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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Benefits of KM for SMEs in Malaysia

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 To share To create new knowledge

knowledge Knowledge

To utilize customer knowledge to
anticipate changing customer
preferences (by mining of data such
as customers’ buying habits)
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 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 KM Tools for Transferring KM Tools for Creating

& Sharing Knowledge Knowledge
& Capturing Knowledge
Balanced scorecard Benchmarking Communities of interest / practice

Business information systems Best practice transfer units Innovation networks

Data mining Internet / Intranet Knowledge champions

Knowledge audits Knowledge gap analysis Knowledge visioning activities

Knowledge mapping Knowledge sharing culture Learning organization

Yellow pages Lotus notes / Groupware 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 middle-

level 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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