Absorptive capacity, knowledge management and innovation in entrepreneurial small firms

The purpose of this article is to explore SME capacity to absorb and manage knowledge as a prior condition to the successful adoption of innovations and entrepreneurial growth.

Drawing on the findings from more than 1,500 SME owners across regular quarterly SERTeam surveys and from other large scale studies, this article examines the effects of experiential and formal knowledge on the development of SME absorptive capacity.

There were significant age, educational and size effects that influence SME acquisition and assimilation of knowledge. Primarily, it is the small firms of 15+ employees that have the capacity to absorb and use new knowledge – especially those with higher educational levels and clear growth objectives. These firms are not startups but they do tend to be younger firms with younger founders.

Given the main policy aim is the development of clusters and of knowledge‐based firms, policy makers should focus on SMEs recently started by graduates or people with technical qualifications; educators need to develop technology and innovation management programmes for these firms.

This article makes an important contribution to the identification of priorities for public SME development support and areas where business schools and enterprise trainers could maximise their economic and developmental impact.