benefits of km for smes in malaysia
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Benefits of KM forSMEs in Malaysia
Mohammad Zakersalehi
Multimedia University
July
2009
[Year]
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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 nations 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.
Malaysias 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 countrys 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 SMEs 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 SMES 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 & Captureknowledge
To utilize customer knowledge to
anticipate changing customer
preferences (by mining of data such
as customers buying habits)
To shareKnowledge
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 an d
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
KM Tools for Transferring
& Sharing Knowledge
KM Tools for Creating
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 its 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-Malaysias knowledge based economy development index
Malaysias 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 Malaysias 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
importancess 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 KMs 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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