the evolution of business knowledge in smes: conceptualizing strategic space

The evolution of business knowledge in SMEs: conceptualizing strategic spaceOswald Jones,* Allan Macpherson, Richard Thorpe and Adnan GhechamManchester Metropolitan University Business School, UK

� This paper develops a conceptualization of the way in which owner-managers in SMEs create strategic space. The term is defi ned as the time, resources, motivation and capa-bilities needed for owner-managers to refl ect on and review existing practices leading to learning, transformation and higher organizational performance.

� The empirical data is based on a longitudinal study of 90 SMEs operating in six broad sectors. The analysis uses two statistical tests to examine links between 20 activities within these SMEs and their performance.

� The results identify strong links between two groups of factors and positive performance claims by owner-managers. Social attributes include work atmosphere, meetings and socializing. Structural attributes include training, knowledge structure, certifi cation, systems and procedures.

Copyright © 2007 John Wiley & Sons, Ltd.

differentiate better-performing small fi rms. In particular, it concentrates on the owner-manager’s role in mediating the relationship between their fi rm and the external environ-ment and takes the view that owner-managers are central to shaping the nature of the systems, structures and procedures within their busi-nesses (Baron et al., 1999). The paper also recognizes that the structure and success of organizational activities will be derived in response to the context within which the fi rm is situated (Davenport, 2006).

Smaller fi rms have many features that distin-guish them from larger fi rms, such as the absence of complex formal structures, domi-nance of owner-managers, lack of internal labour markets, environmental uncertainty and a limited customer base (Floren, 2006; Wynarczyk et al., 1993). In addition, managers often fi nd it diffi cult to remove themselves

Strat. Change 16: 281–294 (2007)Published online in Wiley InterScience(www.interscience.wiley.com) DOI: 10.1002/jsc.803 Strategic Change

* Correspondence to: Oswald Jones, Manchester Metro-politan University Business School, Aytoun Building, Aytoun Street, Manchester M1 3GH, UK.E-mail: [email protected]

Introduction

Small and medium-sized enterprises (SMEs) form an important part of any economy. In the UK there are some 4.3 million fi rms and 99.8% have less than 250 employees. SMEs account for 50% of all UK economic activity and 58.7% of private sector jobs (SBS, 2007; Tilley and Tonge, 2003). In addition to their contribution in GDP terms, small fi rms are also important sources of innovation (Tether, 2000). Not-withstanding this economic contribution, relatively little is known about the manage-ment and learning processes in smaller fi rms (Lichtenstein et al., 2006). The objective of this paper is to identify those factors which

Copyright © 2007 John Wiley & Sons, Ltd. Strategic Change, September–October 2007

282 Oswald Jones et al.

Copyright © 2007 John Wiley & Sons, Ltd. Strategic Change, September–October 2007 DOI: 10.1002/jsc

from operational concerns in order to focus on longer-term strategy. Many owner-managers are motivated by retaining their independence rather than increases in turnover or profi t

This paper identifi es those factors which differentiate better

performing small fi rms

(Jennings and Beaver, 1997). Yet these differ-ences should not distinguish smaller fi rms’ research as a separate branch of management and organization studies. SMEs occupy similar institutional positions and respond to similar environmental forces to those experienced by larger fi rms. Larger fi rms themselves cannot be characterized as homogenous and having unitary forms — indeed, many actively seek to constitute themselves as fl exible constellations or networks of smaller units in order to promote strategic change through corporate entrepreneurship (Baden-Fuller and Stopford, 1994). SMEs are informed and organized by many different concerns, meaning it is very diffi cult to assign them a defi ning, common identity.

Where perhaps SMEs are most distinct from larger fi rms and have most in common, is in their informality coupled with a view that they are defi ned very much by the personal com-mitment of their owners, which creates within fi rms an individual and particular approach to strategic management (Gartner et al., 1992; Gibb, 1997; Perks, 2006). This means that as organizations they are likely to be sustained primarily by economically signifi cant skills along with successive knowledge claims con-cerning the viability of those skills. In addition, their success is likely to be dependent on com-bining entrepreneurial orientation with strate-gic action (Hitt et al., 2001). It is therefore recognized that the evolution of smaller fi rms is likely to be infl uenced by the development of fi rm-based resources and capabilities enacted through activity rather than the

accrual of resources (Weick, 1995). This paper examines the types of organizational activity that are linked to better performance in 90 SMEs across a range of sectors with a view to considering how these activities are con-structed, how the owner-manager is involved in creating them, and what types of resources and capabilities are necessary to enact change in response to the environment.

To begin, key contributions to the literature are reviewed in order to inform our contribu-tion to the study of SMEs. This is followed by an explanation of the way in which the data for this paper were collected and a discussion of the way in which it was analysed. A unique element is that we use statistical techniques to analyse qualitative data obtained via in-depth interviews. The results of this analysis are then presented using a technique known as ‘error bars’. This data analysis forms the basis of our conceptual framework, which demonstrates the way in which owner-managers can con-tribute to the effective utilization of knowl-edge within their organizations.

Creating structures and systems of organizing

As part of this research project, two extensive literature reviews examining various aspects of SME knowledge, learning and growth were conducted (Macpherson and Holt, 2007; Thorpe et al., 2005). These studies indicate that while owner-managers1 shape a fi rm’s activity, the institutional environment and systems of organizing are central to the devel-opment within SMEs. That is, while informal-ity is a common aspect of organizing in small fi rms, they still require systems to ensure that knowledge is shared and embedded in organi-zational memory (Jones and Macpherson, 2006). Otherwise, the centrality of the owner-manager (or management team) to the conduct of operational activity limits the time and resources available for strategic activity.

1 For brevity we use the term owner-manager as short-hand to describe the senior manager or entrepreneurial fi gure within each SME.

Evolution of business knowledge in SMEs 283


In other words, the owner-manager’s human capital is applied to create structures of orga-nizing and address the owner-manager’s role in creating a context in which knowledge and learning are valued. For example, Brush and Chaganti (1999) show that the owner’s human capital is magnifi ed and disseminated through the introduction of systems of organizing (also see Barringer and Greening, 1998). The adop-tion of these systems is infl uenced by industry norms through, for example, more powerful large customers or business support agencies (Jones and Macpherson, 2006; Winch and McDonald, 1999). In order to address specifi c internal problems, owner-managers may adopt techniques such as quality management systems (Patton and Marlow, 2002) or more sophisticated HRM policies (Wyer and Mason, 1998). The adoption of particular procedures will depend on whether the owner-manager buys in to the advantages offered by specifi c organizational systems (Choueke and Armstrong, 1998). Other studies found that some fi rms are able to refl ect on the appropri-ateness of existing activities and encourage staff involvement to promote innovation (Barnett and Storey, 2001; Sadler-Smith et al., 2001). In addition to the importance of systems, it is noted by some researchers that social capital, created through social and busi-ness networks, is an important asset (Granovet-ter, 1973; Nahapiet and Ghoshal, 1998; Raffa and Zollo, 1994). Here the types of networks available, and the formality of relationships, will depend on the institutional and cultural context (Spence and Schmidpeter, 2003). Moreover, to benefi t from these relationships requires both the ability (social skills) and the willingness to engage with others (Caniels and Romijn, 2003; Tjosvold and Weicker, 1993).

Two recent studies have specifi cally exam-ined links between the nature of ownership and activities within SMEs. Ghobian and O’Regan (2006) point out the longstanding interest in the relationship between owner-ship and performance which dates back to Berle and Means (1932). While there has been a revival of interest in this topic, the majority of studies concentrate on large organizations

(Anderson and Reeb, 2003; Welch, 2003). In their study, Ghobian and O’Regan (2006) examine the impact of ownership on the per-formance of 194 SMEs (117 independent and 77 subsidiaries) in the engineering and elec-tronic sectors. Independent SMEs had a much stronger emphasis on transformational leader-ship, whereas subsidiaries favoured a transac-tional management style. This strong emphasis on a transformational leadership style is not surprising because of the need for owner-managers to develop strong personal relation-ships which help induce the desired behaviours amongst employees (Ghobian and O’Regan, 2006, p. 570). In contrast, a transactional style means there is more emphasis on a rule-based approach to management. This is supported by data related to empowerment, which was also signifi cantly higher in the independent fi rms. Both these factors fi t strongly with the concept of strategic space, which is discussed below. In their study of 70 small fi rms (less than 50 employees), Richbell et al. (2006) examine the way in which eight owner-manager characteristics are linked to business planning. Three of the eight characteristics did have signifi cant relationships with the tendency to prepare a business plan. Those were: higher level of education, previous work experience in a medium/large fi rm, and running a business in sectors outside their previous experience (Richbell et al., 2006, p. 509). In a direct link with performance, those fi rms with a business plan tended to have growth strategies. Also, as the authors point out, owner-manager characteristics have been found to be important infl uences on other aspects of behaviour in SMEs (Storey, 1994).

In summary, it is important that owner-managers not only create systems and refl ect critically on existing routines and recipes, but also are proactive in implementing both struc-tures and cultures that support innovative behaviour (Baron et al., 1999; Spender, 1989). In addition, other research suggests that to capitalize on knowledge available through a fi rm’s social capital, attitudinal and relational competences are necessary (Caniels and



Romijn, 2003; Tjosvold and Weicker, 1993). This informs our research question: what types of activity create both the time and space for owner-managers to implement new systems of organizing in order to encourage the evolution of business knowledge? In other words, this study is concerned directly with what Hitt et al. (2001) defi ne as strategic entrepreneur-ship, activities that improve performance within small fi rms.

Research methods

This study is based on 90 SME fi rms in the Northwest of England which were operating in three sectors: services (media/culture and retail), client-based (bespoke and formulaic advice) and manufacturing (high-tech and low-tech). Firms also varied according to what we conceptualized as their level of maturity: start-up, stable and innovatory (Appendix 1). Owner-managers were interviewed in each of the fi rms. These were open-ended, in-depth interviews, lasting between one and one-and-a-half hours, in which the main questions (focus), follow-ups (more depth) and probes (clarifi cations) were used fl exibly to allow us to follow emerging themes (Rubin and Rubin, 1995, pp. 146–151). Firms were cate-gorized into three groups according to their performance levels: positive performance (37 fi rms, 41%); negative performance (11 fi rms, 12%); and neutral performance (42 fi rms, 47%). Positive performance claims were iden-tifi ed by reference to increases in sales, increases in employees and/or improvements in cash fl ow. Negative performance claims were identifi ed by reference to static or declin-ing sales, reduction in number of employees and/or reference to cash fl ow problems. Neutral performance claims were identifi ed by a lack of reference to positive or negative per-formance claims. Interviews were recorded, transcribed and then coded using NVivo soft-ware according to the 20 predefi ned catego-ries including training and working atmosphere (Appendix 2).

Using NVivo software meant that it was possible to undertake a statistical analysis of

the data. By using these 20 categories a co-occurrence proximity search was carried out which produced a matrix that compared each attribute showing the proximate incidence of coding co-occurring between a specifi c code and an attribute. This highlights the number of times respondents referred to a particular attribute by a specifi c category of fi rms. Based on this information, SPSS was used to con-struct quantitative data from qualitative infor-mation gathered via interviews. This entailed codifying the number of events associated with a particular attribute within each cate-gory of fi rms. Number 1 refers to ‘use of a specifi c attribute’ and 0 refers to ‘non-use of a specifi c attribute’ by fi rms in the survey. For this study we used two statistical techniques provided by SPSS — Levene’s Test and Error Bar.

Levene’s Test investigates differences in the proportional perceptions between categories (positive, neutral and negative performance) related to each fi rm with respect to a particu-lar variable (training, working atmosphere, etc.). It is preferred to other parametric and non-parametric techniques because it is more fl exible and safer to use when comparing groups having large disparities in the number of observations. This is the case for the catego-ries investigated here, and also it is more useful and appropriate when comparing categories with small numbers of observations. In addi-tion, this test is not dependent on the assump-tion of normality of data (for example, Hsieh and Miller, 1990; Miller and Graeffe, 2000; Milliken and Johnson, 1984; Zimmerman, 2004). Outputs from this statistical approach are shown graphically using error bars gener-ated by SPSS. Error bars illustrate which par-ticular attributes are related to each of the three performance levels (positive, neutral and negative). Based on the mean scores asso-ciated with various attributes across different categories of fi rms, this graphical method enables the identifi cation of a number of pat-terns in the data. The objective in undertaking this procedure was to identify those factors which were most strongly linked to fi rm per-formance irrespective of size or sector.



Results

Analysis of the data showed that a number of attributes differed signifi cantly according to the performance level declared by owner-managers. This tends to suggest there were indeed relationships between certain attri-butes and claims of performance between fi rms. Eight of the 20 attributes had highly statistically signifi cant (1% level: [p-value, 0.00]) relationships with performance claims. The eight factors (Appendix 3) relate to train-ing, working atmosphere, aspirations, technol-ogy, verbal and meetings, certifi cation, systems and socializing. Two additional factors, proce-dures and knowledge structures, were statisti-cally signifi cant at the 5% level [p-value, 0.001]. Having gained this insight, error bars were then created in order to examine the relation-ship between each statistically signifi cant attribute and the performance claims made by owner-managers.

The results for training, which link closely to human capital and absorptive capacity of the businesses, were unambiguous. The mean of the error bar for positive performance claims was higher and more concentrated than the error bars for fi rms with neutral or nega-tive performance claims (see Table 2). This was also the case for six other attributes:

working atmosphere, verbal and meetings, procedures, certifi cation, systems and social-izing. That is, higher scores for all six of these attributes were strongly related to positive performance. Hence, those fi rms in which owner-managers talked positively about these attributes had strong links to positive perfor-mance claims. The results for the remaining two statistically signifi cant attributes (aspira-tions and technology) were ambiguous. Concentrating on the seven attributes which were both statistically signifi cant and clear in their relationship with performance claims (positive, neutral and negative), it proved possible to group them into two distinct categories.

The fi rst group are characterized as social attributes (Table 1) and the second group as structural attributes (Table 2). Informal social factors included working atmosphere — an attribute that refers to efforts made by the managers to attend to day-to-day sensibilities of their employees as well as establishing rules and norms within the business; verbal com-munications and meetings — which refer to the manner in which information about the business was communicated as well as how the views of managers aligned with other’s understandings; and socializing — an attribute that included networking with

negative neutral positive

Performance

0.00

0.20

0.40

0.60

0.80

1.00

0.455

0.50

0.838


Performance

0.20

0.40

0.60

0.80

1.00

95%

CI V

erb

al a

nd

M

eeti

ng

0.545

0.643

0.838


Performance

-0.20

0.00

0.20

0.40

0.60

95%

CI S

oci

alis

ing

0.0909

0.2619 0.2703

Atm

osp

her

e

Table 1. Category 1 attributes: informal social attributes



individuals both inside and outside the busi-ness. Although the error bar for socializing was very similar for managers who expressed positive and neutral performance claims, the error bar for negative performance claims was much lower and less concentrated (Table 1). This indicates that socializing was associated with better-performing fi rms. This data also supported literature which points to the importance of managers socializing and communicating regularly with their staff to create a positive working atmosphere and to encourage a learning culture (see, for example, Barnett and Storey, 2001; Baron et al., 1999; Sadler-Smith et al., 2001).

The more formal structural attributes included training — which refers to efforts made to install a set of work patterns including encouraging employees to use their initiative; procedures — which ensure smooth running of systems; certifi cation — which includes references to the importance of kite marks such as ISO9002 and Investors in People; and systems — which refer to mechanisms that embed knowledge within the fi rm and knowl-edge structures — methods of knowledge storage and dissemination (Table 2). The data also serves to reinforce the view that it is important for managers to put in place systems and procedures which help embed knowledge


Performance

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

95%

CI T

rain

ing

0.273

0.50

0.838


Performance

0.20

0.40

0.60

0.80

95%

CI K

no

wle

dg

e S

tru

ctu

re 0.54550.5714

0.7027


Performance

0.00

0.10

0.20

0.30

0.40

0.50

0.60

95%

CI C

erti

fica

tio

n

0.00

0.214

0.405


Performance

0.00

0.20

0.40

0.60

0.80

95%

CI S

yste

ms

0.182

0.333

0.541


Performance

0.50

0.60

0.70

0.80

0.90

1.00

1.10

95%

CI P

roce

du

re

Table 2. Category 2 attributes: structural attributes



and learning within the fi rm (Jones and Macpherson, 2006). The presence of systems, procedures and knowledge structures serves to confi rm the fi ndings that those fi rms with more thorough practices and in which owner-managers were more conscious of the means and methods of knowledge accumulation and dissemination, were the ones that performed better.

There were, however, ambiguous results for the two remaining statistically signifi cant attri-butes. The fi rst, aspirations — which related to the ambitions of managers for the business both now and in the future and the second, technology — an attribute that defi ned the primary modes of formal communication used by owner-managers including email, telephone and the internet (Table 3). The error bars for aspirations and technology both indicate that these attributes were higher and more concen-trated for those fi rms with neutral performance claims.

Discussion: the conceptualization of strategic space

This section examines the conceptualization of strategic space, which is defi ned as follows. To accomplish learning and transformation within SMEs there needs to be the time, resources, motivation and capabilities for different constituencies, particularly owner-

managers, to refl ect on and review existing organizational practices. As identifi ed in the empirical data, it is suggested that there are two key elements supporting the creation of strategic space: absorptive capacity and social capital. These two factors are discussed below.

Absorptive capacity in SMEs

The data indicates that where there is a diver-sity of skills and the use of relatively sophisti-cated management techniques (which included training), the owner-managers made stronger performance claims (Tables 1 and 2). This accords with observations relating to larger fi rms, which emphasize the importance of constituting an organization using diverse overlapping capabilities (Cohen and Levinthal, 1990). However, other fi ndings undermined conventional assumptions relating to absorp-tive capacity. Notably, when applied to smaller fi rms, the absorptive capacity model devel-oped by Zahra and George (2002) is of limited value since only rarely is knowledge under-stood as a resource to be acquired. Rather, absorptive capacity is essentially processual, as it is strongly embedded in the fi rms’ internal and external relationships (see Jones, 2006). Those owner-managers that paid attention to knowledge-sharing activities (working atmo-sphere, meeting and socializing) were much


Performance

0.20

0.40

0.60

0.80

95%

CI A

spir

atio

n

0.545

0.762

0.459


Performance

0.20

0.40

0.60

0.80

1.00

95%

CI T

ech

no

log

y

0.636

0.881

0.703

Table 3. Other statistically signifi cant attributes



more positive about the performance of the business than those who appeared reluctant to actively engage their employees. The absorptive capacity of smaller fi rms does not rely only on the communication strategies of the owner-manager. The data here indicate that putting in place more formal systems to help retain knowledge (procedures, systems, certifi cation and knowledge structures) is also strongly linked to performance. This is con-fi rmed by the strong links between formal training and the positive performance claims made by owner-managers.

The importance of social capital

It would appear that the data here are related to another factor which is increasingly regarded as important for the performance of SMEs, that of social capital. Attributes such as socializing, meetings and knowledge structures suggest that those owner-managers who pay attention to building relationships both inside and outside the fi rm are rewarded with higher levels of performance. In other words, there are strong links between the human capital of the owner-manager and the creation of social capital within the fi rm. It seems clear that suc-cessful outcomes were linked to managers’ capacity to devolve responsibility to em-ployees with the necessary skills and hence contacts with signifi cant sources of external knowledge (Zhang et al., 2006). There is also evidence of the opposite case, where a lack of social capital and a lack of ability and/or motivation to extend networks are linked to weaker performance. In respect of social net-works, we were more concerned with the agency rather than the structures through which knowledge was acquired. Thus, the dimension of social capital that we believe to be most important is cognitive social capital (Nahapiet and Ghosal, 1998), which refers to managers’ interpretive frameworks based on shared language, codes and narratives (Lee and Jones, 2006). We suggest that rather than regarding social capital and absorptive capac-ity as distinct ‘possessions’, it is better to emphasize their mutual creation through the

owner-managers’ relational skills (human capital).

Reviewing the statistical analysis, it is pos-sible to conceptualize the links in the study. Figure 1 focuses on the implications of the study for academics, practitioners and policy-makers. To effectively exploit opportunities within their unique environments, small fi rms depend on the human capital of key actors (usually the owner-manager), the fi rm’s absorp-tive capacity (systems, structures and routines) and social capital (internal and external network relationships). The model represents an acknowledgement that human capital, incorporating sense-making and discursive resources, is the key infl uence on smaller fi rms’ social capital and absorptive capacity. Viewed in this way, organizational knowledge is seen as embedded within the structures and relationships that exist within the fi rm’s arena. In addition, this knowledge capacity is con-tinually renewed through interaction, engage-ment and activities that are in part structured by existing social relationships. In order for knowledge renewal to take place, strategic space has to be created through a variety of mechanisms in order to allow existing activi-ties to be reviewed. Time, space and resources to think about the business and to engage with others in critical debate and discussion are central to the formation of their personal approach to strategy (Perks, 2006; Pitt, 2005).

Strategic space

Absorptivecapacity

(systems, structures & routines)

Bridging,bonding & reflection

Communication,action & practice

EmbeddingKnowledge(internal & external

elements)

Humancapital

(Sense-making,discursive resources)

Socialcapital

(network quality & diversity)

Firm performance (growth, profit, survival etc)

Knowledge environment

Figure 1. Conceptualizing strategic space in SMEs.



Thus, at the heart of knowledge creation and use in smaller fi rms, are the communicative actions and practices that encourage bridging and bonding with new networks while also

Small fi rms depend on the human capital of key

actors

exploiting what is already known within col-lective activities. Moreover, it needs to be acknowledged that activity takes place in an institutional context, which infl uences what is possible. As a consequence, current arrange-ments, market conditions and changing insti-tutional pressures infl uence the evolution of knowledge and knowing within smaller fi rms. Although this model is not intended to suggest causality, it does serve to map the types of processes involved in the evolution of busi-ness knowledge in small fi rms.

Conclusions: implications for owner-managers

Strategic space and organizational renewal

Owner-managers are arguably the most impor-tant organizational resource since it is primar-ily their human capital that shapes and exploits opportunities within the fi rm. However, their entrepreneurial actions are directly related to the embeddedness of activities, experiences within specifi c communities and the space to refl ect on the long-term viability of their busi-nesses. Creating opportunities for managers to be able to think strategically is important if critical refl ection is to be effective. Moreover, learning has to be institutionalized in routines and systems if it is to be embedded at the organizational level. Owner-managers have to delegate authority or develop technologies that provide space to focus on strategic renewal and change. Thus, signifi cant rigidi-ties in terms of resources, time and existing practices may need to be unblocked before

the fi rm can change. This might be done by recruiting new talent or by developing exist-ing staff, by bringing in new equipment, or by using soft process technologies — indeed, an understanding of how these types of activities contribute to strategic renewal would be a worthwhile research agenda. The more active managers are in seeking out different commu-nities, the more likely such interactions are to provide resources for refl ecting on current activities. However, this requires both space and the motivation of owner-managers to engage in such activities. Thus, to accomplish this transformation owner-managers have to create strategic space — the time, resources, motivation and capabilities for different con-stituencies so that they have the opportunity to refl ect on, and review, existing organiza-tional practices.

One of the key areas that is raised in this research is the way in which owner-managers use their discursive and social skills to open up access to wider networks (Caniels and Romijn, 2003; Newell et al., 2004). This ability is central not just to the generation of social capital within smaller fi rms but also absorptive capacity, a link whose intimacy we suggest is conveyed by the term cognitive social capital. This is in essence an owner-manager’s inter-pretation of activities and events based on shared language, codes and narratives (DeCarolis and Saparito, 2006; Newell et al., 2004). We believe that the concept of cogni-tive social capital (Nahapiet and Ghosal, 1998) is central to developing a better understanding of how managers of smaller fi rms can bridge out of their existing networks and begin to bond with their potential weaker ties (Lee and Jones, 2006). Unblocking rigidities and creat-ing space may require both the power and the political infl uence of critical actors, such as the owner, customers and regulatory bodies to create both the space and impetus for change.

To conclude, this paper has examined the evolution of business knowledge in SMEs. The research was designed to enhance the understanding of ways in which managers in SMEs acquire and utilize knowledge as a basis for wealth creation and improved



competitiveness. The results confi rm the importance of social capital and absorptive capacity to those SMEs in which owner-managers have a vision for the longer-term viability of their businesses. While such a claim is not particularly revolutionary in the under-standing of smaller fi rms, evidence is provided based on the quantitative analysis of 90 fi rms representing a wide range of sectors and sizes. Of more signifi cance is the data that indicates the way in which managers in the sample actu-ally created social capital and absorptive capac-ity. Effective managers are able to stand back from day-to-day activities and consider longer-term issues which impact on their businesses. Links between delegation and the performance of SMEs is well established in the literature (Jones, 2003). The principal contribution of this work is to bring together a range of ele-ments such as human capital, social capital, absorptive capacity and strategic space into a coherent conceptual framework for under-standing the evolution of knowledge in SMEs.

Biographical notes

Oswald Jones is Professor of Innovation and Entrepreneurship at Manchester Metropolitan University Business School (MMUBS) and Head of the Centre for Enterprise. His current research interests include entrepreneurial

networks, innovation management in mature small fi rms, social capital and entrepreneur-ship, entrepreneurial learning and intrapre-neurship. Recent publications have focused on the topic of organizational learning in SMEs.

Allan Macpherson is a Senior Lecturer in Organization Studies at the University of Liverpool Management School. He has publi-cations from a number of funded projects concerned with knowledge and growth, orga-nizational learning and network learning within SMEs. His current research interests include organizational learning processes and barriers, management development and the emergence and development of entrepreneurs.

Richard Thorpe is Professor of Management Development and Deputy Director of the Keyworth Institute at Leeds University Busi-ness School. Richard’s interests include entrepreneurship, management learning and development and leadership. He is currently the President of the British Academy of Man-agement and a member of the Training and Development Board.

Adnan Ghecham is currently undertaking postdoctoral research in MMUBS. His main research interests include the relationship between institutional frameworks and the economic performance of fi rms as well as the governance and economic development of Middle East and North African countries.



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t o

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volu

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vid

ence

d

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op

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and

th

e co

mp

any

will

be

tech

niq

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aniz

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sys

tem

s. A

fi r

m i

n t

his

of

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erim

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ris

k-ta

kin

g o

r d

evel

op

men

t w

ou

ld b

e

esta

blis

hin

g it

s id

enti

ty w

ith

in i

ts m

arke

t

cate

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may

be

def

end

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loit

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a

ex

pec

ted

, w

hic

h m

ay i

ncl

ud

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iver

sifi

cati

on

or

sim

ple

p

lace

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par

ticu

lar

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ket

nic

he.

adap

tati

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. T

he

ren

ewal

may

hav

e fa

cilit

ated

su

rviv

al o

r

gro

wth

, b

ut

this

wo

uld

dep

end

on

th

e co

nte

xt

or

mar

ket

w

ith

in w

hic

h t

his

fi r

m o

per

ates

. A

fi r

m i

s lik

ely

to b

e

stra

tegi

cally

pre

dis

po

sed

to

tec

hn

ical

or

mar

ket

le

ader

ship

, an

d p

rovi

de

evid

ence

of

a re

spo

nsi

ve a

nd

fl

exib

le a

pp

roac

h t

o n

ew o

pp

ort

un

itie

s id

enti

fi ed

in

th

e

mar

ket.



Appendix 2: Coded attributes 1. Traditional Professions — referred to lawyers, bank managers and accountants. 2. Business Advisors — Business Links, Chambers of Commerce, Princes Trust, etc. 3. Vision — referred to the owner-managers’ language used to describe their mental image of the company’s

development. 4. Training — referred to efforts to instil a set of work patterns and requisite attitudes including encouraging

employees to take the initiative. 5. Working Atmosphere — referred to the day-to-day sensibilities of employees and managers including

references to ‘this is how things are done around here’. 6. Aspirations — identifi ed by reference to the owner-managers’ expectations of the business and their future

hopes. 7. Procedures — implementation of formalized systems/procedures. 8. Organizational Structure — referred to the creation of formalization of reporting relationships with the fi rm. 9. Knowledge Structures — defi ned as methods of information storage and dissemination.10. Technology — defi ned by reference to modes of communication including email, telephone and internet.11. Writing and Imagery — included reference to the use of notice boards, note-paper and business cards.12. Verbal and Meetings — internal communication with employees.13. Socializing — external communication with stakeholders.14. Certifi cation — included references to quality kite marks such as ISO9002 and Investors in People.15. Family — references to the role of family members in the fi rm.16. Team — references to the extent to which employees are regarded as members of the team.17. Trust — the extent to which trust was a factor (with employees, suppliers and customers).18. Quality — importance of quality related to product or service (but excluding certifi cation issues).19. Systems — informal mechanisms to embed knowledge (cf. procedures and knowledge structures) — systems

could be formalized as procedures.20. On my Own — reference to the respondent’s view that he/she was primarily responsible for activities within

the fi rm (e.g., decision-making).

Appendix 3: Levene’s Test indicating relationships between attributes and performanceTest of Homogeneity of Variances

Levene Statistic df1 df2 Sig.

Traditional Professions 1.391 2 87 0.254Business Advisor 0.128 2 87 0.880Vision 1.176 2 87 0.313Training 16.240 2 87 0.000Working Atmosphere 21.153 2 87 0.000Aspiration 8.015 2 87 0.001Procedure 4.615 2 87 0.012Organisational Structure 0.874 2 87 0.421Knowledge Structure 3.392 2 87 0.038Technology 11.755 2 87 0.000Writing Imagery 1.410 2 87 0.250Verbal and Meeting 11.781 2 87 0.000Socialising 5.342 2 87 0.006Certifi cation 33.069 2 87 0.000Family 0.259 2 87 0.772Team 2.292 2 87 0.107Trust 0.099 2 87 0.906Quality 0.176 2 87 0.839Systems 8.339 2 87 0.000On my Own 1.596 2 87 0.209



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the evolution of business knowledge in smes: conceptualizing strategic space

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