IntroductionIn CapitalTheodore Schultz in 1960 at the annual meeting

our world today, companies, from start-ups to multinationals, are leveraging on
technology and innovations from science discoveries and ongoing continuous
research in different fields of study to gain competitive advantage in the
market.  However, more critical than the
new tools and services enabled from innovations, are the people and workers who
shall wield and handle these inventions.  Understanding human capital, the transfer of
information and knowledge management is even more pertinent today, with the
rate of technological change, the flux of information as well as multiple
innovative disruptions happening in different industries all over the world.Before
we delve into the detail of understanding know-how transfer in Small and Medium
Businesses (SMEs), let us first have a bird’s eye view of why human capital is
important, what know-how transfer and knowledge management are, and also how
these concepts affect the growth and operations of SMEs.Human
Schultz in 1960 at the annual meeting of the American Economic Association,
coined the expression ‘Human Capital’ to explain the importance of education in
promoting job opportunities and economic growth. Furthermore, he explains that
expansively in his article ‘Investment in Human Capital’, the importance of
investing in education and learning, as well as its impact in the economic
growth of a nation1.
are various factors – according to Classical Human Capital Theory – that may
affect and differentiate the human capital level among workers:·        
A worker’s innate ability differentiates
him from other workers. This can be observed in the difference among employees
who have access to the same educational investment as well as economic
constraints. ·        
An individual’s education is also a
differential factor between him or herself and their respective counterparts. A
worker’s earnings may significantly differ given the level of schooling he has
attained (although this difference becomes marginal across different
industries, 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 them
in the labour market. For example, an individual who dedicates more time to
extracurricular activities and association membership may develop skills
outside of the educational study, and thus garner more earnings that similar
individuals with the same qualifications. This also follows for workers with
the same qualifications, but from different schools or colleges.·        
Besides the differential factors mentioned
above, on-the-job training for a specific role or job requirement
differentiates workers and their earnings from their colleagues and peers. It
is commonplace across firms and business for management to invest in their employees
– through training programs or educational courses – to enable them increase
their productivity and foster greater returns than the cost of the investment
made on their training. The
Lean Startup by Eric Ries proposes that firms implement a feedback loop –
Build, Measure, Learn – through which they aim to complete as quickly as
possible in order to reduce the time spent on making products that customers to
not want, and that are not needed in the market. He also introduces the concept
of validated learning as a measurement of progress when a startup (or firm) is
working in conditions of extreme uncertainty. In the context of Human Capital,
these concepts become even more important because it is paramount for a company
to determine what knowledge is most relevant for its employees to work
productively, and how it then creates and maintains tools and processes for the
dissemination of information and knowledge between its workers, and across
business units and departments.What is
Knowledge ManagementCeptureanu states in his
study 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) implementation
of classic strategies but integrating knowledge as a component”.

Diagram from HBR article ‘Balancing Act: How To Capture Knowledge
Without Killing It’ by Brown J.S and Duguid P., also referenced by Ceptureanu
S. in his study ‘Knowledge Management in SMEs’. Brown
in 2000 Harvard Business Review article, explained the dilemma companies found
themselves in at the turn of the new millennium, with the advent of the
internet and massive disruption to their existing models and organisational
structures. Split between Reengineering – reviewing their business processes to
gain competitive advantage in the market – and Knowledge Management – a process
that seeks to take advantage of the effectiveness of value-creating activities
of employees in the company – Brown analyses how balancing process and practise
can enable companies better manage change and incorporate knowledge management
in their organisations.Knowledge
Management, simply put, refers to how an organisation manages its intellectual
resources, particularly among its workforce. While knowledge management has
been marketed and sold as another consulting service over the years, it has
also been acknowledged by company CEOs the importance of Knowledge Management and
its investment for the long-term growth of a company (even though many forego
this investment for short-term goals)2. In
order to understand and harness the benefits of effective knowledge management,
it is important for a company to first know what local knowledge exists, and if
or what part of it is valuable (Brown, Duguid 200). There have been multiple
approaches to adopting Knowledge Management, broadly categorised under
sequential and iterative frameworks (Handzic 2004). The
sequential framework – as the name implies – entails three stages implemented
one after another. First the company identifies and curates the relevant
knowledge available in the company. Second, the company makes use of the
knowledge they have discovered and develop new uses with this already existing
knowledge. And lastly, the company begins to enable new knowledge creation,
realising that their existing knowledge is insufficient, and thereby evolving
into a knowledge based business. This framework was further expanded in Liebowitz
2003 study ‘Putting More Rigor into Knowledge Management’, where a feedback
loop was added.Another
framework proposed for adopting Knowledge Management is the Iterative process
proposed by The Arthur Anderson Office of Training and Education3. This method proposed a
number of steps which were:·        
First awareness, which entails education
about 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 supporting
infrastructure/environment for knowledge in the company;·        
Testing the knowledge management process
before it is adopted throughout the organisation; and·        
Assessing the knowledge management
solutions and renewing the process in a repeated cycle.While
many frameworks and methods for adopting Knowledge Management have been
continually suggested, it is paramount to recognise the importance of this
process to companies in their race for market share and competitive advantage.Know-How
is important to understand – especially in the context of human capital – that
information and knowledge are not the same thing. While the former describes
data 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 difference
in knowing that a knife is used for cutting, and knowing how to cut with a
knife. As such, knowledge is that which is valuable in this specific context
when we discuss human capital. For
a company to grow the collective human capital of its workforce, it becomes
necessary for the organisation to establish tools, processes and people that
can facilitate the flow of know-how to help the company grow. Know-How Transfer
thus, is the collection of people, tools and processes that enable the flow of
knowledge within an organisation for to increase organisational growth and
productivity. This is particularly important as competition between firms
shifts from tangible resources, to intangible resources such as technological
know-how and information for example (Ceptureanu, 2013).Know-How Transfer in SMEsSMEs
differ from large companies in various ways. Perhaps most importantly is the
fact that given their relatively small size, they are more agile than
multinational companies, with less bureaucratic processes and quicker flow of
information between employers as well as in decision making among management.
For this reason however, SMEs frequently lack the structure and organisation
that facilitates and efficient and effective of information within the firm.
Know-How Transfer in SMEs and Knowledge Management is just as important a tool
as it is in large firms. However, the way SMEs manage their know-how is
different. Edvardsson
in 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”. We
have previously observed from Wakefield et al. that firms do not investment
much into knowledge management even though they agree to its benefits and
importance. Let us consider some of the similarities and differentiating
factors of SMEs from large companies.Desouza
and Awazu in their 2006 paper highlighted what were the peculiarities among
SMEs, in terms of know-how transfer and knowledge management. They outlined
five key factors which were. They examined a sample of 25 SMEs and the common
themes which were observed were:·        
Socialisation is the dominant factor for
SMEs within the context of the SECI knowledge creation cycle (Nonaka et al.
1991), in comparison to externalisation, combination and internalisation. In
this concept of socialisation, tacit knowledge moves between individuals, and
thus is shared most frequently this way. This contrasts with externalisation –
application of external knowledge to work for example, combination – putting
together external pieces of data, and internalisation – when external events
affect most an increase in knowledge.·        
SMEs share a “prominence of common
knowledge”. Common knowledge in this context refers to the general knowledge
known by all workers of an organisation. As such, it was commonplace in SMEs
for employees to share similar ways of thinking and organisational
understanding in this context, given the size of the company. This helps ease
knowledge transfer as well as organisational efficiency in day-to-day routine.·        
SMEs, unlike large corporations and
multinationals, do not suffer from knowledge loss with the exit of an employee.
First, give the small size of the firm, the relationship between workers is
closer, and this close-knit social circle serves as a deterrent for employees
leaving the company. Nevertheless, SMEs are able to fill in positions and
knowledge gaps quicker than larger companies due to their size, and this again
helps prevent the loss of valuable information.·        
As SMEs are resource constrained and least
likely to invest in knowledge creation, they are able to harness and exploit
external sources of knowledge. In addition to this, SMEs are also able to form
networks with local organisations and business, which again helps them leverage
local information for the benefit of their business. This is commonplace for
social activities for employees, where local businesses have discounts for them.·        
Lastly, SMEs operate a people-centered
knowledge process, with technology in the background. This again follows from
the lack or little investment in knowledge management tools and processes, but
also, because of their size, it is easier for such organisations to pass
information between people. As such “knowledge is created, shared, transferred
and applied via people based mechanisms”.4Lastly,
Wong and Aspinwall carried out a research among two groups – SMEs in various
sectors and areas of business, and a group of academics, consultants and
practitioners who contribute to the field of Knowledge Management – to understand
what were the Critical Success Factors (CSFs) for adopting knowledge management,
as well as their ranking.5 The 11 factors used for
the survey – consisting of 66 elements – were identified from various authors
who 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;·        
Strategy and Purpose;·        
Processes and Activities;·        
Training and Education;·        
Human Resource Management;·        
Information Technology;·        
Motivational Aids;·        
Organisational Infrastructure; and·        
is important to note that while we have highlighted the constraint of resources
for SMEs in comparison to large companies, it is not as important as having a
strong leadership and support that is willing to adopt knowledge management
practises, and establish a clear strategy and purpose for its implementation in
the firm. In addition, establishing a company culture of openness and knowledge
sharing is ranked more important than pursuing IT tools or technology that may
assist know-how transfer.It
is clear to see that SMEs stand a lot to gain from the adoption of knowledge
management practises, despite their size of resources. It is therefore
important to understand what are the difficulties and hinderances to the
implementation of knowledge management in SMEs, and in large businesses too.Difficulties
Facilitating Know-How Transfer in Firms A
lot has been said, and can be said about knowledge management and know-how
transfer 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 are
a few difficulties with immediately adopting such a strategy and making it
work. Birkinshaw in his 2001 study identified a few reasons as to why the
implantation of knowledge management fails.6 First
and foremost, many companies are unaware that they already share knowledge in
one 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 of
workers7 who freely share
information with themselves, but then do not pass on this information to
employees outside their circle, either due to lack of an established framework
to do this, or the absence of a shared context that brings together different
workers across business units and assignments. Another aggravation to this
which Fahey and Prusak highlighted in their 1998 study, is that companies focus
more on building knowledge stock instead of knowledge flow. While a first step
to ensure best practises are captured is their documentation and easy reference
for training, if these are not shared, applied and iterated with time, they
only become a burden to the company and begin to become obsolete without the
feedback and continuous iteration of employees and users of this knowledge.Birkinshaw
also highlighted three elements important to knowledge management in firms,
which were a) improving informal flow of knowledge between individuals; b) building
processes for sharing this knowledge within the firm; and c) tapping into new
knowledge from external sources. In an effort to achieve this, one may suggest
adopting and investing in IT tools that can help automate and manage the flow
of this information across the firm. However, using technology in-place of
actual human contact and socialisation is another reason why knowledge
management adoption fails. This particularly turns into a rabbit hole when the
measurement, or chasing metrics to show the flow of knowledge between employees
becomes a goal for the firm, either to single out an achievement milestone, or
justify the investment in tools for knowledge management. Technology remains a
great enabler that aids and assists productivity in the workplace, but this
cannot substitute the innate need for communication and socialisation between
companies who adopt knowledge management may formalise their process as well as
enforce socialisation among their employees without IT getting in the way, do
this with existing knowledge and information available to the company without
creating and innovating new information and new know-how processes may also
result in a failed implementation of knowledge management. There are many
reason why this may happen. First, a company concerned on operational efficiency
may achieve streamlining their process, but this process done with external
input from industry benchmarks, forward-looking projections and future vision
only recycles existing information again and again. Birkinshaw highlights how
CISCO buys small companies and 3M has strategic accounts with some of its
customers as ways of bringing in new knowledge into the company.There
are many pitfalls and challenges in applying knowledge management in a firm,
but these are by no means to prevent companies and SMEs from adopting processes
for know-how transfer. It only highlights the different angles available for
businesses to consider before hurriedly trying to implement knowledge
management processes, and the trappings to be aware of when  putting in place tools and processes when
people are paramount to its success.

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Schultz, T.W ‘Investment in Human Capital’, The American Economic Review Vol 51
March 1961 No.1

2 As
concluded in the study ‘Knowledge Management Issues in knowledge-intensive
SMEs’, by Richard Wakefield et al.

AAOTE (1998), BC Knowledge Management, Arthur Andersen Office of Training and
Education, Arthur Andersen. This was also referenced in Handzic’s study
‘Knowledge Management in SMEs’.

Quote from ‘Knowledge Management at SMEs: five peculiarities’.

From the 2005 study ‘An empirical study of the important factors for
knowledge-management adoption in the SME sector’.

See study ‘Why is Knowledge Management So Difficult’.

Birkinshaw describes these people as the ‘In-crowd’ in his 2001 study.