Knowledge management at SMEs:
five peculiarities
Kevin C. Desouza and Yukika Awazu
Kevin C. Desouza and
Yukika Awazu are based at
the Institute for Engaged
Business Research, The
Engaged Enterprise,
Chicago, IL, USA.
PAGE 32 j JOURNAL OF KNOWLEDGE MANAGEMENT
Abstract
Purpose – Managing knowledge is a critical capability for small to medium-sized enterprises (SMEs) to
master because it helps them leverage their most critical resource. Organizational knowledge is the
most salient resource at the disposal of SMEs in terms of availability, access, and depth. Successful
SMEs are those who can leverage their knowledge in an effective and efficient manner, so as to make up
for deficiencies in traditional resources, like land, labor, and capital. The purpose of this article to to
discuss five peculiarities about knowledge management practices at SMEs.
Design/methodology/approach – The article draws findings from a nine-month investigation of
knowledge management practices at 25 SMEs.
Findings – The research discovered that SMEs do not manage knowledge the same way as larger
organizations. Viewing SME knowledge management practices as scaled down versions of the
practices found in larger organizations is incorrect. SMEs have understandable resource constraints,
and hence have to be creative in working around these limitations in order to manage knowledge.
Originality/value – The paper sheds some light on peculiarities in SME knowledge management
practices, which will hopefully entice scholars and practitioners to follow-up with more detailed research
undertakings.
Keywords Small to medium-sized enterprises, Knowledge management, Information systems
Paper type Research paper
Introduction
Small to medium-sized enterprises (SMEs) are a vital part of any national economy.
According to the Organization for Economic Cooperation and Development, SMEs comprise
about 95 percent of enterprises in a nation, and are responsible for employing 60-70 percent
of the workforce (OECD, 2000, 2002). In Asia-Pacific Economic Cooperation (APEC)
member economies, SMEs make up 90 percent of enterprises and employ between 32-84
percent of the workforce of individual APEC economies (APEC Committee on Trade and
Investment, 2004). In the UK, more than 95 percent of all businesses are SMEs; they employ
nearly 65 percent of the workforce, and account for 25 percent of the gross domestic
product (Ballentine et al., 1998). Statistics on the prominence of SMEs are equally
impressive in other countries. For instance, in Australia, SMEs provide 96 percent of all
employment, and in New Zealand, SMEs produce 35 percent of the national economic
output (ABS, 2000, 2002; MOED, 2000). With these enticing statistics, management
scholars cannot ignore SMEs as a viable and interesting research space.
All SMEs start out with the S, small, and then through tireless efforts, struggles, and victories,
they get to M, medium. If their success continues, SMEs will become larger, expand in scope
and reach, and become dominant players in their industries. The success of a small
business or an SME can be linked to how well they manage their knowledge (Dollinger, 1984,
1985; Brush, 1992; Brush and Vanderwerf, 1992). Knowledge to represent know-how,
expertise, tradecrafts, skills, ideas, intuitions, and insights. Knowledge management has
been shown to a powerful ingredient in the success of organizations (see for example
j VOL. 10 NO. 1 2006, pp. 32-43, Q Emerald Group Publishing Limited, ISSN 1367-3270 DOI 10.1108/13673270610650085
‘‘ SMEs compete on their know-how and hence have to use
knowledge to their advantage, even more so than traditional
resources. ’’

Davenport and Prusak, 1998; Nonaka and Takeuchi, 1995; Desouza and Evaristo, 2003).
Organizations who are successful in leveraging knowledge, normally witness increased
efficiencies in operations, higher rates of successful innovations, increased levels of
customer service, and an ability to have foresight on trends and patterns emerging in the
marketplace. Besides the traditional reasons for managing knowledge, SMEs, in particular,
must pay close attention to knowledge management for several salient reasons.
SMEs compete on their know-how and hence have to use knowledge to their advantage,
even more so than traditional resources. SMEs normally do not have deep pockets to spend
on resources such as land, labor, and capital. They must do more with less. Knowledge
housed in the SME, must be leveraged so that goals can be achieved in an effective and
efficient manner. While an SME might be constrained by not enough capital or labor, their
knowledge is bountiful and, in many cases, an unlimited resource. The only way an SME can
limit this resource is by not using it effectively. Individuals who open up SMEs do so because
they have knowledge in key areas of competencies and think they can compete using such
knowledge. It is hence important that they remain successful in leveraging knowledge.
Having knowledge is one thing, and using it effectively towards organizational ends is quite
another. It will be useful for an SME owner to house knowledge in his/her mind, and not use it
for business decision-making.
Besides, using the knowledge directly, the owner of SMEs must also transfer knowledge to
his/her employees. Seldom, do SMEs have the capabilities to recruit the best minds in the
business; hence they must settle for less qualified but motivated individuals. These
individuals must be trained and taught how to be successful employees. Training calls for
transferring knowledge to the new hires, a function of knowledge management. Moreover, in
cases where the SME has plans of expansions, they must be able to duplicate knowledge
and the apply knowledge across geographic locations. In one restaurant, the owner spent
three years training his protégé about the ins and outs of managing a restaurant before he
decided to open a new location.
In the final analysis, SMEs are judged by the external world, such as lending institutions,
investors, suppliers, and customers, on their knowledge and knowledge-exploitation
capabilities. The external world puts a burden on the SME to show the depth of their
expertise, and their capabilities in leveraging this know-how. Many large companies who
have thoughts of buying out smaller enterprises do so because of their know-how. Even if an
SME is not brought out, and decides to expand, let’s say via an initial public offering (IPO),
judgments will be based on know-how and innovative potentials. Consider the recent IPO
offering of the once small enterprise, Google.com. Google.com has gained a reputation for
being the best search engine on the internet, this know-how and expertise is one reason why
investors readily embraced the IPO.
Given all of this need to manage knowledge in SMEs, little is known about how SMEs fair in
knowledge management (Shelton, 2001; Saarenketoa et al., 2004; Bryson, 1997; Collinson
and Quinn, 2002; Dalley and Hamilton, 2000). In this paper, findings from an exploratory
investigation into knowledge management practices at 25 SMEs are presented. Our findings
show that SMEs do not manage knowledge in similar fashions as larger organizations. SMEs
have understandable resource constraints, and hence they have to be creative and clever in
working around these limitations. Our focus in this paper is on discussing five key
peculiarities that differentiate knowledge management practices at SMEs versus larger
organizations.

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 Methodology
Our sample consisted of 25 SMEs (see Table I for descriptive details), and included a wide
range of SMEs, from cafés to management consulting firms and drycleaners/laundry
facilities. The wide assortment of SMEs in our sample helps us generalize the presence of
the five peculiarities of managing knowledge. To facilitate comparison across the research
sites, the authors decided to have certain commonalities across the SMEs. First, all SMEs, in
our sample, were started by one or two individuals. These individuals acquired knowledge in
the business domain through past employment, and in some cases educational
qualifications. Secondly, all SMEs were in business for no more than five years, had under
100 employees, and their revenues less than $400,000 per year. Defining what exactly
constitutes an SME has proven to be a difficult task (Holms and Gibson, 2001). Definition of
SMEs is varied by countries (APEC Committee on Trade and Investment, 2004; OECD,
2000). Some use the number of employees (mostly under 250 people) to define a business
as an SME or a large enterprise, others use revenue figures (e.g. annual turnover, balance
sheet total), and even others use other indicators such as years in the business, number of
branches or locations. For our purposes, any business with fewer than 100 employees was
considered as an SME, this is consistent with prior studies in the literature (see Holms and
Gibson, 2001). Thirdly, all SMEs had a very traditional organizational setup. At the highest
level you had the owner, followed by, in some cases, managers, and then the employees.
Lastly, all SMEs embraced the use of information and communication technologies, to some
extent. This is important as the authors were curious to know how technologies were used for
managing knowledge.
Data was gathered using qualitative methods due to the novel nature of the phenomena
being examined (Yin, 1989; Gummesson, 1991). In addition, the authors were interested in
gathering rich data, for which qualitative methods are apt. Using qualitative methods for
research on SMEs has rich history and acceptance (Chetty, 1996; Romano, 1989; Gill, 1995).
The authors relied on detailed semi-structured interviews with the owners and managers of
the SMEs for data collection (Klein and Myers, 1999; Eisenhardt, 1989). In addition to posing
questions, the conversation was allowed to drift and emerge; this allowed us to focus on
novel concepts, in addition to our originally geared interest. Each interview lasted for about
90 minutes. Data collected from interviews was supplemented by our observation of how
work was conducted in practice. The authors visited each research site at least four times to
get a sense of knowledge management in practice, and compare these observations with
our interview notes. Doing so helped us reconcile differences between espoused practices
(information from managers and owners) with in-practice knowledge (observations on work
conducted). In cases of discrepancies between the two, further clarification was sought from
the owners and managers.

Five peculiarities of knowledge management in SMEs

All SMEs in our sample, knowingly or unknowingly, manage knowledge. Some have
deliberate mechanisms for knowledge management, other conduct it in the peripheral. The
authors initially uncovered over 20 peculiarities in how knowledge was managed in SMEs
compared to larger organizations. For sake of comparison, a review of existing case studies
on knowledge management practices in large organizations was conducted (see for

Table I Description of SMEs

Industry type Number of SMEs

Coffee shops and local café 8

Dry-cleaning and laundry shops 3
Technology companies 4
Security consultants 4
Management consultants 3
Restaurants 3
Total 25

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example, Nonaka and Takeuchi, 1995; Davenport and Prusak, 1998; Lausin et al., 2003;
Davenport et al., 1998). We also drew on our past experiences with knowledge management
endeavors in large enterprises. From the list of 20, six practices were deleted, as they were
peculiar to the SME from which data was collected. Over several iterations, we agreed that
ten out of the remaining 14 practices were indeed unique to how SMEs manage their
knowledge.
In this paper we will present five of the peculiarities in knowledge management practices at
SMEs. We are choosing to present five, as we are confident that they apply to SMEs both
within and outside our research sample. Put another way, we are fairly confident of the
generalizability of the findings presented here across a whole range of SMEs. Moreover,
even though we only gathered data from SMEs based in the US, we are confident that the
findings will apply to SMEs based in other countries. Many of the SMEs studied, were
operated by immigrants to the USA, and as such their management practices were heavily
influenced by their native cultures.

The dominance of socialization in the SECI cycle

Nonaka and colleagues developed the knowledge creating cycle comprising of four
activities – socialization, externalization, combination, and internalization (Nonaka, 1991;
1994; Nonaka and Takeuchi, 1995; Nonaka and Toyama, 2003). Socialization helps move
knowledge in tacit form between individuals, externalization is the application of tacit
insights on an outside entity (for example work), combination represents the act of
synthesizing explicit pieces of knowledge, and finally internalization is the process whereby
one increases their knowledge by learning from external events. As postulated by Nonaka
and colleagues, in any organization, working through the SECI cycle helps in the generation,
transfer, and application of knowledge. Based on our own past research with large
organizations we found the Nonaka model very applicable and insightful (Desouza and
Evaristo, 2003; Awazu and Desouza, 2004; Desouza, 2003a, b). Hence, we thought we
would see similar dynamics at SMEs.
While we did find instances of the SECI cycle in motion, however we would argue that it was a
variant of the SECI model – the SECI model. The process of socialization dominated all other
activities of the SECI model. Socialization was the predominant way through which
knowledge transfer occurred from owner to employees and between employees. In all
SMEs, that we researched, knowledge transfer occurred via formal and informal
socialization methods. In one café, the owner had weekly meetings with her employees at
a local pub to impart her discoveries and insights from the week’s activities. At SMEs,
employees are always in close contact with the owner/manager; as a result the flow of
knowledge up and down hierarchical ranks is smooth and normally occurs via personalized
meetings between individuals. Employees working in an SME are in close proximity to each
other. The result of being in close quarters is employees are in conversation and
communication with one another on a daily basis. Granted that much of the conversation has
nothing to do with the business at-hand, and is more social in nature, it nonetheless helps
build a friendly environment in which knowledge sharing becomes easier and more
effective. As one manager of a restaurant remarked:
I do not mind if my employees engage in conversations during work hours . . . it is important that
they like each other and of course like me . . . in this way they will know that when I criticize their
work . . . I am doing it with good intentions . . . and not due to a hidden agenda.

Socialization is the dominant activity in SMEs and it subsumes the remaining three acts –
ECI. Let us explain. Due to resource constraints and the lack of maturity, SMEs seldom have
rich organizational memories. In our sample of SMEs, organizational memories represented
the expertise, experiences, and knowledge of the owner or managing partner of the SME,
these being the individuals who decided to start-up the business and who possessed
domain knowledge. The owners/managers conducted acts of combination on their
knowledge, internally. They added to their pieces of knowledge by observing behavior in
their businesses and the environment. Due to the private nature of the organizational
memory, i.e. it resided in the mind of the manager/owner, other organizational members

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 could not use this knowledge for acts of combination or even apply it directly. Hence, they
had to rely on getting knowledge from acts of socialization. The owners would hold training
sessions and impart their knowledge via an apprenticeship mode. Put another way,
internalization of knowledge occurred by socialization with the owner/manager. An outcome
of not having dedicated organizational memories is the absence of efforts on the part of
employees to externalize their knowledge into explicit artifacts. Knowledge, once
internalized by employees is applied directly to work, and is seldom documented in a
secondary storage medium like a notebook or information systems.
To summarize, in SMEs there is lack of explicit knowledge repositories such as an intranet
tool for sharing knowledge or large databases. Instead, each manager/owner acts as the
knowledge repository. Since the repository is private, acts of combination are also
conducted privately. Knowledge becomes part of the organization’s fabric when it is
socialized from the manager to the employees, seldom does knowledge move the other way,
i.e. from employee to manager. This is because employees are not too concerned with
knowledge management details when compared to executing their operations on a daily
basis. Knowledge once socialized, is internalized when apprenticeship based training is
conducted. We can thus argue for the presence of an SECI model in SMEs in which the S
dominates, rather than the standard SECI model found in larger organizations in which each
activity has an equally important role in knowledge management.

Common knowledge
The second peculiar finding is the issue of ‘‘common knowledge’’. Common knowledge, as
we define it here, is knowledge that is known to all members of the organization. Much like
‘‘common sense’’, ‘‘common knowledge’’ helps in the conduct of work in organizations by
providing a common frame of reference. Without some form of common knowledge, the
essence of the term ‘‘organization’’ will be lost. To organize is to join together or assemble for
a common goal. In most large organizations, knowledge is irregularly distributed across the
various sectors (Tushman and Nadler, 1978; Galbraith, 1977). As an organization grows,
areas of specialization emerge such as finance or operations, and knowledge in these
domains get concentrated around the areas of specialization. Knowledge available in the
areas of specialization will not be ‘‘common’’ across the organization. The lack of common
knowledge has been known to impede the flow of knowledge, resulting in failures to
stimulate innovation and creativity in the organization (Simonin, 1999; Szulanski, 1997).
In SMEs, we were pleasantly surprised to see the prominence of common knowledge in
terms of both depth and breadth. Most SMEs we researched had deep-levels of common
knowledge, i.e. each employee had very similar foundation and grounding in organizational
matters. For example, in a café in Chicago, a manager remarked:
Basic training provided to my employees consists of equipping them to run the shop . . . if an
employee has sufficient information and knowledge on how to manage the café from – opening
up the door, to running the register, making a cappuccino, serving a sandwich, mopping the floor,
and entering the receipts at close – the training is viewed as successful . . . else we will re-train.

Due to training initiatives such as these, each employee is given a deep introduction into the
way the SME conducts business. It is because of this that employees can frequently, and
often do, fill in for one another. The deep level of knowledge along with the breadth of
common knowledge also facilitates ease of communication and sensemaking. Common
knowledge forms a shared context for interpretation and communication. For example, if a

‘‘ SMEs are judged by the external world, such as lending

institutions, investors, suppliers, and customers, on their
knowledge and knowledge-exploitation capabilities. ’’

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restaurant institutes a new work practice that effects the waiters, chances are high they will
be appreciate it. The reason being they have enough knowledge about the work of the
cooks, busboys, cashiers, and bartenders, to comprehend whether the new process will
streamline the entire restaurant operations, resulting in them leaving for home early, and may
be with increased tips. To quote a restaurant owner:
I do not have to keep explaining myself to the cooks, busboys, valet staff, and waiters . . . they
know that they are all in this thing together . . . they see the big picture and work to enhance that
. . . we do not have allegiances towards being waiters or valet staff, rather we all work for the
restaurant . . .

An outcome of having ‘‘common knowledge’’ is the speed of knowledge transfer.

Ishin-Denshin, is a Japanese term, can be roughly translated to ‘‘presence of tacit
understanding between communicators and signifies the speed of knowledge transfer that
will occur if communicators share the same context’’. Specifically, before one speaks, what
is going to be spoken and its associated context is known to the other. In restaurants, there
are numerous hand jesters, eye movements, and even the speed of physical movement that
signifies information items such as clean this table, bring some water, two cups of coffee, or
even the customer is pissed off as we buggered up the order. As we are not artists, we will
not attempt to sketch them out here. Shorthand writing is found on food orders taken by
waiters, who then pass these to the cooks and the bartenders for food and drink
preparations. Even orders when given by the manager such as ‘‘please seat this customer in
section 3 and ensure that he enjoys a pleasant experience’’ has a different meaning than
‘‘please seat this customer in section 3 and provide him with the finest offerings’’. In the first
case, the manager is asking for the customer to receive the standard treatment, while in the
latter, the manager is ensuring that the waiter knows this customer is valuable, is a frequenter
of the establishment, and do not bugger up his meal or experience at the restaurant. These
expressions are well understood by the members of the organization, and help in executing
tasks in effective and efficient manners. Just imagine, what would happen if the restaurant
owner could not use language in a subtle manner to convey his intentions? What would
transpire if the manager had to say every time – ‘‘standard treatment’’ versus ‘‘premier
treatment’’ for a customer, chances are that the business would close down soon.
In summary, common knowledge possessed by members of the SMEs is deep and broad.
This common knowledge helps in the organization of work by easing issues of knowledge
transfer, sensemaking, and application.

Knowledge loss: a problem? Or is it?

When an employee leaves the organization he/she takes knowledge out the door. In the
present time of fierce competition and high employee mobility, dealing with issues of
knowledge loss has become a management imperative. At NASA, for instance, more than 60
percent of the scientist will reach retirement age in the next few years, as a result unless there
are adequate mechanisms in place, knowledge losses are bound to occur. While the NASA
example may be drastic, most organizations have skilled employees with deep experiences
who leave the organization, resulting in holes or gaps in the knowledge structure.
We asked SMEs how they faired with issues of knowledge loss. Surprisingly, many remarked
that they never considered it a real problem or issue. At first glance, we thought this could be
attributed by the fact that these businesses have only been in existence for a few years and
hence did not have much knowledge to lose. On further probing, we discovered that the
answer was not that simple. Some of the mature SMEs in our sample had deliberate
mechanisms in place to prevent knowledge loss from becoming a problem.
As we have discussed earlier, much of the core knowledge is held by the owner/managers of
the organization. In addition, common knowledge is found in all employees. Obviously, if the
owner was to leave, knowledge loss would occur, but the business would close down, at
least in its present form. So, the real knowledge loss issues center around employees and
managers. Due to the ease of availability of common knowledge, the business is not affected
if one or more employees leave. As is found commonly in the hospitality industries, front-line
employee turnover is high – employees come and go, and other employees take on their

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 ‘‘ SMEs do not manage knowledge the same way as larger
organizations. ’’

work in the interlude. In addition to the ease by which existing employees can be moved to
cover positions impacted by knowledge loss, most SMEs have streamlined the process
whereby a new hire can be indoctrinated with common knowledge. Their quick execution of
the hire-and-train cycle is salient. In most café’s and restaurants we studied, a new hire
would be given a day’s worth of training, which would involve observations of how work was
conducted, meetings with managers, and standard discussions on do’s and don’ts, this was
sufficient to get the employee started with work. New hires, almost always, have the basic
background knowledge about work in the industry of the SME. Differences across SMEs in
an industry are minimal resulting in ease of knowledge portability. One dry-cleaning/laundry
business owner explained:

I hire people who have worked in the laundry business . . . they will not be experts . . . but they
nonetheless know the operational aspects of the trade . . . there is not much difference between
my store and Kim’s [another laundry business only two streets away] . . . if you have worked in one
. . . you will be successful in working in others.

Basic knowledge in operations helps new hires quickly learn new details specific to the
organization and begin applying them on the job. The knowledge space of interest to SMEs
is limited and well-defined compared to larger organizations; hence new employees do not
feel overwhelmed with the amount they must learn in order to work effectively.
Instances of managers leaving an SME are rare. In our sample of 25 SMEs, with an average
age of 2.8 years, we found only two instances of managers quitting. Managers seldom quit
SMEs because they have built a tenure and rapport with the business and the owner. In
cases where, the owner’s family members are not the managers, the mangers are usually
long-standing friends of the owners. In most instances these friends probably, went to the
same school or college, had similar previous places of employment in the past, lived in same
locality, or had some other form of thick social bond. One organization in our sample, a
management consulting firm, was formed by two buddies who played rugby at their college.
Besides playing rugby, they graduated from the same business school. Upon graduation,
the two went to work for different consulting houses and lost their job due to downsizing in
late 2000. During a reunion of the college rugby team, they engaged in a conversation
leading to the creation of the SME. Due to close ties between senior members, seldom do we
find instances of knowledge loss due to individuals leaving the organization.
In the two cases in our sample, where senior members did quit the business, the first one
was due to a disagreement over salaries and company direction with the owner. The second
case was due to health reasons that forced a 72 year-old cook to retire. In the first case, the
owner handled the knowledge loss by simply promoting the next most competent person to
the title of manager. When we asked if there was serious issues that stemmed from departure
of the manager, the owner replied:

No . . . not really . . . Jason . . . was able to take on the work left behind by Stuart . . . moreover Jason
and Stuart are friends . . . so if things were missing or needed . . . Stuart is only a phone call away
. . . Stuart does not hate us . . . he just found a position where he could push his program and
ideas.

The ability to quickly promote someone to fill a vacated position is an important skill for
SMEs. SMEs cannot afford to lose customers by having gaps or breaks in knowledge
application and the conduct of work. All SMEs we spoke to have high redundancy of
requisite knowledge, there is no knowledge nugget, skill, or expertise that is rare and housed
in the mind of only one employee.

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In the second case, where the chef quit for health reasons, the second in-command of the
kitchen was made head chef. The second-in-command got his first cooking job from the
head chef, his boss! So over the past 24 years, dating back to several previous employment
instances, of working with him, he had acquired knowledge of the chef’s way of cooking and
mastered his style of managing the kitchen. Hence, knowledge loss was again not a serious
issue here. One thing we must stress here is the fact that all SMEs, which we spoke with,
promote from within. They almost never hire an outsider for senior positions; all hires are
made at the front-lines. Over time, experiences and efforts, one is promoted to the higher
ranks. This is one of the critical reasons why knowledge loss is not an issue as there are many
in the organization that have a similar repertoire of experiences and knowledge to draw on.
To summarize, SMEs by their nature and due to deliberate mechanisms are skilled at
avoiding pitfalls of knowledge loss. The close social ties between members of the SME act
as a deterrence against employees leaving the business. In cases where employees do
leave the business, there are plenty of available knowledge resources that can be mobilized
to quickly fill the void.

Exploitation of external sources of knowledge

SMEs have a knack for exploiting foreign sources of knowledge (Robinson, 1982). Since
they are resource constrained, and cannot spend efforts to create knowledge, they look
outside the organization for knowledge. One café we studied was located about 300 meters
from one Starbucks on its right and about 800 meters from another one on its left. At the face
of it, opening up a café in between these two, would seem economically irrational. One
would venture, that the SME will not have the resources, reach, or prestige to compete with
the established giants and would fail. To our surprise, the SME is thriving and has actually
managed to lure customers away from the incumbent firms. We asked the owner, why would
she do something, what in our minds felt as irrational, opening up a business in the midst of
two rival competitors, she remarked:
Starbucks has done the research . . . marketing research . . . and has found this locality to be one
of interest to them . . . I am just using their research to my end . . . All that Starbucks has confirmed
via research is that people will spend money on coffee and pastries . . . they never said that they
would drink Starbucks coffee . . . just coffee . . . so why not at my café.

The owner has been very successful in exploiting research conducted by her larger
competitors to her ends. For instance, she uncovered that one of the common complaints
regarding the chain coffee shops was that the environment was not homely or community
geared. All Starbucks or Seattle’s Best coffee shops have the same look and feel, serve the
same drinks, and even play the same music; this is a natural outcome of being in the
franchise business. Exploiting this knowledge, she decided to build her café on the premise
of making it a central meeting place for the neighborhood, this point has been the biggest
reason why her café has faired very well.
In addition, to using ready-made external knowledge, SMEs make it a priority to be well
connected with their localities. In many cases these localities house their customers and
suppliers. Being well-connected in the community, helps the SMEs use environmental
knowledge in an effective manner towards business ends. For instance, some of the
restaurants in our sample were located near universities. These establishments hired college
students for their waiter and bartender positions. We thought that this was because of the
economic reason of getting cost saving associated with hiring student workers. However, the
manager informed us that we were wrong, and the cost savings were minimal. Managers
hired students so that they could keep abreast of events on campus. Using the knowledge
about events on campus, marketing programs would be geared for attracting students to
dine at the restaurant. Common examples include discounted prices for drinks and
appetizers during and after college sport games. Discounted prices were provided to
student groups, such as the various clubs on campus, to host their meetings at the
restaurant. In fact, employees were given bonuses based on how they contributed to the
revenues of the restaurant by sharing pertinent knowledge.

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 In our experience, and in the literature, larger organizations are less apt at exploiting external
sources of knowledge (Prahalad and Ramaswamy, 2004). Individuals within the organization
may rely heavily on outside sources of knowledge, but as a whole the organization does a
poor job at leveraging such sources. As a classic example, consider the failure to various US
intelligence agencies to heed the warning about terrorist plots from their counterparts in
Egypt, the Philippines, Germany, and other foreign governments (Desouza and Hensgen,
2002). As we all know now, the external knowledge, if appreciated could have helped curtail
the terrorist plots. We postulate that the reason for lack of care on external knowledge is the
obsession with generation of knowledge in-house and independent of the external world. In
recent times, we have seen an interest in getting organizations to embrace external sources
of knowledge. Prahalad and colleagues have called on organizations to co-create value with
their customers; this will require the organization to accept the fact that they do not have all
the answers and to work in conjunction with its constituents (Prahalad and Ramaswamy,
2004). In some cases, it may also be in the organization’s best interest to collaborate with its
competitors (Hamel et al., 1989).

People centered knowledge management – technology in the background

SMEs knowingly or unknowingly, manage knowledge the right way – the humanistic way.
Technology is never made part of the knowledge management equation. The use of
technology in an SME is mostly limited to acts of automation (such as the use of cash
registers) and at times for informative purposes (storing of employee contact information in
databases). Technology is never used as a means to manage knowledge.
Knowledge is created, shared, transferred, and applied via people based mechanisms.
These include the use of face-to-face meetings, observations, apprenticeship training
methods, etc. Knowledge generated is immediately put into practice, rather than being
stored in some obscure technology artifact, like a database. Putting knowledge into practice
helps in immediate institutionalization of the insight and the improvement of work practices.
Larger organizations spend inordinate amount of resources on building, managing, and
deploying technology artifacts for knowledge management. These seldom help the
organization get a knowledge management program running, because they do not get at the
crux of the issue – knowledge sharing and managing is one of human endeavor. Humans
generate the knowledge and apply it. We do agree that technology can help the process of
knowledge management by streamlining knowledge generation, storage, distribution, and
application. However, for technology to be successful there must be a solid foundation for it
to lie on. This foundation is built by addressing the humanistic issues involved in fostering
knowledge management. SMEs have the advantage, due to resource constraints, of not
looking at technology for the solution to knowledge management problems. Larger
organizations can learn from their efforts, in fact that when issues surface involving
information and knowledge flows or their application, the interventions used to resolve the
problem are human based. Examples include, helping bond employees via informal
meetings, job rotations for employees to gain experiences in all facets of the business, and
most important reminding employees of the core mission of the organization and rallying
support behind the mission. For our last quote, consider the statement made by an SME
owner:
I do not have the capital to think about technology . . . but if I did . . . I would ask two questions . . .
will it help me deliver better products to my customer and can I attract new customers using the
technology . . . if the answer is no . . . I do not need it . . . no matter what fancy things the computer

Since SMEs are resource constrained, and cannot spend efforts

to create knowledge, they look outside the organization for
knowledge.

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 [technology] can do . . . I am in the people business . . . I rather use the money to take my
employees for a picnic . . . spending money on my employees will ensure that they will be happy
with me and the organization and they will do their best to help me serve my customers . . . hence
make me money . . . technology will cost me more than I will reap.

Conclusion
In this paper we have elaborated on five key peculiarities in knowledge management
practices found at SMEs. While we have painted a rosy picture of how SMEs manage
knowledge, we must acknowledge that SMEs have their fair share of problems. In a future
paper, we could explore the problems and suppressors to effective knowledge management
at SMEs. Compared to research on larger organizations, investigations into the intricacies of
managing knowledge at smaller enterprises remain largely unexplored. It would be wrong to
assume that SMEs practice knowledge management in similar ways as larger organizations
with the only difference being in magnitude or scale. We hope this article has opened up
avenues for future research, by stressing some of the unique issues involved with managing
knowledge at SMEs. Future research is needed to expand on our findings here, validate
them across a larger sample, and even help improve the state-of-the art.

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About the authors

Kevin C. Desouza is the President of The Engaged Enterprise, a strategy consulting firm with
expertise in the areas of knowledge management, crisis management, strategic deployment
of information systems, and government and competitive intelligence assignments. He also
serves as the Director of the Institute for Engaged Business Research, a think-tank of the
Engaged Enterprise. He has authored Managing Knowledge with Artificial Intelligence
(Quorum Books, 2002), co-authored Managing Information in Complex Organizations (M.E.
Sharpe, 2005) Engaged Knowledge Management (Palgrave Macmillan, 2005), and edited
New Frontiers of Knowledge Management (Palgrave Macmillan, 2005). In addition, he has
published over 80 articles in prestigious academic and practitioner journals such as
Information and Management, Communications of the ACM, Journal of the American Society
for Information Science and Technology, Technology Forecasting and Social Change,
Government Information Quarterly, Journal of Business Strategies, International Journal of
Technology Policy and Management, Business Strategy Review, Emergence, IT
Professional, Journal of Knowledge Management, Knowledge Management Review,
Knowledge and Process Management, International Journal of Information Management,
European Management Journal, HR Magazine, among others. He is currently serving as an
associate editor of the Journal of Information Science and Technology and is on the editorial
board of several journals. Mr Desouza has been an invited speaker on a number of
cutting-edge business and technology topics for industry and academic audiences.
Kevin C. Desouza is the corresponding author and can be contacted at:
desouza@engagedenterprise.com
Yukika Awazu is a Vice President at The Engaged Enterprise and a Research Fellow at the
Institute for Engaged Business Research, the Think-Tank of the Engaged Enterprise. She
has recently co-authored Engaged Knowledge Management (Palgrave Macmillan, 2005).
Her articles have appeared in business and academic journals such as Business Strategy
Review, HR Magazine, European Management Journal, Journal of Knowledge Management,
International Journal of Information Management, Journal of Competitive Intelligence and
Management, and KM Review. Ms Awazu has worked for organizations in the US and Japan.
She was an Earhart Fellow of the Hoover Institution at Stanford University. She received her
MA in economics and MBA degrees from the University of Illinois at Chicago.

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