Knowledge valley theory

The service sector is characterised by being over-proportionally based on SMEs where these SMEs rarely possess formal intellectual property (IPR) in the sense of patents, etc. Organisations compete intensively and reap relatively short-term Schumpeterian profits by means of incremental innovation. In this high-churn environment, managing internal knowledge networks for ‘mutual inspiration’ can give rise to significant competitive advantages; however estimates as to how to lever and encourage knowledge assets, and how large benefits are, are very vague. A 3D quantitative fold is presented called Knowledge Valley that allows for a novel knowledge-based theory of the evolution of SMEs and the growth of their knowledge assets. By using concrete values of employee number and annual turnover the model allows largely quantitative estimations of potential knowledge value in organisations and is furthermore amenable to Monte Carlo modelling, which explains from a knowledge assets viewpoint why the management crises in growing SMEs occur.