1 ABSTRACT Small and medium-sized enterprises (SMEs) in Indonesia have essential role in economy. Their exist- ence was appearing significantly when the financial crisis in Asian 1997 and the world economic crisis in 2008. Therefore, the existence of SMEs for business and society is essential, so their sustainability should be maintained through creating value and improving productivity. However, unlike the large companies that typically have resources to maintain information and their knowledge extensively, SMEs fall into lack of resources that driving them on amnesia consistently (S J Hall & De Raffaele, 2013) and it will influence the ability to create value and increase their performance. The paper aim is to describe the existence of organizational amnesia (OA) as the failure of organizations to learn reliably at the or- ganizational level (Kransdorff, 1998). This indication is proposed will affect SMEs to create value and improve organizational performance. Some conclusion and future research have been recommended. Keywords: Organizational amnesia, Value creation, Organizational performance, Small and medium-sized enter- prise Received: 07 September 2018 ; Accepted: 20 September 2018; Publish; Oktober 2018 How to Cite: Sadat, A., Lin, M.. (2018).Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.Journal of Business and Behavioural Entrepreneur- ship, 1(2), 1-13. https://doi.org/https://doi.org/10.21009/JOBBE.001.2.01 Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise Andi Muhammad Sadat Department of Business Management Southern Taiwan University of Science and Technology E-mail: andims@unj.ac.id Mei-Lan Lin Department of Hospitality Management Southern Taiwan University of Science and Technology E-mail: mllin@stust.edu.tw mailto:andims@unj.ac.id mailto:mllin@stust.edu.tw 2 INTRODUCTION The importance of small and medium-sized enterprise (SME) to world economies is well documented (Birch, 1989; Storey, 1994). SME with hundreds of employees make up the largest business sector in every world economy (Culkin & Smith, 2006), and governments entire the world are increasingly promoting and supporting SMEs growth as part of their overall national development strategy due to their important role in GDP growth and driving socio-economic development (Karadag, 2016). In literature, there are some criteria and approaches to define SME, and it should be noted that there is not a global standard definition and it could define in a different way across coun- tries, because the dimension of “small” and “medium” of a firm is relative to the size of the domestic economy (OECD, 2017). For instance, the OECD defines an SME as the firms employing up to 249 employers, and it can be breakdown into three levels, namely: micro firm (1 to 9), small firm (10 to 49) and medium firm (50-249). While, UK Government was adding some criteria about SMEs such as the balance sheet total not more than £11.4 million, little or no previous experience of developing new prod- ucts and struggling to survive or compete purely on manufacturing because of low-cost rivalry. Furthermore, Airaksinen, et al. (2018) noted that the role of SMEs in world is very important, as they represent around 99 % of all enterprises and absorb the amount of significant employees. Based on OECD report 2017, the increasing number of SME can help governments escaping from low productivity traps, improving the quality of jobs for low-skilled employee stimulate economic growth, and social inclusion objec- tives. Therefore, the existence of SME is pivotal and should obtain more roles in busi- ness and society. However, many SMEs enable to utilize their knowledge optimally due to some weaknesses, so it will decrease their ability to creating value and increas- ing performance. Raising this problem allows the author to do some investigation and discussion in the existing literatures. Previous studies in knowledge management tend to analyse the processes of dis- semination of knowledge and utilize information in large companies rather than the micro sized organization (Cerchione, Esposito, & Spadaro, 2016). Only in recent year literature has been focusing knowledge management in SME (Frey, 2001; Mcadam & Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 3 Reid, 2001; Wong & Aspinwall, 2005; Pillania, 2008). Indeed, there are some gaps that should be fulfilled by researchers to contribute and support SME, particularly why micro enterprises tend to be failure to utilize their knowledge as the source of infor- mation. Inability to capture and diffuse learning in the organization due to the inacces- sibility of the knowledge generated from the learning called organizational amnesia (OA) (Kransdorff, 1998). In micro-sized enterprises the influence of OA will be felt even if only one member departs within a certain time (Hall & De Raffaele, 2013). An- other causes are a high level of turnover, shift-work rotation, downsizing staff level and perceive the benefit of knowledge management itself. Furthermore, the limited financial and human resources present within SMEs make them difficult to implement knowledge management as a part of their strategy. Edvardsson(2006) noted that only 24 percent of Icelandic micro firms have a knowledge management programme in place, while mostly SME in Indonesia do not put knowledge management as priority (LPPPI & BI, 2015). RESEARCH MOTIVATIONS AND QUESTIONS There are several motivations to perform this research: first, since still few re- searches described the existence of OA in the context of SME, so it would be very val- uable to fill this gap. Next, the presence of this paper will make a significant contribu- tion, particularly in the knowledge management literature extensively. Last, investigat- ing the existence of OA will assist the business owner to understand clearly that an or- ganization needs to be able to use the knowledge generated from their learning to cre- ate business value and competitive advantage (Tiwana, 2000). Based on the back- ground above the framework can be draw as Figure 1 and allow this paper to focus on the questions: does OA exist in SME? Moreover, how does the effect of OA on creat- ing value and performance? Regarding those question, this paper will discuss based on literature how OA will influence value creation and performance in SME. Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 4 Figure 1: The relationship between organizational amnesia, value creation and organizational performance WHAT IS ORGANIZATIONAL AMNESIA The author believes that the ultimate objective of enterprises is to be more competitive in the market place that is why they need to optimize the potential knowledge. However, in spite of the tendency to build knowledge management and organizational learning capability in SME, the studies have shown that it is not effort- less for an organization to learn (Othman & Hashim, 2004), also not all organizations able to develop learning capabilities even most of them have natural propensity to for- get (Conklin, 2001). The notion of organization memory lost had been mentioned around more than a couple decades (Stein, 1995) with many definitions have been pro- posed. This phenomenon in knowledge management literature is named organizational amnesia (OA) (Kransdorff, 1998). OA indicated enterprises have either lost their or- ganizational memory or incapable of recalling their past experience and also inability to communicate lessons from one part of the organization to other parts. This situation means that an organization fail to benefit from its experiences due to lack of ability to effectively transmit the knowledge to the places in the organi- zation where the lessons learned are absorbed and used. Related to this situation Oth- man & Hashim (2004) divided OA to be two types. The first is named “time-based OA”, reflect the failure to utilize learning that has taken place to make the necessary adaptation or create value, and second is “space-based OA” that related to the inability to move or diffuse lessons learned at one place to other places in the organization (Figure 2). In SMEs context this kind of phenomenon are normal and always happen in Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 5 daily SMEs activities and it would affect the way organizations behave, in turn will influence their overall decision. Storey & Kahn (2010) noted the critical position of corporate memory in decision making process also some researchers have explored the extent to which memory affects how managers make decisions. Figure 2: The types of organizational amnesia Furthermore, the lack of resources originate in the micro enterprise results in the excessive reliance on tacit knowledge, thus implies that a micro-sized company is con- sistently on the threshold of corporate amnesia and practically will affect various cor- porate activities. Conversely, large companies typically have the resources to manage information extensively whereas SME has difficulties in implementing it. Hall & De Raffaele (2013) emphasized several barriers such as due to cost and not apply a proper method, encouraging SMEs to collect primary or secondary information from organi- zational stakeholders either personal or impersonal (Keh, Nguyen, & Ng, 2007) and used them in the decision-making process (Menon & Varadarajan, 1992). However, relying largely on information from external sources is not favourable in the long term. Contrarily the companies should have their own and store essential information that they need to respond the business environment to survive. CAUSES OF ORGANIZATIONAL AMNESIA To understand the causes of organizational amnesia are cannot be separated with Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 6 the organization learning process. According to Easterby-Smith (1997) learning organ- ization is action-oriented processes by creating and expanding organizational capacity to learn, while Birdthistle (2008) emphasised that organizational learning can be used as a heuristic tool to explain and quantify learning process. There were some scholars also tried to explain the dimension of an organization learning process entire organisa- tion such as Örtenblad (2002) that described four aspects of the learning organization construct. First, knowledge is stored in the organizational memory. Second, learning activity is seen as an implementation of knowledge at dissimilar stages. Third, learning environment perspective looks organization as a place to facilitate the learning activi- ties for employees. The last is the learning formation perspective that looked learning organization as a flexible component. Watkins & Marsick (1993) also mentioned seven elements of a learning organization, namely continuous learning opportunities, inquiry and dialogue, collaboration and team learning, systems to capture and share learning, a collective vision, connection to the company’s environment, and strategic leadership for learning. Meanwhile, Crossan, Lane, & White (1999) present a structure of organizational learning into four processes those covering individual, group and organizational level. The first is intuiting that happen in individual level. It representing that each person is unique with own cognitive map that will affects recognition process, the higher degree of personal expertise, the higher his ability to perceive patterns than others. This kind of process does not influence organization unless it is shared to all parts of organiza- tion. The second is interpreting that refers to as social activity that allows individual learning with group level that generates a common language and develops conver- gence of meaning. The third process is integrating which is enlargement of shared thoughtful and taking coherent collective action by members of the group. The best achievement of this stage is when actions repeated and accepted as regular process and tend to be made as the organization standard. It means that the learning process that takes place at the group level is linked to the organization level. Finally, institutionaliz- ing is the process whereby the learning activities are becoming embedded in the sys- tems, structures, strategy, and the culture of the organization. The accumulation of those activities can create a new knowledge that is stored in organization’s memory. In Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 7 other word institutionalizing ensures that what had been learned embedded in organi- sation system and no longer based on the person who was the drive of the learning pro- cess. From perspectives about organizational learning it can be proposed that OA can happen in entire stages since learning is principally as a process of knowledge acquisi- tion (Bahra, 2001), also knowledge is an abstract thing that cover individual experi- ence, values, intuition, personal expertise, social background that provides a context and framework for incorporating new experiences and information, so knowledge should appear not only in organizations’ files but it also been reflected in organization daily activities. So, it can be argued that the appearance of OA will make difficult of all organization to build up organizational learning because the nature of knowledge itself. Another explanation why knowledge will lose in a certain process because quite often it must be understood based on the background that was generated and it has ex- plicit and tacit bases. For explicit knowledge can be bit easier to be transferred become formal language within organization but the problem always happen when tacit knowledge need to be articulated since it lies on personal perspectives and value sys- tem (Bahra, 2001). Therefore, ensuring that tacit knowledge stored properly, Kogut & Zander (1992) argued that knowledge has had a set of identifiable rules and relation- ship so make it easier to be communicated, failure to converse tacit knowledge makes knowledge difficult to be transferred entire organization. In Addition Kransdorff (1998) added that both person and group level tend to avoid lesson, then the learning process can be rather distorted and misplaced. For a simple case even though an organ- isation already installed certain software to support the knowledge storage within or- ganization there are still possible fail to access properly by all of organizational mem- ber due to knowledge has a tacit aspect, so using and replicating them in other parts of organization may not easy because still need a specific skill (Othman & Hashim, 2004), and everyone also has different intelligence (Kogut & Zander, 1992). Deal with the human factor Cohen & Levinthal (1990) mentioned that previous knowledge of human being will affect the way they utilize the new knowledge. Long term experi- ence and the accumulation of knowledge in memory will increase the person ability to Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 8 absorb and implement a specific knowledge. Schulz (2001) described that in term of utilize the knowledge among members of organization, a regular training to increase the personal capacity is needed to make it more reflective unless organizational learn- ing will be a vicious cycle that restricting further learning and give more space for or- ganizational amnesia. All elements that mentioned above are very susceptible in micro enterprises that can influence their daily business activities. ORGANIZATIONAL AMNESIA AND SMES’ VALUE CREATION To become competitive in the market place a company must be creating value better than his competitors. Edwards, Battisti, & Neely (2004) mentioned that there are three strategic choices for organization in prospecting excellent value creation, name- ly: 1) organizations can convey high level of value by rising their efficiency and effec- tiveness. This situation can be attained through the adoption of the better ways during production process, 2) organizations can initiate the innovation breakthrough into their production line of either products or services so that engenders more income; 3) imple- menting an essential change in value chain process consistently with the better tech- niques than previous. However, in those perspectives remain unclear specifically for SME in term of how those options can be manifested into practice in creating and sus- taining the long term value. As explained by Lepak, Smith, & Taylor (2007), value creation is the relative amount of value quality that perceived by the target user whether individual, organiza- tion, or society which the assessment is subjective and should be translatable into the willingness to pay for the value received. This perspective has two aspects that men- tioned by Bowman & Ambrosini (2000), namely use value and exchange value. Use value refers to the specific quality of a job, task, product, or service those could be per- ceived directly by the user such as additional new features to improve product perfor- mance, while exchange value is the amount paid by the user to the seller for the use value of the certain task, job, product, or service. In order creating value successfully, the companies must be able to explore the knowledge that they belong to, so they can be more innovative in delivering the most valuable product or service. March (1991) also emphasised that organization need ex- Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 9 plorative efforts by utilizing the existing knowledge that can be use to enrich customer value. Thus the knowledge it possesses will support the creation of customer value. However, as the author mentioned above, SMEs have many limitations related to their learning capability. Hall & De Raffaele (2013) noted that comparing with the big com- pany, in the certain situation SMEs have lack of resource. For example, if big compa- nies can maintain their knowledge and business environment through their strong re- search department. Conversely, SME may only sets up by a single person to handle the whole things. Consequently the organization will face difficulty when the person in charge decides left the company. It means that it is difficult for SMEs to accumulate their knowledge and learning process in response of market or business changes. So rather than dealing with creating value that required firms invested resources, many SMEs are just struggling with internal problems that never get done whereas success is determined by ability to maintain learning and knowledge regularly. Schulz (2001) argued that learning is a kind of organization exploitative activity that usually more certain in process and outcomes, while Dewar & Dutton (1986) stated that it is more incremental, more regular and more relevant to the current firm’s process. So as the opposite of organizational learning activities, it can be argued that OA is consist- ently appearing in SME daily activities and it will influence negatively the value crea- tion process. ORGANIZATIONAL AMNESIA AND SMES’ PERFORMANCE OA indicated that firms lost their memory so they are incapable of recalling their past knowledge and inability to communicate lessons within organization. This situa- tion will influence the overall organizational performance, particularly in responding the change of market preference and business landscape. Common perspectives said that in order to response the uncertainty of business environment, the firms need listen- ing carefully their customers, develop product and service excellent, while at the same time also preparing internal proper system to optimizing their knowledge to face com- petition, unless the traditional management style of SME is never sufficient as weapon to response changes. Therefore, participation of all the member of organization in the development and maintaining the business process will be fundamental aspect for fu- Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 10 ture organisational (Choueke & Armstrong, 1998). As known, it is very often found in SME that the absence one of member for a certain period will influence all the organization process. Some scholar also argued that SME always living with amnesia which knowledge management and organisation- al learning are nice to have but it really hard to justify. There are some problems to install learning system entire organization such as limited of incentive makes member of organization reluctant to share his knowledge, building knowledge system also needs some cost and a good administration to maintain knowledge resources. In sum, SMEs is consistently on the threshold of corporate amnesia and it will directly influ- ence their performance. According to Deshpandé, Farley, & Webster (1993) and (Drew, 1997) organizational performance the degree to which companies attained its business goals and it can be measures from several factors, such as overall success, market share, growth rate, profitability and also innovativeness compare with their competitors. While Keh et al. (2007) divided organizational performance in two di- mensions such as financial performance and non- financial performance. So, it is able to argue that the existence of OA in SMEs will directly influence their performance. CONCLUSION AND FUTURE RESEARCH Dissimilar with the large companies that typically have resources to maintain essential information and knowledge extensively, SME always faces weaknesses of sources that driving them on the threshold of amnesia consistently. This situation would influence directly value creation process and organization performance. The barriers such as cost (Kimble, 2013) and require a good administration (Hall & De Raffaele, 2013) to maintain knowledge resources makes difficulty to acquire and uti- lize the information that fundamentally will affect firm performance (Keh et al., 2007). Also SME has a nature for the high level of staff turning over, shift-work, outsourcing process until downsizing that can cause organizational amnesia. An organization needs to continuously gather knowledge and information in or- der to deliver consistently high-quality products or services as well as to create superi- or customer value (Slater & Narver, 1998). Brockman & Morgan (2003) argued that companies with more information about the products and services tend to benefit in a Sadat, A., Lin, M.. (2018). Journal of Business and Behavioural Entrepreneurship Volume.1 Nomor.2 2018 p (1-13)  Organizational Amnesia: the Barrier of Value Creation and Organizational Performance in Small and Medium Sized Enterprise.  https://doi.org/10.21009/JOBBE.001.2.01 11 higher level of performance. The authors could argue that the more organisation main- taining and acquiring knowledge the more possibility to utilize it as source of value creation and also will increase their performance. Therefore, to be more precise an em- pirical assessment of the nature relation among variables proposed should be test to get more explanation and to prove the level of generalizability. Also, since the concept of OA is still being developed the researchers should contribute to fill this gap. Finding a clear concept, possible dimensions and some indicators to identify the existence of OA within SMEs would enrich the knowledge management literature extensively. 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