Role of Knowledge Management in Small Business

Why is it important for small businesses to use knowledge management to become "learning organizations" or "intelligent enterprises?" According to Wong et al. (1997), "Many of the factors which have promoted the growth of SMEs also require their managers to acquire new skills. In fast-growing small firms, the management team will be constantly developing and the skills needed will change as both cause and effect of the development of the firm itself." The bottom line is that for a small business to succeed and thrive in a changing world, they must continually learn and adapt better and faster than their competitors. Knowledge management provides the tools and strategies to achieve this (Anderson & Boocock, 2002).

What is Knowledge Management?

Karl Wigg is credited with coining the term, "knowledge management" (KM), at a 1986 Swiss Conference sponsored by the United Nations International Labor Organization. He defined KM as "the systematic, explicit, and deliberate building, renewal, and application of knowledge to maximize an enterprise's knowledge-related effectiveness and returns from its knowledge assets." Thus, KM represents an organization's ability to capture, organize, and disseminate knowledge to help create and maintain competitive advantage. It is becoming widely accepted as a key part of the strategy to use expertise to create a sustainable competitive advantage in today's business environment. It enables the organization to maintain or improve organizational performance based on experience and knowledge. It also makes this knowledge available to organizational decision-makers and for organizational activities (Beckman, 1999; Pan & Scarbrough, 1999). Therefore, we can assert that knowledge management represents a key strategy in creating and sustaining an intelligent enterprise, capable of outperforming its competitors.

Karl Wigg (1999) also described the benefits of a knowledge management system as reducing costs due to benchmarking and sharing best practices between different groups inside and outside the organization, decreasing time-in-process, reducing rework and increasing customer satisfaction and quality. Innovations in products, services and processes can increase due to sharing of knowledge among different functional areas. Increased knowledge of customers often results in the ability to better satisfy their needs, resulting in increased market penetration and increased profit margins (Reisenberger, 1999).

In other words, if an organization can collect and store the knowledge (both tacit and explicit) of its employees in an easily accessible and searchable organizational memory mechanism, when an employee leaves the organization, all their knowledge, skills, and expertise do not necessarily leave with them. With an effective knowledge management system, the firm can prevent knowledge gaps when they lose their employees, who represent valuable sources of knowledge. Rather, that expertise and knowledge can be retained in the organizational memory. In a small business, this represents a crucial asset. Finding a way to leverage a small business' intellectual capital represents a means of lessening the problem of resource poverty and employee resignations.

Using KM in Small Business

Guimaraes (2000) further suggests that small businesses face greater pressures from chains owned by large corporations, increased regulations and politics, and greater competition due to increasing business globalization. He asserts that innovation, facilitated by knowledge management, may be the key to their survival and success in difficult times. Chaston et al. (2001) support this view in their statement, "Organizational learning [knowledge management] is increasingly being mentioned in the literature as a mechanism for assisting small firm survival." It is "the most effective and practical way through which to increase SME sector survival rates during the early years of the new millennium." They contend that by assisting employees and facilitating their learning and knowledge sharing, they can creatively develop new products, better and more efficient processes, and identify new ways of building better relationships with customers. Thus, it appears that knowledge management techniques of acquiring, sharing and effectively using knowledge may represent a crucial means of transforming a small business into an intelligent enterprise, resulting in improved performance by facilitating innovation, idea creation, and operating efficiencies.

Influence of Adoption and Diffusion

How do adoption and diffusion factors influence KM in small businesses and their goal of becoming an intelligent enterprise? By understanding factors that facilitate the adoption and diffusion of innovations, small businesses may improve their chances of success in a knowledge management initiative. Because these theories emerged from research on both large and small organizations, they serve as initial models for research in most organizations. It has been shown repeatedly that a "build it and they will come" approach usually will not work. Therefore, if small businesses understand the factors that motivate executives and associates within a small business to adopt or reject these KM practices and philosophies, KM champions can plan and implement a KM initiative with greater success.

Based on many years of adoption and diffusion of innovations research, Rogers (1995) developed a model often considered the foundation for the adoption and diffusion of innovations. We include strategies and processes in the definition of "innovations" in the context of this chapter. This model proposes three main elements influencing the adoption and diffusion of innovations including: the innovation, communication channels, and social systems.

The primary success factors are related to the innovation. According to Rogers, five main attributes of innovations can predict an innovation's rate of adoption and diffusion including: (a) the relative advantage of an innovation (the degree to which the innovation is perceived as better than what it supersedes) is positively related to its rate of adoption and continued and effective use. (b) The perceived compatibility (the degree to which an innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters) of an innovation is positively related to its rate of adoption and continued and effective use. Furthermore, if the technology can be standardized in its use, the rate of adoption and diffusion will increase (Alange et al., 1998). (c) The perceived complexity (the degree to which an innovation is perceived as relatively difficult to understand and to use) of an innovation is negatively related to its rate of adoption. (d) The perceived triability (the degree to which an innovation may be experimented with on a limited basis) is positively related to its rate of adoption. (e) The perceived observability (the degree to which the results of an innovation are visible to others) is positively related to its rate of adoption.

Other studies propose that technological change within organizations represents a cumulative learning process where firms will seek to improve and diversify their technology in areas that enable them to build upon their current strategies in technology (Alange et al., 1998). Thus, prior experience appears to influence the willingness to adopt and the rate of adoption and diffusion in addition to Rogers' variables. The concept of absorptive capacity (Cohen & Levinthal, 1990) further suggests that an organization's ability to absorb new knowledge or for an innovation to diffuse throughout is based on its prior experience with this knowledge or innovation. In terms of creating a learning organization, or an intelligent enterprise, this theory says that the greater the absorptive capacity of the organization, the greater is the ability of its employees to absorb and use new knowledge effectively.

Applications to Small Business

How can these theories be applied to a small business for transformation into an intelligent enterprise? First, relying on Rogers' classic theories, a small business can easily communicate the advantages of these new technologies and practices using mass media channels, such as company newsletters, e-mail, or company meetings. After making people aware of the new KM system, the business can use interpersonal channels to effectively persuade people to try them and continue using them. By using homophilous colleagues (individuals with similar attributes such as common beliefs, education, social status and values), a small business can more effectively persuade people to adopt and then use the KM systems. These "knowledge champions" represent very important motivators and influencers because they are trusted and respected by their peers (Jones et al., 2003). This is very important because the literature is replete with cases of companies investing in new technologies and new management strategies, which are simply viewed with skepticism as the "latest fad". However, by carefully selecting peers who are trusted and respected, the adoption and diffusion process can be greatly facilitated.

Similarly, the literature describes the huge influence of culture on the effectiveness of KM systems and the development of a learning organization (intelligent enterprise). Rogers' theories can be effectively applied to the cultural aspect as well. The effect of norms, opinion leaders, and change agents can exert a profound influence on the adoption and diffusion of an innovation throughout a social system. This is because norms (culture) can exert a powerful influence on people's willingness to accept or reject an innovation depending whether it is compatible with their existing values and norms. Therefore, by using change agents as cultural influencers, small businesses can greatly enhance the transition to becoming a learning organization/ intelligent enterprise while using knowledge management systems to provide competitive advantages. Finally, in an organizational social system, such as within a small business, a powerful individual within the organization, such as the business owner, can also exert a strong influence on the adoption and diffusion of a KM system as well facilitating a cultural shift to becoming a learning organization.

Both leaders and opinion leaders often need to help workers unlearn or abandon earlier, often deeply entrenched practices in order to break the status quo inertia before a new technology or system will be fully adopted and used. Subordinates will often observe the behavior of their managers to find out what is really important, emphasizing the need for involvement by managers and top executives in this process. The CEO's innovativeness and IS knowledge were also found to contribute positively to the adoption decision (Alange et al., 1998; Thong, 1999; Daugherty et al., 1995).

In several studies on small business (Thong, 1999; Daugherty et al., 1995), results showed that businesses with a positive attitude toward technology were more likely to adopt, emphasizing the importance of relative advantage, compatibility, and complexity. The CEO's innovativeness and IS knowledge were also found to contribute positively to the adoption decision. In addition, the greater the employee knowledge and experience with technology, the more likely was the adoption decision as well as continued use of the technology. In a study of technology uptake in small businesses in New Zealand (McGregor & Gomes, 1999), they found that small businesses required extensive external sources of information to facilitate first the awareness of need for the adoption of new technologies. Therefore, in terms of relevance to creating an intelligent enterprise via KM systems, the moral of the story for small businesses is to provide a compelling reason for employees to create an intelligent enterprise, have strong leadership support and a culture that facilitates this endeavor. Table 1 summarizes these factors.

Table 1: Contributing Factors to the Adoption and Diffusion of Innovations.

Success Factor



  • Relative advantage

  • Compatibility

  • Complexity

  • Triability

  • Observability

  • The perceived benefit from the innovation that makes it superior to existing tools or processes.

  • How well the innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters.

  • How difficult it is to understand and use

  • Ability to experiment with the innovation

  • Ability to see tangible results from using it.

Communication Channels:

  • Type of communication channel

  • Type of individual

  • Communication Type: Mass media: used for initial awareness of innovation vs. Interpersonal: used to persuade potential people about benefits.

  • Individual Type: Homophilous, opinion leader, knowledge champion.

Social Systems (Culture):

  • Organizational Leaders (Change Agents)

  • Opinion Leaders (Peers)

  • Prior knowledge/experience/attitude towards innovation

  • People in a position of authority who can make the adoption decision.

  • Those individuals who can exert a positive influence on others to adopt and use an innovation; individuals who have similar attributes such as common beliefs, education, social status and values, who can persuade their peers to adopt the new system and change values and norms within the culture.

  • Attitudes and prior experience and knowledge may influence the adoption & diffusion of an innovation. The theory of absorptive capacity tells small businesses that the more knowledge they provide their employees, the greater their capacity to absorb more and become a more proactive learning organization/intelligent enterprise.

Inherent Challenges

As mentioned, small businesses often face major challenges in coping with resource deprivation. This includes not only fewer technological resources, but also less focused expertise to enable them to make critical decisions or improve products or processes. They need to learn how to learn, change, and adapt better and faster than their competitors and better meet the needs of their customers. By understanding how they can facilitate a knowledge sharing initiative, a small business may be able to make better use of scarce resources and become more intelligent than their competitors; become better at learning, innovation and creativity. For a small business to increase the speed and effectiveness of the diffusion process for a knowledge management initiative or other processes/technologies, it may be important for them to understand the components of an innovation, communication channels, and/or social systems within the context of a small business environment.

Therefore, incorporating a knowledge management strategy holds some promise as a mechanism for small businesses to improve performance. However, the "build it and they will come" philosophy may be simplistic and an investment in knowledge sharing technologies may be wasteful if the systems are not used effectively. Therefore, small businesses should be aware of the issues associated with adoption and diffusion of knowledge management practices.

Similarly, small businesses should understand that creating a learning organization/intelligent enterprise potentially involves huge cultural changes. Thus, a major challenge is whether a small business owner is interested in fundamentally changing the culture of the organization including the reward and recognition structures. For example, Pan and Scarbrough (1999, 2000) found that the major challenge to implementing a knowledge management initiative was successfully overcome when the CEO initiated cultural changes that actively promoted and rewarded knowledge acquisition, knowledge sharing, and knowledge use. This led to significant performance improvements such as considerably reduced time in process for product development, reduced costs and improved customer satisfaction. However, this involved a complete commitment to cultural change by a new CEO, who made dramatic changes in the culture and the reward/ recognition structures and company policies.

Intelligent Enterprises of the 21st Century
Intelligent Enterprises of the 21st Century
ISBN: 1591401607
EAN: 2147483647
Year: 2003
Pages: 195 © 2008-2017.
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