Mauricio Leventer Estimated reading time: about 3 minutes
Image credit: popcornarts (Flaticon)
Small businesses are the backbone of the economy
According to the U.S. Small Business Administration (SBA), businesses with less than 500 employees and annual revenue up to $7.5 million qualify as small businesses for most industries.
Small businesses are the biggest drivers of job creation, contributing to a significant portion of new jobs every year. Compared to larger corporations, they are often more nimble and adaptable, allowing them to innovate and respond quickly to changing market demands and customer needs. By offering diverse products and services, they also promote a healthier competition on the market. This keeps prices in check and incentivizes larger companies to constantly improve their offerings. Additionaly, they are often deeply rooted in their communities, supporting local charities, events, and initiatives.
Knowledge Assets
In one particular aspect, small businesses should compare to larger companies that hold a diverse range of knowledge assets, both tangible and intangible, all crucial for their operations and success. Examples of knowledge assets are:
- Customer knowledge — customer preferences and buying habits, customer data and feedback, and relationship history.
- Market knowledge — industry trends and competitor analysis, local market insights, regulatory compliance.
- Operational knowledge — standard operating procedures (SOPs), best practices and lessons learned, technical knowledge and skills in their field.
- Intellectual property — trademarks, patents, and copyrights, product/service knowledge, marketing and sales assets.
- Human capital — employee skills and experience, organizational culture and values, networks and relationships.
Despite the immense contribution small businesses do to society, they often struggle to keep up with the fast-paced business environment and the economy's ups and downs. One of the common challenges that small businesses face is the lack of understanding of the importance of managing their knowledge assets. Many do not even recognize the value of their knowledge assets and the impact they have on their success.
Why do small businesses neglect the importance of managing their knowledge assets?
Theory #1: They have limited resources
Small businesses have limited resources and often focus on immediate concerns such as generating revenue, managing day-to-day operations, and retaining customers. These businesses do not have the luxury of time or resources to invest in knowledge management initiatives. Hence, they tend to focus only on short-term goals rather than long-term strategies that involve managing their knowledge assets.
Theory #2: They lack awareness
Many small business owners are not aware of the importance of knowledge management or how it can benefit their business. This lack of awareness leads to a lack of understanding of the value of knowledge assets and the impact they can have on the organization's success. Small business owners may not realize that their knowledge assets include not only the explicit knowledge documented in manuals and procedures (if they ever captured and documented anything) but also the tacit knowledge held by employees. When the employees leave, the knowledge that in theory belongs to the company leaves with them.
Theory #3: They struggle in measuring the return on the investment (ROI)
Small businesses may find it challenging to quantify the benefits of knowledge management initiatives. They may not understand how managing their knowledge assets can contribute to their business success or how it can lead to increased efficiency, better decision making, and improved customer satisfaction.
Theory #4: They lack the right technology
Many small businesses do not have the resources or expertise to invest in knowledge management systems. We hope and pray that these businesses will rely on manual processes or basic software to manage their knowledge assets. The most common scenario is that they don't manage it at all. Therefore, they may not have the ability to capture, store, and retrieve information efficiently, leading to a lack of organization and accessibility of their knowledge.
Why does the failure to manage knowledge assets can have a significant impact on small businesses?
Impact #1: Wasted resources
- Duplicate purchases — without knowing what knowledge assets they already have, businesses might buy unnecessary software, resources, or training, wasting money and time.
- Inefficient processes — reinventing the wheel is a common issue when knowledge isn't readily accessible or existing. Trial and error is then their fundamental method of problem solving. Employees spend time figuring out tasks already solved, leading to lost productivity and delayed projects.
- Increased training costs — new hires often need to learn things already known by someone else, leading to extra training costs and delays in onboarding.
Impact #2: Lost of opportunities
- Missed innovation — uncaptured knowledge prevents businesses from learning from past successes and failures, hindering their ability to innovate and adapt to changing markets.
- Competitiveness — competitors who effectively manage knowledge assets can gain a significant advantage in terms of efficiency, product development, and customer service.
- Poor decision-making — lack of access to relevant information can lead to uninformed decisions, impacting everything from marketing campaigns to resource allocation.
Impact #3: Business owners lose profit, employees, equity, and ability to grow
- Knowledge silos — information being held by individual employees can create knowledge silos, hindering collaboration and information flow.
- Data overload — businesses may drown in information without proper systems to organize, filter, and make sense of it.
- High employee turnover — when employees leave, valuable knowledge walks out the door, creating a constant need to relearn and rebuild.
Conclusion
Small businesses play a critical role in the economy, but many do not recognize the importance of managing their knowledge assets as a strategy for the long run. The impact is significant, leading to lost opportunities, inefficiencies (a.k.a. financial losses), difficulty in retaining employees or onboard new ones, and inability to grow.
