Knowledge management system for creative small medium enterprise in Indonesia - Case study: Batik

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1 Knowledge management system for creative small medium enterprise in Indonesia - Case study: Batik Amalia Suzianti *, Sofrida Rosita Hanum #, Nabilla Nur Anisah, Septy Aprilliandary Industrial Engineering of Universitas Indonesia, Indonesia, * suzianti@ie.ui.ac.id, # bsofrida.rosita@gmail.com Referring to The Master Plan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI), Indonesia is targeted to excel in national innovation system by Therefore, there is an urgency to strengthen human resources, science and technology to realise the aforementioned target. Meanwhile, Small Medium Enterprise (SME), particularly those focusing on creative industry, has been proved to have a positive contribution in escalating national economy. Among creative industry enterprises, Batik, a traditional cloth of Indonesia made using a manual wax-resist dyeing technique, is the forefront creative product which generates the most GDP for the country. Given on this fact, this research is conducted to strengthen human resource, science and technology capacity of the Batik SMEs in Indonesia through a development of knowledge management system. The research consists of three phases. The first phase is the identification and analysis of Batik SME s needs of knowledge. Sequentially, Batik SME s information gap and their knowledge management process will be reviewed before eventually developing the SECI model and disseminated it to the most potential Batik SMEs. Finally, this knowledge management system is expected to continuously developing and utilized positively by the SMEs, thus fostering Indonesia s innovation capability and competitiveness in global economy market. KEYWORDS SECI model, knowledge management, small medium enterprise, batik, Indonesia Introduction Creative industries are regarded as one of the most promising fields of economic activity in highly developed countries, having a great potential to contribute to wealth and job c y y creativity, but they also show a strong performance in technological innovation and thus directly contribute to the level of industrial innovation in the economy in terms of technologically new products, new processes and results of own R&D efforts. As one of many developing countries, Indonesia starts to realize that creative industries are having potential to lead the country into development since Indonesia has enormous resources which also indicating high creativity. Currently, Indonesia is in 43th rank in Economic Creativity Index published by World Economic Forum. Creative industries are described as industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and x y DC S 199 U y I y T classified the areas of creative industries in Indonesia, including: (1) Advertising Service; (2) Architecture; (3) Fine Arts; (4) Handcrafting; (5) Design; (6) Fashion; (7) Movie; (8) Music; (9) Performing Arts; (10) Publishing; (11) Research and Development; (12) Software; (13) Television and Radio; (14) Toys; and (15) Video Game. Among all of areas above, fashion industries are the highest contributor which giving 43.7% into Indonesian Gross Domestic Product (GDP) Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

2 Creative Industries' Contribution Percentage to GDP in Indonesia 5.88% 25.50% 43.71% 0.65% 3.95% 0.24% 7.93% 0.32% 2.04% 3.65% 0.93% 0.99% 4.09% 0.12% Fashion Movie Toys Music Performing Arts Publishing Software Figure 1: Creative industries' contribution percentage to GDP in Indonesia Fashion industries consist of creative activities related to cloth design, footwear design, and other design linked to fashion products. Discussing about fashion industries in Indonesia cannot be separated with batik. Batik I x g b both an art and craft for centuries known worldwide. The word batik is derived from the Javanese w amba w x titik k dots (Indonesia s Trade Research and Development Agency, 2008). In point of fact, batik w x w g w y g by g w coat of wax and then dyeing the cloth. It is a technique of covering parts of cloth fabric which will not receive color. The waxed areas keep their original color and when the wax is removed, the contrast between the dyed and undyed areas forms the pattern. Indonesia has been known for its batik since the 4 th or 5 th century. It is also well-known that Indonesian batik dyeing techniques and designs are as various as the number of its islands. Each ethnic group in Indonesia has its own technique and design of batik which represents the ethnic g y G P R 19 J P g 191 b k art came from India together with the arrival of Indian merchants to Java Island in the 4th or 5th century. It explains the originality of batik, which has become inseparable from the Javanese culture and the fact that several Javanese villages have maintained their heritage of batik craftsmanship for hundreds of years. As a part of creative industry, batik consecutively develops many areas through economy. As in Java, batik craftsmen have transformed their inherited skill into home-scale industry. Rooting from cultural heritage, batik gradually becomes economic-based activity in several areas in Java. Batik has continued to exist over the years and has shown signs of becoming even more widespread boosted by the dynamic development in the technological, esthetical, functional and economical aspects. The demand for batik products is increased both from domestic and international. This development triggered batik craftsmen building up their home-scale industry to be small-medium enterprise (SME). Figure 3: Batik pattern Figure 2: Cirebon batik production process 2014 Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

3 Combining tradition with economic-based activity is not as easy as it seems. Batik SMEs in Java have put a lot of efforts to start a single step into the business. They began with a lack of business managerial knowledge, human resources who have both batik skill and managerial skill, and sufficient financial capital. However, the main problem here is that all aspects needed for a firm to begin working are not effectively used and available in batik SMEs. This happens mainly because there is no management exists to arrange those needed aspects. Consequently, batik SMEs in Java are not all growing side by side to technology and globalization because most of them still facing difficulty in crossing the traditional line into business world. In all conscience, batik SMEs are still lack of knowledge management. The importance of knowledge management has been at the centre of research in recent years especially from the competitive advantage perspective which relies upon the development of the k w g x g by use of knowledge also referred to as the resource based view (Barney, 1991; Peteraf, 1993; Ventura, 1996). The impact of knowledge on business performance has been acknowledged since the mid-1970s when economies and society in general became more information and knowledge intensive. Industries turning into more information and knowledge orientated replaced manufacturing industries and created a new economy of wealth creation. Implementation of knowledge management in company linked strongly with competitive advantage. Knowledge management is not a tool that directly produces a result once it is applied. The implementation of knowledge management in company begins with one step that continues wide-ranging vertically and horizontally to accumulate organizational knowledge and know-how. Furthermore, the knowledge and knowing capability of an organization is an increasingly important source of competitive advantage for company. The concept of knowledge management is matched well with what is needed by batik SMEs in Java. As a starting point, before applying knowledge management in the batik SMEs, the first step to begin with is to conduct a knowledge creation. Knowledge is a core internal asset that if batik SMEs leverage in proper ways can harness great benefits. Therefore, batik SMEs will begin to identify what kind of knowledge they have, knowledge they need, and what kind of advantage they can get from having and knowing both what they have and need. This paper focuses on a knowledge creation model called the knowledge creation spiral or SECI model (Nonaka and Takeuchi, 1995). SECI model consists of four ways that knowledge types can be combined and converted, showing how knowledge is shared and created in the organization through: socialization, externalization, combination, and internalization. The main aim of this paper is to identify all the knowledge related to batik S E (process of producing batik w SECI model. The result of research in this paper will lead batik SMEs in Indonesia, especially in Java, to develop a strategy in infusing knowledge management in the business to gain competitive advantage. Literature review Knowledge Management Knowledge is a key economic resource and is considered important for sustaining competitive advantage; therefore organizations should possess the right knowledge to leverage its competitiveness, thus leading to organizational success (Rahimi, et al., 2001). In managing knowledge, the concept of knowledge management has been at the centre of research in recent 2014 Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

4 y w k w g exploit opportunities and mitigate threats by the use of knowledge (D.Alnsoor, 2008). Knowledge Management refers to the efforts to systematilcally find, organize, and make b y g knowledge sharing so that organizational activities build on what is already known (Edvardsson & Durst, 2013). Furthermore, Gupta et al. (2000) defined knowledge management as a process that helps organizations find, select, disseminate, and transfer important information and expertise necessary for activities such as problem solving, dynamic learning, strategic planning and decision making. In knowledge management, both information and knowledge are divided into two g w x T k w g k w g w b intangible knowledge assets g g x -sets. While explicit knowledge (knowing what) is actualized in tangible forms, such as documents, figure, and other form that create a general understanding of the knowledge itself. Figure 4: Knowledge management framework Knowledge managemet research and practice has been widely used in large organisations, McAdam & Reid (2001), cited in Edvardsson (2006), argue that there was relatively little information available on knowledge management concept utilization in SMEs. Therefore, through her research, Edvardsson (2007) are examining the popularity of knowledge management concepts among SMEs in Iceland. Icelandic firms rely on an unsystematic way of using knowledge and still using unsophisticated technologies. By sending questionnaire to the Chief Executive of Icelandic SMEs repetitively in , Edvardsson captured that more SMEs in Iceland are using knowledge management concept and it is shown that knowledge management helps Iceland SMEs in improving their decision making process, better customer handling, and increasing competitive advantage. Furthermore, Evangelista, Esposito, and Lauro (2010) identified opportunities and threats on Italian SMEs behavior related to knowledge transfer process. After collecting sufficient information, researchers developed knowledge management design for SMEs and its technology management to support the platform to ensure its sustainability. SECI Model The division concept of knowledge then being elaborated by Nonaka and Takeuchi into a knowledge creation spiral, known as SECI model. SECI model is an amplification and crystallization of individual knowledge into knowledge elsewhere in an organization takes place through four modes of knowledge conversion, which are illustrated in figure 2. Socialisation or tacit-tacit is a process of sharing experiences and knowledge directly from others without using language, but through observation, imitation and practice, thus making experience the key to acquiring tacit knowledge (Nonaka and Takeuchi, 1996, cited in D.Alansoor, 2008). By utilizing analogies, concepts, hypotheses and model to explaining the tacit knowledge, externalization process occurred. It is when the tacit knowledge is converted into explicit knowledge. According to 2014 Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

5 Nonaka and Takeuchi, when explicit knowledge is gathered, combined, process, and systemized into a knowledge system through meeting and telephone conversations, combination of knowledge are being developed. Internalisation takes place when individual filter and selectively internalized specific segments of knowledge while doing their activities in an organisation. Internalisation corresponds directly to Organisational Learning (Nonaka and Takeuchi, 1996, cited in D.Alansoor, 2008) Examining knowledge conversion in an organization has been interest of previous research. Alnsoor (2008) studied the process of knowledge creation in a dental practice located in Glasgow, Scotland. Using a qualitative research approach, Alnsoor could delivered SECI model for the organization and determined the roles of each age group of staff in delivering and creating knowledge through the organization. Saaristo (2009) studied difficulties found in knowledge sharing and management process of a company in Finland through the use of SECI model. Through this same model, he could formulate the best practice for the observed organization regarding the knowledge sharing and knowledge management process. Figure 5: SECI model of knowledge conversion Method A qualitative approach was selected for this research as its main objective was to develop a SECI model from the knowledge management practices within Indonesian Batik SMEs. In general, this research consists of three steps, which are: 1) Literature review and identification of needs and potency of Batik SMEs, 2) data mapping in form of knowledge gap, and finally 3) analyzing the result trough development of SECI model to obtain Knowledge Management Strategy for Batik SMEs. According to national bank of Indonesia, SMEs credits by September 2012 reached Rp 486,25 trillion, while 57,24% of them are circulating in SMEs located in Java Island. SMEs in Java sector attracted more labor force compared to other location. As the backbone of national industry and services, Java Island has an incredible SMEs potential. Given this characteristic of Indonesian firms, researcher selected this location to be observed. There are five major Batik SMEs centre in Java, located in Pekalongan, Cirebon, Solo, Madura, and Yogyakarta. The final sample consisted of 90 Batik SMEs from all the Batik centre in Java Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

6 The first step of the research, which is identification of potency and knowledge needs, is conducted through primary and secondary data. Secondary data were obtained from Minister of Industry and Trade of the Republic of Indonesia and Department of Cooperative from each location. As for the primary data, this research was conducted in the form of questionnaire, consisting 41 questions on operational, financial, and management issues. These questions are in the scale of 1-5, representing both their needs (1=strongly does not need until 5= strongly need) and satisfaction level (1=strongly not satisfied until 5=strongly satisfied). Additionally, questionnaire also contained organization background, such as size, profit, year of established. Researchers interviewed the owner of the SME directly to allow a deep and broad insight of the current issue in Batik SMEs regarding its knowledge management process. Before generating the model, researcher identified knowledge gap of each Batik centre through their needs and satisfaction level of each 41 aspects being asked. Researcher calculated gap between the ideal condition (needs x satisfaction = 5 x 5 = 25) and average score of SMEs current condition (current needs x current satisfaction). Researcher then mapping the result obtained into the four knowledge creation processes (Socialization, Externalization, Combination, and Internalization). Finally, researcher generated an integrated knowledge management strategy through SECI model for Indonesian Batik SMEs to capture an ideal condition of knowledge management process as a guideline for batik SMEs development in the future. Results and discussion The aim of this research is to develop SECI model for Batik SMEs. It is found that most of the Batik centre observed are still lacking in implementation of knowledge management, with Madura Batik has the highest gap obtained. Yogyakarta, Pekalongan, Solo, and Madura have the highest knowledge gap in Supplier Relationship Management (SRM) aspect, with score of 16.98, 16.38, 16, and respectively. Meanwhile, Cirebon has the highest knowledge gap in Customer Relationship Management (CRM) aspect. On the other hand, researcher also found the least needed knowledge aspects for each of the Batik SMEs, which are Employee Assurance for Yogyakarta and Madura (score of 0 and 0.33 respectively), Communication Forum for Pekalongan and Cirebon (score of 1.2 and 0.82 respectively), and lastly Technology Usage for Solo (score of 2.8). Below is the mapping of knowledge management process based on the in depth interview: No. 1. Declaration Corporate license Tax Supplier relationship management 2. Raw material management Warehouse management Stock management 3. Employee Assurance Table 1: Batik SMEs knowledge management process mapping (input phase) Socialization Tacit to Tacit Knowing that every business must have license and pay tax Directly come to supplier and release order Inform job description Externalization Tacit to Explicit License document requirement Receipt salary tax SOP Release order purchase order form Stock note Purchase invoice SOP of employee task Combination Explicit to Explicit Business owner certificate Receipt tax Storing data from purchase invoice to stock card Storing data of salary to balance Internalization Explicit to Tacit Knowing how to renew business license and tax document Forecast order pattern Turnover rate of employee 2014 Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

7 No. Declaration Socialization Tacit to Tacit Externalization Tacit to Explicit Combination Explicit to Explicit Internalization Explicit to Tacit Employee salary management Work hour Job description Employee Training Leadership training Learning from professional Mentoring Product development research Technology or machine utilization 7. Bank loans Capital source 8. Investment/ capital proportion Earned profit allocation clearly to employee Salary distribution after task has been finished Awareness to improve skills of employee Having an idea for product development based on experience or preference Knowing technology could increase employee efficiency Knowing loans information Knowing the importance of profit allocation for business development (job description, work hour ) Standard salary Evaluation form Training list Post-training evaluation form Batik design Sketch book SOP process product development Machine catalogue Required documents to propose bank loans Cash report sheet Determining the employee salary Training report from employee Batik design archiving and stamp g b k Machine buying receipt Loan receipt acceptance / ignorance Documentation of returned profit Knowing carrier level of employee Knowing batik design development through time Knowing latest technology to increase productivity Knowing loan amount and interest Knowing the development of business Table 2: Batik SMEs knowledge management process mapping (process phase) No Declaration Socialization Tacit to Tacit Externalization Tacit to Explicit Combination Explicit to Explicit Internalization Explicit to Tacit 9. Production schedule 10. Production layout 11. Maintenance system 12. Packaging K w g b k k g b k Knowing that appropriate layout will ease the production process Knowing that batik equipment should be changed regularly Knowing that packaging can increase selling value Production scheduling Item code Production layout blueprint Job description of employee SOP of employee task Maintenance schedule Defect item data Packaging design Packaging material Production schedule archiving Production layout blueprint Archiving defect equipment Packaging design archive Knowing production schedule through times Knowing position of each employee in every work station Knowing which equipment that should be changed based on y recommendation Consumer awareness of the product through product packaging 2014 Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

8 Table 3. Batik SMEs knowledge management process mapping (output phase) No Declaration Socialization Tacit to Tacit Externalization Tacit to Explicit Combination Explicit to Explicit Internalization Explicit to Tacit 13. Quality control system 14. Distributor S Distribution facility 15. Export-import regulation 16. Branding Copyright Social media Advertising 17. (printing media, radio, TV) Marketing strategy 18. Consumer relationship Employee communication forum Accountancy Computerize system 21. CSR Controlling based on quality of batik cloth Sending item to Knowing international market can develop process business Branding name is heritage from ancestor Promotion selling by mouth Interaction with Knowing the importance relationship between employee and their boss Knowing business condition from showroom Aware the business must have positive impact to their environment Check sheet Data of defect item Receipt sending item Sent item data SOP for sending item Volume data production Production target for filling foreign order importer/exporte r license Documenting the cause of defect item Documentation sent item data Document foreign order Copyright files Document copyright files Advertising Book cost of draft promotion and Invoice income from e- advertising cost commerce to List order from balance sheet e-commerce Consumer list Receipt buying item to Identity employee list Employee gripe list Balance sheet SOP of processing waste to be friendly Book receipt item to balance sheet Document employee data Balance sheet used for lending to bank and business license Knowing the composition waste after processing Knowing the cause of defect through times Knowing total amount of retail and wholesaler Knowing foreign preference Knowing brand by Batik product well known Knowing preference Knowing volume of selling item Knowing the loyal Knowing what employee want to increase their productivity Knowing business condition Get good image from society 22. Award or Grant 23. Research cooperation Knowing info of grant or award Knowing they can improve their lack with research cooperation Award/grant certificate Research offering letter Research data Document award/grant certificate Report result research Getting admission from society Knowing to improve their business after research cooperation After mapping all the knowledge into four knowledge management processes, SECI model is developed. SECI model consists of keywords that represent the mapping based on the gap analysis. the result of SECI model development could be seen in figure 6. Each knowledge process in the SECI model describes the activity within the value chain, which is simplified into three general phases, Input (I), Process(P), and Output(O). The socialization process which indicates the tacit Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

9 tacit knowledge includes direct ordering and direct command in input phase, inherited knowledge in process phase, and experience based learning in output phase. In externalization process which indicates the tacit-explicit knowledge, includes internal regulation for ordering process in input phase, production report in externalization phase, and control sheet in output phase. Within this knowledge process, Standard Operating Procedure (SOP) is being made. As for the combination process, indicating explicit to explicit knowledge includes archiving activities and database making in input and output phase, while documentation of knowledge is the main activity for process phase. Lastly, internalization process which indicates explicit to tacit knowledge includes forecasting process for raw material procurement in input phase, product development strategy in process phase, and as for output phase includes sales forecasting and quality improvement. Socialization (Tacit to Tacit) I = Direct ordering, Direct command P = Inherited knowledge O = Experience based learning I = SOP, Internal regulation P = Production Report, SOP O = Control Sheet, SOP Externalization (Tacit to Explicit) Combination (Explicit to Explicit) I = Archiving, Database P = Documentation O = Database, Archiving I = Raw material forecasting P = Product development strategy O = Quality improvement, Sales forecasting Internalization (Explicit to Tacit) Figure 6: SECI model for Indonesian batik SMEs Conclusion From this study, we could develop a SECI model for Batik SMEs in Java sector which describes knowledge management strategy for the SMEs. Through in depth interview, we could gather a deep insight of knowledge gap and current knowledge process of batik SMEs in each location that was being observed. After mapping the needs into four knowledge process known in SECI, researcher could develop a SECI model by generating keywords representing the mapping process which was based on gap analysis. This SECI model is intended to assist batik SMEs in improving their management of knowledge in order to drive the innovation process within the SMEs Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,

10 Acknowledgement This research was made possible by the support and assistance of a number of people whom we would like to thank. We are very grateful to the anonymous referees for their valuable comments and constructive suggestions. We would like to thank for their valuable opinions. References D.Alnsoor, M. H., Using the SECI knowledge creation spiral model: a scottish SME case study, Glasgow: University of Glasgow. Edvardsson, I. R., Knowledge Management in SMES: the case of Icelandic firms. Knowledge Management Research & Practice, Volume 4, pp Edvardsson, I. R. & Durst, S., Does Knowledge Management Deliver the Goods in SMEs?. Business and Management Research, 2(2), pp Rahimi, H., Arbabisarjou, A., Allameh, S. M. & Aghababei, R., Relationship between Knowledge Management Process and Creativity among Faculty Members in the University. Interdisciplinary Journal of Information, Knowledge, and Management, Volume 6, pp Copyright remains with authors. First published by Eduserv Group Publishing Division, UK,