Knowledge Management and Innovation: An empirical study of Dutch SMEs ABSTRACT Knowledge plays a crucial role in determining a firm’s innovation capability and in enhancing working life quality of knowledge workers

Knowledge plays a crucial role in determining a firm’s innovation capability and in enhancing working life quality of knowledge workers (Corso, Martini, Pelligrini, & Paolucci, 2002). Previous studies show that knowledge is managed in a different manner in small to medium-sized enterprises (SMEs)—that knowledge is more likely to be created, shared, transferred and applied via people-based rather than information technology-based mechanisms in SMEs. Although research and policy interest in knowledge management is beginning to grow for SMEs (Sparrow, 2001; Wong, & Radcliffe, 2000), still relatively limited attention has been paid to understand knowledge management issues for SMEs and its contribution to innovation behavior in particular. Studies that have been carried out typically rely on either qualitative case studies or very small samples. The aim of this study is to provide greater insight into the relationship between knowledge management and innovation behavior of SMEs based on a large sample of 649 Dutch SMEs, as well as the mediating role of innovation orientation in this relationship. The concept of absorptive capacity provides the theoretical basis for why knowledge management contributes to innovation behavior. Two types of knowledge management practices—external acquisition and internal sharing—are examined for their influence on innovation orientation and innovation behavior. Results most clearly support the conclusion that innovation orientation mediates the relationship between external acquisition and innovation behavior. Internal sharing is associated neither with innovation orientation nor innovation behavior. Results are tested first with hierarchical multiple regression and next with structural equation modeling, with similar conclusions. Knowledge Management and Innovation: An empirical study of Dutch SMEs