Stakeholders' Involvement in KMS implementation for Thai Ceramic SMEs: A Conceptual Framework

Proceedings of the 14th IFAC Symposium on Information Control Problems in Manufacturing Bucharest, Romania, May 23-25, 2012

6WDNHKROGHUV¶,QYROYHPHQWLQ.06implementation for Thai Ceramic SMEs: A Conceptual Framework Soontarin Nupap*, Gilles Neubert**, Nopasit Chakpitak* * College of Arts, Media and Technology, Chiang Mai University, Chiang Mai, Thailand ([email protected], [email protected]) ** MESPROD/LSTI, Ecole Supérieure de Commerce, Saint-Etienne, France ([email protected]) Abstract: Recently, over 80 percent of ceramic SMEs in Lampang, known as the biggest source of ceramic production in Thailand have been closed down rapidly due to several reasons such as the difficulties to find funds for sustainment and facing intensive competition in the global market. To overcome this situation, we propose a Knowledge Management System (KMS) framework based on Intellectual Capital (IC) theory. This framework is based on the identification of the various stakeholders of the enterprise and their roles in creating the knowledge. To improve performance of SMEs, we propose to develop four perspectives: Business Plan, Business Process Reengineering (BPR), Enterprise Resource Planning (ERP), and New Product Development (NPD) using the Joint Application Design (JAD). Keywords: Intellectual Capital (IC), SMEs, Stakeholders Management, Knowledge Management System planning, the SME have faced difficulties in trying to survive after the financial crisis in 1997 (Bakiewicz, 2005).

1. INTRODUCTION Over the past few years, approximately 80percent of ceramic SMEs in Lampang (the province with the biggest source of ceramic production in Thailand) have closed down rapidly after they faced the financial crisis in 2007 (Bakiewicz, 2005; DBD, 2010). Causes of closer are due to several problems including a long absence of government support and intensive competition in the global market. In terms of global competition, ceramic SMEs in Lampang could not compete with the cost of products manufactured in China and do not have initiatives to stimulate innovation and new product development. There is also a lack of internal process management within SMEs, such as operator versatility and a KLJK OHYHO RI VWDII WXUQRYHU 7KH PDMRULW\ RI /DPSDQJ¶V SMEs do not use advanced technology within their RUJDQL]DWLRQV DQG 60(V¶ PDQDJHPHQW KDYH QR SUHFLVH vision of their future activities (this problem can cause difficulty in finding funds and adapting their organizational resources (Loh and Koh, 2004; Bakiewicz, 2005; ITD, 2009; Nupap et al., 2011). Meanwhile, about 10% of ceramic SMEs that have potential to export their products could be coping with several kinds of problems that are yet to become a huge obstacle in preventing their businesses to operate in the long term (DBD, 2010; Nupap et al., 2011). The aforementioned situation reflects the expiration of business life cycle. According to the 1997 National Census (data for 1996), even if SMEs are the majority of firms in Thailand as in other countries, this sector of the economy was almost entirely ignored by government authorities that have come and gone. There was not one project aiming at SME development before the 1997 economic crisis. SMEs started to go in numbers mostly in the sectors that did not use advanced technology. With a lack of business awareness and 978-3-902661-98-2/12/$20.00 © 2012 IFAC

Knowledge Management (KM) contributes to increase potency, productivity, effectiveness, and competency in organizational performance and creates alternate profitable prospects for SME, many organizations in developing countries have not realized this importance and still are weak in this point (Hussain et al., 2010). The study of Hussain et. al. (2010) stated that there are very little KM development implementation in SMEs in developing countries. Although, KM development will solve all the problemsSMEs currently face, SMEs will be involved in managing individual and organizational knowledge to gain competitive advantage in the global market. There are many stakeholders in an organization that can affect or are affected by the achievement of the organization's objectives. These groups have roles as organizational units in which members share common meaning, influence over, and expectations of the firm. The survival of the firm is depended on the integral of relationships with these groups (Freeman, 1984). If the organization can continue to meet the needs and expectations of the stakeholders, the aim of organizational sustainability will be accomplished (Foley, 2005). Intellectual capital (IC) is one of an important factor for organizational management for a long-term profit and performance in the knowledge-based economy as many organizations recognize their core capability as intangible assets rather than tangible assets (Itami, 1987). It is strongly related to a knowledge management strategy for enterprises focusing on giving all stakeholders an exceptional of what the real value of the company is, and where it is coming from (Roos et al., 1997). They have already noted how the excessive focus on financial factors creates a warped image

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RIWKHFRPSDQ\¶VVLWXDWLRQDQGLWLVSHUIHFWO\XQGHUVWDQGDEOH that any company would try to draw a truthful representation of itself to all stakeholders. Consequently, the stakeholders will support their enterprises in the stock exchange. The IC theory also illustrated the future direction of their enterprise by focusing on the issues of human capital, customer capital, renewal and development, and process capital within an organization. If an organization has an intellectual capital that is more than the financial capital, then it reflects a lower risk than other organizations which do not have the IC management and can gain more profits in the future. Hence, IC is the preferred KM theory in being applied to enterprises in stock exchange for fundraising or maintaining their stocks. To overcome the problem of maintaining stock value in stock exchange, the Skandia Model proposed by EdvinssRQ¶V ,& theory is considered (Chakpitak, 2009). The model itself HPSKDVL]HG RQ FDSLWDO EDODQFLQJ EHWZHHQ ³ILQDQFLDO FDSLWDO´ ZKLFK PHDQV WKH QHW DVVHWV DQG ³LQWHOOHFWXDO FDSLWDO ,& ´ (Edvinsson and Malone, 1997). We proposed a framework to lead Thai ceramic SMEs to fit international business requirement by using Knowledge Management System (KMS) for their business survival and performance improvement. This KMS used the integration of Business Plan, Business Process Reengineering (BPR), Enterprise Resource Planning (ERP) and New Product Development (NPD) (Nupap et al., 2011). In this paper, we analyzed HDFKVWDNHKROGHU¶VLQYROYHPHQWLQ the initiation of proposed KMS for ceramic SMEs in Thailand. Before considering in details how these problems might be solved, an analysis of the literatures demonstrates how the tools have been used to determine how they could be specifically applied to Lampang ceramic SMEs. 2. LITERATURE REVIEW 2.1 Small-and-Medium-sized Enterprises (SMEs) In recent years, many enterprises world-wide have focused on their core business, downsizing and outsourcing, due to the difficulty and rapid variation in global economic conditions (Loh and Koh, 2004). It is incontrovertible that SMEs all over the world including Thai SMEs are negatively affected by the world economic crisis during the period of lower consumption and lower foreign export caused by the global economic slowdown (ITD, 2009). The important goals for any SME are to survive, maintain, grow, win in the competitive market, and expand itself when it has potential to do that (MCB, 2002; Valkokari and Helander, 2007). 2.2 Knowledge Management Knowledge-based activities are argued to be the basis of sustainable competitive adYDQWDJH LQ WRGD\¶V HFRQRP\ (Valkokari and Helander, 2007). To find capital by taking loans from creditable banks or registration to stock exchange IRU 60(V LQ 7KDLODQG QDPHO\ ³0$,´ DQG WR JDLQ PRUH competitive advantage than the others, SMEs need to prepare themselves by using knowledge management. Knowledge management (KM) is the strategy used for administration

within the organization focusing on experiential knowledge of workers, and the use of information technology for increasing the productivity of an organization; to compete in its industry and to help maintain survival of the organization as well as its members (Chakpitak, 2009). In the era of widespread in using modern information technology, every organization requires continuous and improvement of knowledge creation, sharing and implementation in order to compete in global market, gain competitive advantage and survive in the world crisis A good application of KM always puts the organization into a potential winning position. (Chan et al.,2009; Hussain et al., 2010; Nunes et al., 2006; Pillania, 2008b). To gain competitive advantage in global market and improve organizational performance, SMEs have to focus more on methodical and efficient approach to KM strategy (Saloja et al., 2005). KM also helps organization to improve in change management, improves innovation creation and business entrepreneurship, and authorizes employees to have a power in managing their own works (Nonaka and Takeuchi, 1995). Without precise supporting information, SMEs are unable to generate strategic, operational, tactical and strategic plan (Zanjani et al., 2008). Therefore, this research has paid attention on KM which has become the key for SMEs to manage the information with competency before taking a loan from the banks or registering to the stock exchange. 2.2 Intellectual Capital IC claims intangible and tangible dimensions, which they actually complement each other. In fact, the difference EHWZHHQDILUP¶V PDUNHWYDOXHDQGWKHUHSODFHPHQWYDOXH RI its physical and financial assets has been used as a definition of intellectual capital. For equity of market value and asset, many organizations are looking for more evidences of what they are doing to secure and improve the performance of their ³LQWDQJLEOHV´ ,QWHOOHctual assets or intellectual capitals, and WKH RUJDQL]DWLRQ¶V LQWDQJLEOHV KDYH EHHQ NQRZQ DV WKH conversion of knowledge into a valuable asset. There are slightly different meanings between both of them. The intellectual assets are those knowledge-based items owned by the organization that will produce a future flow of benefits for the organization. At the same time, the intellectual capital is the total stock of balancing capital or knowledge-based equity possessed by the organization. Intellectual capital is of considerable and rapid importance in innovation and productivity growth, organizational competitiveness and economic performance (Roos et al., 1997; Stewart, 1997; Chakpitak, 2009). SMEs have significant intangible assets but typically have limited capital and other resources to support their manufacturing and marketing. In addition, their product market is constantly changing and globalizing which entails their competency in getting and managing scarce resources to critical conditions for survival. In spite of these limitations, small business failure rate appears to be lower than they have been previously thought (Kim et al., 2008). Roos et al. (1997) stated that IC is composed of (and generated by) a thinking part (the human capital) and a nonthinking part (structural capital). They suggested that

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structural capital has and internal and an external component (organizational and relationship capital respectively), while human capital comes from the knowledge, the attitude and the intellectual agility of employees. Measuring Business Excellence is devoted to the IC management for supporting FRPSDQLHV¶ SHUIRUPDQFH enhancement. CompanLHV¶ competitiveness has been challenged by globalization of markets, dynamic technologies development, shorter product life cycles and fast changing customer demands. The biggest WHVWLVWKHDELOLW\WRVDWLVI\FXVWRPHU¶Vneeds and expectations by creating and incorporating higher value into products and services. This forces companies to improve their capability in creating and delivering value to stakeholders. Furthermore, companies have to become more customer-centric by defining effective business models, executing valuable innovation processes, taking the lead to innovation on new products, upholding services and processes, exploiting strategic resources to drive organizational competences, and being disciplined in delivering superior business performance results (Edvinsson and Malone, 1997). 3. CURRENT SITUATION The problems and the current situations in which Thai ceramic SMEs in Lampang have been facing for the last decade are divided into 4 perspectives including product perspective, process perspective, Information Technology (IT) perspective, and people perspective (Nupap et al., 2011). Upon trying to solve the problem in each perspective, we have critically reviewed many literatures involving tools and techniques as illustrated in Table 1 (Nupap et al., 2011). Table 1. The Analysis of Current Situation for Ceramic SMEs in Thailand Perspective Problem

Ideal Solution Tools Techniques

Product

Process

- Change of customer order and satisfaction

-Intensive competition in global market

-New Product Development (NPD)

-Business Process Reengineering (BPR)

IT

People

-Paper-based

-Incorporate

-Information lost

-High resignation

-data duplication

-Enterprise Resource Planning (ERP)

-Joint Application Design (JAD)

Usable

Cooperation

-Business Plan

Expectation Performance Expectation Output

Fast

Low Cost

The Knowledge Management System for supporting VWDNHKROGHUV¶GHFLVLRQV (The system constists of the information flowing within organization, demonstrating data flow between departmments and the data within each department in the organization, the information outside with relatated to the administation of the organization) by applying Intellectual Capital (IC) theory

The problem and the ideal solution in each perspective along with its expectation performance are detailed next. 3.1 Product Perspective

The studies of Deschamps and Nayak (1995), Booz et al. (1982) and Gruenwalr (1995) stated that an average product will have its life cycle for 5 years, however, ceramic products have life cycle shorter than 5 years depends on the FXVWRPHUV¶ QHHGs, satisfaction, and new product demand. Problems can occur if the ceramic customers are at the saturation point with one product. Then, that product will be expired and no demand will exist in the market. Therefore, the Thai ceramic SMEs have to initiate a strategy to launch or release a new product to sell and compete in the global PDUNHW WR VDWLVI\ WKH FXVWRPHUV¶ QHHGV DQG H[SHFWDWLRQV (Nupap et al., 2011). To solve the problem of product expiration, the New Product Development (NPD) strategy is proposed which is promoted as the essential for management to identify new revenues streams, coupled with the importance for companies to distance themselves from a growing number of global competitors (Saban et al., 2000; Deschamps and Nayak, 1995) and timely and responsive NPD has become even more critical in the highly competitive global environment. To respond quickly to these the dynamic global market, the firms need to integrate rapidly the perspectives and needs of both product developers and potential consumers (Barton and Krause, 1985). Consequently, the performance expectation after applying the NPD for the Thai ceramic SMEs is they could launch a new product to the global market as fast as possible. Then, they could gain more competitive advantage than the others ceramic SMEs. 3.2 Process Perspective The problem found in process perspective is the expiration of the processes, caused by changing the approaches to produce a new product to the global market. To solve this problem, the Thai ceramic SMEs have to change many processes inside their organizations to suit production a new product, such as disposing of existing machines and buying new ones which are appropriate for production of the new product. Changing the processes within an organization means that the Thai ceramics SMEs must change their business plan and give the direction, (including current status and future strategy) to their stakeholders. To overcome this problem, the business process reengineering (BPR) and creating new business plan are selected as suitable tools. The reason why BPR was selected is to eliminate unimportant processes in current processes for reducing the time to process in each department and add up a new useful process which is needed into a particular department for reducing cost and time. These processes need employees in an organization to work as a team and find the requirements which functional areas of the business requirements are being properly integrated, with each understanding the importance of cross functional processes. As the competition in the global market forces a company to change its organization to compete with cost and quality of its products, a process management is acknowledge. The BPR is known as a new approach to the management of processes, which was claimed to generate radical improvements in performance (Hammer,1990; 'HYHQSRUW DQG 6KRUW  2¶1HLOO DQG 6RKDO ). A business plan is used as an effective tool applying by

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businesses to organize goals and objectives into a coherent format (Hormozi et al., 2002). The performance expectations after applying BPR and business plan is to reduce the cost as low as possible by eliminating the unimportant processes and moving the useful processes to where there should be and giving the exact direction where the companies are and what they will be. 3.3 Information Technology Perspective One of the main problems for Thai ceramic SMEs is a lack of using information technology (IT) utilization in an organization (Bakiewicz, 2005; Nupap et al., 2011). Since most Thai ceramic SMEs use a paper-based system to collect data, much of their data and information become lost in a pile of paper trails. Only some important information was kept in electronic files, such as Microsoft Word document and Microsoft Excel spreadsheet but in untidy, unformatted, and separated into each departments of the organization (Nupap et al., 2011). The ideal solution for this problem is the use of Enterprise Resource Planning (ERP) system. Because the ERP itself has been promoted as an integrated and enterprisewide system. It is apackaged software applications impound deep knowledge of business practices that have been collected from vendor implementations in many firms (Shang and Sedden, 2000). The concept of ERP is widely implemented all over the world, but in developing countries, there are many challenges in applying Information Systems/ Information Technology projects into an organization due to the poor and unstable economic status which is reflected in the delay of the ERP implementation (ITD, 2009; Abdelghaffar and Azim, 2010). As in our first project launched in 2009 (Nupap et al., 2011), this research tried to LPSOHPHQW WKH (53 SDFNDJH µ2SHQWDSV¶ ZKLFK LV WKH (53 open source software, for Solution Co., Ltd. in Lampang. The problems we found were the complicated nature of software like open source ERP (LQWKLVFDVH³2SHQWDSV´) which could lead the failure of implementation (Nupap et al., 2011). Therefore, research presented in this paper adapts the ERP system by finding the minimal components of the ERP itself and will develop it as a portal and repository. Expectation performances are able to be customized with Thai ceramic SMEs, satisfy XVHUV¶UHTXLUHPHQWV in an organization, and can be utilized in the real situation for Thai ceramic SMEs.

implementing the new software for the organization, some employees tried to avoid giving the information. This is a big impediment when gathering important information and setting up a new information system for the organization. As in our first project mentioned in the preceding section, some employees resisted to change their routines because they already used to their tedious jobs and have been previously romanced with the paper-based system. They kept data and information in compiled papers which caused important information to become lost in the operation cycle (Nupap et al., 2011). Upon trying to solve these problems, Joint Application Design (JAD) is selected. It is a well-known methodology for operationalizing user involvement and user participation (Barton and Krause, 1985). Its benefits are to increase speed in systems development, to improve a quality of system and to satisfy customerV¶ QHHGV DQG H[SHFWDWLRQV, to promote a relationship between customers and developers, and to deliver the right system in time for it to be of use (Carmel et al., 1993). The performance expectation after applying the JAD is encouraging the corporation to provide information from the employees within Thai ceramic SMEs and their stakeholders. Then, employees could have a chance to participate and share the real problems with other stakeholders. For the expectation output illustrated in Table 1., we expect to get the Knowledge Management System (KMS) to support VWDNHKROGHUV¶ GHFLVLRQ IRU 7KDL &HUDPLF 60(V 9LDELOLW\ E\ applying all ideal solutions proposed in each perspective (the integration of Business Plan, BPR, ERP, and NPD) based on the concept of Intellectual Capital (IC) (Nupap et al.,2011). 4. RESEARCH FRAMEWORK Based on the analysis of the current situation mentioned in the previous section, this paper proposes the identification of VWDNHKROGHUV¶ LQYROYHPHQW LQ .QRZOHGJH 0DQDJHPHQW System (KMS) implementation framework for Thai ceramic SMEs. Based on the concept of IC, we classified the stakeholders into 2 groups which compose of internal and external stakeholders. The objective of this study is to identify the role of each stakeholder involved in creating the KMS. Creditors

External Stakeholders

3.4 People Perspective One of the main problems is a high turnover of skillful ceramic workers in Thai ceramic SMEs (Nupap et al., 2011). People who are experts and possess the desired skills and have ability to manage the information flowing within the organization always leave the organization because they got a better offer, such as better opportunities in larger companies with better prospects. Another reason for workers to leave the Thai ceramic SMEs is many skillful workers have a desire to return to home agriculture in order to support their family believing this to be more economical option than getting lower salary. Another problem is lack of information disclosure by employees. While we tried to gather the important information which is needed for analyzing and

Customers Customers

Shareholders

Suppliers

Alliance Partners

Government

Community JAD

Owner

JAD Knowledge Management System

Employees

Internal Stakeholders

ERP

BPR

NPD

Business Plan

Global Performance

Fig. 1. Research Framework. The research framework illustrated in Fig. 1. is the identification of all stakeholders involvement in KMS

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implementation for Thai ceramic SMEs improvement and viability to meet with the global performance based on the Skandia (1996) model (cited in Roos et al., 1997) and the analysis of the current situation for Thai ceramic SMEs. Based on the concept of IC proposed by Roos et al. (1997), they mentioned that composed of a thinking part (the human capital) and a non-thinking part (structural capital). They suggested that structural capital has an internal and an external component (organizational and relationship capital respectively), while human capital comes from the knowledge, the attitude and the intellectual agility of employees. First, we identify the role of each internal stakeholder who involves in our context based on IC theory proposed by Roos et al. (1997) as demonstrated in Table 2 (adapted from Kamal et al., 2011). 7DEOH,QWHUQDO6WDNHKROGHUV¶5ROHV in KMS Implementation for Thai Ceramic SMEs Stakeholders Owner

Providing Information Business Plan, Business Strategy

Employees

Working Processes from each department

Focused KMS Business Plan, BPR ERP, NPD, BPR

The internal stakeholders in our ceramic SME include an owner and the employees who play the important roles inside the organization. The owner of ceramic SME provides the important information for creating a business plan and a business strategy which are focused on Business Plan and BPR in our KMS, while the employees provide the working processes information from their departments. This information will be put into our KMS focusing on ERP, NPD and BPR. Second, we identify the role of each external stakeholder who involves in our context based on IC theory proposed by Roos et al. (1997) as demonstrated in Table 3 (adapted from Kamal et al., 2011). Roos et al. (1997) mentioned that structural capital in Skandia (1996) model is proprietary and not selfrenewing. It comprises of relationships, organization and renewal and development. The organization relationships are including customers, suppliers, alliance partners, shareholders and other stakeholders. 7DEOH([WHUQDO6WDNHKROGHUV¶5ROHV in KMS Implementation for Thai Ceramic SMEs Stakeholders Customers Suppliers Creditors Shareholders Alliance Partners Government Community

Providing Information Product information, Needs, Requirements, Expectations Production Plan Financial Plan, Business Plan Other information about organization direction, needs, expectations Competitive information, market information, corporation union Supporting Promotion for SMEs effect of ceramic SMEs to community

Focused KMS ERP, NPD, BPR ERP Business Plan Business Plan, BPR Business Plan

KMS which are focused on ERP, NPD and BPR. Suppliers support the production plan which is focused on ERP in KMS. Creditors give the information about financial plan and business plan which are needed as supporting information to ask for taking load. The focused in KMS of information from creditors is to generate the business plan. Shareholders put the other information about organization directions, needs and expectation into KMS which is focused in business plan and BPR. Alliance partners provide about the competitive information, market information, and corporation union for KMS which is focused on business plan. Government supports information about the promotion for SMEs and related articles for KMS which is focused on business plan. Finally, the community gives some feedbacks about how the ceramic SME affect and is affected to the community as an input into KMS and its focus on KMS is in generating the business plan. After we identified the role of each stakeholder, we will firstly apply a JAD methodology by setting up JAD sessions for information gathering from each stakeholder. Each JAD session must have its own session objective, such as finding the minimal model and basic requirement for the ERP, NPD, or Business Plan. Secondly, we will prepare basic information for ceramic SMEs stakeholders, such as what is the important functions of each tools (including ERP, NPD and Business Plan). Thirdly, we will conduct the section by brainstorming all idea from the related stakeholders. Finally, we will produce a document by summarizing all ideas and important information and conduct the summarization document for each session which will be useful information to put into our KMS. 5. CONCLUSIONS To overcome the problem of business survival and to improve the organizational performance for Thai ceramic SMEs, we proposed Knowledge Management System (KMS) implementation framework based on the concept of IC. For the KMS implementation, many stakeholders who can affect RU DUH DIIHFWHG E\ WKH DFKLHYHPHQW RI WKH RUJDQL]DWLRQ¶V objective play different roles in providing information as the input into KMS. This research is proposed for identifying the stakeholders¶ involvement in our KMS. We defined the information providing by each stakeholder and their KMS focuses. The objective is to provide the direction about what information we should gather from each stakeholder to reach RXU .06 LPSOHPHQWDWLRQ¶V JRDO IRU VXSSRUWLQJ all stakeholders within each Thai ceramic SME. Then, in the future they can easily make a decision about what direction they should go and what activities they should do based on our information in the KMS for business improvement and survival. REFERENCES

Business Plan Business Plan

The external stakeholders compose of customers, suppliers, creditors, shareholders, alliance partners, government and community. Each external stakeholder plays the different role outside the organization but their roles affect the business administration. Customers provide their product information, needs, requirements and expectation as the input into the

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