Implementation of Knowledge Management
in Small and Medium Enterprises – Malaysian Perspective
Mobashar Rehman
mubashir_rehman@yahoo.com
Ahmed Kamil B Mahmood
kamilmh@petronas.com.my
Savita K. Sugathan
savitasugathan@petronas.com.my
Aamir Amin
aamir-amin@hotmail.com
Department of IT, Universiti
Teknologi PETRONAS, Tronoh, Perak, Malaysia
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Table 7:
Types of KM applications being used by Malaysian SMEs………………... ……….<![if !supportNestedAnchors]><![endif]>
Abstract
Objective of
the study was to have an insight about the situation of KM implementation in
Malaysian Small and Medium Enterprises (SMEs). Study was conducted in Perak
state of Malaysia. 30 SMEs were approached to participate in the study. SMEs
were selected by using systematic random sampling. Critical Success Factors
(CSFs) for the implementation of KM in SMEs were analyzed. Prioritized list of
14 CSFs was produced. Prioritization was done on the basis of R-square value
(linear regression) and was cross checked by mean value. Beside these CSFs,
types of KM applications used by Malaysian SMEs were also discussed. Current
level of KM implementation by Malaysian SMEs was checked. Intention of
Malaysian SMEs to implement KM in future, number of years KM has been
implemented in Malaysian SMEs and projected duration other SMEs will take to
implement KM were also among the topics discussed in the paper.
Keywords: Knowledge Management (KM),
Small and Medium Enterprises (SMEs), Critical Success Factors (CSFs), Malaysia.
1.0 Introduction
Knowledge Management (KM) is no longer a hidden
phenomenon as it has proved its value. Only thing left is that how
organizations can implement KM and what type of benefits can be obtained from
implementation of KM? KM needs some resources (financial and non-financial) to
be implemented. These resources vary from organizational magnitude to the
nature of business. Large organizations have enough resources as compare to
small organizations in order to implement KM. This is one of the reasons that
why implementation level of KM is high in large organizations as compare to
Small and Medium Enterprises (SMEs). Misunderstanding about KM and its
implementation is among other reasons for not implementing KM in SMEs. Earlier
researchers were of the view that KM can be similarly implemented in SMEs as in
large organizations, which is wrong [1].
SMEs play a vital role in the economy of any country
hence they should also be given greater importance just like large
organizations. Therefore, those activities should be initiated in SMEs which
will benefit them not only in short term but in long run as well and one kind
of such activity is KM implementation [2].
SMEs have now realized the importance
of KM; hence scenario is changing as SMEs are emphasizing more on the
implementation of KM.
1.1 SMEs
Generally SMEs can be categorized into small and
medium levels on the basis of number of employees, annual sales turnover and
total assets possessed by them. It depends on the country that what criteria it
will use to categorize SMEs. Some countries use only one criterion, some use 2
and even there are countries that use all three criteria. Malaysian SMEs are
categorized into micro, small and medium enterprises by Malaysian government.
This categorization is based on number of employees and annual sales turnover
companies have. These SMEs are operating in agricultural sector (including
agro-based sector), manufacturing sector (including manufacturing related
services) and service sector (including ICT sector). Table 1 & 2 provides a
summary of Malaysian categorization of SMEs.
Primary
Agriculture
|
Manufacturing
(including
Agro-based) & MRS*
|
Service
Sector
(including
ICT**)
|
|
Micro
|
> than 5
|
> than 5
|
> than 5
|
Small
|
Between
5-19
|
Between 5-50
|
Between 5-19
|
Medium
|
Between 20-50
|
Between
51-150
|
Between 20-50
|
Primary
Agriculture
|
Manufacturing
(including
Agro-based) & MRS*
|
Service
Sector
(including
ICT**)
|
|
Micro
|
> than 200
|
> than 250
|
> than 200
|
Small
|
Between 200 & > than 1,000
|
Between 250 & > 10,000
|
Between 200 & > 1,000
|
Medium
|
Between 1,000 & 5,000
|
Between 10,000 & 25,000
|
Between 1,000 & 5,000
|
(*MRS:
Manufacturing-Related Services
**ICT: Information and Communication Technology)
This study is the continuation of those studies
which emphasized on the Critical Success Factors (CSFs) for the implementation
of KM in SMEs. Beside this, study will give an overview about the current and
future status of KM implementation in Malaysian SMEs.
2.0 Literature
Review
KM has proved its importance by showing that growth
of a firm and implementation of KM are directly proportional to each other [3].
Similarly, growth of a firm in terms of financial performance and innovation
are linked to KM implementation. Higher the implementation of KM, higher will
be the performance of company in financial terms and innovation [4]. KM is the
key to success for an organization but it is hard to measure it [5]. KM is all
about managing the knowledge (expertise and skills of employees) therefore,
among different reasons for the success of SMEs, one is that they are managing
their knowledge [6].
2.1 Knowledge
KM
is not only important for large organizations but has almost same significant
for SMEs which makes it a key to success [7]. World economy is moving from industrialization to knowledge base economy
therefore, KM will be the only difference between a better performing and a
poor performing organization [8]. KM helps an organization to succeed by
building better customer relationship and improving innovation [9].
SMEs are similarly important for a country’s economy
as are large organizations. Because they provide job opportunities to majority
of the population of a country plus SMEs bring innovation (product and process)
as in [10], which is very important for economy of any country. Irrespective of the size and nature of an
organization, KM is important for the success of an organization. Study showed many clues that how KM helped Finnish
SMEs to be more dynamic. SMEs can improve their performance by considering KM
carefully [3].
2.2 Critical
Success factors (CSFs)
When we talk about the
implementation of KM then there are certain factors which are important. These
factors are known as Critical Success Factors (CSFs). They are also called Key
Result Areas (KRAs) and Key Success Factors (KSFs) [11]. Generally speaking,
those factors which are helpful in the successful implementation of any
project, activity, process or business are known as CSFs, KRAs or KSFs. Or we
can say, those factors on which project, activity, process or business relies
for successful completion. From implementation of KM, we mean those ‘practices
and activities’ on which implementation of KM is dependent [4]. “Areas in which results, if they are satisfactory,
will ensure successful competitive performance for the organization,” as was in
[12].
2.3 Financial resources
Beside other resources, financial resource is an
important reason for SME to not implement KM as they lack this resource [13];
[14]. On the other hand, SMEs are mostly family owned businesses which is
another hindrance in the implementation of KM. Owners of small businesses do
not encourage their employees to share their knowledge nor they do it by
themselves. SME owners don’t trust their employees in a sense that their
employees will leave them as soon as they will find a better opportunity. This
will lead to knowledge loss for their organization. Higher employee turnover in
SMEs also supports this phenomenon. This is one of the reasons why SME owners
consider knowledge sharing as a threat but at the same time by blocking outflow
of knowledge in this manner they are ruining the opportunity of getting new
knowledge.
3.0 Research Methodology
3.1 Research
Sample
Study was conducted in the Perak state of Malaysia.
30 SMEs were approached to participate in the study. 15 SMEs were from service
sector and 15 from manufacturing sector. Simple random technique was used for
sampling so that every SME on the list (Malaysian SME's list) should have equal
probability of selection. Type of SMEs approached from service sector includes
ICT, distributors, hotels, marketing companies, management consultants and
travel agencies. SMEs approached from manufacturing sector include stationary
manufacturers, door manufacturers, rubber products and plastic packaging
manufacturers. Questionnaire method was used as survey instrument.
Questionnaire was measured on 6-likert scale to remove the ambiguity of mid
value ‘neither agree nor disagree’. Questionnaire was directed to top
management of the companies to get a more realistic view. Reason for selecting
top management was that one of the aims of the study was to predict the future
of KM in Malaysian SMEs. Top management is the only appropriate option to get
response on that because they are the ones who know where to take the company
in future, what to implement and what not?
3.2 Respondent
Respondents
were asked to rank all fourteen factors from 1-14. One as most important and
fourteen was least important. After data collection, results obtained from
respondents were analyzed by the authors with the help of R-square value and
were cross checked by weighted average method. R-square is used to see that
whether any relationship exists between dependent and independent variables?
Value of R-square in this was used as criteria for measuring significance of
each factor. Higher the relationship, association or variance between two
variables (dependent and independent), greater the value of R-square will be.
All CSFs were treated as independent variables and ‘implementation of KM’
(which was measured by asking questions relevant to KM usage) was used as
dependent variable.
3.3 Critical
Success Factors (CSFs)
Various authors have suggested many CSFs in their
studies. Following CSFs have been analyzed in this study.
3.3.1 Understanding of KM
One of the most important CSF which was and is being ignored by
authors. Without proper understanding of KM how one can implement KM and get
benefit from its implementation? Top management is considered as the top most
important CSF by other authors but what if top management doesn’t have the
proper understanding of KM? Will they pursue implementation of KM without
proper knowledge?
3.3.2 Top
management support
Without
proper and full support of top management, nothing can be implemented in any
organization. Top management support is important for the implementation of KM
because its implementation requires financial and non-financial resources which
can not be obtained without the consent of higher management in an
organization.
3.3.3 Knowledge
friendly culture
Culture
plays an important role in the implementation of KM. Culture itself consists of
many components but here we will talk only about knowledge sharing (friendly)
culture because we are dealing with KM. Knowledge sharing is a crucial
component of culture for KM implementation.
3.3.4 Financial
resources:
Without
appropriate financial resources, nothing can be implemented in an organization.
Financial resources are important for KM implementation because IT equipments
and other expenses are required to implement KM.
3.3.5 IT
infrastructure (IT tools)
IT is the key enabler for KM. Without proper IT
tools and technology, KM’s implementation seems to be impossible.
3.3.6 Communication
between all levels of management
Communication
between all levels of management (top, middle and first line) is essential for
proper knowledge sharing and to increase the confidence of employees.
3.3.7 Training
and education of employees
Training
and educating employees, including top management, will be helpful in the
proper implementation and utilization of KM.
3.3.8 Hiring
and retaining of knowledgeable employees
Employees
are the ones who should have aptitude towards KM and knowledge sharing. If
employees are not into KM implementation and knowledge sharing then how they
will be helpful in its implementation. Therefore, proper hiring and retaining
of employees plays an important role in the implementation of KM.
3.3.9 Rewards
to encourage KM practices
Employees
behavior can be changed by providing them rewards (intrinsic and extrinsic). If
employees are not motivated towards implementation of KM then their behavior
can be changed by providing certain type of rewards to them.
3.3.10 Measuring
effectiveness of KM
Implementing
any strategy and then not measuring it is by no means an intelligent work. If
KM is not measured then how organizations will judge that whether the
performance of the organization increased or not? Purpose of implementing KM is
fulfilled or not and how our objectives and goals are being met by the
implementation of KM? Therefore, there should be proper criteria for measuring
KM implementation and its benefits.
3.3.11 Organizational
infrastructure
Organizational
infrastructure is another important factor for the implementation of KM. Large
organizations usually have organizational infrastructure whereas SMEs still
lack in this field. This is another reason that why SMEs are lacking in the
field of KM implementation.
3.3.12 Core
values of a business
Core
values of any business include vision and mission statements. These are the
reasons why a business exists. If organizations have KM or KM related
activities in their vision and mission then implementation of KM will be much
easier because almost all organizations do care about their vision and mission.
This can be another factor for the implementation of KM.
3.3.13 Strategy
for KM
Proper
strategy should be planned before implementing KM. Many projects fail just
because management does not have any specific strategy or they don’t strictly
follow the planned strategy.
3.3.14 Systematic
KM process and activities
All
the process and activities of the organization should be linked to KM;
otherwise, there will be no effective utilization of KM.
Table
3 shows the detail about the service sector SMEs which were approached to
participate in the study. Table gives an overview about category of companies’
(type of business it’s involved in) surveyed, total number of companies
surveyed from the same business area, level of SME (micro, small and medium)
and the number of employees in those SMEs working as full time employees. Total
15 SMEs from service sector were asked to provide the feedback. Those SMEs
include hotels (2 SMEs of small level), marketing companies (2 SMEs of small
level), management consulting companies (4 SMEs of medium level), Information
and Communication technology (ICT) (5 SMEs of medium level), distributors (1
SME of micro level) and travel agent (1 SME of micro level) were the different
types of SMEs which participated in the study. Effort was made to include all
types (different in nature of business) and all levels (micro, small and
medium) of SMEs so that the results of study can show accurate picture of KM
situation in Malaysian SMEs. 4 companies were small sized SMEs, 9 were medium
and 2 were micro level SMEs.
Table
4 shows the category (business in which organizations are involved), number of
SMEs from a particular business area, SME type and the number of full time
employees working in those organization.
Table 3: Service sector based Malaysian SMEs
Category
|
Number of SMEs
Surveyed
|
SME Type
|
Employee
|
Hotels
|
2
|
Small
|
>=5 & <= 19
|
Marketing
|
2
|
Small
|
>=5 & <= 19
|
Management
Consultancy
|
4
|
Medium
|
>=20 & <= 50
|
ICT
|
5
|
Medium
|
>=20 & <= 50
|
Distribution
|
1
|
Micro
|
<=5
|
Travel
Agencies
|
1
|
Micro
|
<=5
|
Category
|
Number
of SMEs Surveyed
|
SME
Type
|
Employees
|
Disposable Plastic Packaging
|
3
|
Medium
|
>=51 & <=150
|
Rubber Products
|
5
|
Medium
|
>=51 & <=150
|
Door Manufacturer
|
6
|
Small
|
>=5 & <=50
|
Stationary
|
1
|
Micro
|
<=5
|
Total
15 SMEs from manufacturing sector were asked to provide the feedback.
Businesses in which those SMEs were involved include manufacturing of
disposable plastic packaging material (3 SMEs of medium level), manufacturers
of rubber products (5 SMEs of medium level), door manufacturers (6 SMEs of
small level) and stationary manufacturers (1 SME of micro level). 8 companies
were medium sized SMEs, 6 were small and 1 was micro level SME.
4.0 Results
and Discussion
CSFs were first ranked on the basis of R-square
value. Higher the value of R-square means more are the chances that variance in
the dependent variable will be caused by independent variable. At the same
time, P-value was used to see the significance of relationship between
independent variable (14 CSFs) and dependent variable (implementation of KM).
Understanding of KM as a CSF had value of R-square equivalent to .902 and
p-value .000, which means that understanding of KM and implementation of KM,
has a very strong relationship. Higher value of R-square showed that 90.2%
variance in the implementation of KM can be predicted by understanding of KM.
Based on this value of R-square which is positive we can predict that higher
the understanding of KM, higher will be the implementation of KM positively and
vice versa. Top management support had a value of R-square equivalent to .836
and p-value .000, which means that top
management support is another important factor for the
implementation of KM. It also proves the point that without top management
support, KM can not be implemented in any organization. At the same time,
understanding of KM has more significance as compare to top management support
(based on R-square value). This shows that top management also needs
understanding of KM to pursue its implementation. Knowledge friendly culture is
among top three CSFs for the implementation of KM with R-square value of .805
and p-value of .000. Without proper financial resources, anything can not be
pursued in an organization. Because at the end what matters most are financial
numbers. All other resources are dependent on financial resources. Financial
resources had value of R-square equal to .778 and p-value .000. This shows that
implementation of KM is highly dependent on financial resources beside other
resources.
4.1 Importants
of IT for KM
IT is one of the key enablers of KM, therefore it
has a very positive and significant impact on the implementation of KM. Value
of R-square for IT tools (IT infrastructure) is .763 plus p-value is .000 which
proves its significance as a CSF. Communication between all levels of
management is also important for KM implementation. Until and unless, everybody
knows about KM, it can not be implemented. That is possible only through
communication. Talks about KM should be organized; KM seminars and informal
meetings for knowledge sharing should be conducted in the organization at
regular intervals. Value of R-square for communication between all levels of
management was .720 with p-value of .000. Training and educating employees
about KM, future of KM and benefits of KM implementation should be provided.
This will help employees in foreseeing their career more towards KM related
activities. Value of R-square for training and education was .701 and p-value
.000. Hiring those employees which are oriented towards KM related activates
will be helpful for organizations in implementing KM, thus showing a value of
.693 and p-value
.000.
4.2 Factors Consider as CSF for KM
Rewards are also important to change the behavior of
employees towards KM and are considered as CSF for KM implementation having
R-square value of .685 with p-value of .000. Other CSF includes measuring
effectiveness of KM (R-square value = .672, p-value .000) because without
proper measuring methodology, how management can see that whether the purpose
of implementing KM is fulfilled or not? Organizational infrastructure (R-square
value = .608, p-value .000) proves its significance. Core values of business
which include mission and vision statements had a value of R-square = .594 and
p-value of .000. Proper strategy for KM implementation (R-square value = .570,
p-value .000) and systematic KM processes and activities (R-square value = .545,
p-value .000) were among the least CSFs for implementing KM.
Understanding
of KM .902
(90.2 %)
Top management support .836 (83.6 %)
Knowledge friendly culture .805 (80.5 %)
Financial resources .778 (77.8 %)
IT infrastructure (IT tools ) .763 (76.3 %)
Communication between all
levels of management .720 (72.0 %)
Training and education of
employees .701 (70.1 %)
Hiring and retaining of
knowledgeable employees .693 (69.3 %)
Rewards to encourage KM
practices .685 (68.5 %)
Measuring effectiveness of
KM .672 (67.2 %)
Organizational
infrastructure .608 (60.8 %)
Core values of business .594 (59.4 %)
Strategy for KM .570 (57.0 %)
Systematic KM process and
activities .545 (54.5 %)
Table 5 provides a prioritized list of CSFs based on
the mean value. Smaller the mean value of a CSF, higher its priority will be.
Priority of CSF was judge both by R-square value and mean value to see the
accuracy of results. There are differences over few of the CSFs whose priority
varies according to R-square and mean value. Top management support has the top
priority as CSF for implementing KM with mean value of 2.07. Knowledge friendly
culture has mean value of 3.33 and is second most important factor for
implementing KM. Financial resources have 3rd priority based on mean
value (3.63). IT tools having mean value of 5.77 are among top 5 CSFs for
implementing KM. Communication between all levels of management is another
important factor for KM implementation with mean value of 6.33.
Table 6: Prioritization of CSFs on
the basis of mean value
Variable Name
|
Mean Value
|
Top management support
|
2.07
|
Knowledge friendly culture
|
3.33
|
Financial resources
|
3.63
|
IT infrastructure (IT
tools)
|
5.77
|
Communication between all
levels of management
|
6.33
|
Training and education of
employees
|
6.73
|
Hiring and retaining of
knowledgeable employees
|
7.63
|
Strategy for KM implementation
|
8.57
|
Rewards to encourage KM
practices
|
8.73
|
Systematic KM process and
activities
|
8.93
|
Core values of business
|
8.97
|
Measuring effectiveness of
KM
|
9.73
|
Organizational
infrastructure
|
10.37
|
Other CSFs includes training and education (mean
value of 6.73). Hiring and retaining of knowledgeable people (mean value of
7.63), proper strategy for the implementation of KM (mean value of 8.57), and
rewards to encourage KM behavior among employees (mean value of 8.73).
Systematic KM process and activities (mean value of 8.93), Core values of
business which includes vision and mission statements of the business (mean
value of 8.97). Measuring effectiveness of KM implementation (mean value of
9.73) and organizational infrastructure (mean value of 10.37).
There are difference between prioritized list
produced by R-square value and mean value. It is due to the fact that the list
produced from mean value does not contain any audit questions. Respondents were
asked to directly rank the factors whereas, when R-square was used to rank the
factors, audit questions were also included in the test to gat more accurate
results.
Table 6 provides a prioritized list of type of
applications being used by Malaysian SMEs. Respondents were asked to provide
feedback on the type of application they were using in their organizations.
Respondents were given the option of choosing more than one applications at a
time.
Number of times each option was chosen, is
represented by ‘frequency’ in table 2. 24 SMEs were using KM to promote
friendly knowledge sharing behavior in their organizational culture whereas, 21
were using some sort of database to store knowledge at one place. 2o SMEs were
using tools to capture new knowledge. 17 were using KM tools to enhance the
knowledge of their employees. Intranet and internet was being used by 12 SMEs
for knowledge sharing purpose. 11 SMEs were using KM tools to identify
opportunities and threats for the organization. 10 SMEs were using KM tools to
measure it. Another 10 companies were maintaining KM infrastructure and 8 were
using KM to help them in planning strategies.
Frequency
|
Application
usage
|
24
|
Friendly knowledge sharing culture
|
21
|
Using tools (i.e. database) to store
knowledge
|
20
|
Using tools to capture new knowledge
|
17
|
Building and maintaining employees’ expertise
and skills
|
12
|
Using intranet and Internet to share
information
|
11
|
Identifying opportunities and threats
|
11
|
Providing incentives to knowledge management
promoters in organization
|
10
|
Tools to measure KM
|
10
|
Maintain knowledge Infrastructure
|
8
|
Developing strategies for KM
|
Figure
1 shows the level of KM implementation in SMEs. This is the combined analysis
for service and manufacturing sector (30 SMEs). Out of 30 SMEs, half had the
level 4 (using tools like databases, Enterprise Resource Planning (ERP),
Inventory Management, Customer Relationship Management (CRM)) implementation of
KM, 11 had 3rd level (using tools for Email, Internet Browsing,
Video Conferencing, intranet, file sharing, creating websites, e-commerce,
VoIP) of KM implementation, 3 had 2nd level (using tools like PCs
with Microsoft Office, Star Office) of KM implementation and one SME had level
1 (using only land line phones or mobiles) KM implementation.
SMEs
which were having level 4 KM implementation were the ones who had actually
implemented KM. SMEs having 3rd level of KM implementation were
using tools which are basically important for knowledge sharing and to store
knowledge. Those SMEs which were having level 2 KM implementation were using IT
tool (PCs, Microsoft/Office Office) for day to day storage of records and in
actual were using KM (only storage of daily transactions) to a very minimum
level. SME having 1st level of KM implementation was using only land
line phone or mobile phone so we can say that one of the tools for KM
implementation was being used for communication but no other application of KM
implementation.
Out
of 30 SMEs in figure 2, 20 said that they will increase their investment in
future for KM implementation, whereas 6 said that they do not want to implement
KM and 4 SMEs haven’t decided yet to implement it or not.
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If
we do the combined analysis of Fig 1&2, we can see that majority of the
SMEs have already implemented KM and many of them are also convinced to invest
more in KM. From this we can analyze, that in future we will see the growth in
implementation level of KM in Malaysian based SMEs.
Figure 2: Intention of Malaysian SMEs to implement
KM in future
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Out
of 30 SMEs who participated in the research, 25 had already implemented KM so
they responded to this question only. Figure 3 shows that 6 SMEs were using KM
from last 1-3 years, 10 were using from 3-5 years and 9 SMEs had implemented KM
for more than 5 years. This shows that implementation of KM is considered as a
healthy sign by Malaysian SMEs as they are considering its implementation as
important factor for their growth.
Figure 3: Years of KM implementation in Malaysian
SMEs
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From
30 SMEs who responded to questionnaire, twenty companies are planning to implement
KM so they responded to this question only. According to the analysis of figure
4, regarding the future of KM in Malaysian SMEs, 3 companies said that they
will implement KM in next 1-3 years, 10 have the inclination towards its
implementation in 3-5 years and 7 said that they will implement KM in more than
5 years. Therefore, one can predict on the basis of these feedbacks that in
next 1-5 years, KM implementation will grow in Malaysian SMEs.
5.0 Conclusion
SMEs where KM is already implemented are trying to
enhance their investment in KM applications, whereas those SMEs which haven’t
implemented KM yet, are in the process of implementing it. This is due to the
benefits which SMEs can get from implementing KM. Cost effectiveness, time
saving, innovation and quick decision making are the most common type of
benefits which SMEs can get.
Study was conducted in Malaysia in which 30 SMEs
were analyzed. CSFs for the implementation of KM were analyzed. Prioritized
list of these CSFs was produced based on the importance each CSF has while
implementing KM. Values of mean square
and R-square were used to prioritize CSFs. Analyzed CSFs includes: understanding of KM, top
management support, knowledge friendly culture, financial resources, IT
infrastructure, communication between all levels of management, training and
education of employees, hiring and retaining of knowledgeable employees,
rewards to encourage KM practices, measuring effectiveness of KM,
organizational infrastructure, core values of business, strategy for KM and
systematic KM process and activities.
Beside the significance of above mentioned CSFs, KM
implementation level by Malaysian SMEs was analyzed. Implementation of KM was
divided to four sub-levels. SMEs intention to implement KM in future, duration
of KM implementation and future of KM in Malaysian SMEs were also discussed in
the study.
Results of the study can be enhanced and generalized
by increasing the number of SMEs and testing the CSFs mentioned in this study
in another domain.
References
[1]
Desouza, K.C. and Awazu, Y. “Knowledge management at SMEs: five peculiarities,”
Journal of knowledge management (10:1), 2006, pp. 32-43.
[2]
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