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& Case Study
Knowledge Management in Small Firms
John Sparrow*
Knowledge Management Centre, University of Central England, UK
This paper discusses features of small firms that combine to constitute a different milieu for
knowledge management. It reports upon work conducted with many small firms and presents
a model of considerations and phases in knowledge management projects in small-firm
settings. Copyright # 2001 John Wiley & Sons, Ltd.
INTRODUCTION
Knowledge management
There can be little doubt that effective leverage of
knowledge will be the key to business success in
the future. Particular economic concepts have been
argued to have become increasingly central to
business and national competitiveness. These
include the economics of knowledge (Machlup,
1984), core capability (Prahalad and Hamel, 1990),
co-production of value (Wikstrom and Normann,
1994) and adaptability/innovation (Bolwijn and
Kumpe, 1990). In addition, there is an increasing
contribution of digital technologies to decision
making in terms of their knowledge-processing
characteristics and support for collaborative effort
through enhanced communication (Hougaard and
Duus, 1999). The ability for sets of individuals/
businesses to continuously manage their adapta-
tion in order to co-produce, on the basis of their
respective strengths in knowledge terms (increas-
ingly independently of geographical/temporal
constraints), represents a fundamental challenge
to conventional business, management and eco-

nomic practices.
Managing the value that can be derived from
knowledge is a challenge for all businesses, large
and small. Understanding of the organizational
theory and practice considerations of knowledge
management has largely been derived, however,
from large company developments. It seems clear
that small and medium-sized businesses will need
to address their knowledge management practices,
but that, like so many aspects of business and
management, the issues that small and medium-
sized businesses will face will not be simply a
scaled-down replica of large-company experiences.
Knowledge Management Centre research
programme
The Knowledge Management Centre has been
established as a regional partnership between a
university, and local city council, and business
support agencies in the West Midlands of the
United Kingdom to identify and address the
business support needs for small and medium-
sized enterprises (SMEs) in developing their
knowledge management (KM) practices.
This paper draws upon a programme of in-
depth qualitative research to explore knowledge
practices, KM development and business support
needs of SMEs. The research process has entailed
survey, passive observation, action research and
process consultation phases/stances. Nearly one
hundred businesses have been involved. In-depth

study has taken place in a small number of
businesses for periods of between twelve and
eighteen months. In the course of the work, a
number of insights into key issues in knowledge
management in SMEs have been derived from case
studies of the ‘unaided’ learning and KM practices
of SMEs, case studies of gaining ‘entry’ into SMEs
for knowledge projects, surveys of attitudes to KM
in SMEs, and in-depth facilitation of knowledge
management in several SMEs. Whilst a number of
reports have been produced by members of the
*Correspondence to: John Sparrow, Knowledge Management
Centre, University of Central England, Perry Barr, Birmingham
B42 2SU, UK. E-mail:
Knowledge and Process Management Volume 8 Number 1 pp 3–16 (2001)
Copyright # 2001 John Wiley & Sons, Ltd.
team upon particular facets of knowledge manage-
ment (e.g. Martin, presentation to the Staff Semi-
nar Institute for Manufacturing, University of
Cambridge, 1999; Shelton, 2000; Sparrow et al.,
1998; Sparrow, 1999; 2000; Zetie, 1998), the overall
thrust of the findings (and their shaping influence
on the ‘model’ of SME KM development that has
evolved to date) has not been articulated. This
paper represents an initial attempt to ‘map’ this
territory and present the ‘rationale’ behind the
approach towards supporting KM development in
SMEs that has evolved to date.
KNOWLEDGE MANAGEMENT-RELATED
FEATURES OF SMALL FIRMS

Drivers, evolutionary paths and business
priorities
Drivers
As has been the case with earlier generations of
ICT innovations (e.g. Hepworth and Ducatel,
1992), the adoption of knowledge technology in
small businesses seems to be led by clients,
especially large customers and suppliers. The
automotive best-practice forum held by Arthur
Andersen in January 1999 (Livernois and Miller,
1999) identified a number of knowledge gaps
emerging as suppliers’ responsibilities increase. In
our work, cases have been identified where
significant restructuring of the activities of major
customers have had implications for the skills/
capability of SMEs. At the personal level, there is
broad evidence that small business owners/man-
agers may need to have reached a point of genuine
‘fear’ of a prospective difficulty before they act
(e.g. Berry and Perren, 1998; Sparrow and Good-
man, 2000). Engaging small businesses in a
reflective process that signals a compelling need
appears to have value. These drivers are in
contrast to the technological push considerations
that can be a primary driver in larger firms.
Evolutionary paths
While methods in small businesses might appear
‘informal’, they have often been found to support
quite sophisticated decision-making (e.g. Lightfoot
and Kitchen, presentation to the Small Business

and Enterprise Development Conference, Leeds,
1996) and large business (more formal) practices
should not be ‘imposed’ (e.g. North et al., pre-
sentation to the 18th ISBA National Small Firms
and Policy Conference, University of Paisley,
1995). There is evidence from studies of manage-
ment information, control and decision making in
small firms that shows the ‘development of
information and control systems to have a proces-
sual and apparently adventitious nature [where]
the chains of causality are quite complex’ (e.g.
Berry and Perren, 1998: 904). Berry and Perren
(1998) cite by way of example, the importance of
the ‘process’ that lay behind a case study busi-
ness’s ‘extension’ of an accounts package to a
broader information system.
The work of the KMC team to date indicates that
any need for technical enhancement of a know-
ledge management ‘system’ is more likely to
‘resonate’ in a small business that has already
sensed the value of information management.
Appreciation of the strategic importance of ‘core
capability’ may come more easily to an SME that
has seen one aspect of the relationship between
business strategy and human resources through
involvement in the Investors in People pro-
gramme. The importance of systematic analyses
of business processes and linkages to key know-
ledge may be understood more readily by an SME
that has engaged in a ‘quality’ (e.g. ISO 9000,

Business Excellence model) improvement initia-
tive.
Current business priorities
With the resource constraints of SMEs in mind,
Sparrow (1999) suggested that a specific pressing
business situation might constitute the most
appropriate opportunity for a small business to
initiate a knowledge project. Braganza et al. (1999)
suggested that it might be useful for businesses to
classify and manage their knowledge projects on
the basis of their contribution to innovation. They
distinguish between knowledge projects that expe-
dite efficiency benefits to the firm, enhance the
relative performance of the business in its sector,
exploit a new opportunity for a firm to gain
advantage in its industry, or explore possible
innovations. SMEs appear to be most attracted to
the first two forms of knowledge project.
In the Knowledge Management Centre’s case
study SMEs, process innovations, joint ventures,
ownership succession, and restructuring have each
provided an opportunity for the ‘lens’ of know-
ledge management to be brought to bear.
Components of knowledge management
initiatives in SMEs
Four components of knowledge management in
small firms have been found to figure strongly in
small firm knowledge projects. These are depicted
in Figure 1.
CASE STUDY Knowledge and Process Management

4 J. Sparrow
Appreciation of personal and shared understanding
While it is clear that information and communica-
tion technologies can enhance a business’s know-
ledge system, it is important to recognise the
nature of knowledge-creation utilization and
transfer, and the need to augment technological
initiatives to secure competitive advantage. An ‘over-
whelming emphasis on IT and major gaps in the
treatment of people’ (Swan et al., 1999, p 264) in
knowledge management theorising and practice,
has been noted. This ‘technological’ imperative is
captured in statements such as Cole-Gomolski’s
(1997) assertion that ‘the idea behind KM is to
stockpile knowledge and make it accessible to
others via a searchable application’. The KMC
studies of knowledge processes in SMEs have
confirmed that knowledge transfer is not a case
of linear information transfer but a process of
‘sense-making’ (Weick, 1990) with extensive effort
being needed to develop a ‘common stock of
knowledge’ (Kogut and Zander, 1992: 389) and
‘system of meaning’ (Trompenaars, 1995). Know-
ledge management implies an emphasis in man-
agement upon ‘management by perception’
(Sparrow, 1998: 12), i.e. ongoing recognition of
the meaning and interpretation of events by
others.
There is a wealth of evidence that shows that
people use their mental models of situations to

guide their decisions and actions (Sparrow, 1998;
Eden and Spender, 1998). At the strategic level,
Daniels et al. (1994) demonstrated how organiza-
tions in general are ‘run’ in terms of managers’
models of the organization and its competition,
rather than any ‘objective’ notion of the location of
the business in its environment. In the small firm,
the contribution of owner/manager cognition
towards business practices is even more signifi-
cant. Sparrow and Bentley (2000), for example,
identified the impact of owner–manager personal
decision style (belief in control etc.) upon the risk
management practices adopted in their small
firms. Sparrow and Goodman (2000) have shown
how the innovation process within networks of
small firms may be affected by the models that
owner–managers manifest in terms of trust, sup-
port for innovation, task orientation and vision (i.e.
perceptions of team climate; Anderson and West,
1994). Individuals’ models of their own knowledge
and the potential contribution of other knowledge
have also been studied in SMEs (Lightfoot, 1996).
The study highlighted the importance of recognis-
ing the ways in which owners/managers ‘accom-
plish’ (Munro, 1996) their resistance/rejection of
outside knowledge. The case study work on
knowledge management in SMEs has highlighted
the fundamental need to recognise the mental
models that participants have, and the need to
work towards means of eliciting and sharing

personal understanding in the identification and
development of process and knowledge system
developments.
A revised knowledge system in a small firm
cannot be a complete replacement of the models
that participants have of issues and situations. A
system that informs a business about strategic
options to collaborate (on the basis of a competi-
tive intelligence system) needs to provide informa-
tion in the terms of the ‘model’ of the industry and
competition that an owner and managers have,
rather than constitute some attempt to present its
own conception of the issues. Knowledge systems
in small firms need to amplify human potential
(Chattell, 1998). It is also important to maintain the
‘fit’ of any knowledge system with the models of
individuals in a second manner. The release of the
potential of new developments can only be
secured if the potential is appreciated and is
realizable by those involved. Putting the notion of
knowledge at the centre of a person’s thinking
entails more than exposing them to a revised
knowledge system. It is also far more than
attempting to address loose notions such as the
‘cultural mismatch’ of a technology (e.g. Allen,
1977). It involves ongoing assessment of the
understanding of individuals and support for
development of that understanding. The fit of a
knowledge philosophy and knowledge practices
within an individual’s practice is critical. The

degree to which a collective mind (Weick and
Roberts, 1993) operates within a ‘community of
practice’ (Hendry et al., 1995) will determine
overall effectiveness. Knowledge management
requires an appreciation of individual and collec-
tive understanding.
Knowledge bases and knowledge systems
Developments in KM in smaller businesses have to
stem more from a fundamental conceptual grasp
Figure 1 Four components of knowledge management in
SMEs
Knowledge and Process Management CASE STUDY
Knowledge Management in Small Firms 5
of the role of knowledge in business and the basic
principles of a knowledge system. This is in
contrast to initiatives in larger firms which may
be part of a tradition to make substantial invest-
ments in information technology on the basis of
the influence of internal technical specialists (to
some extent on the basis of their own ‘sectional’
interests; Eason, 1988: 204). In larger organizations,
the contribution of the latest ‘generation’ of soft-
ware/hardware is interpreted in terms of specific
contrasts with the current information manage-
ment system. The particular ‘technical’ advances
are seen in terms of the enhancements they
provide to the current technology. Knowledge
management in smaller firms has to be seen first
as a (significant) concept with implications for the
current business systems (both human and com-

puter-based). The added value of an investment in
computerization has to be demonstrated above
and beyond other (cheaper and more grounded)
changes to business practices. Many of the features
of knowledge systems in larger firms can only be
achieved through use of and information and
communication technology approach. This is
often because the bureaucratic features of larger
firms (fractionation of work, complexity, anonym-
ity etc.) require a technology for their mitigation.
The broad principles with which a knowledge
system can be considered can provide a useful tool
for enhancing organizational systems and practices
in small firms. A consideration of the strengths
and limitations of the current ‘system’ means that
the particular contribution that ICT can make is
appreciated (and considered from a business
benefits perspective). This is in contrast to devel-
opments premised on a general technological
belief. Figure 2 details the principles of knowledge
systems that can be used to guide the evaluation of
current knowledge systems and practices in SMEs.
It has been noted how many of the features of
knowledge management software developments in
larger businesses may be a reflection of features of
large firms per se, rather than generic knowledge
management requirements. The technological
emphasis in large firm and SME knowledge
systems differs. In the main, large firm KM
products place their primary emphasis upon the

means to get information to users (as opposed to
the contribution of the utilization of information).
The emphasis on these two considerations is
different in SMEs. The work of the KMC team
has revealed the value of supporting SME owners,
managers and employees to view their business in
knowledge terms. It is the facilitation of this
conceptual process that has proved to be the
most central feature of the KM approach that the
team has evolved. The emphasis on the develop-
ment of knowledge as a lens (as opposed to a
knowledge management system) together with the
emphasis upon knowledge system principles (as
opposed to ICT knowledge system elements)
represents a fundamental difference between
knowledge projects in large and small firms.
The integrated and contextualized action needed for
knowledge projects in SMEs
Effective enhancement of knowledge management
capabilities in a small firm has to recognize a
number of key features of small firms.
Scarbrough (1996) identified a potential tension
within larger organizations between the human
resource function and IT function in designing and
executing a knowledge project in businesses. The
properties of knowledge systems can reflect the
Figure 2 Principles of knowledge system that can be explored with SMEs
CASE STUDY Knowledge and Process Management
6 J. Sparrow
relative influence of particular ‘sectional’ interests.

The important role that participants play in deal-
ing with the unanticipated (emergent) features of a
knowledge project have also been reported (Orli-
kowski, 1996). There is a general recognition of a
need for greater involvement of top management
in knowledge projects (Kennedy, 2000). The shap-
ing role of functional ‘expert’ change agents is,
however, less apparent in SMEs. The centrality of a
managing director and managers in SME knowledge
projects is most evident. The role of top manage-
ment in SME knowledge projects may account for
the higher emphasis upon strategic impact both in
the initial consideration of a KM initiative and in
the response to emergent features of a knowledge
project.
The ‘articulation of the knowledge base’ (Chat-
tell, 1998: 150) through the development of a
formal organization system for knowledge identifica-
tion, definition and evaluation, as an approach to
knowledge management, it rooted in the philoso-
phy of predictability, measurement and control.
An alternative philosophy might place less empha-
sis on the decontextualization of knowledge
through its description and measurement, and
more upon chaos theory (Stacey, 1992) notions of
a self-correcting, flexible and dynamic knowledge
process through which the business secures its
adaptivity. There is evidence to suggest that this
is a characteristic of management approaches in
small firms. The instability of the business in the

light of the volatility of its business environment
may place a premium upon adaptivity rather
than predictability and more rigid configuration
(Smallbone et al., 1992).
The overwhelming majority of the reported
implementations in knowledge management in
larger firms concern operational developments.
Strategic implications of knowledge/capability
have been considered less in empirical terms and
more as economic and management debates. Two
aspects of strategic implications for knowledge
projects that have been highlighted are strategic
vulnerability (e.g. Hall and Andriani, 1999) and
strategic capability (e.g. Bowander and Miyake,
1999). A method to identify and evaluate a firm’s
capabilities for competitive advantage has also
been presented (Birchall and Tovstiga, 1999).
More recently, the theoretical dangers of a ‘blin-
kered’ knowledge management system have been
highlighted (e.g. Malhotra, 2000) and the need for
maintaining an uncertainty capability in business
seems clear. In other contexts, it has been shown
that entrepreneurs’ mental models of their
businesses integrate strategic and operational
considerations and consider the retention of ‘man-
oeuvrability’ (Sparrow and Bentley, 2000). The
need for recognition of and education for uncer-
tainty has been highlighted in earlier work by a
member of the KMC team (Boyd and Wild, 1993;
Boyd and Robson, 1996). Recognition of uncer-

tainty and the value of an adaptive capability
appear to be best secured through a group process
that explores the value of diversity and creative
abrasion in group decision making. Knowledge
projects that adopt a grounded process consulta-
tion approach by their very nature enable groups
to consider their own practices and identify
positive features. Means by which a team can
avoid the ‘blinkered’ perceptions that a rigid
knowledge system might invoke, include compre-
hensive and effective learning processes. The role
of people external to a business in enhancing a
small business’s learning have been considered by
a member of the KMC team previously (Harding,
presentation to the 19th ISBA National Small Firms
Research and Policy Conference, Birmingham,
1996) and form part of his ongoing research.
Overall, work within case study SMEs on know-
ledge management has shown how knowledge
projects are formulated and implemented within
an integrated framework that manages the impact of
knowledge projects in operational, strategic and
uncertainty management terms. Figure 3 sum-
marizes these levels of impact.
It has been noted how knowledge projects in
small firms may be provoked by pressure from
external influences. It has also been noted how the
vulnerability of SMEs may provoke them to ensure
that their ability to adapt is retained. The defini-
tion of roles in relation to external ‘co-producers’

in SME is more negotiable than the offerings of
larger businesses. In considering knowledge pro-
jects, large businesses place the primary emphasis
upon their internal knowledge flows. Significantly
lower consideration is given to the negotiation of
external boundaries (and core capability). In com-
parison, SMEs place relatively lower emphasis
upon the internal aspects of knowledge and
greater emphasis upon external aspects.
KM projects have differed in the ‘level of
knowledge analysis’ (Braganza et al., 1999) that
they have adopted. Projects can focus on the
Figure 3 The three levels of impact of knowledge projects in
SMEs
Knowledge and Process Management CASE STUDY
Knowledge Management in Small Firms 7
individual (Fahey and Prusak, 1998), group or
team (Leonard and Sensiper, 1998; Huber, 1999),
business process (Braganza et al., 1999), organiza-
tion function (Davenport and Klahr, 1998), organi-
zation (Teece, 1998; Bowander and Miyake, 1999;
Tidd and Taurins, 1999), joint venture and other
inter-organizational collaboration (Fairhead, 1998;
Rura-Polley and Clegg, 1999) network (Marceau,
1999), industry/cluster (Leonard-Barton, 1995;
Mitra, 1999; Park and Kim, 1999) or nation
(Porter, 1998) level. There seems to be an increased
emphasis upon individual considerations, signifi-
cantly more emphasis upon one-to-one business
collaboration, network and industry/cluster con-

siderations in SME knowledge projects, and the
boundaries between many of these different levels
of knowledge analysis need to be more fluid in
SME knowledge projects.
Bureaucratic forms of organization seek to
fractionate and proceduralize working practices.
It is not surprising therefore that knowledge
projects in larger firms have tended to emphasize
the conscious technical (semantic) knowledge asso-
ciated with good practice in the execution of
particular procedures. Even within large-company
contexts, knowledge system developers have
found that the information of the form that
constitutes ‘manuals’ is not sufficient to secure
effective ‘transfer’ of knowledge between users.
The strict ‘logic’ and ‘theory’ of how to carry out
tasks may not be the most appropriate thing to
transfer. Experience is often retained in human
memory as ‘episodes’ (i.e. specific case-based
information). Knowledge systems in large firms
sometimes seek therefore to capture and convey
‘lessons learned’ from case experience. The ‘tech-
nologies’ that support the transfer of knowledge
have addressed users’ knowledge of where exper-
tise resides (i.e. who knows what) together with
means to access ‘document-’ and ‘experience-’
based accounts. There has also been recognition
that subconscious knowledge (in the form of skills
and tacit feel) figures in human performance but
this has been dealt with in the belief that ‘provid-

ing access to people with tacit knowledge is more
efficient than trying to capture and codify that
knowledge’ (Davenport and Prusak, 1998: 72).
Systems that enhance meta-knowledge (i.e. a
team’s knowledge of who knows what) have
been substituted for systems that support the
access and transfer of less conscious knowledge.
The work of the KMC team has established the
fundamental role that subconscious (skill and tacit
feel) and even unconscious (e.g. personality,
decision style etc.) facets of knowledge play in
SME decisions and action. Knowledge transfer is
not dealt with adequately by hoping that expertise
will transfer because participants are in close and
frequent proximity. A central theme in the KMC
team’s work has been the appreciation of the need
to facilitate the elicitation and sharing of less immedi-
ately conscious information within a workgroup or
business if more effective knowledge systems are
to be developed in SMEs.
In addition to distinguishing between levels of
consciousness of different facets of knowledge,
Sparrow (1998) has drawn a distinction between
thinking processes that emphasize reasoning,
creativity and mood. There is evidence to suggest
that ‘bureaucratic’ organization constructs ‘local
discourse’ (Antaki, 1994) that seeks to limit
decisions and action to more ‘rational’ territory
(Albrow, 1997). The contribution of affect and
imagination in small group settings is, however,

well established. The potential distortion of orga-
nizational practices that an attempt to bring about
an ‘unbalanced’ and ‘disproportionate’ increase
upon ‘rationality’ could bring in a small firm
setting needs to be recognized (e.g. Berry and
Perren, 1998). Important interrelationships bet-
ween motivation (empowerment), creativity and
knowledge capture have been highlighted by
Paper and Johnson (1997) within project teams in
large organizations. SMEs may be benefiting from
an appropriate combination of these factors.
Efforts that ‘destabilize’ this may be dysfunctional.
Couger (1996) has suggested that work environ-
ments structured to relatively larger degrees
around information systems may impede creativ-
ity. In a similar way, energy and enthusiasm (and
other affects) that can accompany spontaneous
informal human collaboration may be sacrificed in
a quest to emphasize ‘measured’ and ‘systematic’
analyses (Sparrow, in press). The approach
adopted by the KMC team seeks to ensure that
the potential ‘climate’ of knowledge utilization (in
creativity and affect terms) that an SME team
develop is considered in their design of a revised
knowledge system.
A feature of decision making that has been
found repeatedly in studies of small firms’ prac-
tices is holism. Management in a small firm
involves recognition of the ongoing dynamics of
‘all the resources of the business towards the

aim of satisfying customer needs’ (Burns, 1989: 36).
Knowledge projects in larger firms have ‘segmen-
ted’ knowledge in ways that may not be appro-
priate in small firm settings. Matusik and Hill
(1998), for example, distinguished between ‘com-
ponent’ knowledge and ‘architectural’ knowledge.
The latter relates to organization-wide routines for
coordinating the components of the organization.
CASE STUDY Knowledge and Process Management
8 J. Sparrow
Smart et al. (1999) considered the knowledge
associated with four ‘process levels’ and where it
might be ‘located’ within an organization. It has
been suggested that knowledge projects need to
define the critical knowledge at a particular
‘information leverage point’ (Applehans et al.,
1999) quite narrowly. In the less fractionated
environment of an SME, knowledge of both kinds
(and all levels) may figure in decisions and actions.
Knowledge projects are more likely to be of
limited value therefore, in an SME setting, if they
are defined too tightly.
The cost of a comprehensive bespoke ICT-based
knowledge management system may not be justi-
fied by an SME in added value terms. There are a
number of options available for SMEs. ‘Modular’
approaches that are scalable and that can be used
to address particular facets of knowledge utiliza-
tion may be more appropriate. In particular,
systems that enhance business processes (work-

flow etc.) can be a useful avenue. The knowledge
capability of standard server software is evolving
very rapidly (e.g. Windows 2000). The options
within such software may remove many of the
cost and learning curve barriers to ITC adoption in
SMEs. It is not cost and learning alone, however,
that limit the contribution of ICT to knowledge
utilization in SMEs. As noted throughout this
paper, the nature of knowledge processes in small
firms is not supported well by current and
prospective ICT developments.
An area of knowledge management that has
received attention in large company contexts is
management of the intellectual property rights
portfolio (e.g. Cook, 1995). The issue has also been
examined in SME settings (Kuratko and Hodgetts,
1988; Kitching, 1998). KMC work within SMEs has
identified that it is the issues that surround the
capture and utilization of specific intellectual property
rights rather than portfolio management that create
the greatest difficulty.
The movements within intellectual capital (e.g.
human, structural etc.) within SMEs reflect differ-
ent ‘investment’ decisions. Some of these move-
ments may be planned whilst others may be
provoked by significant changes (e.g. ownership
succession). KMC research has identified a valu-
able role for an intellectual capital valuation lens
upon managing the (re)embedding of capability in
an SME in the light of owner succession (Martin,

presentation to the Staff Seminar Institute for
Manufacturing, University of Cambridge, 1999).
Overall, it seems clear that the small firm
knowledge setting is different from that within
larger firms.
Knowledge and organizational learning processes in
SMEs
Swan et al. (1999) argued that there is a need to
harness ‘the intellectual and social capital of
individuals in order to improve organizational
learning capabilities’ (p.264). Nonaka and Takeu-
chi (1995) highlighted the role of learning in
knowledge creation. Boisot (1995) considered the
relationship between the technological strategies of
firms and learning. He showed how an emphasis
upon the ‘social learning cycle’ (p.257) in the
strategies of firms could enhance competitiveness
in an alternative way to knowledge protection. In
working with SMEs the difficulties that they face
in these regards have become apparent. Attempts
to ‘protect’ their knowledge through patents are
problematic because of the demands of securing
and policing patents. Owner–managers attempt
other means to limit the diffusion of their exper-
tise. They may deliberately avoid training and
development opportunities for others with regard
to certain aspects of their own personal expertise.
SMEs find difficulty in elaborating upon their
contribution to make it less codifiable, particularly
where the processes they operate are quite simple

and proceduralized. The issues surrounding
growth of markets and commensurate manage-
ment of growth of the firm in order to secure the
economies of scale that can preserve a competitive
position have been acknowledged for many years
(e.g. Barber et al., 1989). The alternative approach
towards maintaining competitiveness that Boisot
(1995) identified is based upon the learning
capability of a firm. If it can absorb and scan
diffused knowledge and codified knowledge and
translate it into a specific capability of its own,
then protection and elaboration become less rele-
vant. The key issues are problem solving, diffu-
sion, absorption and scanning. For an SME to
manage its knowledge assets in this way requires
it to have an effective organizational ‘learning’
capability. The significance of organizational learn-
ing for competitive advantage was highlighted by
Moingeon and Edmondson (1996). It is clear that
the knowledge (and potential advantage) that a
small firm may have can only be sustained if it is
supported by effective organizational learning
processes. Unless there is a constant renewal of
knowledge, then any advantage will be transitory.
The linkages between individual action and
beliefs, and organizational action (and perceived
impact) were considered initially by March and
Olsen (1975). They identified four possible breaks
(disconnects) in these learning loops. The potential
for learning is impeded in a situation of role-

constrained learning because the action of an
Knowledge and Process Management CASE STUDY
Knowledge Management in Small Firms 9
individual to act in a way consistent with their
knowledge is restricted. The potential for learning
under a situation of audience learning is limited
by virtue of the ‘misreading’ of others’ actions
(and learning by others ‘observing’ (but not fully
sharing the interpretation of) an experience).
Superstitious learning occurs when an organiza-
tion takes action on the basis of ‘faith’ and does
not subject actions to a monitoring of impact upon
its environment. Finally, learning under ambiguity
occurs where the impact of changes upon an
organization’s environment cannot readily be
attributed to specific actions. Kim (1993) drew
attention to a further set of three loops (and
disconnects) in the organizational learning process.
Situated learning occurs when an individual’s
actions are not reflected upon (and the potential
for learning beyond the specific situation is lost).
Fragmented learning occurs when the understand-
ing that an individual derives from experience is
not shared within the organization. Opportunistic
learning is held to occur when an organization
takes action that is known not to fit with the
shared understanding in the organization. In
reconceptualizing the learning disconnects occur-
ring at the action, experience and reflection phases
of a learning cycle, and extending the notion of

organizational learning loops to a business’s posi-
tion within its business environment, Sparrow et al.
(1998) highlighted a further set of three loops.
Actions by ‘sections’ of an organization that are
‘inconsistent’ with the action of other sections can
result in ‘uncoordinated action’. An organization’s
inability to manoeuvre (act) in its industry/
network/cluster (i.e. ‘organization position-
constrained learning’) can restrict its learning
opportunities. The opportunities for a business to
reflect upon the experiences of others in its
industry/network/cluster can be affected by ‘iso-
lation-constrained learning’. The study also con-
firmed the centrality of all the forms of learning
loops in the maintenance and development of
capability in small firms. Figure 4 highlights the
learning loop ‘disconnects’ that have been identi-
fied and explored with SMEs.
A MODEL FOR THE DEVELOPMENT OF
KNOWLEDGE MANAGEMENT PRACTICES
IN SMES
A model of considerations
An emergent model of approaches towards devel-
oping knowledge management practices in SMEs
is being derived from the experiences of SMEs.
The model involves all four of the components of
knowledge management that have been detailed
above (Figure 1). The model also recognizes the
operational, strategic and uncertainty management
considerations of knowledge in SMEs (Figure 3).

The model has as its most central tenet, the
assertion that knowledge management develop-
ment in SMEs needs to be supported through a
process that recognizes and incorporates the current
thinking and priorities in the knowledge project.It
seems inappropriate to ‘hijack’ the agendas and
momentum in a business and attempt to ‘railroad
in’ a knowledge system (in particular, a ‘standard’
complete ICT-based system). The experiences with
SMEs suggest that the focus for initial incremental
developments can emerge from exploratory work
with MDs and (senior) managers as they are
supported to consider their business practices
through a knowledge lens. The role of a facilitator
seems central to the process. The importance of
ownership and the ultimate objective for an SME
team to develop its own capability to sense needs
for development appear to be secured well
through a process consultation approach (Schein,
1999; Shelton, 2000). SME knowledge projects can
take many months. Contact with the ‘appropriate’
individuals and groups at particular phases of the
developments needs to be maintained. Contact in
the order of one half-day every week to ten days
over a period of 6 to 12 months appears to be the
average level of support required.
The model of SME knowledge management
development also recognizes that knowledge
projects in SMEs ‘track’ through three sets of
procedures. These are technological/systems

development procedures, business development
procedures and organizational development pro-
cedures. These sets of procedures are summarized
in Figure 5. Knowledge projects may place differ-
ent emphases upon these three sets of procedures
but successful projects will address all three sets of
procedures to some extent.
The overall model that can be used to guide
knowledge projects in SMEs is therefore a com-
bination of Figures 1, 3 and 5. It is presented as
Figure 6.
Phases in knowledge projects in small firms
The model of considerations captures the range of
considerations that may need to be addressed in
knowledge projects in small firms. The emphasis
placed upon any particular cell within the model
will vary with the particular knowledge project. It
will also vary with the phase or stage of the
knowledge project. Knowledge projects within
CASE STUDY Knowledge and Process Management
10 J. Sparrow
SMEs progress through several phases. The facil-
itator may find that the participants wish to place
more (or less) emphasis upon a particular set of
procedures at a particular juncture, but may
attempt to assist the group to consider the parallel
issues (associated with the alternative sets of
procedures) at that time. The considerations and
phases indicated in Figure 7 represent the initial
attempt to discern some pattern in the ‘tracks’ that

SME knowledge projects take. It should be recog-
nized, however, that specific case study businesses
have on occasion not addressed a specific aspect/
procedure at the ‘time’ indicated in the figure. In
such instances there has tended to be a feeling by
the facilitator that a particular feature of the KM
development process is ‘missing’.
An examination of Figure 7 reveals that there are
elements of structured measurement and assess-
ment together with inductive (qualitative) elements.
The experiences with SMEs would suggest that a
‘battery’ of formal measurement and assessment
techniques for each procedural aspect would not
be an appropriate approach. On the contrary,
experience would suggest that participants may
wish to share in more ‘natural’ (though informed)
qualitative analyses and interpretations of their
practices and processes and work their way
towards complementary systematic techniques.
Conversely, decisions to engage in more formal
assessments quite early in the development pro-
cess may result in participants wishing to ‘flesh
out’ the interpretation with ‘specific’ and ‘actual’
examples and considerations.
Phase 1 can accommodate structured and quali-
tative elements. It has been noted how structured
consideration of strategic options can be useful. An
alternative qualitative approach that entailed a
‘reading’ of the current business plan for ‘know-
ledge’ considerations has also proved useful.

Choice of an initial aspect of business process for
knowledge development can be made on the basis
of systematic and comprehensive analysis of
pressing business conditions and centrality of a
business process. Alternatively, the choice of
project can be the product of a discussion among
MDs and managers. Similarly, analysis of indivi-
dual perceptions and team process characteristics
can be derived from close interpretation of tran-
Figure 4 Learning loops and potential ‘disconnects’
Figure 5 The three sets of procedures in knowledge projects in SMEs
Knowledge and Process Management CASE STUDY
Knowledge Management in Small Firms 11
scripts of interviews and group meetings or from
more structured approaches including repertory
grid procedure, psychometric testing (e.g. MBTI)
and questionnaire assessment (e.g. Team Climate
Inventory).
Phase 2 can involve formal structured analysis
through attempts to value facets of intellectual
capital. It can also benefit from a less quantitative
‘visualization’ of the business in intellectual capital
terms as a rhetorical device. The KMC team is
exploring the role of an ‘audit’ of knowledge
management practices. The tool that has been
developed to date fits quite neatly into the toolkit
that UK business advisers have of health-checks,
benchmarking tools and audits. Initial experience
with the approach would also suggest that it can
serve as a basic ‘orienting’ agenda for an intro-

ductory awareness-raising discussion. The KMC
team have extensive experience of both ‘live’
facilitation of reflection on group process in
addition to asynchronous computer supported
qualitative data analysis of verbal and written
materials. Both of these sets of skills appear to be
of value in the support process. This may raise
training and development issues for more
extensive (national) support of SMEs using this
model.
Phase 3’s inclusion of business process analysis
can again be operationalized in tight ‘systems’
terms or less ‘rigorously’. The visual depiction of
processes (using tools such as maps, flow dia-
grams etc.) appears to be valuable. The sharing of
perceptions has been found to work well when
supported by ‘models’ of the ‘causal maps’ that
different individuals appear to have. The consid-
eration of learning processes can benefit from the
systematic exploration of the extent to which
different learning ‘sources’ (e.g. customers, best
practice networks, suppliers, Internet, universities
etc. as detailed in the knowledge management
audit tool) are utilized, together with reflection
upon any ‘disconnects’ in any of the learning loops
(as detailed in Figure 4).
The more precise linking of knowledge (and
supporting structure, systems, culture, incentives
and broad uncertainty capability) to business
Figure 6 A model to guide knowledge projects in small firms

CASE STUDY Knowledge and Process Management
12 J. Sparrow
processes (in Phase 4) can be accomplished
through a knowledge map of the kind detailed by
Applehans et al. (1999). Complementarily, a group
model-building session (of the kind developed by
Colin Eden and colleagues, e.g. Eden and Ack-
ermann, 1998) or a more formal system dynamics
model (e.g. Vennix, 1996) can be valuable. The
more participative approaches have the advantage
of providing an opportunity for the exploration of
diversity and uncertainty capability. The KMC
audit tool can provide a framework to consider
the ‘parallel’ or ‘reinforcing’ elements of a know-
ledge management system (e.g. culture and
reward systems). These issues are more appro-
priately considered in the ‘scoping’ and ‘design-
ing’ of an enhancement to current systems and
practices, rather than as afterthoughts in the
implementation of a ‘new’ system.
The development of knowledge bases and
knowledge systems (in Phase 5) is largely a
technical process. The latest generation of know-
ledge management software ‘modules’ can enable
the least technical of managers to develop a
functioning system, but a small investment in IT
consulting support can be valuable at this stage.
The KMC team is reviewing the experiences of
SMEs with the alternative platforms (e.g. Notes,
Microsoft servers etc.), and bespoke versus mod-

ular system developments. Insufficient cases have
been undertaken to draw firm conclusions on this
aspect at this stage. Reference to a number of cases
here, however, will highlight some of the issues
that have been evidenced. The first issue concerns
the maintenance or change in hardware platform.In
one SME the intention to build more capability
through the development of a marketing informa-
tion system was taken as the opportunity to
change the platform used in the business to one
based on Windows NT. The core databases in the
businesses had been built in a ‘bespoke’ system.
The MD (who was a bit of a computer hobbyist)
had developed a whole raft of additional features,
but was finally of the view that the system needed
to be re-implemented on Windows NT. There
were real concerns about the ‘porting’ of data etc.
into the new system (particularly because the
vendor of the original system was no longer in
business). In contrast, a current case study busi-
ness has developed a number of tools based upon
Lotus Notes. They want any additional knowledge
features of their systems to be implemented in
Notes. The second issue concerns the development
of bespoke versus ‘off-the-shelf’ components. In some
case study businesses the level of internal ability in
ICT terms is high. Such businesses often wish to
implement a bespoke system. In another instance
Figure 7 Phases in the knowledge management development process in SMEs
Knowledge and Process Management CASE STUDY

Knowledge Management in Small Firms 13
however, development options for a portal system
are being explored that can be built rapidly with
an off-the-shelf product (e.g. SearchPad). The third
issue concerns the specific contribution being sought
in an ICT-based knowledge system component.
Developments that are seeking to redefine integra-
tion (including discussion) with the customer may
want to develop some ‘intelligence’ into their web
pages through standard products such as Micro-
soft FrontPage. They may wish to build in
discussion facilities with WebBoard. As noted
above, however, a portal facility may benefit from
adoption of off-the-shelf products such as Search-
Pad, InfoMatrix or Agent Server. Document man-
agement systems can be implemented with basic
web-design software, but the control (and hence
reliability and maintenance problems) of such
systems may create difficulties longer term. It is
in the area of knowledge features within process
software that raises the major data-handling and
systems-integration issues. The fourth issue con-
cerns the use of standard off-the-shelf products as
rapid development tools for the scoping and framing
of a knowledge (e.g. intranet) project with possible
hand-over to other systems for implementation.
One of the partner bodies in the KMC has found,
for example, that the non-technical intuitive nature
of a product such as MindManager allows an
intranet’s requisite features to be brainstormed,

analysed and mapped.
In addition to the technical development issues,
the tactical management of the movement towards a
revised system (in the broadest sense of the term)
appears to be an important consideration. The
adoption of a process consultation and action
learning approach means that the developments
have been made by a particular ‘community of
practice’. In the course of the development they
are progressively empowered to have considered
their own ongoing development (including learn-
ing and uncertainty capabilities). Action plans for
the next ‘part’ of the business or ‘process’ that will
be addressed in knowledge terms can be drawn
up. The opportunities to benefit from the experi-
ence of the team(s) and knowledge projects that
have been undertaken to date appear to suggest
that the ‘speed’ of the next cycle of phases may be
somewhat faster.
Overall, the knowledge management work with
small firms that has been conducted by the
Knowledge Management Centre suggests that the
understanding of the theory and practice of
knowledge management can be enriched consider-
ably by detailed consideration of the primary
considerations in a small-firm context.
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