IntroductionInour world today, companies, from start-ups to multinationals, are leveraging ontechnology and innovations from science discoveries and ongoing continuousresearch in different fields of study to gain competitive advantage in themarket. However, more critical than thenew tools and services enabled from innovations, are the people and workers whoshall wield and handle these inventions. Understanding human capital, the transfer ofinformation and knowledge management is even more pertinent today, with therate of technological change, the flux of information as well as multipleinnovative disruptions happening in different industries all over the world.Beforewe delve into the detail of understanding know-how transfer in Small and MediumBusinesses (SMEs), let us first have a bird’s eye view of why human capital isimportant, what know-how transfer and knowledge management are, and also howthese concepts affect the growth and operations of SMEs.
HumanCapitalTheodoreSchultz in 1960 at the annual meeting of the American Economic Association,coined the expression ‘Human Capital’ to explain the importance of education inpromoting job opportunities and economic growth. Furthermore, he explains thatexpansively in his article ‘Investment in Human Capital’, the importance ofinvesting in education and learning, as well as its impact in the economicgrowth of a nation1.Thereare various factors – according to Classical Human Capital Theory – that mayaffect and differentiate the human capital level among workers:· A worker’s innate ability differentiateshim from other workers.
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This can be observed in the difference among employeeswho have access to the same educational investment as well as economicconstraints. · An individual’s education is also adifferential factor between him or herself and their respective counterparts. Aworker’s earnings may significantly differ given the level of schooling he hasattained (although this difference becomes marginal across differentindustries, and also depending on the age of the worker).· The quality of an individual’s education,as well as their investment in unrelated activities may also differentiate themin the labour market. For example, an individual who dedicates more time toextracurricular activities and association membership may develop skillsoutside of the educational study, and thus garner more earnings that similarindividuals with the same qualifications. This also follows for workers withthe same qualifications, but from different schools or colleges.
· Besides the differential factors mentionedabove, on-the-job training for a specific role or job requirementdifferentiates workers and their earnings from their colleagues and peers. Itis commonplace across firms and business for management to invest in their employees– through training programs or educational courses – to enable them increasetheir productivity and foster greater returns than the cost of the investmentmade on their training. TheLean Startup by Eric Ries proposes that firms implement a feedback loop –Build, Measure, Learn – through which they aim to complete as quickly aspossible in order to reduce the time spent on making products that customers tonot want, and that are not needed in the market. He also introduces the conceptof validated learning as a measurement of progress when a startup (or firm) isworking in conditions of extreme uncertainty. In the context of Human Capital,these concepts become even more important because it is paramount for a companyto determine what knowledge is most relevant for its employees to workproductively, and how it then creates and maintains tools and processes for thedissemination of information and knowledge between its workers, and acrossbusiness units and departments.What isKnowledge ManagementCeptureanu states in hisstudy of knowledge management in SMEs that “In terms of knowledge management,strategies have many changes, which may take two major forms (Ceptureanu,Ceptureanu, 2012): a) the development of specific knowledge strategies n; b) implementationof classic strategies but integrating knowledge as a component”. Diagram from HBR article ‘Balancing Act: How To Capture KnowledgeWithout Killing It’ by Brown J.S and Duguid P.
, also referenced by CeptureanuS. in his study ‘Knowledge Management in SMEs’. Brownin 2000 Harvard Business Review article, explained the dilemma companies foundthemselves in at the turn of the new millennium, with the advent of theinternet and massive disruption to their existing models and organisationalstructures. Split between Reengineering – reviewing their business processes togain competitive advantage in the market – and Knowledge Management – a processthat seeks to take advantage of the effectiveness of value-creating activitiesof employees in the company – Brown analyses how balancing process and practisecan enable companies better manage change and incorporate knowledge managementin their organisations.KnowledgeManagement, simply put, refers to how an organisation manages its intellectualresources, particularly among its workforce. While knowledge management hasbeen marketed and sold as another consulting service over the years, it hasalso been acknowledged by company CEOs the importance of Knowledge Management andits investment for the long-term growth of a company (even though many foregothis investment for short-term goals)2. Inorder to understand and harness the benefits of effective knowledge management,it is important for a company to first know what local knowledge exists, and ifor what part of it is valuable (Brown, Duguid 200). There have been multipleapproaches to adopting Knowledge Management, broadly categorised undersequential and iterative frameworks (Handzic 2004).
Thesequential framework – as the name implies – entails three stages implementedone after another. First the company identifies and curates the relevantknowledge available in the company. Second, the company makes use of theknowledge they have discovered and develop new uses with this already existingknowledge. And lastly, the company begins to enable new knowledge creation,realising that their existing knowledge is insufficient, and thereby evolvinginto a knowledge based business. This framework was further expanded in Liebowitz2003 study ‘Putting More Rigor into Knowledge Management’, where a feedbackloop was added.Anotherframework proposed for adopting Knowledge Management is the Iterative processproposed by The Arthur Anderson Office of Training and Education3. This method proposed anumber of steps which were:· First awareness, which entails educationabout knowledge management and getting commitment from key stakeholders;· Strategy; identifying groups of practise,their know-how needs and developing an offer for them;· Designing a blueprint and supportinginfrastructure/environment for knowledge in the company;· Testing the knowledge management processbefore it is adopted throughout the organisation; and· Assessing the knowledge managementsolutions and renewing the process in a repeated cycle.
Whilemany frameworks and methods for adopting Knowledge Management have beencontinually suggested, it is paramount to recognise the importance of thisprocess to companies in their race for market share and competitive advantage.Know-HowTransferItis important to understand – especially in the context of human capital – thatinformation and knowledge are not the same thing. While the former describesdata on any given topic, in and of itself, knowledge is, at the very least,based on experience.
This is to say in other words that, there is a differencein knowing that a knife is used for cutting, and knowing how to cut with aknife. As such, knowledge is that which is valuable in this specific contextwhen we discuss human capital. Fora company to grow the collective human capital of its workforce, it becomesnecessary for the organisation to establish tools, processes and people thatcan facilitate the flow of know-how to help the company grow. Know-How Transferthus, is the collection of people, tools and processes that enable the flow ofknowledge within an organisation for to increase organisational growth andproductivity. This is particularly important as competition between firmsshifts from tangible resources, to intangible resources such as technologicalknow-how and information for example (Ceptureanu, 2013).Know-How Transfer in SMEsSMEsdiffer from large companies in various ways.
Perhaps most importantly is thefact that given their relatively small size, they are more agile thanmultinational companies, with less bureaucratic processes and quicker flow ofinformation between employers as well as in decision making among management.For this reason however, SMEs frequently lack the structure and organisationthat facilitates and efficient and effective of information within the firm.Know-How Transfer in SMEs and Knowledge Management is just as important a toolas it is in large firms. However, the way SMEs manage their know-how isdifferent. Edvardssonin his 2006 study of Knowledge Management in Icelandic SMEs discovered that”they rely on an unsystematic manner of sharing and utilising knowledge. Hence,few have a KM strategy, and they rely on unsophisticated ICT technologies”.
Wehave previously observed from Wakefield et al. that firms do not investmentmuch into knowledge management even though they agree to its benefits andimportance. Let us consider some of the similarities and differentiatingfactors of SMEs from large companies.Desouzaand Awazu in their 2006 paper highlighted what were the peculiarities amongSMEs, in terms of know-how transfer and knowledge management. They outlinedfive key factors which were. They examined a sample of 25 SMEs and the commonthemes which were observed were:· Socialisation is the dominant factor forSMEs within the context of the SECI knowledge creation cycle (Nonaka et al.1991), in comparison to externalisation, combination and internalisation. Inthis concept of socialisation, tacit knowledge moves between individuals, andthus is shared most frequently this way.
This contrasts with externalisation –application of external knowledge to work for example, combination – puttingtogether external pieces of data, and internalisation – when external eventsaffect most an increase in knowledge.· SMEs share a “prominence of commonknowledge”. Common knowledge in this context refers to the general knowledgeknown by all workers of an organisation. As such, it was commonplace in SMEsfor employees to share similar ways of thinking and organisationalunderstanding in this context, given the size of the company. This helps easeknowledge transfer as well as organisational efficiency in day-to-day routine.· SMEs, unlike large corporations andmultinationals, do not suffer from knowledge loss with the exit of an employee.First, give the small size of the firm, the relationship between workers iscloser, and this close-knit social circle serves as a deterrent for employeesleaving the company. Nevertheless, SMEs are able to fill in positions andknowledge gaps quicker than larger companies due to their size, and this againhelps prevent the loss of valuable information.
· As SMEs are resource constrained and leastlikely to invest in knowledge creation, they are able to harness and exploitexternal sources of knowledge. In addition to this, SMEs are also able to formnetworks with local organisations and business, which again helps them leveragelocal information for the benefit of their business. This is commonplace forsocial activities for employees, where local businesses have discounts for them.
· Lastly, SMEs operate a people-centeredknowledge process, with technology in the background. This again follows fromthe lack or little investment in knowledge management tools and processes, butalso, because of their size, it is easier for such organisations to passinformation between people. As such “knowledge is created, shared, transferredand applied via people based mechanisms”.4Lastly,Wong and Aspinwall carried out a research among two groups – SMEs in varioussectors and areas of business, and a group of academics, consultants andpractitioners who contribute to the field of Knowledge Management – to understandwhat were the Critical Success Factors (CSFs) for adopting knowledge management,as well as their ranking.5 The 11 factors used forthe survey – consisting of 66 elements – were identified from various authorswho had written on the subject, such as Liebowitz (1999), Skyrme and Amidon(1997), as well as Davenport et al.
(1998) and Holsapple and Joshi (2000). In order of importance, these factors were:· Management Leadership and Support;· Culture;· Strategy and Purpose;· Resources;· Processes and Activities;· Training and Education;· Human Resource Management;· Information Technology;· Motivational Aids;· Organisational Infrastructure; and· Measurement.Itis important to note that while we have highlighted the constraint of resourcesfor SMEs in comparison to large companies, it is not as important as having astrong leadership and support that is willing to adopt knowledge managementpractises, and establish a clear strategy and purpose for its implementation inthe firm.
In addition, establishing a company culture of openness and knowledgesharing is ranked more important than pursuing IT tools or technology that mayassist know-how transfer.Itis clear to see that SMEs stand a lot to gain from the adoption of knowledgemanagement practises, despite their size of resources. It is thereforeimportant to understand what are the difficulties and hinderances to theimplementation of knowledge management in SMEs, and in large businesses too.DifficultiesFacilitating Know-How Transfer in Firms Alot has been said, and can be said about knowledge management and know-howtransfer in firms. Like many initiatives and consulting ‘silver bullets’,knowledge management can easily fall into a bucket of terms that include’downsizing’ and ‘sigma six management’.
For all the study that has been done,and continues to take place on knowledge management (case in point), there area few difficulties with immediately adopting such a strategy and making itwork. Birkinshaw in his 2001 study identified a few reasons as to why theimplantation of knowledge management fails.6 Firstand foremost, many companies are unaware that they already share knowledge inone form or another, prior to the adoption of a knowledge management strategy.In this case, firms fall victim to sub-groups and ‘in-the-know’ caucuses ofworkers7 who freely shareinformation with themselves, but then do not pass on this information toemployees outside their circle, either due to lack of an established frameworkto do this, or the absence of a shared context that brings together differentworkers across business units and assignments. Another aggravation to thiswhich Fahey and Prusak highlighted in their 1998 study, is that companies focusmore on building knowledge stock instead of knowledge flow.
While a first stepto ensure best practises are captured is their documentation and easy referencefor training, if these are not shared, applied and iterated with time, theyonly become a burden to the company and begin to become obsolete without thefeedback and continuous iteration of employees and users of this knowledge.Birkinshawalso highlighted three elements important to knowledge management in firms,which were a) improving informal flow of knowledge between individuals; b) buildingprocesses for sharing this knowledge within the firm; and c) tapping into newknowledge from external sources. In an effort to achieve this, one may suggestadopting and investing in IT tools that can help automate and manage the flowof this information across the firm. However, using technology in-place ofactual human contact and socialisation is another reason why knowledgemanagement adoption fails. This particularly turns into a rabbit hole when themeasurement, or chasing metrics to show the flow of knowledge between employeesbecomes a goal for the firm, either to single out an achievement milestone, orjustify the investment in tools for knowledge management. Technology remains agreat enabler that aids and assists productivity in the workplace, but thiscannot substitute the innate need for communication and socialisation betweenpeople.Whilecompanies who adopt knowledge management may formalise their process as well asenforce socialisation among their employees without IT getting in the way, dothis with existing knowledge and information available to the company withoutcreating and innovating new information and new know-how processes may alsoresult in a failed implementation of knowledge management.
There are manyreason why this may happen. First, a company concerned on operational efficiencymay achieve streamlining their process, but this process done with externalinput from industry benchmarks, forward-looking projections and future visiononly recycles existing information again and again. Birkinshaw highlights howCISCO buys small companies and 3M has strategic accounts with some of itscustomers as ways of bringing in new knowledge into the company.Thereare many pitfalls and challenges in applying knowledge management in a firm,but these are by no means to prevent companies and SMEs from adopting processesfor know-how transfer.
It only highlights the different angles available forbusinesses to consider before hurriedly trying to implement knowledgemanagement processes, and the trappings to be aware of when putting in place tools and processes whenpeople are paramount to its success.1Schultz, T.W ‘Investment in Human Capital’, The American Economic Review Vol 51March 1961 No.
12 Asconcluded in the study ‘Knowledge Management Issues in knowledge-intensiveSMEs’, by Richard Wakefield et al.3AAOTE (1998), BC Knowledge Management, Arthur Andersen Office of Training andEducation, Arthur Andersen. This was also referenced in Handzic’s study’Knowledge Management in SMEs’.4Quote from ‘Knowledge Management at SMEs: five peculiarities’.5From the 2005 study ‘An empirical study of the important factors forknowledge-management adoption in the SME sector’.6See study ‘Why is Knowledge Management So Difficult’.7Birkinshaw describes these people as the ‘In-crowd’ in his 2001 study.