Knowledge Management in Small Firms

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Knowledge Management in Small Firms

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This paper discusses features of small firms that combine to constitute a different milieu for knowledge management. It reports upon work conducted with many small firms and presents a model of considerations and phases in knowledge management projects in small-firm settings. Copyright # 2001 John Wiley & Sons, Ltd.

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Knowledge and Process Management Volume 8 Number 1 pp 3–16 (2001) & Case Study Knowledge Management in Small Firms John Sparrow* Knowledge Management Centre, University of Central England, UK This paper discusses features of small ﬁrms that combine to constitute a different milieu for knowledge management. It reports upon work conducted with many small ﬁrms and presents a model of considerations and phases in knowledge management projects in small-ﬁrm settings. Copyright # 2001 John Wiley & Sons, Ltd. INTRODUCTION that small and medium-sized businesses will need to address their knowledge management practices, Knowledge management but that, like so many aspects of business and management, the issues that small and medium- There can be little doubt that effective leverage of sized businesses will face will not be simply a knowledge will be the key to business success in scaled-down replica of large-company experiences. the future. Particular economic concepts have been argued to have become increasingly central to business and national competitiveness. These Knowledge Management Centre research include the economics of knowledge (Machlup, programme 1984), core capability (Prahalad and Hamel, 1990), The Knowledge Management Centre has been co-production of value (Wikstrom and Normann, established as a regional partnership between a 1994) and adaptability/innovation (Bolwijn and university, and local city council, and business Kumpe, 1990). In addition, there is an increasing support agencies in the West Midlands of the contribution of digital technologies to decision United Kingdom to identify and address the making in terms of their knowledge-processing business support needs for small and medium- characteristics and support for collaborative effort sized enterprises (SMEs) in developing their through enhanced communication (Hougaard and knowledge management (KM) practices. Duus, 1999). The ability for sets of individuals/ This paper draws upon a programme of in- businesses to continuously manage their adapta- depth qualitative research to explore knowledge tion in order to co-produce, on the basis of their practices, KM development and business support respective strengths in knowledge terms (increas- needs of SMEs. The research process has entailed ingly independently of geographical/temporal survey, passive observation, action research and constraints), represents a fundamental challenge process consultation phases/stances. Nearly one to conventional business, management and eco- hundred businesses have been involved. In-depth nomic practices. study has taken place in a small number of Managing the value that can be derived from businesses for periods of between twelve and knowledge is a challenge for all businesses, large eighteen months. In the course of the work, a and small. Understanding of the organizational number of insights into key issues in knowledge theory and practice considerations of knowledge management in SMEs have been derived from case management has largely been derived, however, studies of the ‘unaided’ learning and KM practices from large company developments. It seems clear of SMEs, case studies of gaining ‘entry’ into SMEs for knowledge projects, surveys of attitudes to KM in SMEs, and in-depth facilitation of knowledge *Correspondence to: John Sparrow, Knowledge Management Centre, University of Central England, Perry Barr, Birmingham management in several SMEs. Whilst a number of B42 2SU, UK. E-mail: john.sparrow@uce.ac.uk reports have been produced by members of the Copyright # 2001 John Wiley & Sons, Ltd.
CASE STUDY Knowledge and Process Management team upon particular facets of knowledge manage- small ﬁrms that shows the ‘development of ment (e.g. Martin, presentation to the Staff Semi- information and control systems to have a proces- nar Institute for Manufacturing, University of sual and apparently adventitious nature ... [where] Cambridge, 1999; Shelton, 2000; Sparrow et al., the chains of causality ... are quite complex’ (e.g. 1998; Sparrow, 1999; 2000; Zetie, 1998), the overall Berry and Perren, 1998: 904). Berry and Perren thrust of the ﬁndings (and their shaping inﬂuence (1998) cite by way of example, the importance of on the ‘model’ of SME KM development that has the ‘process’ that lay behind a case study busi- evolved to date) has not been articulated. This ness’s ‘extension’ of an accounts package to a paper represents an initial attempt to ‘map’ this broader information system. territory and present the ‘rationale’ behind the The work of the KMC team to date indicates that approach towards supporting KM development in any need for technical enhancement of a know- SMEs that has evolved to date. ledge management ‘system’ is more likely to ‘resonate’ in a small business that has already sensed the value of information management. KNOWLEDGE MANAGEMENT-RELATED Appreciation of the strategic importance of ‘core FEATURES OF SMALL FIRMS capability’ may come more easily to an SME that has seen one aspect of the relationship between Drivers, evolutionary paths and business business strategy and human resources through priorities involvement in the Investors in People pro- gramme. The importance of systematic analyses Drivers of business processes and linkages to key know- As has been the case with earlier generations of ledge may be understood more readily by an SME ICT innovations (e.g. Hepworth and Ducatel, that has engaged in a ‘quality’ (e.g. ISO 9000, 1992), the adoption of knowledge technology in Business Excellence model) improvement initia- small businesses seems to be led by clients, tive. especially large customers and suppliers. The automotive best-practice forum held by Arthur Andersen in January 1999 (Livernois and Miller, Current business priorities 1999) identiﬁed a number of knowledge gaps With the resource constraints of SMEs in mind, emerging as suppliers’ responsibilities increase. In Sparrow (1999) suggested that a speciﬁc pressing our work, cases have been identiﬁed where business situation might constitute the most signiﬁcant restructuring of the activities of major appropriate opportunity for a small business to customers have had implications for the skills/ initiate a knowledge project. Braganza et al. (1999) capability of SMEs. At the personal level, there is suggested that it might be useful for businesses to broad evidence that small business owners/man- classify and manage their knowledge projects on agers may need to have reached a point of genuine the basis of their contribution to innovation. They ‘fear’ of a prospective difﬁculty before they act distinguish between knowledge projects that expe- (e.g. Berry and Perren, 1998; Sparrow and Good- dite efﬁciency beneﬁts to the ﬁrm, enhance the man, 2000). Engaging small businesses in a relative performance of the business in its sector, reﬂective process that signals a compelling need exploit a new opportunity for a ﬁrm to gain appears to have value. These drivers are in advantage in its industry, or explore possible contrast to the technological push considerations innovations. SMEs appear to be most attracted to that can be a primary driver in larger ﬁrms. the ﬁrst two forms of knowledge project. In the Knowledge Management Centre’s case study SMEs, process innovations, joint ventures, Evolutionary paths ownership succession, and restructuring have each While methods in small businesses might appear provided an opportunity for the ‘lens’ of know- ‘informal’, they have often been found to support ledge management to be brought to bear. quite sophisticated decision-making (e.g. Lightfoot and Kitchen, presentation to the Small Business and Enterprise Development Conference, Leeds, Components of knowledge management 1996) and large business (more formal) practices initiatives in SMEs should not be ‘imposed’ (e.g. North et al., pre- sentation to the 18th ISBA National Small Firms Four components of knowledge management in and Policy Conference, University of Paisley, small ﬁrms have been found to ﬁgure strongly in 1995). There is evidence from studies of manage- small ﬁrm knowledge projects. These are depicted ment information, control and decision making in in Figure 1. 4 J. Sparrow
Knowledge and Process Management CASE STUDY how the innovation process within networks of small ﬁrms may be affected by the models that owner–managers manifest in terms of trust, sup- port for innovation, task orientation and vision (i.e. perceptions of team climate; Anderson and West, 1994). Individuals’ models of their own knowledge and the potential contribution of other knowledge have also been studied in SMEs (Lightfoot, 1996). Figure 1 Four components of knowledge management in The study highlighted the importance of recognis- SMEs ing the ways in which owners/managers ‘accom- plish’ (Munro, 1996) their resistance/rejection of outside knowledge. The case study work on Appreciation of personal and shared understanding knowledge management in SMEs has highlighted While it is clear that information and communica- the fundamental need to recognise the mental tion technologies can enhance a business’s know- models that participants have, and the need to ledge system, it is important to recognise the work towards means of eliciting and sharing nature of knowledge-creation utilization and personal understanding in the identiﬁcation and transfer, and the need to augment technological development of process and knowledge system initiatives to secure competitive advantage. An ‘over- developments. whelming emphasis on IT and major gaps in the A revised knowledge system in a small ﬁrm treatment of people’ (Swan et al., 1999, p 264) in cannot be a complete replacement of the models knowledge management theorising and practice, that participants have of issues and situations. A has been noted. This ‘technological’ imperative is system that informs a business about strategic options to collaborate (on the basis of a competi- captured in statements such as Cole-Gomolski’s tive intelligence system) needs to provide informa- (1997) assertion that ‘the idea behind KM is to tion in the terms of the ‘model’ of the industry and stockpile knowledge and make it accessible to competition that an owner and managers have, others via a searchable application’. The KMC rather than constitute some attempt to present its studies of knowledge processes in SMEs have own conception of the issues. Knowledge systems conﬁrmed that knowledge transfer is not a case in small ﬁrms need to amplify human potential of linear information transfer but a process of (Chattell, 1998). It is also important to maintain the ‘sense-making’ (Weick, 1990) with extensive effort ‘ﬁt’ of any knowledge system with the models of being needed to develop a ‘common stock of individuals in a second manner. The release of the knowledge’ (Kogut and Zander, 1992: 389) and potential of new developments can only be ‘system of meaning’ (Trompenaars, 1995). Know- secured if the potential is appreciated and is ledge management implies an emphasis in man- realizable by those involved. Putting the notion of agement upon ‘management by perception’ knowledge at the centre of a person’s thinking (Sparrow, 1998: 12), i.e. ongoing recognition of entails more than exposing them to a revised the meaning and interpretation of events by knowledge system. It is also far more than others. attempting to address loose notions such as the There is a wealth of evidence that shows that ‘cultural mismatch’ of a technology (e.g. Allen, people use their mental models of situations to 1977). It involves ongoing assessment of the guide their decisions and actions (Sparrow, 1998; understanding of individuals and support for Eden and Spender, 1998). At the strategic level, development of that understanding. The ﬁt of a Daniels et al. (1994) demonstrated how organiza- knowledge philosophy and knowledge practices tions in general are ‘run’ in terms of managers’ within an individual’s practice is critical. The models of the organization and its competition, degree to which a collective mind (Weick and rather than any ‘objective’ notion of the location of Roberts, 1993) operates within a ‘community of the business in its environment. In the small ﬁrm, practice’ (Hendry et al., 1995) will determine the contribution of owner/manager cognition overall effectiveness. Knowledge management towards business practices is even more signiﬁ- requires an appreciation of individual and collec- cant. Sparrow and Bentley (2000), for example, tive understanding. identiﬁed the impact of owner–manager personal decision style (belief in control etc.) upon the risk Knowledge bases and knowledge systems management practices adopted in their small Developments in KM in smaller businesses have to ﬁrms. Sparrow and Goodman (2000) have shown stem more from a fundamental conceptual grasp Knowledge Management in Small Firms 5
CASE STUDY Knowledge and Process Management of the role of knowledge in business and the basic systems that can be used to guide the evaluation of principles of a knowledge system. This is in current knowledge systems and practices in SMEs. contrast to initiatives in larger ﬁrms which may It has been noted how many of the features of be part of a tradition to make substantial invest- knowledge management software developments in ments in information technology on the basis of larger businesses may be a reﬂection of features of the inﬂuence of internal technical specialists (to large ﬁrms per se, rather than generic knowledge some extent on the basis of their own ‘sectional’ management requirements. The technological interests; Eason, 1988: 204). In larger organizations, emphasis in large ﬁrm and SME knowledge the contribution of the latest ‘generation’ of soft- systems differs. In the main, large ﬁrm KM ware/hardware is interpreted in terms of speciﬁc products place their primary emphasis upon the contrasts with the current information manage- means to get information to users (as opposed to ment system. The particular ‘technical’ advances the contribution of the utilization of information). are seen in terms of the enhancements they The emphasis on these two considerations is provide to the current technology. Knowledge different in SMEs. The work of the KMC team management in smaller ﬁrms has to be seen ﬁrst has revealed the value of supporting SME owners, as a (signiﬁcant) concept with implications for the managers and employees to view their business in current business systems (both human and com- knowledge terms. It is the facilitation of this puter-based). The added value of an investment in conceptual process that has proved to be the computerization has to be demonstrated above most central feature of the KM approach that the and beyond other (cheaper and more grounded) team has evolved. The emphasis on the develop- changes to business practices. Many of the features ment of knowledge as a lens (as opposed to a of knowledge systems in larger ﬁrms can only be knowledge management system) together with the emphasis upon knowledge system principles (as achieved through use of and information and opposed to ICT knowledge system elements) communication technology approach. This is represents a fundamental difference between often because the bureaucratic features of larger knowledge projects in large and small ﬁrms. ﬁrms (fractionation of work, complexity, anonym- ity etc.) require a technology for their mitigation. The broad principles with which a knowledge The integrated and contextualized action needed for system can be considered can provide a useful tool knowledge projects in SMEs for enhancing organizational systems and practices Effective enhancement of knowledge management in small ﬁrms. A consideration of the strengths capabilities in a small ﬁrm has to recognize a and limitations of the current ‘system’ means that number of key features of small ﬁrms. the particular contribution that ICT can make is Scarbrough (1996) identiﬁed a potential tension appreciated (and considered from a business within larger organizations between the human beneﬁts perspective). This is in contrast to devel- resource function and IT function in designing and opments premised on a general technological executing a knowledge project in businesses. The belief. Figure 2 details the principles of knowledge properties of knowledge systems can reﬂect the Figure 2 Principles of knowledge system that can be explored with SMEs 6 J. Sparrow
Knowledge and Process Management CASE STUDY relative inﬂuence of particular ‘sectional’ interests. oeuvrability’ (Sparrow and Bentley, 2000). The The important role that participants play in deal- need for recognition of and education for uncer- ing with the unanticipated (emergent) features of a tainty has been highlighted in earlier work by a knowledge project have also been reported (Orli- member of the KMC team (Boyd and Wild, 1993; kowski, 1996). There is a general recognition of a Boyd and Robson, 1996). Recognition of uncer- need for greater involvement of top management tainty and the value of an adaptive capability in knowledge projects (Kennedy, 2000). The shap- appear to be best secured through a group process ing role of functional ‘expert’ change agents is, that explores the value of diversity and creative however, less apparent in SMEs. The centrality of a abrasion in group decision making. Knowledge managing director and managers in SME knowledge projects that adopt a grounded process consulta- projects is most evident. The role of top manage- tion approach by their very nature enable groups ment in SME knowledge projects may account for to consider their own practices and identify the higher emphasis upon strategic impact both in positive features. Means by which a team can the initial consideration of a KM initiative and in avoid the ‘blinkered’ perceptions that a rigid the response to emergent features of a knowledge knowledge system might invoke, include compre- project. hensive and effective learning processes. The role The ‘articulation of the knowledge base’ (Chat- of people external to a business in enhancing a tell, 1998: 150) through the development of a small business’s learning have been considered by formal organization system for knowledge identiﬁca- a member of the KMC team previously (Harding, tion, deﬁnition and evaluation, as an approach to presentation to the 19th ISBA National Small Firms knowledge management, it rooted in the philoso- Research and Policy Conference, Birmingham, phy of predictability, measurement and control. 1996) and form part of his ongoing research. An alternative philosophy might place less empha- Overall, work within case study SMEs on know- sis on the decontextualization of knowledge ledge management has shown how knowledge through its description and measurement, and projects are formulated and implemented within more upon chaos theory (Stacey, 1992) notions of an integrated framework that manages the impact of a self-correcting, ﬂexible and dynamic knowledge knowledge projects in operational, strategic and process through which the business secures its uncertainty management terms. Figure 3 sum- adaptivity. There is evidence to suggest that this marizes these levels of impact. is a characteristic of management approaches in It has been noted how knowledge projects in small ﬁrms. The instability of the business in the small ﬁrms may be provoked by pressure from light of the volatility of its business environment external inﬂuences. It has also been noted how the may place a premium upon adaptivity rather vulnerability of SMEs may provoke them to ensure than predictability and more rigid conﬁguration that their ability to adapt is retained. The deﬁni- (Smallbone et al., 1992). tion of roles in relation to external ‘co-producers’ The overwhelming majority of the reported in SME is more negotiable than the offerings of implementations in knowledge management in larger businesses. In considering knowledge pro- larger ﬁrms concern operational developments. jects, large businesses place the primary emphasis Strategic implications of knowledge/capability upon their internal knowledge ﬂows. Signiﬁcantly have been considered less in empirical terms and lower consideration is given to the negotiation of more as economic and management debates. Two external boundaries (and core capability). In com- aspects of strategic implications for knowledge parison, SMEs place relatively lower emphasis projects that have been highlighted are strategic upon the internal aspects of knowledge and vulnerability (e.g. Hall and Andriani, 1999) and greater emphasis upon external aspects. strategic capability (e.g. Bowander and Miyake, KM projects have differed in the ‘level of 1999). A method to identify and evaluate a ﬁrm’s knowledge analysis’ (Braganza et al., 1999) that capabilities for competitive advantage has also they have adopted. Projects can focus on the been presented (Birchall and Tovstiga, 1999). More recently, the theoretical dangers of a ‘blin- kered’ knowledge management system have been highlighted (e.g. Malhotra, 2000) and the need for maintaining an uncertainty capability in business seems clear. In other contexts, it has been shown that entrepreneurs’ mental models of their businesses integrate strategic and operational Figure 3 The three levels of impact of knowledge projects in considerations and consider the retention of ‘man- SMEs Knowledge Management in Small Firms 7
CASE STUDY Knowledge and Process Management individual (Fahey and Prusak, 1998), group or not dealt with adequately by hoping that expertise team (Leonard and Sensiper, 1998; Huber, 1999), will transfer because participants are in close and business process (Braganza et al., 1999), organiza- frequent proximity. A central theme in the KMC tion function (Davenport and Klahr, 1998), organi- team’s work has been the appreciation of the need zation (Teece, 1998; Bowander and Miyake, 1999; to facilitate the elicitation and sharing of less immedi- Tidd and Taurins, 1999), joint venture and other ately conscious information within a workgroup or inter-organizational collaboration (Fairhead, 1998; business if more effective knowledge systems are Rura-Polley and Clegg, 1999) network (Marceau, to be developed in SMEs. 1999), industry/cluster (Leonard-Barton, 1995; In addition to distinguishing between levels of Mitra, 1999; Park and Kim, 1999) or nation consciousness of different facets of knowledge, (Porter, 1998) level. There seems to be an increased Sparrow (1998) has drawn a distinction between emphasis upon individual considerations, signiﬁ- thinking processes that emphasize reasoning, cantly more emphasis upon one-to-one business creativity and mood. There is evidence to suggest collaboration, network and industry/cluster con- that ‘bureaucratic’ organization constructs ‘local siderations in SME knowledge projects, and the discourse’ (Antaki, 1994) that seeks to limit boundaries between many of these different levels decisions and action to more ‘rational’ territory of knowledge analysis need to be more ﬂuid in (Albrow, 1997). The contribution of affect and SME knowledge projects. imagination in small group settings is, however, Bureaucratic forms of organization seek to well established. The potential distortion of orga- fractionate and proceduralize working practices. nizational practices that an attempt to bring about It is not surprising therefore that knowledge an ‘unbalanced’ and ‘disproportionate’ increase projects in larger ﬁrms have tended to emphasize upon ‘rationality’ could bring in a small ﬁrm the conscious technical (semantic) knowledge asso- setting needs to be recognized (e.g. Berry and ciated with good practice in the execution of Perren, 1998). Important interrelationships bet- particular procedures. Even within large-company ween motivation (empowerment), creativity and contexts, knowledge system developers have knowledge capture have been highlighted by found that the information of the form that Paper and Johnson (1997) within project teams in constitutes ‘manuals’ is not sufﬁcient to secure large organizations. SMEs may be beneﬁting from effective ‘transfer’ of knowledge between users. an appropriate combination of these factors. The strict ‘logic’ and ‘theory’ of how to carry out Efforts that ‘destabilize’ this may be dysfunctional. tasks may not be the most appropriate thing to Couger (1996) has suggested that work environ- transfer. Experience is often retained in human ments structured to relatively larger degrees memory as ‘episodes’ (i.e. speciﬁc case-based around information systems may impede creativ- information). Knowledge systems in large ﬁrms ity. In a similar way, energy and enthusiasm (and sometimes seek therefore to capture and convey other affects) that can accompany spontaneous ‘lessons learned’ from case experience. The ‘tech- informal human collaboration may be sacriﬁced in nologies’ that support the transfer of knowledge a quest to emphasize ‘measured’ and ‘systematic’ have addressed users’ knowledge of where exper- analyses (Sparrow, in press). The approach tise resides (i.e. who knows what) together with adopted by the KMC team seeks to ensure that means to access ‘document-’ and ‘experience-’ the potential ‘climate’ of knowledge utilization (in based accounts. There has also been recognition creativity and affect terms) that an SME team that subconscious knowledge (in the form of skills develop is considered in their design of a revised and tacit feel) ﬁgures in human performance but knowledge system. this has been dealt with in the belief that ‘provid- A feature of decision making that has been ing access to people with tacit knowledge is more found repeatedly in studies of small ﬁrms’ prac- efﬁcient than trying to capture and codify that tices is holism. Management in a small ﬁrm knowledge’ (Davenport and Prusak, 1998: 72). involves recognition of the ongoing dynamics of Systems that enhance meta-knowledge (i.e. a ‘all the resources of the business ... towards the team’s knowledge of who knows what) have aim of satisfying customer needs’ (Burns, 1989: 36). been substituted for systems that support the Knowledge projects in larger ﬁrms have ‘segmen- access and transfer of less conscious knowledge. ted’ knowledge in ways that may not be appro- The work of the KMC team has established the priate in small ﬁrm settings. Matusik and Hill fundamental role that subconscious (skill and tacit (1998), for example, distinguished between ‘com- feel) and even unconscious (e.g. personality, ponent’ knowledge and ‘architectural’ knowledge. decision style etc.) facets of knowledge play in The latter relates to organization-wide routines for SME decisions and action. Knowledge transfer is coordinating the components of the organization. 8 J. Sparrow
Knowledge and Process Management CASE STUDY Smart et al. (1999) considered the knowledge Knowledge and organizational learning processes in associated with four ‘process levels’ and where it SMEs might be ‘located’ within an organization. It has Swan et al. (1999) argued that there is a need to been suggested that knowledge projects need to harness ‘the intellectual and social capital of deﬁne the critical knowledge at a particular individuals in order to improve organizational ‘information leverage point’ (Applehans et al., learning capabilities’ (p.264). Nonaka and Takeu- 1999) quite narrowly. In the less fractionated chi (1995) highlighted the role of learning in environment of an SME, knowledge of both kinds knowledge creation. Boisot (1995) considered the (and all levels) may ﬁgure in decisions and actions. relationship between the technological strategies of Knowledge projects are more likely to be of ﬁrms and learning. He showed how an emphasis limited value therefore, in an SME setting, if they upon the ‘social learning cycle’ (p.257) in the are deﬁned too tightly. strategies of ﬁrms could enhance competitiveness The cost of a comprehensive bespoke ICT-based in an alternative way to knowledge protection. In knowledge management system may not be justi- working with SMEs the difﬁculties that they face ﬁed by an SME in added value terms. There are a in these regards have become apparent. Attempts number of options available for SMEs. ‘Modular’ to ‘protect’ their knowledge through patents are approaches that are scalable and that can be used problematic because of the demands of securing to address particular facets of knowledge utiliza- and policing patents. Owner–managers attempt tion may be more appropriate. In particular, other means to limit the diffusion of their exper- systems that enhance business processes (work- tise. They may deliberately avoid training and ﬂow etc.) can be a useful avenue. The knowledge development opportunities for others with regard capability of standard server software is evolving to certain aspects of their own personal expertise. very rapidly (e.g. Windows 2000). The options SMEs ﬁnd difﬁculty in elaborating upon their contribution to make it less codiﬁable, particularly within such software may remove many of the where the processes they operate are quite simple cost and learning curve barriers to ITC adoption in and proceduralized. The issues surrounding SMEs. It is not cost and learning alone, however, growth of markets and commensurate manage- that limit the contribution of ICT to knowledge ment of growth of the ﬁrm in order to secure the utilization in SMEs. As noted throughout this economies of scale that can preserve a competitive paper, the nature of knowledge processes in small position have been acknowledged for many years ﬁrms is not supported well by current and (e.g. Barber et al., 1989). The alternative approach prospective ICT developments. towards maintaining competitiveness that Boisot An area of knowledge management that has (1995) identiﬁed is based upon the learning received attention in large company contexts is capability of a ﬁrm. If it can absorb and scan management of the intellectual property rights diffused knowledge and codiﬁed knowledge and portfolio (e.g. Cook, 1995). The issue has also been translate it into a speciﬁc capability of its own, examined in SME settings (Kuratko and Hodgetts, then protection and elaboration become less rele- 1988; Kitching, 1998). KMC work within SMEs has vant. The key issues are problem solving, diffu- identiﬁed that it is the issues that surround the sion, absorption and scanning. For an SME to capture and utilization of speciﬁc intellectual property manage its knowledge assets in this way requires rights rather than portfolio management that create it to have an effective organizational ‘learning’ the greatest difﬁculty. capability. The signiﬁcance of organizational learn- The movements within intellectual capital (e.g. ing for competitive advantage was highlighted by human, structural etc.) within SMEs reﬂect differ- Moingeon and Edmondson (1996). It is clear that ent ‘investment’ decisions. Some of these move- the knowledge (and potential advantage) that a ments may be planned whilst others may be small ﬁrm may have can only be sustained if it is provoked by signiﬁcant changes (e.g. ownership supported by effective organizational learning succession). KMC research has identiﬁed a valu- processes. Unless there is a constant renewal of able role for an intellectual capital valuation lens knowledge, then any advantage will be transitory. upon managing the (re)embedding of capability in The linkages between individual action and an SME in the light of owner succession (Martin, beliefs, and organizational action (and perceived presentation to the Staff Seminar Institute for impact) were considered initially by March and Manufacturing, University of Cambridge, 1999). Olsen (1975). They identiﬁed four possible breaks Overall, it seems clear that the small ﬁrm (disconnects) in these learning loops. The potential knowledge setting is different from that within for learning is impeded in a situation of role- larger ﬁrms. constrained learning because the action of an Knowledge Management in Small Firms 9
CASE STUDY Knowledge and Process Management individual to act in a way consistent with their The model involves all four of the components of knowledge is restricted. The potential for learning knowledge management that have been detailed under a situation of audience learning is limited above (Figure 1). The model also recognizes the by virtue of the ‘misreading’ of others’ actions operational, strategic and uncertainty management (and learning by others ‘observing’ (but not fully considerations of knowledge in SMEs (Figure 3). sharing the interpretation of) an experience). The model has as its most central tenet, the Superstitious learning occurs when an organiza- assertion that knowledge management develop- tion takes action on the basis of ‘faith’ and does ment in SMEs needs to be supported through a not subject actions to a monitoring of impact upon process that recognizes and incorporates the current its environment. Finally, learning under ambiguity thinking and priorities in the knowledge project. It occurs where the impact of changes upon an seems inappropriate to ‘hijack’ the agendas and organization’s environment cannot readily be momentum in a business and attempt to ‘railroad attributed to speciﬁc actions. Kim (1993) drew in’ a knowledge system (in particular, a ‘standard’ attention to a further set of three loops (and complete ICT-based system). The experiences with disconnects) in the organizational learning process. SMEs suggest that the focus for initial incremental Situated learning occurs when an individual’s developments can emerge from exploratory work actions are not reﬂected upon (and the potential with MDs and (senior) managers as they are for learning beyond the speciﬁc situation is lost). supported to consider their business practices Fragmented learning occurs when the understand- through a knowledge lens. The role of a facilitator ing that an individual derives from experience is seems central to the process. The importance of not shared within the organization. Opportunistic ownership and the ultimate objective for an SME learning is held to occur when an organization team to develop its own capability to sense needs takes action that is known not to ﬁt with the for development appear to be secured well shared understanding in the organization. In through a process consultation approach (Schein, reconceptualizing the learning disconnects occur- 1999; Shelton, 2000). SME knowledge projects can ring at the action, experience and reﬂection phases take many months. Contact with the ‘appropriate’ of a learning cycle, and extending the notion of individuals and groups at particular phases of the organizational learning loops to a business’s posi- developments needs to be maintained. Contact in tion within its business environment, Sparrow et al. the order of one half-day every week to ten days (1998) highlighted a further set of three loops. over a period of 6 to 12 months appears to be the Actions by ‘sections’ of an organization that are average level of support required. ‘inconsistent’ with the action of other sections can The model of SME knowledge management result in ‘uncoordinated action’. An organization’s development also recognizes that knowledge inability to manoeuvre (act) in its industry/ projects in SMEs ‘track’ through three sets of network/cluster (i.e. ‘organization position- procedures. These are technological/systems constrained learning’) can restrict its learning development procedures, business development opportunities. The opportunities for a business to procedures and organizational development pro- reﬂect upon the experiences of others in its cedures. These sets of procedures are summarized industry/network/cluster can be affected by ‘iso- in Figure 5. Knowledge projects may place differ- lation-constrained learning’. The study also con- ent emphases upon these three sets of procedures ﬁrmed the centrality of all the forms of learning but successful projects will address all three sets of loops in the maintenance and development of procedures to some extent. capability in small ﬁrms. Figure 4 highlights the The overall model that can be used to guide learning loop ‘disconnects’ that have been identi- knowledge projects in SMEs is therefore a com- ﬁed and explored with SMEs. bination of Figures 1, 3 and 5. It is presented as Figure 6. A MODEL FOR THE DEVELOPMENT OF Phases in knowledge projects in small ﬁrms KNOWLEDGE MANAGEMENT PRACTICES The model of considerations captures the range of IN SMES considerations that may need to be addressed in knowledge projects in small ﬁrms. The emphasis A model of considerations placed upon any particular cell within the model An emergent model of approaches towards devel- will vary with the particular knowledge project. It oping knowledge management practices in SMEs will also vary with the phase or stage of the is being derived from the experiences of SMEs. knowledge project. Knowledge projects within 10 J. Sparrow
Knowledge and Process Management CASE STUDY Figure 4 Learning loops and potential ‘disconnects’ SMEs progress through several phases. The facil- wish to share in more ‘natural’ (though informed) itator may ﬁnd that the participants wish to place qualitative analyses and interpretations of their more (or less) emphasis upon a particular set of practices and processes and work their way procedures at a particular juncture, but may towards complementary systematic techniques. attempt to assist the group to consider the parallel Conversely, decisions to engage in more formal issues (associated with the alternative sets of assessments quite early in the development pro- procedures) at that time. The considerations and cess may result in participants wishing to ‘ﬂesh phases indicated in Figure 7 represent the initial out’ the interpretation with ‘speciﬁc’ and ‘actual’ attempt to discern some pattern in the ‘tracks’ that examples and considerations. SME knowledge projects take. It should be recog- Phase 1 can accommodate structured and quali- nized, however, that speciﬁc case study businesses tative elements. It has been noted how structured have on occasion not addressed a speciﬁc aspect/ consideration of strategic options can be useful. An procedure at the ‘time’ indicated in the ﬁgure. In alternative qualitative approach that entailed a such instances there has tended to be a feeling by ‘reading’ of the current business plan for ‘know- the facilitator that a particular feature of the KM ledge’ considerations has also proved useful. development process is ‘missing’. Choice of an initial aspect of business process for An examination of Figure 7 reveals that there are knowledge development can be made on the basis elements of structured measurement and assess- of systematic and comprehensive analysis of ment together with inductive (qualitative) elements. pressing business conditions and centrality of a The experiences with SMEs would suggest that a business process. Alternatively, the choice of ‘battery’ of formal measurement and assessment project can be the product of a discussion among techniques for each procedural aspect would not MDs and managers. Similarly, analysis of indivi- be an appropriate approach. On the contrary, dual perceptions and team process characteristics experience would suggest that participants may can be derived from close interpretation of tran- Figure 5 The three sets of procedures in knowledge projects in SMEs Knowledge Management in Small Firms 11
CASE STUDY Knowledge and Process Management Figure 6 A model to guide knowledge projects in small ﬁrms scripts of interviews and group meetings or from of value in the support process. This may raise more structured approaches including repertory training and development issues for more grid procedure, psychometric testing (e.g. MBTI) extensive (national) support of SMEs using this and questionnaire assessment (e.g. Team Climate model. Inventory). Phase 3’s inclusion of business process analysis Phase 2 can involve formal structured analysis can again be operationalized in tight ‘systems’ through attempts to value facets of intellectual terms or less ‘rigorously’. The visual depiction of capital. It can also beneﬁt from a less quantitative processes (using tools such as maps, ﬂow dia- ‘visualization’ of the business in intellectual capital grams etc.) appears to be valuable. The sharing of terms as a rhetorical device. The KMC team is perceptions has been found to work well when exploring the role of an ‘audit’ of knowledge supported by ‘models’ of the ‘causal maps’ that management practices. The tool that has been different individuals appear to have. The consid- developed to date ﬁts quite neatly into the toolkit eration of learning processes can beneﬁt from the that UK business advisers have of health-checks, systematic exploration of the extent to which benchmarking tools and audits. Initial experience different learning ‘sources’ (e.g. customers, best with the approach would also suggest that it can practice networks, suppliers, Internet, universities serve as a basic ‘orienting’ agenda for an intro- etc. as detailed in the knowledge management ductory awareness-raising discussion. The KMC audit tool) are utilized, together with reﬂection team have extensive experience of both ‘live’ upon any ‘disconnects’ in any of the learning loops facilitation of reﬂection on group process in (as detailed in Figure 4). addition to asynchronous computer supported The more precise linking of knowledge (and qualitative data analysis of verbal and written supporting structure, systems, culture, incentives materials. Both of these sets of skills appear to be and broad uncertainty capability) to business 12 J. Sparrow
Knowledge and Process Management CASE STUDY Figure 7 Phases in the knowledge management development process in SMEs processes (in Phase 4) can be accomplished ular system developments. Insufﬁcient cases have through a knowledge map of the kind detailed by been undertaken to draw ﬁrm conclusions on this Applehans et al. (1999). Complementarily, a group aspect at this stage. Reference to a number of cases model-building session (of the kind developed by here, however, will highlight some of the issues Colin Eden and colleagues, e.g. Eden and Ack- that have been evidenced. The ﬁrst issue concerns ermann, 1998) or a more formal system dynamics the maintenance or change in hardware platform. In model (e.g. Vennix, 1996) can be valuable. The one SME the intention to build more capability more participative approaches have the advantage through the development of a marketing informa- of providing an opportunity for the exploration of tion system was taken as the opportunity to diversity and uncertainty capability. The KMC change the platform used in the business to one audit tool can provide a framework to consider based on Windows NT. The core databases in the the ‘parallel’ or ‘reinforcing’ elements of a know- businesses had been built in a ‘bespoke’ system. ledge management system (e.g. culture and The MD (who was a bit of a computer hobbyist) reward systems). These issues are more appro- had developed a whole raft of additional features, priately considered in the ‘scoping’ and ‘design- but was ﬁnally of the view that the system needed ing’ of an enhancement to current systems and to be re-implemented on Windows NT. There practices, rather than as afterthoughts in the were real concerns about the ‘porting’ of data etc. implementation of a ‘new’ system. into the new system (particularly because the The development of knowledge bases and vendor of the original system was no longer in knowledge systems (in Phase 5) is largely a business). In contrast, a current case study busi- technical process. The latest generation of know- ness has developed a number of tools based upon ledge management software ‘modules’ can enable Lotus Notes. They want any additional knowledge the least technical of managers to develop a features of their systems to be implemented in functioning system, but a small investment in IT Notes. The second issue concerns the development consulting support can be valuable at this stage. of bespoke versus ‘off-the-shelf’ components. In some The KMC team is reviewing the experiences of case study businesses the level of internal ability in SMEs with the alternative platforms (e.g. Notes, ICT terms is high. Such businesses often wish to Microsoft servers etc.), and bespoke versus mod- implement a bespoke system. In another instance Knowledge Management in Small Firms 13
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