Managing Innovation in Knowledge-Intensive SMEs: A Multiple Case Study of Balancing Exploration and Exploitation

Abstract: Managing the innovation processes and strategies is a common challenge for companies due to the complexity and difficulties of creating processes that favor exploitation and exploration, and not limiting the capabilities to one or the other. Being able to have a split focus and balancing these capabilities constitutes a paradox since stability and predictability are associated with exploitation, and since risk and unpredictability are associated with exploration. This thesis focuses on the phenomenon described above, with two layers added. First, the companies that constitute the empirical sample used in the thesis are all SMEs, and therefore have not developed the bureaucracy and structural inertia that often disfavors exploration. Second, the companies are all knowledge-intensive, meaning that their offerings are to varying extents depending on innovation. These two aspects, individually and jointly, represent a research gap that this thesis addresses. The empirical findings show that firms do not actively manage innovation to focus on exploitation and exploration in combination, although theory suggests multiple strategies and processes. However, an innovation-supporting culture was deemed essential, along with a strategy that focuses on cultural aspects rather than resource allocation. An innovation strategy can also mitigate the risk of having sprawling innovation activities, therefore managing resources more efficiently. In addition, the findings suggest that knowledge-intensive SMEs do not need advanced selection methods or specific tools to stay competitive. Finally, effective implementation and commercialization of the chosen ideas require cross-functional teams to ensure successful implementation, as well as an environment that allows employees to experiment, fail and question the status quo.