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Tracing the links between Absorptive Capacity, University
Knowledge Exchange and Competitive Advantage in SMEs
Helen Fogg, Project Manager, Lancaster University Management
School. Institute for Entrepreneurship and Enterprise Development,
Lancaster University Management School,
Lancaster LA1 4YX Tel.: 01524 510706 E-mail:
[email protected] Website: www.lums.lancs.ac.uk/ieed
Gill Peers, Knowledge Exchange Manager, Lancaster University
Management School
Keywords: Absorptive capacity;knowledge exchange, SMEs,
entrepreneurial learning
Objective Can university knowledge exchange give small
businesses the ability to gain competitive advantage? The main
purpose of this study is as follows. Firstly, is to understand the
limitation of absorbing knowledge for small firms from HEIs.
Secondly, to find out if access to knowledge resources, such as a
university, will be an antecedent factor for building absorptive
capacity in SMEs and creating business value. Prior studies
Knowledge has been recognized as a new driving factor behind the
growth of firms. In order to maintain competitive advantage firms
need to absorb knowledge. However, the rate of firm growth depends
on a number of factors including ability to recognise the value of
new knowledge, their networks, culture and availability of
knowledge. An ability to absorb external knowledge is important as
studies have shown that the more an organisation absorbs new
knowledge, the more competitive advantages they will obtain in the
process. In the literature, there is much evidence that proximity
with universities as a knowledge resource may determine the
performance of firms. However, the process of transformation from
university knowledge into innovation in a small business is not
clear. Absorbing knowledge may be hampered by lack of resources and
skills or network and cultural restraints. Small firms are also
limited in terms of access to knowledge resources and capability to
utilize knowledge. In addition a university may lack the mechanisms
to successfully transfer their knowledge into practise, especially
in the case of small businesses. Approach This paper is a
conceptual study in which an ex-ante model for knowledge exchange
between a Management School and SMEs will be proposed which has
been developed drawing upon the literature and the prior SME
knowledge exchange expertise of the Management School, to deliver a
project funded by the European Regional Development Fund, for three
years, to work with 300 SMEs in the North West of England region on
the area of Innovation for Growth (IFG). Implications This study
offer several benefit - Improving policy aiming to support the
innovation process of small firms. - Recommendation for a model of
knowledge exchange between university and small firms - Strategy
for small business to improve their absorptive capacity Value This
study will be of use to knowledge exchange practitioners, policy
makers and academics
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Introduction Cohen and Levinthal 1990 used the term absorptive
capacity to capture the notion that firms may have differing
capabilities to innovate and to recognise the value of new
knowledge, assimilate it and apply it to creating business value.
Zahra and George (2002) reconceptualised absorptive capacity as a
dynamic capability pertaining to knowledge creation and utilization
that enhances a firms ability to gain and sustain a competitive
advantage. Knowledge transfer (KT) describes how knowledge and
ideas move between a knowledge source to the potential users of
that knowledge. In this paper we will consider the business schools
of higher education institutions as a knowledge source and small
and medium sized enterprises (SMEs) as a potential user of that
knowledge. Knowledge exchange reflects a belief that the processes
involved in knowledge transfer must be two-way in order to be
successful. Therefore the term knowledge exchange is used
extensively throughout this paper as the author recognises that a
two-way process between business schools and SMEs is a vital part
of a cyclical value-chain that also informs and renews the
knowledge of a University. KT has been identified as an essential
element of innovation, driving competitive advantage in
increasingly knowledge driven economies. While large firms are
often engaged in KT with higher education institutions (HEIs) it is
acknowledged that small and medium enterprises (SMEs) play an
important role in any economy and are increasingly being encouraged
to engage with the HEI sector. (HM Treasury 2004, 63). Over the
last eight years the Institute for Entrepreneurship and Enterprise
Development (IEED), a Department within Lancaster University
Management School, has focused on the application of its research
expertise through the development and delivery of a comprehensive
suite of Small Medium Enterprises (SMEs) knowledge exchange
programmes in the areas of innovation, enterprise development,
leadership and business management. Through its various projects it
has assisted more than 1000 regional SMEs, resulting in significant
improvements in the businesses supported. The Department has
recently been awarded funding from the European Regional
Development Fund, for three years, to work with 300 SMEs in the
region on the area of Innovation for Growth (IFG). This project
draws on the Departments innovation research and builds on previous
successes in business engagement. To do so it utilises the
integrated learning models of SME engagement already developed
within IEED. SMEs will be formed into cohorts consisting of 20-25
members (12 cohorts running across the region throughout the three
year project) and innovation themed programmes will be developed
lasting from three to nine months. The programmes are designed to
encourage the development of SMEs through the introduction of new
products, processes, services and networks. Delivery will draw up
the skills and expertise of academics, students and knowledge
exchange professionals within the Management School. The outcome of
this project will be the creation and development of a network of
knowledgeable, engaged SMEs who have a desire to learn about,
develop and enact practices that will bring about innovation. In
this paper absorptive capacity is proposed as a framework to help
explain how heterogeneous SMEs are able to assimilate new knowledge
and then exploit it for competitive advantage. This is combined
with literature concerned with how SMEs or specifically
entrepreneurs within SMEs learn to propose a model of knowledge
exchange for business schools within higher education institutions
(HEIs) to develop absorptive capacity within SMEs. This ex-ante
model of knowledge exchange has been developed to deliver the
Innovation for Growth project which aims to take the knowledge from
within the Management School, the knowledge source, and deliver it
into regional SMEs. This paper is conceptual paper, reviewing
literature concerned with absorptive capacity, knowledge exchange
and entrepreneurial learning and then combining this with expertise
from within IEED, gained through the development of a suite of
knowledge exchange mechanisms over many years and high levels of
SME interaction, to propose a revised knowledge exchange mechanism.
The paper is structured as follows; initially a review of the
relevant literature concerned with absorptive capacity, SME
learning and knowledge exchange is provided, followed by an
overview of IEED, whose expertise has contributed to the
development of the knowledge exchange model and then the paper
concludes with discussion of the proposes knowledge exchange model.
Literature Review Cohen and Levinthal (1990) defined absorptive
capacity as a firms ability to recognise the value of new external
knowledge, assimilate it and apply it to commercial ends. Zahra and
George (2002) reconceptualised absorptive capacity as a dynamic
capability pertaining to knowledge creation and utilization that
enhances a firms ability to gain and sustain a competitive
advantage. Knowledge transfer (KT) describes how knowledge and
ideas move between the knowledge source to the potential users of
that knowledge. In this paper we propose how new knowledge from a
business or management school of a higher education institution,
the knowledge source, can be moved to an SME, the potential user,
in order to increase the absorptive capacity of the SME. J.Barney
1991 suggested that firms endowed with greater absorptive capacity
are expected to outperform rivals, thus for SMEs the knowledge from
the business school may ultimately provide the SME with a
competitive advantage when the new knowledge is applied to
commercial ends.
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Kim (1997) defines absorptive capacity as the capacity to learn
and solve problems. It is recognised that the mode of learning for
entrepreneurship education differs from that of typical students of
management studies: whereas the latter require knowledge retention
to gain qualifications, entrepreneurial learning by owner-managers,
of SMEs, is a specific situated, problem-centred process (Cope
& Watts, 2000). Therefore in order to increase absorptive
capacity within SMEs there is a need to develop specific models of
knowledge exchange for SMEs which encompasses the body of research
concerned with how entrepreneurs learn. Knowledge Transfer
(Exchange) and SMEs KT encompasses the systems and processes by
which knowledge, expertise and skilled people transfer between the
research environment (universities, centres and institutes) and its
user communities in industry, commerce, public and service sectors
(Definition of Knowledge Transfer agreed by the Research Councils
UK (RCUK), Department for Innovation, Universities and Skills
(DIUS, previously OSI) and the Research Councils). It is suggested
that this definition of KT could also refer to knowledge exchange,
a term preferred by the author as it reflects a belief that the
processes involved are two-way. KT has been identified as an
essential element of innovation, driving competitive advantage in
increasingly knowledge driven economies. A number of recent UK
government reports have sought to increase awareness of the
importance of knowledge transfer, most noticeably the DTIs
Innovation report (DTI 2003) and the Lambert Review (Lambert, 2003)
(Lockett et al 2008). While large firms are often engage in KT with
higher education institutions (HEIs) it is acknowledged that small
and medium enterprises (SMEs) play an important role in any economy
and are increasingly being encouraged to engage with the HEI
sector. (HM Treasury 2004, 63). SMEs are highly heterogeneous and
contribute significant proportions of employment and turnover in
both European and US economies. For example, in Europe 99% of all
businesses are SMEs. They provide two out of three of the private
sector jobs and contribute to more than half of the total
value-added created by businesses in the European Union (EU). What
is even more intriguing is that nine out of ten SMEs are actually
micro enterprises with less than 10 employees. Hence, the mainstays
of Europe's economy are micro firms, each providing work for two
persons, on average. (EU2007). With this recognition of the
importance of SMEs to an economy the need to assist SMEs to gain
competitive advantage by increasing their absorptive capacity
becomes apparent, when absorptive capacity is defined as a firms
ability to recognise the value of new external knowledge,
assimilate it and apply it to commercial ends. (Cohen and Levinthal
1990). Knowledge and innovation are intertwined: innovation is
based on the application of new knowledge and at the same time the
application of new knowledge leads to change and innovation.
(Jenson et al 2007). Galankis 2006 points out that, in order to
survive an organisation has to innovate constantly. Innovation
provides competitive advantage for an SME. Murovec & Prodan
2009 point out that in order for innovation activity to provide a
desired output, an organisation needs to possess knowledge from
many different fields. To be able to set up a broad knowledge base,
an organisation has to absorb information from all kinds of sources
not just internal, but also all available external sources. Hence
the ability to exploit external knowledge is a critical component
of developing innovative capability and competitive advantage. This
paper considers how the knowledge contained within a business
school of a HEI can be recognised by an SME as a valuable source of
new knowledge and then how can this knowledge be exploited by them.
Historically, HEIs have interacted with SMEs in a number of ways,
for example, through bespoke research and consultancy, teaching,
training and skills development, clustering, spin-outs, venture
capital activities and knowledge transfer partnerships. These
connections form attempts to create the necessary infrastructure
and increase the capacity for SMEs to engage with HEIs and gain
accessibility to an increasing knowledge base through international
networks and markets. (Johnston et al 2008). Recent research
undertaken by Arino et al. (2008: 22) has pointed towards a string
of positive benefits for entrepreneurial firms embarking upon
strategic alliances. For example, the ability to tap into new
markets, access scale economies, obtain complementary resources in
underdeveloped value chain activities, respond to environmental
uncertainties, and receive endorsements from reputable incumbents.
However, Link and Tassey (1989: 44) noted five intrinsic
characteristics that restricted collaborative relationships between
universities and businesses: differences in mission and objectives;
incompatibility of structures and policies; differential
orientation and interests of individual researchers; effectiveness
of universityindustry arrangements and mechanisms for collaboration
and, benefits versus cost and difficulties in how to evaluate
university industry relationships. For business schools and
businesses, the scarcity of effective interactions means failure to
optimally promote and facilitate the creation, transfer, and use of
knowledge. (Twomey, Quazi 2000). Thus the landscape around HEI-SME
engagement is littered with aims and objectives that conflict,
government papers encourage engagement yet traditional university
activity
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struggles to embrace the needs of SMEs. This provides an
opportunity to develop knowledge exchange models which attempt to
redress this conflict. Absorptive Capacity Zahra and George (2002)
propose four dimensions of absorptive capacity. These have been
defined by Fosfuri and Tribo 2006 as: Acquisition: A firms
capability to identify relevant external information over the total
amount of information
that surrounds the firm. That is, the initial step is for a firm
to know where the sources of information are. Assimilation: A firms
routines and processes that allow it to analyse, process, interpret
and understand
the information obtained from external sources. Transformation:
A firms ability to modify and adapt external knowledge and combine
it with existing and
internally generated knowledge. Exploitation: A firms ability to
transform this knowledge into competitive advantage. The above
dimensions can be used to describe the steps an SME must take to
absorb new, external knowledge from a business school and
ultimately exploit this knowledge to gain competitive advantage.
Zahra and George (2002) identified two subsets of absorptive
capacity: Potential absorptive capacity (PAC) which enables a firms
receptiveness to external knowledge, that is the acquisition and
assimilation of the new knowledge and realized absorptive capacity
(RAC) which reflects a firms capacity to leverage absorbed
knowledge and transform and exploit it. It is suggested that short
training programmes and one-off events for SMEs may often only
serve to increase potential absorptive capacity due to the short
term nature of the interaction and because the way in which the
owners and managers of SMEs learn has not been taken into
consideration. The new knowledge must be connected with the
internal knowledge of the SME, transformed and then exploited in
order that higher levels of realized absorptive capacity can be
achieved. Theory concerned with the entrepreneurial learning of
SMEs can add much to the process of enhancing realized absorptive
capacity in SMEs and helps us develop an integrated knowledge
exchange mechanism. Murovec and Prodan (2009) considered whether
there exist different kinds of capacities to assimilate external
information regarding the nature of this information. At basic
level Mowery 1984 pointed out that an organisation is far better
equipped to absorb the output of external R & D if it is also
performing some amount of R&D internally. This leads us to
consider what internal capability an SME requires in order to be
able to absorb the knowledge of a Business School? Education has
long been recognised as significant in improving innovation systems
(Lundvall et al 2002) and since a higher level of absorptive
capacity leads to innovation it is suggested that a certain level
of education existing within an SME may better equip them to absorb
the knowledge of a business school. However, this may exclude many
SME owners and managers who do not necessarily have HEI
qualifications, so again this substantiates the need to consider
carefully the SME-business school knowledge exchange model as
traditional managerial learning may not be effective. Bessant,
Tsekouras and Rush 2009 propose a crude typology for SMEs to
organise and manage the innovation process in its entirety,
assuming different states of development of capability or
absorptive capacity, from search through selection to effective
implementation of new knowledge. Their terminology is particularly
focused on technological change but the author suggests that these
states could equally be applied to a non technological innovation,
such as absorbing new knowledge from a Business School. This
typology helps us understand SMEs limitations to absorbing new
knowledge. Four states are suggested 1. Unaware/Passive SMEs do not
recognise the need for change and do not know what might be
improved. Bessant et al suggest these SMEs require support to
recognise the need for change and longer term support to develop a
strategic framework. These organisations have a very low or no
absorptive capacity. It is likely that the first task for these
SMEs will be to recognise the need to acquire knowledge, possibly a
university would not be the best place for these SMEs to begin
their journey due to the diversity of the two organisations. 2.
Reactive These SMEs recognise the need for change but are unclear
how to go about the process in an effective fashion. They have
limited internal resources and usually have poorly developed
external networks. Typically this group treats symptoms rather than
root causes. These types of SMEs require support to develop a
strategic framework, to address priority areas, explore new
concepts and in acquiring new product and process capabilities.
Support can be reduced over time as strategic capability is
developed internally. These organisations have low levels of
absorptive capacity. These SMEs may be able to acquire knowledge
more easily than Unaware/Passive SMEs and may be able to assimilate
knowledge but at the point where they initially engage with a
business school, both Unaware/Passive and these SMEs will be
developing potential absorptive capacity rather then realised
absorptive capacity.
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3. Strategic These SMEs have a well-developed sense of the need
to change and have good implementation capability. They take a
strategic approach to innovation and have a clear idea of
priorities. However they may lack the capabilities to create new
market opportunities and they tend to compete within the boundaries
of an existing industry. Support is required to complement existing
internal capability and challenge existing business models. For
example, improving access to specialist marketing expertise,
enabling access to new networks, getting them to think outside the
box and generate new ideas. These organisations may benefit from
access to graduates, project based support and have moderate
absorptive capacity. Thus these types of SMEs are already at a
point where they can begin to develop realised absorptive capacity.
4. Creative These SMEs have well developed capabilities and are
able to operate and lead effectively on an international basis.
They have strategic frameworks for innovation and strong internal
resources and high absorptive capacity which enables them to
diversify and extensive networks to keep them informed of
opportunities. They tend to have collaborations already established
with partners. Support would be to complement existing internal
capability and more likely to require specialist bespoke support.
Knowledge Transfer Partnerships many be considered. The above
typology of the differing states of absorptive capacity within SMEs
as proposed by Bessant et al helps explain the barriers which
business schools must assist SMEs to overcome when trying to engage
with them in knowledge exchange, it suggests that there may be a
number of differing entry points into knowledge exchange programme
for SMEs dependent upon their current level of absorptive capacity
when initially interacting with the business school.
Entrepreneurial learning On the basis of studies of how
owner-managers learn, higher education providers have begun
delivering functional knowledge not through traditional means such
as lectures and tutorials, but rather with innovative methods,
focused on the competence of the individual manager and the
business. (Zhang & Hamilton 2008). The following describes a
series of Learning Spaces which demonstrate where and how learning
takes place within a networked learning programme (Peters 2010).
The focus of this study was a ten month leadership and development
programme, called LEAD, for owner managers of SMEs. As described
previously this is obviously an important concept when considering
the development of knowledge exchange mechanisms specifically for
SMEs as traditional management learning has proven not to be
effective amongst this group. These concepts can play an important
role in breaking down SMEs barriers to absorptive capacity some of
which were outlined using the typology proposed by Bessant et al
above. The learning spaces identified are: Peer-to peer (social
theory of learning): Space where a group of like-minded people can
share similar
issues. Attention is given by the facilitators to creating a
learning environment where trust and respect is fostered by the SME
delegates. Peters research found that participants could share
experiences on different elements of the programme (LEAD) but
delegates also continue to be surprised at how similar the issues
they face are and how their own situations as owner managers of
small businesses are relevant and salient to each other.
Social: These spaces such as refreshment breaks or lunch
following a workshop allow discussion to take place between SMEs
not only about the session they are attending but about their
businesses and their own situations.
Reflective: A conceptual learning space that crosses the
boundaries of interventions and other spaces. This space may be
more individualistic to the participating SME delegate, however
this reflective learning space is conceived of as a space for
processing information reflectively and often results in self
affirmation, i.e. that they are doing some things well within the
business.
Peripheral: As it is anticipated that learning from the SME
delegate will be applied to their business, and because many owner
managers of small businesses do not have a defined line between
home and work, it is natural to think of the learning infiltrating
other parts of the delegates lives in an informal way. This space
could be concerned with enhancing a space that helps this process
to occur hence assisting the transformation of knowledge.
The above spaces provide us with a set of tools that can be used
in the development of a university - SME knowledge exchange model.
To summarise the findings from the literature review we can
conclude that absorptive capacity provides us with a framework to
better understands the barriers SMEs face when absorbing new
external knowledge. SMEs are recognised as important to an economy
and as such need to be encouraged to absorb new knowledge from a
broad range of places including business schools within HEIs,
however there is a mismatch between the aims and objectives of HEIs
including business schools and SMEs which are detrimental to
this
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process. Theory concerned with entrepreneurial learning can
assist in the developing mechanisms to overcome this problem. The
findings of the literature review are summarised below.
SME-Business School Knowledge Exchange Process Background to the
Development of the Business School-SME Knowledge Exchange Model The
Institute for Entrepreneurship and Enterprise Development (IEED), a
Department within Lancaster University Management School, has been
engaged with teaching and researching entrepreneurship since the
1980s alongside building dialogue with business. Over the last
eight years IEED has focused on the application of its research
expertise through the development and delivery of a comprehensive
suite of Small Medium Enterprises (SMEs) knowledge exchange
programmes in the areas of innovation, enterprise development,
leadership and business management. Through projects part-financed
by ERDF, NWDA, ESF and HEIF it has assisted more than 1000 regional
SMEs, resulting in significant improvements in the businesses
supported. The Department recognises that entrepreneurial learning
differs from that of typical management students and has developed
capacity to address this issue. The Department has recently been
awarded funding from the European Regional Development Fund, for
three years, to work with 300 SMEs in the region on the area of
Innovation for Growth (IFG). IFG takes the experience from the last
round of ERDF and from development of the LEAD programme and builds
on this for the new programme. It utilises the integrated learning
models of SME engagement already developed within IEED, which
emphasises the importance of peer to peer and social learning as
well as reflection, as the basis for the programme and incorporates
feedback taken from SMEs involved in the last round. The result is
a new improved programme that capitalises on IEEDs experience of
working within SME networks but also applies the expert innovation
research emerging from one of the top ranking management schools in
the region The programmes within the knowledge exchange model are
designed to encourage the development of SMEs through the
introduction of new products, processes, services and networks.
Delivery will draw up the skills and expertise of academics,
students and knowledge exchange professionals within the Management
School. The outcome of this project will be the creation and
development of a network of knowledgeable, engaged SMEs who have a
desire to learn about, develop and enact practices that will bring
about innovation. The knowledge exchange model is developed to
provide a step by step approach to building the absorptive capacity
within the participating SMEs leading to innovation and competitive
advantage.
SME Competitive Advantage
Absorptive Capacity
Entrepreneurial Learning
Business School Knowledge
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The Knowledge Exchange Model Innovation for Growth (IFG)
The above model uses absorptive capacity as a framework for
developing the innovative capacity and competitive advantage of
SMEs. Drawing upon a broad range of knowledge, around the theme of
innovation, from within Lancaster University Management School,
knowledge is pushed into the SMEs in a way that provides maximum
benefit to the business. Appreciating the diversity and
heterogeneity of SMEs, the model offers some flexibility depending
on the level of absorptive capacity that the SME has at the outset.
The typology suggested by Bessant, Tsekouras and Rush 2010 suggests
that SMEs can be sub divided dependent upon state' of development
or absorptive capacity. The learning spaces (Peters 2010), peer to
peer, social, reflective and peripheral cut across all elements of
the model and underpin the knowledge exchange model in that they
connect each step of the process and represent the way in which
SMEs learn. These domains of entrepreneurial learning are seen to
be of equal importance to the actual new knowledge provided by the
business school. The challenge for a model such as this is to
establish these learning spaces in timescales which are
significantly reduced to that of LEAD, the programme for which the
spaces were developed, which is an intensive 10 month programme.
For example, research has shown peer to peer learning is often
vital for the validation of SME learning. Through use of a simple
virtual learning environment (VLE) efforts will be made to begin to
form the cohortness and associated trust of SME participants prior
to the first workshop programme, commencing by asking people to
introduce themselves and their business on the VLE following
registration. Following the workshop programme businesses will then
be encouraged to continue dialogue and peer to peer learning via
the VLE. This will be important as peer to peer contact during the
knowledge transformation stage may be limited if businesses choose
bespoke student projects. Peer to peer learning will then be
rejuvenated during the knowledge transformation stage when the
workshop programme cohort will be reunited for learning reflection
and action planning. This model is at the time of writing
conceptual so empirical data concerned with its success is yet to
be captured and beyond the scope of this paper. If we can make KE
mechanisms that make the knowledge within the Management School
accessible and as easy to absorb as that for instance as knowledge
generated by customers, then the outcome will be twofold.
Initially, potential absorptive capacity (PAC) will be enhanced so
the SME will be more receptive to the external knowledge of a
business school of a HEI. Secondly, once the SME has engaged with
the HEI the model suggests how to increase the realised absorptive
capacity of the SME in order that they can leverage the knowledge
and transform it into competitive advantage. Depending on the level
of absorptive capacity of
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the SME when it initially comes into contact with the business
school, the SME may enter the knowledge exchange programme at
differing points. Ultimately this will enable more SMEs to gain
competitive advantage, leading to business growth and corresponding
economic growth. Based upon the theories detailed within the
literature review the following model has been devised: Knowledge
Acquisition: A firms capability to identify relevant external
information over the total amount of information that surrounds the
firm. As SMEs are heterogeneous it is likely that absorptive
capacity will be distributed differently across the population. If
we consider that 9 out of 10 SMEs in Europe are actually micro SMEs
with less than 10 employees it seems likely that many of these SMEs
may sit in either the category of Unaware/passive or Reactive due
to limited human resource and capital. Thus they are likely to have
very low levels of absorptive capacity. This would suggest that
these companies need initially to be made aware of the importance
of acquiring new knowledge from an external source. This process
can be divided into two stages:
i. Recruitment SME recruitment materials are crucial in that
they must be written in a language accessible to SMEs and
highlighting the benefits of SME/business school engagement. Due to
the differing missions and objectives of SMEs and business schools,
the complex, often wordy language used by HEIs can often be an
immediate turn off to SMEs. With only 5% of firms interacting with
universities it is possible that unaware/passive SMEs will not wish
to engage with universities, however, recruitment events can be
used to build brand awareness and trust through network development
with reactive state SMEs. A business school needs to develop
capacity in terms of SME engagement in order to bridge the gap
between the two. Face to face encounters at networking events are
important as well as a network of intermediaries such as Business
Link and cluster groups who will refer the business school onto to
SMEs. The issue is two-fold for engagement with SMEs with little or
no absorptive capacity, in that SMEs must firstly be made aware of
problems/issues within the business that are preventing it
developing competitive advantage, for instance why innovation is
essential for the survival of their business and secondly why they
would want to seek support from a business school. Recruitment
mechanisms need to offer benefit to an SME since they tend to be
short of resources they must easily be able to understand why it
would be worthwhile them leaving their business to attend an event.
Clearly the differential orientation and interests of university
versus SME employees can make the packaging of university knowledge
difficult for SME to easily identify the benefits. These events, if
successful, can be termed as an external activation trigger (Zahra
& George 2002) and induce or intensify a firms efforts to seek
external knowledge. Past experience, knowledge complementarity and
the diversity of the knowledge source will also influence an SMEs
desire to engage with a business school.
ii. Introductory Events The first step in the IFG KE mechanism
is to make firms aware not only of the need to innovate but who can
help them to innovate. The term innovation is liberally used by
policy makers, academics and knowledge exchange intermediaries and
professionals but for many SMEs it is likely to have mixed or
little meaning. Business Link Northwest define innovation as the
commercial application and successful exploitation of an idea and
further divide this into either making money through the
development of new products and services or exploiting new markets
or saving money through enhanced productivity, people or processes.
This definition of innovation which is more closely aligned with
SME needs may not comfortably sit with an HEI but can convey a
powerful message to SMEs. Before a business school can begin to
build innovative capacity within an SME it must:
Define innovation in a context where the benefits of innovating
are highlighted to the SME Break down the barriers to SMEs engaging
with a Business School through offering an environment
which is accommodating and accessible to SMEs. This can be done
by providing a welcoming social space including such matters as
ease of parking, time event to suit SMEs and encouraging informal
networking between SMEs attending events. SME ambassadors can be
involved in the event, that is SME owners managers who have higher
levels of absorptive capacity and have beneficially engaged with
the business school. In addition delegate lists which provide
details of other businesses at the event are beneficial, as this
breaks down some of the SMEs barriers if they are able to identify
like minded peers and/or business participants.
Offer some form of taster or hook to the SMEs in order to get a
quick win. A resource that all SMEs, particularly micro SMEs, are
short of is time. It is essential that SMEs can quickly see the
value of engaging with a business school i.e. the applicability and
the relevance of the knowledge of the business school. This might
be just one nugget of new external information that an SME can very
easily combine with internal existing knowledge, assimilate and
transform, to the benefit of the business.
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Attracting new SMEs to a business school can be challenging and
may be a poor use of resources to those Unaware/Passive SMEs. It
may be better use of resources to focus upon Reactive state SMEs.
Knowledge Assimilation: A firms routines and processes that allow
it to analyse, process, interpret and understand the information
obtained from external sources. For those SMEs that are already
reactive according to Bessant et al 2010 typology this may be the
entry point into the knowledge exchange model. IEED has developed a
short series of half day, practical and interactive workshops,
delivered once a week over a period of several weeks, in order to
limit the time SME/owner managers have to take from their business
at any one time. Innovation themed programmes are being developed
and will be delivered to cohorts of 20-25 SMEs in order to
encourage interaction, reflection and peer to peer learning. The
content must be interactive and made easily applicable in the SME
context through drawing on relevant examples and case studies and
through a relatively large number of facilitators to help discuss
with the SMEs how that knowledge is applicable to them and to help
them analyse, process, interpret and understand the information
obtained from external sources, that being management school
academics. Workbooks can be used to help tailor the knowledge
immediately to individual SMEs issues and also so this can be taken
back to the organisation by the participant in order to encourage
that the knowledge is shared with other employees of the SME, thus
developing the business, and does not continue to reside in with
the participant, this relates to Peters 2009 peripheral learning
space, this is further supported by resources being made available
through the VLE. The models and concepts presented to the SMEs need
not lack academic rigour. Due to the ever increasing importance
placed upon the role of SMEs within the economy the SMEs themselves
offer a rich and fertile ground for research. Many of the issues
that SMEs face are similar across a mix of industries therefore
sectoral delivery has not been encouraged by IEED, however,
absorptive capacity potentially offers a means by which
heterogeneous SMEs can be divided to be sign posted towards
appropriate support within a business school. Although it may be
likely that many micro SMEs may have lower absorptive capacity than
larger this will probably not be true across the spectrum of SMEs
other factors such as length of establishment and the SME owner
manager will also affect this. Also since we have recognised that
entrepreneurial learning differs significantly from typical
management learning the level of education of the SME participant
cannot be used as an indicator per se, also we have acknowledged
that culture also has a role to play thus a measurement of non
technical absorptive capacity within SMEs which is beyond the scope
of this paper is critical to the further development of this model.
These first two stages within the model, knowledge acquisition and
assimilation relate to the development of potential absorptive
capacity within an SME, and many forms of support for SMEs conclude
at this point. This is more in line with traditional management
learning however using the absorptive capacity framework we are
able to appreciate that without further steps to ensure this new
knowledge is then integrated with existing knowledge within the
SME, transformation followed by exploitation it is likely that the
competitive advantage sought by SMEs will not be realised.
Knowledge transformation: Consists of the firms ability to modify
and adapt external knowledge and combine it with existing and
internally generated knowledge. A variety of KE techniques are
proposed for this next stage of the process including bespoke
student projects, intensive small group master classes and academic
mentoring. However, all these mechanisms are underpinned by the
reflective learning space proposed by Peters 2009, which provides
the participant with the space consider to how the knowledge is
relevant to their individual organisation and gives an opportunity
to connect the new knowledge with that already existing within the
SME thus leading to competitive advantage. For those SMEs that are
already strategic according to Bessant et al 2010 typology this may
be the entry point into the knowledge exchange model. The emphasis
is upon combining the knowledge assimilated through the workshops
with specific business issues identified by the SME participant at
the end of the workshop programme. For example, with student
projects the participants have been provided with business models
and concepts in the workshop programmes where knowledge was being
assimilated. Following identification of a specific business issue
the SME can then request that a group of students, undergraduate or
postgraduate, develop this. Thus, this expedites the combining of
existing knowledge of issues problems within an SME with external
knowledge assimilated from a workshop programme. It also provides
valuable resource to SMEs. The workshop programme ensures the
issues being presented by the SMEs to the students for development
are being articulated more clearly, within a developing strategic
framework, which is beneficial to the student in the terms of the
experience they receive and also to the SME who ultimately need to
think more strategically for long term competitive advantage.
Intensive smaller group master classes again provide SMEs with the
opportunity to analyse in depth a specific business issue within
their own organisation and combine it with new knowledge
assimilated in the workshop programme and then transformed during
the master class lead by an
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10
academic. Academic mentoring again offers a similar opportunity
but on an individual basis. The VLE will continue to support the
peer to peer learning space during this stage. Knowledge
exploitation: The SMEs ability to transform this knowledge into
competitive advantage. The final step is the SMEs ability to
convert this new knowledge, that is, new external knowledge which
has been combined with internal knowledge, to provide a competitive
advantage to the business. This again involves providing the
business with space to reflect on this new knowledge and develop
strategic and action plans that will be implemented within the
business and change the business. Also the knowledge must to be
shared by a larger audience within the SME than the participant,
which is peripheral learning. Social integration mechanisms can
facilitate the sharing and eventual exploitation of knowledge.
(Zahra and George 2002). This may be via informal mechanisms such
as networks where ideas are exchanged or formal networks for
example through an organisational structure which ensure employees
are brought together to undertake problem solving. Knowledge needs
to be provided in a format that can easily be integrated into the
rest of the SME, for example via works books, slideshare, video
clips and inviting other important decision makers to the various
elements of the programme. An SME owner manager often needs to be
provided with an environment away from daily operational issues
where strategic decisions can be made and actions plans determined
to bring about innovation it may also be necessary to bring other
colleagues from the business to this session to get business buy
in. An SME will need to commit resources to introducing new
products, processes and services based on the new knowledge which
has been absorbed. It is unclear at this stage if this element of
the model is in fact an iterative process that needs to be repeated
several times over a period of time in order to ensure the
knowledge is actually exploited and how best to engage SMEs in this
phase, as the softer skills being developed by SMEs may not appear
that attractive to them unless for example a strong peer to peer
learning space has been developed. Conclusions This paper has
presented a conceptual knowledge exchange model, drawing upon the
theory of absorptive capacity, which may be useful in assisting the
movement of knowledge between a HEI business school and SMEs in
order to provide them with competitive advantage. The concept of
learning spaces, which helps us understand how SME learn, underpins
all the elements of the model connecting the various physical
stages and provides an ethos for model. By increasing the
competitive advantage of SMEs, who contribute significantly to the
economy, there are significant policy implications concerned with
developing effective models of knowledge exchange targeted
specifically at SMEs. We know need to consider how these primarily
theoretical concepts can be measured in an empirical context such
as that provided by the project Innovation for Growth described in
this paper. Work needs to be undertaken not only to measure the
level of absorptive capacity of SMEs being targeted by a project
such as this but how to evaluate the success of the knowledge
exchange mechanism at each of the four stages of absorptive
capacity as proposed by Zahra and George (2002). Limitations and
Further research Further development of this study will be to
devise methods of measuring the propositions made above. This paper
is a conceptual paper in which literature concerned with absorptive
capacity, knowledge exchange and entrepreneurial learning is
reviewed and a knowledge exchange model for the project Innovation
for growth is presented. However, this paper could with further
quantitative research over the duration of the project contribute
to absorptive capacity and entrepreneurial learning literature
since while some studies try to explain the concept of absorptive
capacity and its determinants, there is a great lack of
quantitative support for their findings. To a large extent this is
probably due to the fact that the qualitative nature of absorptive
capacity makes it a very difficult concept to measure
quantitatively. (Murovec and Prodan). Generally very few empirical
studies capture the rich theoretical arguments and the
multidimensionality of the absorptive capacity construct. (Muravec
and Prodan 2009). Also most learning pertaining to entrepreneurial
learning consists of conceptual papers (Harrision and Leitch 2005),
whereas this study offers insight into how to design and implement
entrepreneurial knowledge exchange mechanisms for SMEs in a staged
approach. The value would be that the absorptive capacity within an
SME could be identified in order that the SME could be directed to
the support that is most beneficial.
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