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Matthews, Judy H. (2003) Knowledge Management and Innovation: How are they
related?. In Timbrell, Greg, Eds. Proceedings KM Challenge 2003 Knowledge
Management Conference, Melbourne Australia.

Copyright 2003 (please consult author)

KnowledgeManagementandInnovation:Howaretheyrelated?

DrJudyMatthews
NationalGraduateSchoolofManagement
AustralianNationalUniversity
CanberraACT,Australia
Email:judy.matthews@anu.edu.au

PaperacceptedforKMChallenge2003KnowledgeManagementConference
April24,Melbourne.

KnowledgeManagementandInnovation:Howaretheyrelated?
DrJudyMatthews
NationalGraduateSchoolofManagement
AustralianNationalUniversity
CanberraACT,Australia
Email: judy.matthews@anu.edu.au

Abstract
Companiesintodaysglobalisedworldmustinnovatetocompete.Manysuccessfulcompanieshavefoundthat
knowledgemanagementstrategiesandpracticesarecentraltoongoinginnovation(Boutellieretal.,1999David
&Foray,2001ADLittle,2001Tiddetal.,1997).Thispaperbringstogetherresearchregardingknowledge
managementprocessesandpracticesthatarefoundinR&Dorganisationsandinotherinnovativefirms.The
papercontendsthatsuchpracticescouldbeemployedacrossarangeoffirmstoenableandenhancethe
potentialforinnovationwithinfirmsinmultiplesectors.

INTRODUCTION
Innovationiswidelyrecognisedasasourceofafirmsandindeedanationswealthcreation(West,2000).
Manywesterncountrieshavebeeninvestigatinginnovationinattemptstounderstandandhenceenhancethe
likelihoodofincreasinginnovation(BackingAustraliasAbility, 2001OECD1999a,1999b.2000,2001).The
contributionsoforganisationalinnovationtoorganisationalperformanceareoflongstandinginterest(Burnsand
Stalker1961,1994Drucker1992)andincorporatearenas(ArthurDLittle2001Hamel 2000Tidd,etal.,
1997).
Thepaperfirstoutlinesanumberofapproachestoinnovationandinvestigatesinnovationatthelevelofthe
firm.Second,ittakesacloserlookattheseprocessesandthewaysinwhichknowledgemanagementcontributes
toinnovation.Thirdly,knowledgemanagementprocessesininnovativefirmsarespecificallydiscussed.Finally
activitieswhichcompanieshaveimplementedinspecificcontextstoenhancethelikelihoodofinnovationare
summarisedandspecificknowledgeprocesseswhichunderpintheseactivitiesaregeneratedfordiscussion.

INNOVATION
Innovationhasbeenvariouslydefinedandcanbeexaminedfromavarietyofperspectives,fromabroad
definitionsuchasinnovationreferstotheprocessofbringinganynew,problemsolvingideaintouse(Kanter
1983:20),toamoreoutcomebasedapproach,whereinnovationistheprocesswherebynewideasare
transformed,througheconomicactivity,intosustainablevaluecreatingoutcomes(Livingstone2000).
Innovationingeneralisusedtodescribenewproducts,processesandservicesundertakenbyfirms,whichlead
toanincreaseinperformance.Thenotionhereisofachangewhichleadstoacommercialprocess.Similarly,
organizationalinnovationdefinedastheadoptionofanideaorbehaviourthatisnewtotheorganisation,where
theinnovationcanbeanewproduct,anewservice,anewtechnologyoranewadministrativepractice(Hage
1999:599).
The changing nature of the market, the challenge of ongoing change and the emergence of the knowledge
societyhasleadtoanincreasedfocusoninnovation.Innovationisrequiredbecausewecannotexpectthatthe
accumulated competence, skills, knowledge, product services and structure of the present will continue to be
adequate(Drucker,1992).Innovationimpliesimprovingonexistingproductsandprocesses,findingnewways
andalsoabandoningtheold,orreviewingeveryproduct,service,technology,market,anddistributionchannel
onaregularbasis(Drucker,1992).
Much of the research on innovation in firms has come from studies of research and development (R&D) or
technological changes. In research and development, the focus on knowledge involves both the creation of
knowledge and the reuse of knowledge. For example, the demand for increased speed in R&D to get new
productsonthemarket,orforbetterinclusiveprocesses withhighturnoverofideasareoftenassociatedwith

callstomakemoreindividualsmorecreative.Ofparticularimportanceinknowledge creationisthenotionof
sharingknowledge,particularlythetacitknowledgethathasnotbeencodified.Thesestudieshaveshapedour
understandingsofinnovationandtheseunderstandingshavesincebeenappliedtostudiesofinnovativefirms.In
both R&D and innovative firms, knowing what we know is enhanced by a culture of knowledge sharing,
whichfacilitatestheflowandgenerationofnewknowledge,hencecapturingandusingtheinternalknowledge
baseaswellasbeingopentonewideasandtechnologiesfromexternal sources.
Theenablersofknowledgecreationareseenasaknowledgesharinginclusiveculture,organisationalstructures
which encourage interaction, leadership from people in sharing processes and learningnetworks. The goal is
oftento facilitatepeople contacts,suchasidentifyingexperiencedpeople whocansharetheirknowledgeand
providingaccesstorepositoriesofknowledge.Inknowledgepractices,thefocusisonconnectingpeople.This
includescompanyexperts,communitiesofpractice,andenhancingandenablingnetworksthroughsharedsocial
activities. In addition intraorganisational meetings, technological fairs, roundtables, scientific symposia, or a
technicalandmarketingforumcanenhanceafirmsinternalrepositories.

Innovationatthefirmlevel
In the last decade, studies of innovation at the firm level have identified common components in innovative
organisations (Tidd et al., 1997). These components include strategic approaches, linkages and high
involvementofstaff.DistinctivefeaturesofeachcomponentaresummarisedinTable1.
Table1ComponentsoftheInnovativeOrganization
Component
Vision,Leadershipandthewillto
innovate
Appropriatestructure
Keyindividuals
Effectiveteamworking
Continuingandstretching
individualdevelopment
Extensivecommunication
Highinvolvementininnovation
Customerfocus
Creativeclimate
Learningorganisation

Keyfeatures
Clearlyarticulatedandclearsenseofpurpose
StretchingstrategicintentTopmanagementcommitment
Organisationdesignwhichenableshighlevelsofcreativity
Promoter,champions,gatekeepersandotherroleswhichenergize
orfacilitateinnovation
Appropriateuseofteams tosolveproblems.Requiresinvestment
inteamselectionandbuilding
Longtermcommitmenttoeducationandtrainingtoensurehigh
levelsofcompetenceandtheskillstolearneffectively
Withinandbetweentheorganisationandoutside.Internallyin
threedirections upwards,downwardsandlaterally.
Participationinorganizationwidecontinuousimprovementactivity
Internalandexternalcustomerorientation.Totalqualityculture
Positiveapproachtocreativeideas,supportedbyrelevantrewards
systemawinnersculture
Processes,structuresandcultureswhichhelpinstitutionalize
individuallearning.Knowledgemanagement

Source: Tiddetal.,1997:314.
Similar findings from other recent research on innovative firms found underlying capacities for innovation
include vision and strategy, a competency base, creativity and idea management, organisational intelligence,
organisationandprocess,cultureandclimate(ADLittle2001).Thesefindingsconfirmourunderstandingthat
the ability of an organisation to recognise the potential of an innovation is not a simple process and is a
function of how it collects and processes information, depends on nature of the innovation, the organisation
structure,systems,people,localenvironmentandmanagerialdominantlogic(Afuah1998:92).
Insummary,innovationcannotbedirectlycreated.Indeedsuccessfulinnovationinanorganisationisbasedon
strategy,isdependentonbotheffectiveinternalandexternallinkages,usuallyrequiresenablingmechanismsto
make changehappen, and only happens within a supporting organizational context (Tidd et al.,1997). These
viewsofrequirementsforinnovativefirmscanalsobeappliedtofirmswithsuccessfulknowledgemanagement
strategies and practices. For example organisations need a strategy to manage their knowledge (Hansen et al
(1999 Zack, 1999), internal and external linkages (Hansen, 1999 Skyrme, 2001), enabling mechanisms for
change(DeLongandFahey,2000)andasupportingorganisationalcontext(DavenportandPrusak,2000).
A more marketoriented approach to innovation suggests that successful innovations are characterised by the
correctanticipationof customerneeds,detailedknowledge ofthesupply chains,andintelligentapplicationof

externaltechnology.Allresourcesofacompany,internalandexternalhavetobeintegrated(Boutellieretal.,
1999: 19). This view contends that the benefits gained through knowledge management in innovative firms
include not only the identification of technical competencies which are key to success (technical core
competencies),butalsotheabilitytocommunicatetechnicalcorecompetenciesthroughoutthemanagementof
the whole company, with particular focus on R&D and marketing. In addition, the identification of technical
core competencies with an opportunity to focus on issues of protection, exploitation and enhancement of
competencies is(Boutellieretal.,1999).
Itisclearfromthesedescriptionsofsuccessfulinnovationthatthemanagementofknowledgeiscentraltothe
organisationsinnovation.Weproceedtofurtherdiscussionoftheseconceptsandusethisoverlaptoidentifyin
moredetail,knowledgemanagementpracticesthatcontributetoinnovation.

KNOWLEDGEMANAGEMENTANDINNOVATION
The intertwiningrelationship between innovationand knowledge is seen in the approach to ways to increase
knowledge and its transfer in organisations. For example Davenport and Prusak suggest thatthe best way an
organisation can transfer knowledge effectively is to hire smart people and let them talk to each other
(Davenportand Prusak,1998: 88). A similar prescription is provided for innovation the ingredientsare the
clever people and the processes are the interaction, context and a culture of knowledge sharing, or finding
effectivewaystoletpeopletalkandlistentooneanother.
Somewritersdescribetheimportanceofthegenerationofknowledgeinmoredetail.Skyrme(1999)describes
twoprocesses.First,knowingwhatyouknowi.e.havingbetterawareness,sharingandapplicationofexisting
knowledge including that which originates outside the organisation. Second, faster and better innovation i.e.
moreeffectiveconversionofideasintoproductsandprocesses(Skyrme,1999).
Healsodescribesinnovationasasetofinteractingknowledgeprocesses.Theseprocessesincludetheabsorption
ofexistingknowledgefromtheexternalenvironment,thecreationofnewknowledgethroughcreativethinking
andinterchangeofideas,therapiddiffusionofideasandinsightsthroughknowledgenetworkingthevalidation,
refining and managing of innovation knowledge, matching of creative ideas to unmet customer needs and in
solved problems, and encapsulating and codifying knowledge into an appropriate form such as a tangible
product,aproductionofanewinternalprocess,trainingmaterialforanewserviceamarketabledesign,patent
etc(Skyrme,1999:51).
Each of these sources of knowledge present different challenges and often requires different knowledge
processes.TheseformsofknowledgeandtheprocessestoimplementthemaresummarisedinTable2.
Table2.FormsofKnowledgeandProcesses.
Formsofknowledge
Customerknowledge

KnowledgeProcesses
Developingdeepknowledgethroughcustomerrelationships,andusingit
toenhancecustomersuccessthroughimprovedproductsandservices
Knowledge in products and Embedding knowledge in products and surrounding them with
services
knowledgeintensiveservices
Knowledgeinpeople
Developing human competencies and nurturing an innovative culture
wherelearningisvaluedandknowledgeisshared.
Knowledge inprocesses
Embedding knowledge into business processes, and giving access to
expertiseatcriticalpoints
Organizationalmemory
Recordingexistingexperienceforfutureuse,bothintheformofexplicit
knowledgerepositoriesanddevelopingpointersto expertise
Knowledgeinrelationships
Improvingknowledgeflowsacrossboundaries:withsuppliers,customers
andemployeesetc.
Knowledgeassets
Measuring intellectual capital and managing its development and
exploitation.
Source:DevelopedfromSkyrme(1999).
The contribution of knowledge to continued success by companies such as 3M, Hewlett Packard and Glaxo
Wellcomeiswellknown(Skyrme,1999).Benefitsofknowledgeincludetheavoidanceofcostlymistakes,such
as the sharing of best practices in Chevron, and faster problemsolving through videoconferencing by BP
Amoco where offshore oil platforms can tap into expertise elsewhere. Other examples include faster

developmenttimes throughlearningnetworks andlinking customer problems to an ideas database,and better

customer solutions. A wellknown example is the sales and support staff at Buckman Labs who use their
knowledge repository KNetix to gain access to best expertise and develop innovative solutions to tricky
customer problems. Other benefits obtained from knowledge management practices include gaining new
business,improvedcustomerserviceandreductionofrisk(Skyrme,1999).
Innovative success in small and mediumsized firms is determined by the presence of organizational,
technologicalandmarketingcompetenciesandifthesecompetenciesarejointlypresent,firmsaremorelikelyto
innovate successfully (Cobbenhagen, 2000). This study did not specify knowledge practices per se, but the
combination of a strong knowledge base, proactive management of innovations and management of the
relationshipwiththeenvironmentweremajorfactorsinthesuccessofthesefirms.
R&Dfirmsandinnovativefirmshavesimilaranddifferentprocessesandpracticestocreateanduseknowledge
forinnovation.SomeofthesearesummarisedinFigure1.
Figure1.Firms,InnovationandKnowledge

R&DFirms

InnovativeFirms

Purpose:Createnewknowledge
Who: Scientists,Engineers
What: Createnewknowledge,extend
applicationofcurrentknowledge
Where:Internaltofirm,externalwithother
researchers
How: Socialprocess,workinteams,
collaborationwithothers
Enablers:Cultureknowledgesharinginternally
infrastructure,ITTools

Purpose:Knowledgecreationandreuseinnew
ways,newcombinations,productsandservices
relevanttomarket
Who: R&D,Marketing,Production
Where:Internalandexternaltofirm,supplychain
partners,valuenetworks
How: Staff,systems,structures,closeto
market
Enablers:Cultureknowledgeoffirms
performancewithcleargoals,proportionofnew
productsandprocessesinlast5years

ManagingforInnovationandKnowledge
Bothrequireengagementsocialprocesseswithinteractionandcommitment
Bothrequiresearchprocesses,
Bothmustdemonstrateabsorptivecapacityformaximumbenefit
Bothcreate,acquire,generate,useanddiffuseknowledge
Source:Matthews.Developedforthispaper

KMProcessesininnovativefirms
The description of the underlying capacities for innovation includes vision and strategy, a competency base,
creativity and idea management, organisation and process, culture and climate and intelligence (AD Little,
2001).Inaddition,firmswerefoundtobeinnovatingatdifferentrates.Firmswereclassifiedalongacontinuum
as static, innovative, learning and selfgenerating firm summarised in Table 3. A firm can of course be at
differentlevelswithrespecttodifferentinnovativecapacities.(FurtherelaborationisfoundADLittle,2001).
Table3.LevelsofInnovationinFirms
Levelsofinnovativeness
Level0 Thestaticfirm

FirmDescriptors
Organisationnotinvolvedinsystematicinnovation,butmayhavea
stablemarketpositionwhilepresentconditionspersist.
Level1 Theinnovatingfirm
Abletoproduce innovationsservingknownmarketsefficientlyand
effectively.
Level2 Thelearningfirm
Adaptingtoachangingenvironmentbeingabletoquestionexisting
routinesandnormsanddevelopnewonesdoublelooplearning.
Level3 Theselfregenerating firm
Displaysstrategicrepositioning:abletoquestion,change/reshape
theindustryitisintriplelooplearning.Visionaryleadershipand
longtermcommitmentarekey.
Source:DevelopedfromADLittle(2001)

Littlesstudygroupedmultiplenotionsofknowledgeandknowledgemanagementundertheheadingof
organisationalintelligence.Thisnotiondescribedknowledgemanagementasthegeneration,protectionand
stewardshipoftechnology&technologicalknowledge,acquisitionanddevelopmentofknowledgefromoutside
orabsorptivecapacity.Alsoincludedwereknowledgearticulationanddeployment,awarenessofown
performanceandlimitations,commitmenttounderstandingthecustomer bothcurrentandfuture
(unarticulated)needs,structuredthinkingaboutthefuture/scanningthehorizon,recognition,screeningand
selectionofnewideasandunderstandingandusingnetworksforintelligence.
ManagingafirmsknowledgeassetsiscrucialininnovationandLeonardBarton(1997)focusesonthreetypes
ofskillsorknowledge:publicorscientificindustryspecificfirmspecific.Otherstudiesinvestigateknowledge
managementpracticesinleadingcompaniesintermsofknowledgeflows(Armbrechtetal,2001)andfoundkey
enablersofknowledgeinculture,infrastructureandITtoolsandstandards.
Ontheotherhand,anoverview ofsuccessfulinnovationinlargelyinternationalfirmsarguesthatknowledge
creationiscompletelydependentonindividuals,onhumanbeings(Boutellieretal.1999:217)andPeopleare
the primary source of innovation in highperformance organizations. Both personnel colocation and job
rotationhelptobuildanetworkofinformallinkagesthatprovideinformationchannelsthatareseenasoftenfar
superior and efficient than formalreporting structures andofficial message boards. Inparticular,mutual trust
andfacetofacecontactsaretobemaintainedinordertosustainthenetwork(Boutellieretal.1999:217).

KnowledgeProcessesandpracticesforinnovation
Takingintoaccountthecontextualnatureofknowledge,Boutellieretal.(1999)havesuggestedanumberof
activitieswhichassistinknowledgesharinginanumberofcontexts,includinginformallinksandnetworks,and
projectsandprocesses.Underlyingtheseactivitiesarespecificknowledgeprocesseswhichcanbeencouraged.
Theknowledgeprocessesinherentintheseactivitiesandcontextshavebeenaddedtofocusonknowledge
creationprocessesincolumn3inTable4.Suchprocessesincludesharingoftacitandexplicitknowledge,
interactiveprocesses,buildingnetworks,increasedknowledgefromdiversityofideasandexperience,and
diffusionofknowledge.
Table4.Knowledgeprocessesandprocessesforinnovation
Contexts/Situations
Informallinksand
networks

Activities
Visitingscientistsprograms
Informalmeetingsand
conferences
Jobrotation
Multimediatechnology/ICT
Crossfunctionalteams

KnowledgeProcesses
Makingconnectionsoutsidedaytodaypractice
Sharingexplicitandtacitknowledge
Buildnetworksandgaintacitknowledge
Broaderaccesstoexplicitknowledgeincrease
richnessofknowledge
ProjectsandProcesses
Breadthofparadigms,learnfromnew
approachesandtechnologies
Interculturalprojectmanagers Diversityofexperiencesandchallenges
HIPHighimpactprojects
Highvisibility newideasdiffused
Shareddatabases
Commonknowledgecapturedandaccessible
Hierarchicaland
Functionalspecialists
Deepexpertise
functional
Multifunctionalprototyping
Richdisciplinarysourceofideas,multiple
Dualcareerladders
approaches
TechnologyAgents
Diffusionoftechnology
RegionalandLocal
Facetofacemeetings
Makingconnectionsandsharingtacit
Expatriates
knowledge
Localrecruiting
Expertisefromheadofficewithlocalsituational
knowledge
Internationaldispatchments
Increasepotentialforlearningfromdiverse
situationsandchallenges
Source:Matthews,developedforthispaperfromBoutellieretal.(1999).

CONCLUSIONSANDFUTUREWORK
Thispaperbringstogetherliteraturefromresearchoninnovation,bothspecificallyfromR&Dcontextsand
fromresearchoninnovativefirms,withsmallandmediumsizedenterprisesandlargeandinternationalfirms.
Theimportanceofinnovationforsuccessatthefirmandnationallevelhasbeendemonstrated.Theessential
contributionsfromknowledgepracticesandtheircriticalroleininnovativefirmshasbeenidentified.Thepaper

concludeswithsomewaysinwhichtheactivitiesseenascentraltoinnovationinfirmsencapsulateknowledge
management practices.Furtherworkdifferentiatingknowledgepracticesfromcentralcomponentsofinnovation
infirmshasyettobeundertaken.

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