing the right competencies and skills and removing obsolete knowledge.

It enhances the firm's ability to innovate.

It enhances the firm's ability to protect its key knowledge and competencies from being lost or copied.

Unfortunately, KM is an area in which companies are often reluctant to invest because it can be expensive to implement properly and it is extremely difficult to determine a specific ROI. Moreover, KM is a concept which definition is not universally accepted and for example, within IT one often sees a much shallower, information-oriented approach.

3.1.7 Few Facts of Knowledge Management

KM is not useless

The entire idea sits on the fact that it’s a long-term strategy to maintain the existing knowledge of the person/organization and also to harvest the "new" knowledge, which a person acquires during his process of learning. Debating what knowledge management "is not" is pointless. People intuitively know whether they are managing their own knowledge well and whether their organization helps them to work without stress and inefficiency.

People and technology

People should not have to choose between knowing a little about lot or a about a little. They should be able to concentrate most on what they need to know most and when needed, find out a lot about related things. This requires a browseable knowledge environment that designed the way people think. People want to solve problems, think and collaborate. They do not want to "use technology". Technology is a means, not an end. Technology must serve people, not the other way around. Technology creates knowledge management problems faster than it creates knowledge management solutions. If knowledge management were intuitive, organization would have perfected it by now.

Financial factor

The cost of not managing knowledge greatly exceeds the cost of managing important knowledge. Organizations have the habit of externalizing the cost of not managing the knowledge to their customers.

Future trends

Those who want to think and act in integrated, creative ways and solve complex problems need rich, integrated, up-to-date knowledge management environments to support them. The gulf between traditional and knowledge-driven organizations is growing as knowledge-driven organizations concentrate not only on present success but their own evolution so they can better take advantage of the new knowledge-intense environment.

The paradoxical image

Call it the knowledge management paradox: those who are so busy "putting out fires" that they have no time to tackle knowledge management are those who most need to manage their knowledge better. While many CEO put KM as the top priority, few companies are still at a stage of implementation: It’s the mind shift of the organizational heads to add knowledge to the balance sheet. What we know now is that, those companies that crack strategic knowledge management will be those most likely to succeed in the new economy. The new economy is always termed as the knowledge economy.

3.1.8 Benefits of Knowledge Management

Some of the tangible benefits of knowledge management are directly related to their bottom line savings. In today’s information-driven economy, companies continuously tap most of the opportunities and ultimately derive most value from intellectual rather than physical assets. According to many experts, to get the most value from a company’s intellectual assets, knowledge must be shared and served as the foundation for collaboration. Consequently, an effective KM program should help a company to leverage the assets and provide the following benefits:

• Fostering innovation by encouraging free flow of ideas.

• Improving customer service by streamlining response time.

• Boosting revenues by getting products and services to market faster.

• Enhancing employee retention rates by recognizing the value of employees’ knowledge and rewarding them for it.

• Streamlining operations and reducing costs by eliminating redundant or unnecessary processes.

• A creative approach to KM can result in improved efficiency, higher productivity and increased revenues in practically any business function.

Knowledge Management’s (KM) role is to connect knowledge owners with knowledge seekers. The knowledge of one is transferred to the mind of the other, so that a new decision can be made or situation can be handled. KM provides a means to capture and store passing knowledge and broker it to the appropriate individuals.

KM is beneficial especially in both social and business segments. Here are too few examples where KM could provide great benefits:

Social (Governmental)

1. Coping with natural disasters

2. Safety in aviation/railways

3. Research and education

Business

1. Research and Development – faster solutions and reduction of redundant research.

2. Design and Development- by allowing easier access to past design documents, best practices and better designs become available, faster, making faster deliveries gaining a competitive edge for the organization.

3. Operations- problems reported from the field greatly aid in improving manufacturing practices and add to product quality.

4. Cultural Change- from striving to create and own ideas and objects, for sharing improving and reusing, in addition to create new ideas and objects.

There are many others in the field now in India; all the leading software development organizations have some kind of Knowledge Representation (KR). Especially those organizations that have been assessed at level 5 of CMM model have initiated KM activity in their organizations.

3.1.9 Knowledge Management Processes

One can access the knowledge through following processes:

Knowledge Discovery & Detection

Knowledge Organization & Assessment

Knowledge Sharing

Knowledge Reuse

Knowledge Creation

Knowledge Acquisition

These forms are the backbone of knowledge management processes as they outline all aspects involved in the actual management of knowledge.

3.1.9.1 Knowledge Discovery and Detection

This deals with discovering the knowledge that a firm possesses all over the organization, as well as the patterns in the information available that hide previously undetected pockets of knowledge. Once knowledge is created, it exists within the organization. However, before it can be reused or shared it must be properly recognized and categorized.

3.1.9.2 Knowledge Organization & Assessment

The idea that firms should categorize their knowledge assets is not a new one (Horvath 2000, Bukowitz & Williams 1999). In order to determine what resources they have at their disposal and to pin point strengths and weaknesses, management needs to organize the knowledge into something manageable. Knowledge organization involves activities that "classify, map, index and categorize knowledge for navigation, storage and retrieval" (Botha et al. 2008). Markus (2001) assigns the role of preparing, sanitizing and organizing this knowledge to a "knowledge intermediary". This may be a knowledge manager or it may also be the actual producer of the knowledge. The point is, that in order for knowledge to be shared (either for reuse in a business situation or as a tool for knowledge creation), it must be prepared in such a way that it can be identified, retrieved and understood by the knowledge user.

3.1.9.3 Knowledge Sharing

As stated earlier, knowledge management is fundamentally about making the right knowledge or the right knowledge sources (including people) available to the right people at the right time. Knowledge sharing is therefore perhaps the single most important aspect in this process, since the vast majority of KM initiatives depend upon it. Knowledge sharing can be described as either push or pull. The latter is when the knowledge worker actively seeks out knowledge sources (e.g. library search, seeking out an expert, collaborating with a coworker etc.), while knowledge push is when knowledge is "pushed onto" the user (e.g. newsletters, unsolicited publications, etc).

Knowledge sharing depends on the habit and willingness of the knowledge worker to seek out and/or be receptive to these knowledge sources. The right culture, incentives and so on must therefore be present.

3.1.9.4 Managing Knowledge Reuse

Three Roles for Knowledge Reuse

Markus (2001) identifies three roles in the reuse of knowledge:

Knowledge producer: The original creator of the knowledge.

Knowledge intermediary: The one who packages and prepares the knowledge so that it may be stored, retrieved and shared. This may involve any number of functions such as indexing, categorization, standardizing, publishing, mapping, etc.

Knowledge consumer: The person who is the recipient and user of the knowledge in question.

As Markus points out, these three functions may involve different people or they may all be done by the same person.

Knowledge Reuse Situations

Fruchter and Demian (2002) identify two very general types of knowledge reuse:

Internal: Where the knowledge producer uses his own knowledge at some future point.

External: Where the knowledge consumer uses someone else's knowledge. The latter has a much higher failure rate for reasons that include the loss of contextual knowledge, information and knowledge that is not properly captured due to the costs involved.

Shared Work Producers: People working in teams producing knowledge for their own reuse. They are closest in knowledge-distance. They generally will have a good understanding of what they need and where to find it (including both documents and experts). Knowledge reuse will however be harder within cross functional teams.

Shared Work Practitioners: People who perform similar work in different settings (e.g. same position in different locations). Knowledge is produced for someone else's use. Defining the knowledge needs is usually easy, as is locating the right experts within the network (which is used frequently). Basically, they need to know how to do something or why something works.

Expertise-Seeking Novices: People who seek out knowledge, they do not normally work with. They are furthest in knowledge-distance. They have great difficulty in "defining the questions, locating and judging, the quality of the knowledge sources and applying the expertise."

Miners Secondary Knowledge: People who try to find knowledge in work produced in different contexts, so as to apply it in other situations. The knowledge and context of the consumer may be very different to the producer. The main challenge here is defining the question. Often requires complex search algorithms which are hard to create.

3.1.9.5 Knowledge Acquisition

Knowledge acquisition refers to the knowledge that a firm can try to obtain from external sources. Sources include suppliers, competitors, partners/alliances, customers and external experts. Communities of practice can extend well outside the firm.

The main sources are of knowledge acquisition are:

Customers

Customer knowledge comes in different forms. There are three different types:

Knowledge for customer: The knowledge that the customers can gain in order to satisfy their knowledge needs. It can include product, market and supplier knowledge. It can be sourced from our company or from other external sources like other customers and competitors.

Knowledge about customer: The kind of knowledge that enables one to know the customer better, to understand their motivations and to address them better. It includes requirements, expectations and purchasing activities.

Knowledge from customer: The kind of knowledge that deals with products, suppliers and markets. It can be used to improve our products and services.

Effective acquisition of customer knowledge is dependent on customer relationship management. IT can be used in this context both as a means of collecting feedback, enhancing communication and cooperation between partners (the principles of knowledge sharing apply here within the confines of the specific relationship). It is also useful as a way to gather data and information regarding sales, trends, feedback and so on, which can then be used to create new knowledge within the organization.

Suppliers

Chan (2009) presents a classification for supplier knowledge based on the concepts of customer knowledge. These are:

Knowledge for suppliers: This is the knowledge that suppliers require and includes "production needs and forecasts, inventory, products, customers and markets".

Knowledge about suppliers: This is knowledge that is used to understand how the supplier can match the requirements of the organization; provide insight regarding quality, delivery, defects, financial risks etc.

Knowledge from suppliers: This refers to the knowledge that suppliers have gathered from their dealings with the organization.

The role of IT is similar to the ones presented in the customer segment, with the organization now taking on the role of customer. Knowledge acquisition in this case also includes data and information which can be processed and used as building blocks for new knowledge creation.

Competitors

This deserves mention but it is a fairly straightforward aspect of KM. It simply involves collecting, organizing and presenting the data, information and knowledge that the firm has acquired in such a way that one can search, retrieve and analyze it. Some of this falls within the scope of information management, but it is particularly the process of using these components to create better decisions and new knowledge that is of interest here. IT systems are very useful in this case, since the sources are largely explicit and presumably require frequent updating and manipulation. Data mining and analysis, document management systems with suitable search functions and expert systems are most relevant here.

Partners/alliances

Alliances intended to increase knowledge are a valuable potential resource. However, these must be properly managed. Key success factors include fostering trust, learning from your partner and effectively managing the creation of knowledge relevant to both parties. Knowledge transfer can be facilitated by personnel exchanges, common projects and other forms of regular interaction, technology sharing, etc.

IT can be used in this case very similarly to the way it is used inside the organization for knowledge sharing and knowledge creation (including data/information analysis), in other words, supporting communication, collaboration, experimentation, expertise location, analysis tools etc. The exact system has to fit the nature of the relationship and the business model.

What is of particular importance in this case is to safeguard the system so that only that knowledge which the firm is willing to share becomes available. In the 80s, joint ventures between American and Japanese firms often resulted in a lopsided endeavor favoring the latter, since the Japanese were far more willing to listen and the Americans were far more willing to talk. It is important to remember that the goal here is two way learning; that a relationship will not last forever; and that a partner today may be a competitor tomorrow. KM must therefore be very aware of what knowledge is being shared and the IT systems must reflect this policy.

3.2 Knowledge Management Systems

Knowledge management systems refer to any kind of IT system that stores and retrieves knowledge, improves collaboration, locates knowledge sources, mines repositories for hidden knowledge, captures and uses knowledge or in some other way enhances the KM process.

If explanation above makes the definition of these systems seem vague, that is because there is no consensus as to what constitutes a knowledge management system, much like there is no consensus regarding KM. Furthermore, since KM is involved in all areas of the firm, drawing a line is very difficult.

James Robertson (2007) goes as far as to argue that organizations should not even think in terms of knowledge management systems. He argues that KM, though enhanced by technology, is not a technology discipline and thinking in terms of knowledge management systems leads to expectations of "silver bullet" solutions. Instead, the focus should be determining the functionality of the IT systems that are required for the specific activities and initiatives within the firm.

Following are general categories of the systems:

Groupware systems

The intranet and extranet

Data warehousing, data mining & OLAP

Decision Support Systems

Content management systems

Document management systems

Artificial intelligence tools

Simulation tools

Semantic networks

These categories will cover the vast majority of the systems that people will normally link directly to KM.

3.2.1 Problems and Failure Factors of KMS

Too often, the effects of technology on the organization are not given enough thought prior to the introduction of a new system. There are two sets of knowledge necessary for the design and implementation of a knowledge management system:

The technical programming and design know-how.

Organizational know-how based on the understanding of knowledge flows.

The problem is that rarely are both these sets of knowledge known by a single person. Moreover, technology is rarely designed by the people who use it. Therefore, firms are faced with the issue of fit between IT systems and organizational practices, as well as with acceptance within organizational culture.

Building upon all these failure factors of knowledge management systems are as follows:

Expecting that the technology is a KM solution in itself.

Failure to understand exactly what the firm needs (whether technologically or otherwise).

Not understanding the specific function and limitation of each individual system.

Lack of organizational acceptance and assuming that if you build it, they will come.

Inadequate quality measures (e.g. lack of content management).

Inadequate support: managerial and technical, during both implementation and use.

Lack of organizational fit (departmental fit).

Lack of understanding of knowledge dynamics and the inherent difficulty in transferring tacit knowledge with IT based systems.

3.3 What are SMEs?

SMEs are usually enterprises that employ no more than 250 employees. The technical definition varies from country to country in the Asia-Pacific region but is usually based on employment, assets or a combination of the two. Some countries have different definitions for SMEs in the manufacturing and services sector and may exempt firms from specialized industries or firms that have shareholdings by parent companies.

3.3.1 Why are SMEs important?

The only way to reduce poverty in a sustainable way is to promote economic growth, through wealth and employment creation. In developing countries, SMEs are the major source of income, a breeding ground for entrepreneurs and a provider of employment (UNIDO, WSIS Report, February 2003). SMEs are important because on average, they comprise over 95 percent of the economy. The contributions of SMEs to employment and the countries’ gross domestic product (GDP) are by no means trivial. As of July 2009, close to 140 million SMEs in 130 countries, employed 65 percent of the total labors forces.

Contrary to multinational corporations, the growth of SMEs directly benefits the country because most SMEs are domestic firms. This reinforcing dynamic generates economic growth. The reinforcing loop of innovation also drives economic growth. As the number of SMEs increases, their knowledge of their product and industry increases. Their knowledge allows them to innovate on the product or process, which helps them form a competitive advantage to generate more profits. Again, market opportunity as captured by the profitability of SMEs will encourage more people to establish their own SMEs to capture the opportunity.

3.4 Knowledge management in SMEs

Although introducing knowledge management systems into SMEs is a particular challenge because of the limited resources of these kinds of companies, the literature review on KM reveals that the most part of research in this field is focused on large companies. In fact, the understanding of the organizational theory and practice considerations of KM has mainly been derived from large company experiences. Consequently, the potential of KM seems not fully exploited by small firms and this is reflected in a literature void where little research contributions on this topic have been published.

According to the review carried out by Thorpe et al (2005), research on KM in the SMEs context may be broken down into three distinct fields:

The knowledgeable SME manager or entrepreneur.

The knowledge systems and routines embedded within the context of the firm and their immediate networks.

The institutional and policy framework that is intended to support knowledge production within SMEs.

Although major corporations have led the way in introducing and implementing KM, it is increasingly important for small businesses to manage their collective intellectual assets. In KM practices, issues that small businesses will face, will not be simply a scaled-down replica of large-company experiences. Desouza and Awazu (2006) discuss five key peculiarities that differentiate knowledge management practices in SMEs and larger companies:

In SMEs there is lack of explicit knowledge repositories. Instead, each manager/owner acts as the knowledge repository.

Common knowledge possessed by members of the SMEs is deep and broad. This common knowledge helps in the organization of work by easing issues of knowledge transfer, sense-making and application.

SMEs by their nature and due to deliberate mechanisms are skilled at avoiding pitfalls of knowledge loss. The close social ties between members of the SMEs act as a deterrence against employees leaving the business. In cases, where employees do leave the business, there are plenty of available knowledge resources that can be mobilized to quickly fill the void.

SMEs have a knack for exploiting foreign sources of knowledge. Since they are resource constrained and cannot spend efforts to create knowledge, they look outside the organization for knowledge.

SMEs knowingly or unknowingly, manage knowledge the right way – the humanistic way. Technology is never made part of the knowledge management equation. The use of technology in an SME is mostly limited to acts of automation (such as the use of cash registers) and at times for informative purposes (storing of employee contact information in databases).

Sparrow (2001) indicates four components that figure strongly in small firm knowledge projects:

The appreciation of personal and shared understanding.

Knowledge bases and knowledge systems.

The integrated and contextualized action needed for knowledge projects in SMEs and the knowledge and organizational learning processes in SMEs.

Another stream of KM research regards factors that can influence the success of KM implementation. Also in this area, most of research efforts are heavily focused on large companies as early adopters and superior performers of KM were large and multinational corporations. As such, existing factors are mainly large companies oriented, thereby reflecting their situations and needs. Directly applying these factors into the SMEs environment may not be sufficient without an understanding of their very own and specific conditions. By integrating the common factors and introducing some new ones, SMEs can develop a more comprehensive model for implementing KM in SMEs based on the following factors:

management leadership and support;

culture;

IT;

strategy and purpose;

measurement;

organizational infrastructure;

processes and activities;

motivational aids;

resources;

training and education;

Human resources management;

The above set of critical success factors are important because of it can act as a list of items for SMEs to address and deal with, when accomplishing KM. This helps to ensure that essential issues and factors are covered when small firms are planning and developing a KM strategy. It can also provide a basis for them to evaluate their KM practices.

3.5 How Can Knowledge Management in a Small Business Be Established?

Knowledge management captures company's collective knowledge and that's key to competitive advantage. To establish knowledge management businesses need to integrate people, processes and technology. For a small business that means using software to capture the knowledge employees have, storing it in a database and giving all employees access to the knowledge.

Objectives

Set clear objectives for knowledge management. Consulting firm Bain & Company identify a number of areas where knowledge management can provide a strong advantage. These include improving the cost and quality of existing products or services and accelerating new product innovation. Use knowledge management to improve productivity by giving employees access to existing best practices, rather than reinventing the wheel.

Culture

Lead the knowledge management program from the top. Explain why the company is operating the program and show how it will help all employees to improve their performance. Knowledge management gathers the knowledge that all employees hold and share best practices across the company. Creating a culture for knowledge sharing will help to overcome resistance to the program.

Capture

Use knowledge management software to capture and categorize the company's existing knowledge. Identify the sources of knowledge such as project reports, proposals, customer records, case studies and other documents like interview and record information from employees with specialist knowledge or experience.

Share

Create a directory of available information and provide access over a secure internal network or intranet. Let employees know about the knowledge base and explain how to make use of the knowledge. Use social networking tools to create profiles showing employees’ areas of expertise and current knowledge projects. This enables other employees to easily identify colleagues who can help them with specialist knowledge.

Protect

Protect knowledge from accidental or deliberate loss. Intellectual property is a valuable commercial resource and is increasingly subject to security threats from competitors and cyber criminals, as well as insiders. Set network security measures to protect data and restrict access to authorized users.

Grow

Use the knowledge base to support company’s growth. Making use of knowledge helps existing employees to provide better service to customers or speed up processes such as new product development. As a company grows, the knowledge base provides a valuable resource for inducting and training new employees. It also minimizes the risk of lost skills and knowledge when employees leave a company.

3.6 Smaller-sized companies are not blame free

Software developers and vendors are somewhat justified in their "deliberate" shunning of smaller-sized companies. After all smaller-sized companies themselves are often not seeking knowledge management tools and advice.  Many do not even know that KM exists.  Of those who are aware of the power of knowledge management, very few feel they have the necessary "infrastructure" to implement the KM systems and many feel they have far more pressing priorities and needs. 

Foremost, in the minds of senior managers of smaller-sized enterprises, is the financial feasibility. Most smaller-sized companies feel that the knowledge management return on investment [ROI] figures do not generally add up, so knowledge management is relegated to the level of a "luxury item" and therefore something to be considered in the future. 

Knowledge management is still very much viewed by smaller-sized companies as a "big boy’s thing" or even as a fad, that only the giants can afford to indulge in.  It is often a case of "Let the rich big boys test the waters and when they have validated its worth to all businesses, including smaller-sized ones and then we will act".   In the meantime, they continue in the way they know best: losing vital knowledge capital and competitive advantages daily. 

The questions we might raise are: "Is this sound and valid reasoning? Does it make sound business sense for the smaller-sized company or is it one cautious stance too many?" There can hardly be many business intelligence practitioners and consultants who subscribe to the "wait and see" position that many smaller-sized companies have taken. Why? Because it does not make good business sense in what is essentially a knowledge driven economy. Smaller-sized companies should adopt the policies and practices of the larger, more prosperous companies. They have to begin to understand the importance of substituting intellectual capital for "normal balance sheet alternatives." They should understand that they need knowledge management just as much as the larger companies do and they need it now, not in the distant future. They must have it now.  

Their phantom barriers against the implementation of a knowledge management system in smaller-sized companies are shrouded in one factor: their cultural resistance to change.

3.7 Knowledge Management is not new to smaller-sized companies

Contrary to the popular modern stance, smaller-sized companies were the forerunners of knowledge management, as they have been practicing knowledge management since ancient times. History shows that as small business moved towards growth and the eventual development of ancient international business activity, knowledge of foreign markets, customs, customers, trade winds and pirates, were what distinguished winners from losers.  This was knowledge management in action. And this was knowledge management initiated, implemented and practiced by smaller entrepreneurial businesses. 

Knowledge management is currently being marketed as a "new" business intelligence enabling tool. We are led to believe that knowledge management is an invention of the last decade, but in fact it has been part of the core business process/strategies as far back as one cares to venture. Academics and other knowledgeable persons will verify that knowledge assets within a companies and organizations have been long considered vital and these assets should be formally and strategically managed. 

The important difference with modern day, ‘new style’ knowledge management is the changed environment in which businesses operate and the high technology enabling tools that is available to help the knowledge management process.  

Knowledge assets are essentially the knowledge regarding markets, products, technologies and organizations that a business owns or needs to own and which enable its business processes to generate profits and add value. It therefore, comes as no surprise that managing these assets have been key priorities for all business models over the centuries.  

3.8 KM Model is already well-suited to smaller-sized companies

Modern day knowledge management has been targeted at large companies and large organizations. However, in practice, knowledge management within giant enterprises has been mainly departmental. The general practice has been to adopt knowledge management to individual, often autonomous, departments, with the intention or hope of making the tried and tested departmental model applicable enterprise-wide. Most often the size and style of operations mirrors that of a smaller-sized company. 

Practitioners of knowledge management within large companies and organizations would ideally want to take a more holistic and enterprise-wide approach. But practicality often dictates otherwise. Thus, traditionally the systematic capturing, transferring and sharing of knowledge have primarily been practiced in what is essentially a smaller-sized company environment.  

Within the smaller-sized company and departments within large companies, it is perhaps significantly easier to gain a valuable understanding of the formal and informal knowledge communities than it is within the much larger and more complex companies. Smaller-sized companies are already likely to actively have in place a culture that is more in tune with knowledge sharing and sharing of resources in general.

3.9 Smaller-Sized companies must have knowledge management

While it is true to say that smaller-sized companies have traditionally had a great understanding of the importance of tacit knowledge for their business enhancement, they have fallen behind when it comes for managing or leveraging the knowledge assets they possess. They have failed to fully exploit these highly valued knowledge assets, in order to help their businesses gain, the kind of competitive edge that is so vital in this fast-paced knowledge-driven economy. This is the reason that smaller-sized companies must get back on the knowledge management track, as large companies seek to tighten their control of the knowledge market. 

The challenge for the smaller-sized business of deploying the knowledge assets of the company to create the necessary competitive advantage has become increasingly business critical. The knowledge driven, rocket-paced, global marketplace in which the smaller-sized company must operate is more vibrant and competitive than at any previous time in recorded history. In addition, technological innovation improves at such a rapid rate that remain viable in the market place, smaller-sized companies must quickly capture, assimilate and use effectively ‘just in time’ knowledge.

3.10 Smaller-Sized companies must follow where larger companies lead

It is no longer the case that smaller-sized and larger-sized companies operate in vastly different market places. The phenomenal growth and uptake of the Internet/world wide web has narrowed the gap significantly.

 Here are just a few of the reasons why smaller-sized companies must walk along the same path as the bigger and ‘wiser’ enterprises:

Large corporations now operate as customer/client centric businesses and have organized their operations with focus on creating customer/client value. The smaller-sized business must do the same. 

Large companies are replacing the informal knowledge management of the staff function with formal methods in customer aligned business processes. Small companies must do the same.  

Knowledge is perishable. The shelf life of expertise is limited because new technologies, products and services continually pour into the marketplace. No one company or individual can hoard knowledge. People and companies must constantly renew, replenish, expand and create more knowledge. 

Knowledge within companies resides in many different places such as: on computers in databases, filing systems and in the heads of employees. Very often one part of an enterprise repeats work of another part simply because it is impossible to keep track of and make use of knowledge in other parts. Within most smaller-sized companies, this is indeed a problem area. 

Large companies have honed in on the fact that it takes a long time for employees to gain the level of experience of the company's key processes to be able to translate them into valuable explicit and tacit knowledge. They also realize that their employees no longer have the luxury of time to acquire the knowledge. Smaller-sized companies must also hone in on these basic modern day truths. 

Even within large, "stable" companies that offer much opportunity for personal development, the job for life culture is fast disappearing. Highly experienced and knowledgeable employees are taking advantage of the new opportunities in a globally shrunk, highly accessible market place. The knowledge loss resulting from this culture change is phenomenal and large companies are taking action to capture and store the knowledge assets of their employees before they leave the company. Smaller-sized companies must follow this example.  

Smaller-sized companies can no longer excuse their tardiness or procrastination where implementation of knowledge management is concerned. Larger companies have done most of the groundwork for them. They have invested heavily in research and trials including pioneering knowledge management software. Smaller-sized businesses had better start moving toward the open gate now, as in all likelihood, if they delay the gate will shut on them and they will be permanently locked out of the global knowledge-led business market. 

3.11 The practical benefits to smaller-sized companies of Knowledge Management

Among the core benefits to a smaller-sized business development and improvement of an enterprise wide knowledge management system is a greater level of awareness of the company's knowledge. This improved awareness goes a long way towards saving time, effort and business entities that carries a premium price in today's fast-paced working environment.  

Linked closely to the improved awareness is greater accessibility among the staff. This allows virtually all individuals within the company to combine knowledge and experience in the context of their own roles. Knowledge within the company also becomes more easily available and this knowledge can be used when and where it is needed. Information technology tools now make it easy for employees to work away from the office or base, just as effectively as they would on-site. With good knowledge management, ‘just-in-time’ information and knowledge is available whenever and wherever needed.

3.12 Why smaller-sized companies need Knowledge Management

Smaller-sized companies need knowledge management for virtually the same reasons that larger ones do. The world has changed and continues to do so. There are more contenders for every dollar of profit, which puts great pressure on companies, large and small, to innovate and to develop products rapidly. Both innovation and rapid development require accelerated use of knowledge. Business intelligence practitioners worldwide generally agree that in this knowledge-driven global economy, knowledge itself is a commodity that offers the only sustainable competitive edge. 

Economists, business strategists and business school professors are more and more united in the belief that what you know, how you use and what you know are the deciding factors for successful companies. They are realizing that it's not technology or the quality of management which need to remain competitive. Companies have to know something and then coordinate and use what they know. They also have to know new things quickly. Smaller-sized enterprises also need to know what their knowledge assets are; then how to manage and make use of these assets to get maximum return. If smaller-sized companies are slow on their feet, they will fail to respond competitively to the new global markets.

3.13 KM in Software Consulting Companies

Consulting companies such as McKinsey, KPMG Peat Marwick, Anderson Consulting, Ernst & Young, PricewaterhouseCoopers, Infy, Satyam, TCS etc. throughout the world are engaged in knowledge work. In order to improve the capability of the consultants and leverage expertise available in a part of the organization to benefit the whole organization, these companies employ various types of technologies to manage internal knowledge. For example, document repositories and best practices databases are used to manage visible knowledge and information resources such as project reports, presentations to the client, information about best practices in various industries, market information, client information etc. Knowledge held in the mind of individual employees of these organizations is invisible in nature and can only be shared with others through communities of practice, seminars and electronic discussion boards. Broadly speaking, knowledge repository, best practices database, expert yellow pages and electronic discussion boards help in storage, retrieval and sharing of knowledge and information through organizational groupware and Intranets.

KM is critical for software consultancy firms engaged in execution of software projects as they rely significantly on intellectual capital. In the event of attrition of experienced manpower, sustaining a high level of competence is a major challenge to these organizations. Hence, these organizations rely on KM activities, such as document management, competence management and software reuse to sustain the level of competence. In order to enable learning from prior experience, these organizations encourage creation of collective memory, such as product and project memory. Software engineering practices such as version control and requirement traceability enable the development of memories from the daily work of the employees in software organizations. The issue of KM is of paramount importance for the software companies that are engaged in global software projects. These companies deal with clients who may have different cultural backgrounds and may follow different business practices. Ramasubramanian and Jagadeesan (2002) discuss the challenge of managing knowledge at Infy, a leading software company in India that how an incentive scheme was introduced to encourage the building and maintenance of central knowledge repositories that consist of documents and expertise maps. The use of the central repository resulted in increased productivity and reduced cost (through reduced defects).

3.14 KM Initiatives in Indian Organizations

3.14.1 Knowledge Management Initiatives at Infosys

Infosys provides consultancy and software services worldwide to 500 companies. It employs approximately 10,200 employees and executes nearly 100 software projects at any given point of time in diverse areas such as telecom, manufacturing, insurance, finance etc. "Powered by intellect and driven by values", KM at Infosys is founded on ‘Learn once and Use anywhere concept’. Needless to say, managing knowledge at Infosys is a huge challenge. Infosys manages organization-wide knowledge using centrally operated Knowledge Shop (K-Shop); Process Assets Database (PAD) and People Knowledge Map (PKM).

Knowledge Shop

Infosys built the k-shop architecture on Microsoft site server technology and all employees can access it through a web interface. The company encourages people to submit papers related to technology, domain, trends, culture, project experiences, internal or external literature etc. They can submit the articles in any format that the web supports and designed templates for various content types to ensure uniformity. In addition, the K-shop has an excellent search facility that offers search through multiple parameters. K-shop documents are available to all Infosys employees and are segregated based on the users selected keywords and content type.

Process Assets Database

Process assets database is a database which capture the "as is" projects deliverable. This database contains the employee’s experiences on projects, projects artifacts such as project plans, design documents and test plans. Users can search the documents based on domain, technology, project type, project code, customer name and so on. This helps to provide new project with information on similar, previously executed projects and helps set quantitative goals.

People Knowledge Map

The People Knowledge Map is a directory of experts in various fields. It is an internet-based system where employees can search and locate experts. It serves as the bridge between knowledge workers: the user and the provider. Infosys intranet portal SPARSH serves as the window for all systems and acts as the central tool. The company’s quality system documentation is a repository of all process-related guidelines, checklist and templates. These serve to standardize the projects’ outputs. Infosys also has electronic bulletin boards for discussing technical and domain-related topics. In addition, there are news groups and newsletters brought out by various departments that discuss technology and business trends.

The distinguishing feature, however, is KM with project level focus. Ready reaction to customer request, improved productivity through rework and teamwork are some of the benefits of this approach. Dynamic KM, which takes the form of web sites to manage knowledge content, training plan with material to tackle project attrition, weekly knowledge sharing sessions, defining the KM activities in the project plan (2%-3%) etc. are some project related KM activities.

Incentive for knowledge sharing is another feature of KM at Infosys. When an Infosys submits a document to the K-shop, experts review the document in detail. If found acceptable, the K-shop publishes it. The reviewer and author are rewarded with Knowledge Currently Units (KCU) when an employee reads or uses a document for the K-shop, he or she is encouraged to give KCU, for that document based on the benefits gained from reading it. Authors can accumulate KCUs for their documents and redeem them for cash or other gifts. Thus, KCU serve twin objectives: they act as a mechanism both for rewarding knowledge sharing and rating the quality of assets in the repository. Infrastructure supporting KM includes LAN/WAN/RAS facilities, E-mail, internet, Intranet, Extranet, Voice/Fax, Networking/Chat, Video Conferencing, Real Audio/Video/Web-cast, Business Solutions Hosting, Systems Management, Technology Enabled Help-desk and Customer Connectivity etc. Recognizing and Rewarding Innovation and KM is done through funding for presentation at conferences, Publications on web sites, "Ideas beget wealth"- the syslabs awards for technical innovation, best practice sharing, KCU- the Knowledge Currency Unit. Innovation is a criterion for the Infosys Excellence Award, "Innovation management"- a key result area in the Infosys KMM (knowledge management maturity) model.

The K-shop owns around 12,600 documents. Knowledge Management has helped Infosys to increase its productivity and reduce defect levels. A rough estimate shows that Infosys reduced its defects level by much as 40%, thus significantly reducing the associated rework and the cost of detecting and preventing defects. Also, effective reuse has increased productivity by 3%. All of this has been possible due to faster access to accurate information and reuse of knowledge. A team of eight full time employees designated as ‘Brand Managers’ help to build and maintain the KM infrastructure in Infosys.

3.14.2 Knowledge Management Initiatives at Satyam

"Knowledge people make the difference" goes the vision statement of Knowledge Management at Satyam. Satyam declares, "As we take our first steps into the new millennium, organizations everywhere are beginning to see that knowledge is indeed the foundation upon which all things grow. Business excellence does not come without a strong base in knowledge. Therefore, those that will stay ahead in the new economy are act upon this realization and build their funds of knowledge."

Satyam’s knowledge initiative, apart from managing the existing knowledge resources of the company, also fosters a culture of creating and sharing knowledge across the organization. Associates have access to a query-based KMS- the Knowledge Repository that allows them to gain the advantage of collective experience, thus optimizing their own time on activities that build upon rather than repeat this experience.

The culture is one of effective communication and knowledge sharing across the organization via exchange of information, ideas, thoug