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The Praxis of Knowledge Innovation:
The Case for SME's

By Debra M. Amidon
Founder and CEO of ENTOVATION International, Ltd.
For Cluster Conocimiento
Bilbao, Spain
3rd October 2003

"The bigger the world economy,
the more powerful its smallest players.
The study of the smallest economic player,
The entrepreneur,
Will merge with the study of
how the big bang global economy works."

- John Naisbitt, Global Paradox

The kaleidoscopic dynamics of the knowledge economy are providing unprecedented opportunities for the smaller societal players. Their entrepreneurial leadership is heralding in an new era of collaborative advantage. This requires a fundamental understanding of new knowledge performance indicators, networked structures, knowledge roles and skills, innovation processes and collaborative technologies. Surprisingly, practitioners are developing modern management theory - and 'real-time'. All paves the way for a foundation of knowledge cities, knowledge regions and a knowledge-based world. This session will outline the emerging innovation frontier, a progressive view of stakeholder knowledge, EN2Polis - the new International Knowledge City of the Future, and the Innovation SuperHighway under development. All will be seen through the window of small business enterprises and their potential leadership positioning.


Do you remember the last time you had a good idea. You shared it with a friend who agreed with your thought and encouraged you to pursue the notion. You shared it with another who thought it was a rather crazy idea. You were discouraged. But you knew it was a good idea; and so you worked to find different ways to display your idea. Some liked it; others did not. They couldn't see how your idea would work. Worse, others tried to steal the idea and make it their own. You were demoralized…maybe resentful. But you continued pursuit as others agreed the idée had merit. Another group ridiculed the fact that the idea lacked financial value - not worthy of investments by others. Eventually, others did discover the value - enough to warrant your taking the next steps. Maybe the idea was implemented or commercialized. Your idea required the competence of others to bring the idea to fruition.

In Search of Innovation1 is a book designed to unleash the exploration process in us all. It is a story that affirms the need for persistence, self-confidence and collaboration. Innovation - putting knowledge into action - requires dynamic interaction with others. For children or leadership executives, the discovery process can be both exiting and frustrating - the simultaneous delight of acceptance…and the agony of rejection. Following the flow of an idea through completion, though, is the essence of progress, sustainability and true economic wealth. In the Knowledge Economy, we are dependant upon the realization of good ideas…and on a global scale. As you take this journey, what images come to mind of true innovators from around the world?

This presentation explores the current state of the practice as it relates to small or medium sized enterprises (SME's). Praxis can be defined as:

prax·is (prak'sis) n.

1. practice, as distinguished from theory, of an art, science, etc. 
2. established practice; custom 
3. a set of examples or exercises, as in grammar.

Regardless of the size of a small or medium-sized firm, the spectrum of innovation challenges remains the same (e.g., pressure for short-term operational action at the expense of long-term strategic objectives, not-invented-here syndrome, intensity and dynamics of market change, hyper-competitivty, etc). Similarly, the management responses must be timely, flexible and make optimal utilization of all resources - financial, human and technical. What is different in an SME is the strengths enjoyed by start-up and medium-scale operations that incite imagination, energy, timely responses to the marketplace, intimate customer interface, and the cohesion established in working toward shared vision and common goals.

Leadership executives of SME's often create theory as a solution to solving day-to-day managerial problems. By definition, many SME's are innovating to create new product or services (or new ways to reach a market or service a market need). Surprisingly, most of the movement - now described as The Knowledge Economy - has been born of practice and not theory. Consulting firms and academicians are now in pursuit of action research to determine patterns in these modern management practices. We are all learning together.

The Knowledge Value Proposition

Much progress has been made in our quest for harnessing intellectual capital. Over the last decade, we have learned that there is a difference between tacit and explicit knowledge; and there are ways to make our insights visible and even convert them to structural and/or financial capital. We also know that those companies able to explicitly manage their innovation infrastructure - within which ideas are created and commercialized - are considered market leaders. 

To be more specific, today's companies measure success based upon cost, quality and time. However, as the marketplace becomes hyper-competitive, the performance metrics become more complex and intangible, the organization becomes more networked, people become more empowered and energized, processes become boundary-less and the enterprise will increasingly reliant upon technology. And as enterprises become more reliant on technology and its attendant complexity, they will become more dependent upon the knowledge and behavior of employees as well as other stakeholders - both inside and external to the firm. Simultaneously, performance metrics will become more hidden, intangible - related to what leading management philosophers have defined as intellectual capital. Therefore, the traditional value proposition of cost, quality and time - although still very important - is just not enough.

Of course, it has now been well documented2 how traditional economic theory has a problem with knowledge. This infinitely expansible resource seems to defy the basic economic principle of scarcity because the more you use it and pass it on, the more it proliferates. What is scarce in the new economy is the ability to understand and use knowledge.

Modern value propositions, then, must balance these complex, interdependent factors: performance, behavior and technology. A focus on one aspect will have an automatic effect on the other elements. Only a balance among the three in an innovation process enables an enterprise to be centered and capable of managing forward toward sustained prosperity. The knowledge movement has taken flight in every function, every industry and every corner of the globe - developing and industrialized nations alike.

Since we know that most economies thrive on the success of entrepreneurial initiative - usually in the form of SME's. These smaller and medium sized firms are practicing the art of 'collaborative advantage' in such networked affiliations such as exhibited with Cluster Conocimiento. These collections of expertise, often operating as consortia, are able to research and catalyze initiatives that would be difficult - if not impossible - for firms with minimal resources to succeed. Further, they are able to promote the optimal flow of knowledge in ways that minimize unnecessary duplication of effort, leverage complementary competencies and ramp up local expertise relative to global learning.

The Innovation Frontier

As most would expect, it was Peter Drucker3 who place innovation center stage. Oh, many have written previously - but mostly about technological innovation. But Peter had something else in mind - a new orientation to the concept of innovation and learning: "Every organization - not just businesses - needs one core competence: innovation. And every organization needs a way to record and appraise its innovative performance." And Fortune4 magazine outlined the process as more than R&D or creativity:

"Innovation is the spark that makes good companies great. It's not just invention, but a style of corporate behavior comfortable with new ideas and risk...Companies that know how to innovate don't necessarily throw money into R&D. Instead, they cultivate a new style of corporate behavior that's comfortable with new ideas, change, risk and even failure."

Now, numerous research, consulting and technology firms that have discovered that innovation is the process to manage - the competence to be developed. Studies - many of which focus on results for SME's - proliferate recognizing the integral role a focus on innovation plays in the viability and sustainability of a firm. Some examples follow:

  • "Innovation pays off handsomely for the 75% of Fast-Growth Companies Making it an Organization-Wide Priority." - Price WaterhouseCoopers Trendsetter (6/27/01).
  • "Innovation is an emerging core competency. Leading enterprises will have a dual focus: embrace the innovations of others and drive the marketplace with their own innovations. Active management of innovation will become a required competency for all enterprises during the 2002 to 2007 planning horizon. Companies who establish process knowledge management for innovation will experience three times the revenue growth." - Gartner Insight Volume 4, Issue 3 (March 2002).
  • "Innovative companies, defined by "percentage of revenue generated from products less than 5 years old", experience profit growth at four times the rate of non-innovative organizations."
    - Business Horizons (1996).
  • "Innovation is a critical issue for senior executives. A survey of 400 companies found that 70% of companies' mission statements and top objectives mentioned innovation." - Watson Wyatt Survey (1998).
  • "And yet, few companies have the processes and infrastructure in place to manage innovation. A survey of 350 organizations found that less than 15% of companies have any IT systems in place to manage innovation, and only 40% have established any formal procedures." - CBI and 3M Innovation Survey (2000).
  • "80% of the top 500 companies listing 'Innovation' as one of the top three priorities in 2002 / 2003." - Bain & Co Innovation Study (HBR October 2002).
  • "Ninety-six per cent of business leaders rank innovation among the top-ten items on their corporate agenda…respondents suggested that they find it difficult to drive innovation due to a lack of time (53 per cent), fear of risk-taking (38 per cent) and a shortage of funds (33 per cent)." - Accenture and the Talent Foundation (11/2002).

Of most interest to this audience, a recent 3-year study Cardiff Study5 of 33 SME's 3-year found a direct link between Innovation and Commercial Success.

  • Top 1/3 of successful companies, the common factor between them was a greater emphasis on innovation, both in terms of R&D and wider innovative practice.
  • 82% of high-performing companies (increased turnover and profits) introduced new or improved products over the three-years, compared with just 47% of medium or low-performing businesses.
  • The high performers also had a greater commitment to improved flexibility (76% against 45%) and being first to the market with their new products (73% to 45%).

Bottom Line: You need both innovation and knowledge management working effectively in harmony. When you consider your innovation processes, consider how knowledge is created and transformed into value. Consider how the knowledge flows can be improved. When you review your knowledge management, consider how well it addresses the flow of knowledge between your customer's customer and R&D and back again as enhanced products and services.


Figure 1. Evolution of Knowledge Practices

Creating the innovation culture where knowledge is valued and shared effectively is one of the most difficult challenges faced in practice. Of primary importance is the innovation language - a language that transcends the traditional (and outdated) competitive management paradigm and biases of one function or another. Ideally, such a language would also encompass industries, sectors and regions of the world, and therefore be universal in scope. Of course, the language must be adapted to the heritage, purpose, mission and strategy of a particular entity. It is important that the language be established and pervades all operations and planning efforts.

Shared purpose is essential for an enterprise to thrive in the dynamic global economy. Amidst the turmoil and chaos of the past decade, throughout downsizing and re-engineering processes, many organizations have lost their sense of direction. Initiatives have become fragmented and, worse still, internally competitive. Interestingly enough, it may not be the financial resources that are scarce today as much as the mind-set and available commitment time of the enterprise leaders. Too often managers operating in the traditional, competitive work climate are managing initiatives with unnecessary duplication of effort and sub-optimal allocation of resources. In many instances organizations must find a way to coalesce, rededicate themselves to a common agenda and respect the complementary competencies that can be brought to bear. Creating the community of innovation practice may be one way to begin the process.

Architecting a Future

Innovation must be in the head, heart and hands of every participant in the system. It does not mean that everyone is an expert technician and expert marketer at the same time. What it does mean is that everyone has knowledge of the entire innovation system and his/her particular role in that process. It does mean that there is some common language and shared purpose, and that the boundaries fade between functions, sectors, industries and cultures of the world. It means that there is a basic trust, mutual respect and collegial competencies. In addition, it is likely that a thirst for learning pervades the culture.

Over the years, we have witnessed the evolution from programs intended to build academic, industrial and government interaction, which evolved in the 1990's into science and technology parks and technology incubators. Originally described as Technopoleis, these local economic initiatives evolved further as Digital or Intelligent Cities. There has been an explosion of various regional knowledge clusters and collaboratories designed to provide a solid research basis for future urban, suburban and even indigenous planning. All seek to promote learning and harness the intellectual capital across enterprise boundaries, and now evolving into real-time innovation systems - better described as Knowledge Zones.

A Knowledge Zone can be defined as a geographic region, product/service/industry segment or community of practice (e.g., with topical areas of interest) in which knowledge flows from the point of origin to the point of need or opportunity. Knowledge zones are emerging rapidly as the next step in the quest for sustainable growth and economic development for cities, regions, countries, and even corporations and global virtual organizations. As the knowledge-based economy expands, stakeholders are finding this to be an appealing transformational pathway to a prosperous, diversified, and abundant future. Knowledge cities, for example, when developed intelligently and in harmony with the natural environment, have the potential to provide for the well being of stakeholders, bringing prosperity, safety, and a high quality of life for citizens.

Figure 2: In to the Knowledge Zone

We knew the current conditions - founded on models of financial capital - even linked with technology in the form of the dot.com - were built upon unstable (or perhaps incomplete) economic assumptions. The technology/productivity paradox must be resolved - and once and for all. The behavior implications of the new Knowledge Value Proposition are fundamental to that resolution. And we must plan for the world we want to innovate, not the one that exists today.

Tomorrow will not look like today; yet the future is not dissimilar from the unchartered waters sailed by the explorers during the Middle Ages. Today, there are better navigation devices, but there is little understanding about what might lie over the horizon. Ours is the challenge to innovate our future in ways that leverage the best of every human being, every enterprise and every nation. Knowledge has emerged as the strategic focus for business and has been growing in importance over the last decade. Ever since the early descriptions, interest in knowledge as a lever of strategy and the number of organizations with formal knowledge programs has grown inexorably.

In Innovation Strategy for the Knowledge Economy6, an architecture was outlined based upon industrial-strength management systems research in the late 1980's. The system defined fiver interdependent variables: performance, structure, people, process and technology. In the sequel, The Innovation SuperHighway7, each element includes a chapter, complete with descriptive trends, architectural considerations and alternative action steps. These lessons and actions steps are offered for SME consideration and/or for the Knowledge Cluster of SME's as a collective. Many were gleaned from the 33 case study examples reported in the research report, Creating the Knowledge-Based Business8.

Knowledge Performance Economics: We've learned that in the new domain of Knowledge Economics, what we count matters. As imprecise as it may seem, we need to calibrate is the intangible, hidden, intellectual wealth of an enterprise - how it is created and leveraged.

Considerations: universal research metrics; financial, technological and intellectual, critical success factors, budget level and resource mix; rewards/incentives; shared risk; and creative financing mechanisms. 

  • Draw up your own categories of intellectual capital and knowledge assets.
  • Estimate ('guesstimate') for each their overall value and future revenue-generating potential.
  • Develop some form of balanced scorecard reporting.
  • Explore, as an experiment, some of the newer methodologies, such as the Economic Value-added.
  • Create a matrix linking the assets you have identified with business impact.
  • Initiate pilot measurement and investment appraisal systems.
  • Develop the value proposition.
  • Don't despair if you cannot 'prove' bottom line business benefit. Take a leap of faith as are others.

Knowledge Structures: We've learned that the Knowledge Structures operate as holonomies - nesting of networks - with both local and global scope. We need to understand how they operate as communities and spheres of influence.

Considerations: learning network of expertise; system dynamics; reporting relationships; staffing patterns; cultural and cross-cultural aspects; liaison relationships; art of collaborative strategy.

  • Develop clarity of understanding - terms, values, conditions and intent.
  • Start somewhere and learn from successes and mistakes.
  • Apply a multidisciplinary research approach - often in the form of action research.
  • Treat customers and other stakeholders as sources of knowledge.
  • Integrate the workspace into a work-systems model.
  • Practice leadership and minimize resistance to change.
  • Apply lessons in-house and actively participate externally.
  • Trigger imagination - which, in the end - is more important than knowledge.

Knowledge Workers: We've learned that Knowledge Workers - although originally described as high technology or white collar - includes everyone; we all have a role to play. We need to determine what motivates now constructive behaviors - new modes of interdependence and collaboration.

Considerations: sense of purpose; work imperatives; balance with performance of the whole; level of skills and knowledge; learning philosophy; role responsibilities; work design; simultaneity (e.g., creativity and quality, long and short-term).

  • Recognize the emergence of new knowledge roles and support their development through competency planning and career development.
  • Understand how your best performers work - successful competencies and behaviors.
  • Develop more hybrid ('T-shaped') skills with vertical depth and horizontal scope.
  • Understand what motivates and how to manage knowledge workers.
  • Create a strategy for learning (as opposed to training) - one that is individual rather than instructor focused and one that includes 'lessons learned.'
  • Consider coaching and mentoring as key skills for your managers.
  • Ensure you have an external 'sensing' systems - one that taps into the knowledge and development of your stakeholders, including customers.
  • Allocate sufficient time for learning and inspire insights to action. True learning may be more a function of conversations than courses.

Knowledge Processes: We've learned that all Knowledge Processes can fit under a rubric of innovation - but innovation redefined according to the flow of knowledge. We need to make the process explicit and discover ways to measure performance - how knowledge is created, shared, and applied.

Considerations: program connectivity (i.e., simultaneous, concurrent, parallel); cross-fertilization and cross-functional teamwork; global talent sourcing; benchmarking for 'best-in-class'; shared vision; periodic review and evaluation; and communications (internal and external) strategy.

  • Make the innovation process explicit and establish guidelines for the acquisition, sharing and protection of knowledge.
  • Conduct a knowledge inventory. Build on the tools and techniques of information auditing and information resources management.
  • Create a focal point, such as a knowledge centre, to be the hub for knowledge exchange to proactively seek out knowledge that fills vital gaps identified by your inventory.
  • Map the knowledge domains - both in content and people - in your company into a common schema or thesaurus that make comparisons and knowledge sharing easier.
  • Add contextual information as well as mechanisms to stimulate, monitor an mine the insights from strategic innovation conversations.
  • Develop 'packages' of high leverage knowledge, in standard formats, for ease of transmission and reuse.
  • Develop measures to assess the use and flow of knowledge through your knowledge databases.
  • Ensure activities will provide immediate or strategic benefit to the enterprise strategy producing both incremental and breakthrough 'returns-on-innovation' - the new ROI.

Knowledge Processing Technology: We've learned the power of Knowledge Processing Technology - advancing in features and receptivity beyond our wildest dreams. We've learned that technology isn't an end but a means for prosperous innovation. We need to find ways to take advantage of the advancements and uses it as an instrument in the new economy.

Considerations: electronic infrastructure for optimal technical interchange; competitive intelligence system; new service delivery techniques; technology innovations; transformation (beyond automation and information); shared technology resources; network management tools.

  • Understand the nature of the technology investment that supports your knowledge programme.
  • Review your use of advanced technologies, (e.g., intelligent, case-based reasoning, multi-media, video- and collaborative conferencing) seeking to increase the flow of knowledge (i.e., its creation, exchange and application) rather than transaction efficiencies.
  • Set standards and review the performance of key levels of a technology supported knowledge infrastructure - connectivity, communications, conversations and collaboration.
  • Create appropriate access to external stakeholders who might be considered as sources of knowledge and engage them actively in the innovation process.
  • Give due attention to human factors, such as the psychological dynamics of groupware and characteristics of 'usability.'
  • Provide for the necessary training, mentoring and incentives that will catalyze the use and usefulness of your technology.
  • Ensure that your enterprise is tapping into the dynamic evolution of the networks externally as your own Intranets are developed and maintained.
  • Consider your own infrastructure - both human and technical - as an integral node in The Innovation SuperHighway.

Understanding of these complex facets - and the interdependencies thereof - provide a solid foundation for what was originally envisioned in 1982. The prosperity of individuals, enterprises and nations relies upon knowledge as the resource and innovation as the process.

There has been recent research - and specifically on SME's commissioned by the European Union in a Project DEEDS, the website9 for which documents the evolution of the studies. DEEDS is designed to ensure an open Forum of European executive policy makers (Policy Group) stimulating, discussing, exchanging, and monitoring public policies related to the major issues of the digital economy, focusing on the uptake of electronic business practices by SME's. The Forum is the follow-up of the Policy Group set up within the G7 Pilot Project A Global Marketplace for SMEs (1996-1999), coordinated by the European Commission, which has contributed - via the exchange of information, experience and best practice - to significantly progress and converge policy making related to Electronic Commerce and SME's.

John Sparrow in his related work provides an appreciation of personal and shared understanding, the effective utilization of knowledge bases and systems, integration of contexualized action and effective SME learning process. Of most interest is his perspective in how SME's should treat the approach as opposed to large-scale enterprises:

"…the emphasis (is) on the development of knowledge as a lens (as opposed to a knowledge management system) together with the emphasis upon knowledge system principles (as opposed to ICT knowledge system elements)."10

This seems like a sensible approach. The value, of course, is that as clusters of SME's outline their mutual needs and common goals, knowledge can and should be explored and in depth. In fact, there has been an evolution from the original; 'training-based' approaches that focused upon government, industry and academic interaction into a more 'learning-based' continued improvement processes as exhibited in some of the science and technology parks and knowledge clusters. The most progressive activity, however, is in the innovation-based real-time performance initiatives as evidenced in the building of knowledge cities, regions and world. This may be the next challenge for the Cluster Conocimiento constituency.

The Globe as a Network

How does a virtual network become a sustainable global enterprise? Members of the E100 met for the next two days identifying possible projects of common interest and developing the foundation for building a knowledge city - a marketspace where collaborative research might be performed, interaction harnessed across national borders and even ways to approach the new virtual knowledge markets with collective expertise. There was considerable discussion on several themes, such as knowledge clusters, knowledge incubation accelerators, knowledge tourism, the role of SME's, knowledge leadership as it relates to (re) constructing countries and cultures suffering recent trauma, knowledge markets and the role of learning at all educational levels.

With the architectural assistance of Bryan Davis, CEO of the Kaieteur Institute, these citizens of the new city are now busy building the scaffolding for how expertise might meet market need - efficiently and effectively. Specific details about how others can participate will be forthcoming; and now we welcome your own creative instincts about how this city will unfold.

Figure 3: Constructing EN2Polis

The governance thereof was placed in a steering group called the 'Kinectees of Trust.' This is concept-in-process stemming from some of the recent work of Ikujiru Nonaka's 'Ba' linking several concepts in meaningful ways: ki·ne·sics (i.e., the study of bodily movements, facial expressions, as ways of communication or as accompaniments to speech), ki·ne·tic (i.e., of or resulting from motion; 2. energetic or dynamic), kin·e·mat·ics (i.e., motion, to move, the branch of mechanics that deals with motion in the abstract, without reference to the force or mass), con·nect (i.e., to join or fasten (two things together or one thing with or to another), link, couple; to show or think of as related; associate; to provide with a circuit for communicating by telephone; to plug into an electrical circuit; join or be joined, to meet so that passengers can transfer promptly; to be related in some way or in a proper and logical way; to reach the thing aimed at), and trust (i.e., a firm belief or confidence in the honesty, integrity, reliability, justice etc of another person or thing; faith; reliance; confident expectation, anticipation, or hope to have trust in the future).

The Group is also drafting the 'EN2Polis Declaration of Interdependence' to provide for: Mutual Leverage - the capabilities of one another to provide an offer that is better than any member can do individually; Independence and Interdependence (i.e. members are 'semi-autonomous interdependent entities'.); Alternative Relationships - to create win-win situations (vs. one type of partnering agreement fits all) and promote collaborative learning; Sharing of Risks and Rewards - on an agreed contractual basis for each project and set of products; and Agreed Rights and Obligations - ENTOVATION partners must meet certain standards of excellence. Stay tuned…

In Conclusion

In July 1944, world leaders met in Bretton Woods, New Hampshire, and left behind gold as a currency. Henry Morgenthau, in his opening address, outlined plans for the "Creation of a dynamic world community in which the peoples of every nation will be able to realize their potentialities for peace."

Today, it is well recognized that we have entered a new [innovation] frontier in which intellectual capital - properly leveraged through relationship capital - is rapidly becoming the new currency. There is a unique role for SME's in this emerging knowledge economy for the strengths inherent within a small or medium sized enterprise are now being emulated in large scale firms with decentralized decision-making, semi-autonomous business units, communities of knowledge practice and knowledge ecology themes and practices. Thus, the smallest economic player (according to John Naisbitt) - or at least the SME - may hold the secret to a sustainable global economy.

The foundation for a new economic order has been laid, and we are playing a role in its evolution. This does not mean the answers are known, but there exists a better understanding of the elements of the infrastructure and the right questions to be addressed. This is a very different paradigm from previous agricultural, industrial, or service economies. It is one that truly rests on the value of human potential and how it might be systematically leveraged for the benefit of mankind. The challenge is to determine the integral linkage between human potential and economic performance. Now is the time for a modern knowledge Bretton Woods where we can chart a more human and humane society in which we all thrive.

1 'In Search of Innovation' is a new child's book for leadership executives soon to be published.
2 World Economy Survey, The Economist (1996).
3 Harvard Business Review (Jan-Feb, 1995)
4 Fortune (March 1997)
5 Reported in The Western Mail (2/25/03)
6 Chapter 6 (pgs. 77-90) Innovation Strategy for the Knowledge Economy: The Ken Awakening (Butterworth-Heinemann, 1997).
7 Chapter 4-8 (pgs. 49-126) The Innovation SuperHighway (Butterworth-Heinemann, 2003).
8 David J. Skyrme and Debra M. Amidon, Creating the Knowledge-Based Business (Business intelligence, 1997)
9 http://www.deeds-ist.org/HTML/home.htm 
10 'Knowledge Management in Small Firms', Knowledge and Process Management, Vol. 8, No. 1, pp. 3-16 (2001).


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