Benefits of KM for SMEs in Malaysia

[Year]

Benefits of KM for SMEs in Malaysia
Mohammad Zakersalehi Multimedia University

July 2009

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Benefits of KM for SMEs in Malaysia
Content
Introduction ...........................................................................................................2 Literature review ....................................................................................................4 Methodology ..........................................................................................................6 Analysis .................................................................................................................6 Discussion..............................................................................................................15 Conclusion .............................................................................................................18 References .............................................................................................................19

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INTRODUCTION

Small and medium size enterprises play a vital role in the every nation‟s economy. These firms [SMEs] typically account for more than 90 per cent of all firms outside the agriculture sector, constitute a major source of employment and generate significant domestic and export earnings (OECD 2004, p. 32). On the other hand the management of knowledge in firms of all sizes is recognized now more than ever before, this stretches the importance of managing knowledge in SMEs as a nowadays vital part of its factors for retaining its knowledge assets. Malaysia‟s plan for becoming a knowledge-based economy began when Vision 2020 was started in 1991. Companies to remain competitive have to organize their knowledge and use it to achieve their goals. Knowledge management consists of recognition, invention, transferring and sharing of knowledge. Knowledge management is one of the essential factors for improving competitiveness, which can also help employees in the organization. Knowledge management purposes are categorized in two sections:   To make the operation act to secure its workability and general success. In other ways recognize the best value of its knowledge

SMEs in Malaysia play an important role in the country‟s economic development. They have been observed according to their size, financial flow and activity. In Malaysia SMEs are defined in two categories( Table 1): 1. Manufacturing, manufacturing-related services •Full-time employees less than 150 •Annual sales turnover less than RM25 million

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2. Services, primary agriculture and Information and Communications Technology •Full-time employees less than 50 •Annual sales turnover less than RM5 million SMEs in Malaysia are focused on the textile and clothing, food, metal and wood industries. SMEs must know what their knowledge assets are and then know how to manage them to make use of these assets to get maximum benefit for their companies.

Table 1. Definition of SMEs in Malaysia

Knowledge management for the SME‟s must focus on identifying, organizing and making available the whole collection of explicit knowledge for the workers. The workers will reply by using its tacit knowledge to grow and improve the explicit knowledge. They will improve their capability as knowledge workers.

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Successful knowledge management claims that the right knowledge is made beneficial. This requires a clear and brief plan to why knowledge management is implemented and where the company wants to go with it. It involves that both management and employees are aware of their eagerness and they identify and develop the knowledge that is necessary to meet those In this paper, the focus lies on the benefits of the knowledge management on the SME‟S to help them become more innovative and gain competitive advantage. We will first conduct a review on the relating literature, then will try to analyze the subject by first trying to understand the attributes and contributions of KM for SMEs, we will then try to understand the SMEs standings in Malaysia and relate KM to Malaysian SMEs and try to understand the success factors contributing to the benefits, last but not least we will make a discussion on the results and benefits of KM for Malaysian SMEs.

Literature review The difference between small medium size enterprises with the large companies is on their resource scarcity. Because of less tangible resource like labor, capital and equipment, SMEs cannot compete with large companies. However, SMEs can remain in the competition and overcome their rivals by utilizing their intangible asset such as knowledge. So how we can use knowledge in SMEs? Kuan Yew Wong has proposed some certain factors for effective implementation of KM such as management leadership and support, culture, IT, strategy and purpose, measurement, organizational infrastructure, process and activities, motivation aids, resources and HRM. by knowledge management. SMEs from the services sector are facing both opportunities and

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challenges due to the information and communication technologies development (Plumb Ion, Zamfir Andreea.2008) Dimitris and Iraklis 2007, have proposed an alternative approach to developing organizational knowledge management system for SMEs. The five peculiarities of knowledge management at SMEs are the following: Dominance of Socialization in the SECI Cycle, Common Knowledge, Knowledge Loss, Exploitation of External Sources of Knowledge, People Centered Knowledge Management (Kevin Desouza,Yukika Awazu, 2004) Some of the problems in implementing the KM in SMEs are “difficulties with management missing elements of knowledge management, low transfer of knowledge to improve the effectiveness of their work tasks, not enough knowledge of policies of communication and cooperation in research and production‟‟(Ileana Hamburg, Steffi Engert, Petschenka Anke 2006). Dr. David E. Chesebrough 2006 has proposed two benefits of KM for SMEs: an adaptive enterprise which is the real benefit and faster and better decisions that help SMEs to enhance their competitiveness. Toward this trend Malaysian companies try to utilize this valuable asset (intellectual capital) at its best. Promotion of KM in Malaysia began with the establishment in 1996 of the Multimedia Super Corridor (MSC) (IDA YASIN,2008). There are some famous organizations such as Siemens, Nokia Malaysia and Telekom Malaysia, one the largest telecommunication companies in Malaysia, which are the pioneers for the implementation of knowledge management in their organizations (Ali Tehraninasr).

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Methodology The data for this study is collected through research articles and is based on a secondary data. The main types of documents viewed are: • Papers on knowledge management, SMEs • Government reports and statistical information •Related journals and magazines

Analysis How Can SMEs benefit from KM? There are many benefits, which both small and large firms can derive from the implementation of KM systems. Three main benefits in this case are: (1) locating and capturing knowledge; (2) sharing knowledge and (3) creating new knowledge (see Figure 1).

By locating and capturing innovative ideas and other types of strategically important knowledge, KM can cultivate innovation by encouraging the free flow of ideas, for example, best practices could be used by technicians to solve maintenance problems; small entrepreneurs can improve innovativeness, service quality and customer services may be improved by streamlining

response time. Furthermore it also helps find the current status of the organization as compared to the competitors. In this case the documentation, yellow pages and data mining are useful KM tools for locating and capturing knowledge.

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By sharing knowledge and experiences on cost-effective procedures and operational approaches, SME owners can achieve substantial savings. Obviously they can avoid frequent mistakes which can take a place if they do not take into account the past experiences. Actually SMEs can reduce costs by eliminating redundant or unnecessary processes. Tea gatherings, official meetings, intranet systems and groupware platforms represent suitable „technological‟ enablers of knowledge sharing and collaborations in this case. Through the analysis of completed projects and the generation of new knowledge in form of lessons learned through so-called after action reviews of sales campaigns, completed projects etc., small entrepreneurs can avoid potentially costly future mistakes (Carlsen & Skaret 1999; Groom & David 2001). Figure 1: Steps in the KM Event Chain and Benefits of KM Systems

Why Organizations Adopt KM Systems

To locate & Capture knowledge
To utilize customer knowledge to anticipate changing customer preferences (by mining of data such as customers’ buying habits)

To share Knowledge
To link ‘islands of knowledge’ within an organization or in regionally/globally operating firms for the benefit of various stakeholders by transferring knowledge to those who might benefit from it elsewhere.

To create new knowledge
To create product and/or service innovations by combining the expertise and competencies of different subject matter experts such as designers, customers, marketers etc.

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Sources: Von Krogh (1998); Von Krogh, G., Ichijo, K. and Nonaka, I. (2000); Von Krogh, G., Nonaka, I. and Nishiguchi, T. (2000)

Creating new knowledge, for example within small teams whose members share a mutual context of experience and collaborate on a joint task bonded by a common sense of purpose and the need to know what the other „community members‟ know, can lead to profitable product and service innovations. (Thomas Menkhoff et al., 2004) In order to implement each part of KM in SMEs and obtain their benefit we need KM tools. In table 2 we observe the important tools to establish KM in SMEs in order to reach benefits from KM.

Table 2: Knowledge Management Tools

KM Tools for Locating & Capturing Knowledge Balanced scorecard Business information systems Data mining Knowledge audits Knowledge mapping Yellow pages

KM Tools for Transferring & Sharing Knowledge Benchmarking Best practice transfer units Internet / Intranet Knowledge gap analysis Knowledge sharing culture Lotus notes / Groupware

KM Tools for Creating Knowledge Communities of interest / practice Innovation networks Knowledge champions Knowledge visioning activities Learning organization Study groups

Sources: Schrage (1997); Von Krogh (1998); Von Krogh, G., Ichijo, K. and Nonaka, I. (2000); Von Krogh, G., Nonaka, I. and Nishiguchi, T. (2000)

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KM benefits tree One of the simple but effective tools for showing relationship between types of benefits from knowledge management is the „benefits tree‟. In case of benefits from knowledge management many managers want to find a clear understanding of the 'bottom line' benefits of knowledge management before they invest. Because basically implementing knowledge management needs an infrastructure project where the cost is considerable, the benefits are diffused throughout the organization. A benefits tree relates the immediately visible benefits from knowledge management, through a series of steps to those understood by managers or investor in this case.

Example Tree

According to figure 2, we can find the outputs of three separate situations when knowledge management is implemented in an organization whether it‟s large, medium or small.

Figure 2: Benefit tree from knowledge management

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In order to explain the figure 3 we can say that the arrows indicate which benefits lead to higher level benefits. Actually the benefits on the left are those that are the most visible or quantifiable. Those to the right are the result of several factors, including non-KM factors, combining. In this special tree, there are three different classes of benefits from knowledge management that have been used:

1. Knowledge Benefits

These benefits are those coming from more efficient processing of information and knowledge, actually these benefits streamline operations and reduce costs and save valuable time by eliminating redundant or unnecessary processes in order to increase efficiency. For example, a survey showed that information management professionals at a knowledge centre could find relevant information 8 times faster than non-IM professionals.

2. Intermediate Benefits

These kinds of benefits show how the knowledge benefits could be translated into benefits that can be indicated in terms of efficiency or effectiveness. A common example in this case is that best practices databases help eliminate less efficient or costly operations through transferring knowledge from the best practitioners.

3. Organizational Benefits

These types of benefits are those that impact some of the organization's key objectives, such as productivity and customer service. Actually this benefit can improve customer service by

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streamlining response time and giving them more relevant and valuable solutions to their problems.

Benefits of Knowledge Management in SMEs in Malaysia 1-Malaysia’s knowledge based economy development index Malaysia‟s government has started the knowledge-based economy development index (KDI) to monitor the progress of the economy with a target to become more knowledge-based. KDI was defined when vision 2020 was launched in February 1991. The vision obliged Malaysia becoming: “an economy driven by brain power, skills, and diligence, in possession of a wealth of information”(Knowledge management in Malaysia, Ida Yasin). KDI displayed Malaysia‟s readiness to have a knowledge-based economy: KDI is inferred from some key factors required leads to a knowledge-based economy: information infrastructure, computer infrastructure, education and training as well as technology and research and development (R&D). The overall KDI increased by 591 points from 2,413 in 2000 to 3,004 in 2005 with improvements recorded in all areas, as shown in Figure 3 (Knowledge management in Malaysia, Ida Yasin). Computer infrastructure has a significant improvement by 196.4% increase in terms of scores between 2000 and 2005, followed by R&D and technology at 25.9% and education and training at 22.9%. In terms of KDI Malaysia was in 17th position in 2005. Generally, industries such as information technology services, chemical, territory education, financial services and telecommunication displayed better knowledge readiness. In addition, all these industries were generally better with regard to their information and technology infrastructure and in contributing a supportive knowledge environment compared with human resources capability and knowledge leadership.

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Figure3. The Knowledge-based Economy Development Index, Malaysia, 2000 & 2005

Source: Knowledge management in Malaysia, Ida Yasin

2- UTILIZATION OF INFORMATION AND COMMUNICATIONS TECHNOLOGY The role of information and communication technology (ICT) in enhancing productivity and efficiency is obvious in competitiveness. Researches show that investing in ICT leads to an average annual growth rate of 4.7% in a proper employment. In terms of ICT, the number of personal computers installed is growing rapidly from 9.4 percent of population to 21.8 in 2005 while internet dial up subscriptions grew up from 7.1 percent of population to 13.9 during the year 2000 to 2005.

3- PROMOTING E-COMMERCE As e-commerce make several of opportunities and increase productivity, its development was intensified through the establishment of the essential infrastructure. The private sector, primarily financial institutions and industry associations, was considerable to establish financial exchanges for business-to-business (B2B) and business-to consumer (B2C) online transactions.

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Multimedia Super Corridor (MSC) by its e-Business Program was piloted a number of action plans under the internet banking services to promote the electronic mode of communications and transactions through secure B2B and B2C online business transactions, particularly for small and medium- sized enterprises (SMEs).

The main opportunities of e-commerce to businesses and corresponding benefits to consumers in Malaysia include (Kiranjit, K. (2004) Consumer Protection in E-Commerce in Malaysia: An Overview, retrieved 15 October 2005):
     

Worldwide access and greater choice Enhanced competitiveness and quality of service Mass customization and personalized products and services Elimination of intermediaries and product availability Greater efficiency and lower costs New business opportunities and new products and services

Overview of KM practices KM practices are widely performed in the both public and private sectors in Malaysia. The issue is if organizations have performed it explicitly or not. In other words, do they have a proper and systematic approach of KM? Or meanwhile, when no system or paper guidelines have been established yet, is any KM activity already being practiced? Knowledge management systems are commonly performed by large enterprises and also multinationals, whereas small-and medium-size enterprises (SMEs) seldom utilize KM systems. However some of SMEs try to link

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human resource management (HRM) to exploit knowledge management and also to comprehend the critical success factors in KM. Critical Success Factors in KM Most of the developed countries have recognized ICT as a driver to implement knowledge management for a knowledge-based society. They impart KM as a driver of change and a tool for releasing individual capacity and revealing tacit knowledge. A study was conducted by Chong (2006) to compare KM components between its perceived importances‟s versus its implementation in Malaysian companies. The respondents were middlelevel managers of ICT companies in Malaysia located at the Multimedia Super Corridor (MSC). The key KM components to a successful KM implementation, based on a review of the literature, are: • Employee training • Employee involvement • Team working • Employee empowerment • Top management leadership and commitment • Information systems infrastructure • Performance measurement • Knowledge-friendly culture • Benchmarking • Knowledge structure • Elimination of organizational constraints

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In terms of employee training, managers recognized a big gap between importance and implementation in their companies. Chong (2005) observed that the Malaysian ICT companies surveyed are still in the initial stages of their KM program and thus unable to see the types of training programs that are important to KM‟s success. He observes that many of the current training programs focus on how to improve employees‟ skills in performing their jobs rather than on how the knowledge can be managed (knowledge management in Malaysia, Ida Yasin, National Expert, Malaysia) The researches show that Malaysian organizations are still unfamiliar with KM and they are not sure of how a knowledge-friendly culture be originated. The most of the knowledge- sharing activities which have done by organizations was only within a project or team. Since several companies are new (66% of them were established from 1996 and within the time that KM has been introduced by MSC) and have been involved in the ICT business.

Discussion Although there have been constraints for implementing KM as mentioned above, but still SMEs in Malaysia have been able to enjoy some of the outcomes of KM where it has been properly implemented. The outcomes of KM implementation in SMEs could be categorized as (Mahmoud Migdadi 2009): 1. Systematic knowledge activities 2. Employee development 3. Customer satisfaction 4. Good external relationship 5. Organizational success

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One of the main outcomes of KM for SMEs in considered as systematic knowledge activities. By using the term “Knowledge activities” we are actually referring to the processes of creating, gathering, organizing, diffusing, utilizing, transferring and storing vital knowledge of an organization (Chong et al., 2006). Through effective knowledge processes, knowledge flows can be examined, knowledge assets can be identified, and important knowledge can be exploited for organizations to benefit from the use of knowledge processes. By improving means of communication this may also lead to sharing of best practices which would lead to and developing employee skills and sufficiency and productivity. By implementing KM, SMEs also leverage their human capital by developing employees‟ knowledge. This is where knowledge workers are defined. Organizations may further leverage the role of knowledge workers by utilizing them as value creators by setting best practice experiences and other means of sharing their knowledge. Finally, proper utilization of knowledge enables employees to identify new products and services in which the organization has the potential to offer to its customers, thus resulting in the development of an entrepreneurial culture for organizational growth and success (Chong et al., 2006). By provide their key audiences with easy access to accurate and consistent information organizations improve customer satisfaction and service, this is achieved through KM initiatives. To identify the situations where customers have been dealt with in a pleasing manner in order to define best practices, customers‟ knowledge can best help SMEs. This may also lead to more efficient client interaction with the company which would enable organizations to target offerings to specific customers and customer requirements where value is better created. A successful implementation of KM not only creates means to better share knowledge within the organization, but it also allows sharing knowledge with supplier, customers and other business

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partners, this is done mainly in form of feedbacks where it help the organization better create and offer value. The term “Organizational success” refers to the overall performance outcomes and benefits of an organization which is a result of its implementation of knowledge management. To assess this, both tangible and intangible outcomes should be realized. Effective utilization of knowledge leads to increase in profits, revenues and higher market share and decrease in costs of all sorts. It should be kept in mind that implementation of KM requires detailed study of its success factors together with the right ICT infrastructure. When considering benefits of implementing knowledge management on SMEs in Malaysia, there are some constraints which have to be recognized. When implementing KM, the first constraint that comes to mind is the cost. Since it is quite costly for organizations to implement KM, this issue becomes more apparent when looking at SMEs. This is because they are usually new in business where they are in more advanced and high-tech sectors where KM is more focus at, and their current IT infrastructure does not support the implementation of Km which also bears another cost. Another reason is that since they are usually small in size, their priority is on fulfilling their clients‟ needs rather than committing their efforts to build a knowledge management system. Although as mentioned earlier in the text KDI has already been defined further study is recommendable in this field with quantitative measures. One of the constraints for conducting quantitative measured research is the fact that KM is quite new for SMEs in Malaysia and therefore no history data is available to compare the results with. The other is the intangible and sometimes complicated nature of so much of KMs effects and results on organizations which also makes it difficult to quantify.

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Conclusion SMEs can benefit from knowledge management concepts and tools. As economies and businesses shift towards a new world configuration of digital information and knowledge-based work, SME owners need to take on this challenge to find out how KM solutions can assist them. Although there are constraints for implementing KM in SMEs in Malaysia namely its high cost of implementing, but the benefit would outweigh these cost. The benefits of implementing KM in SMEs in Malaysia were proposed as systematic knowledge activities, employee development, customer satisfaction, good external relationship, and organizational success. To assist the SME sector to keep pace with the emerging knowledge-based economy, government agencies, chambers of commerce, industry associations and private sector organizations will need to commit more resources and assistance to make the implementation of KM in SMEs more tangible and economically viable. Owners and managers of SMEs must be willing to break away from practices that had worked well for them in the old economy, and embrace the changes now associated with the new economy.

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Mahmoud Migdadi, Knowledge Management Enablers And Outcomes In The Small-AndMedium Sized Enterprises, Industrial Management & Data Systems Vol. 109 No. 6, 2009 Pp. 840-858 Menkhoff, T. & Yue Wah, C. & Loh, B. (2005), Notes From An „Intelligent Island‟: Towards Strategic Knowledge Management In Singapore‟s Small Business Sector, International Conference On Globalization, Innovation And Human Resource Development For Competitive Advantage. Bangkok, Thailand, 17th-19th December 2002. Nazar Rasheed, The Impact Of Knowledge Management On Sme‟s, Knowledgeboard, 07-Jul-05 OECD (2004), “Promoting Entrepreneurship And Innovative Smes In A Global Economy”, Available At: Www.Oecd.Org (Accessed 27 May 2009). Syed Omar Sharifuddin Bin Syed-Ikhsan, Fytton Rowland, Benchmarking Knowledge Management In A Public Organisation In Malaysia, Benchmarking: An International Journal Vol. 11 No. 3, 2004 Pp. 238-266 Siong Choy Chong, Km Critical Success Factors A Comparison Of Perceived Importance Versus Implementation In Malaysian Ict Companies, The Learning Organization Vol. 13 No. 3, 2006 Pp. 230-256

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