Journal of Knowledge Management Practice, Vol. 8, No. 2, June 2007

The Synergy Of Knowledge-Based Innovation Capacity And Innovation Supply Chain:

A Case Study Of Taiwanese High-Tech SMEs

Te Fu Chen, University of  Western Sydney

ABSTRACT:

To date, the extant literature is very limited to provide linking knowledge management or intellectual capital with innovation, existing studies have derived their innovation processes from large companies' perspectives rather than SMEs. Different types of innovation will require different resources and, therefore, will need to be managed differently. Limited research has been aimed at identifying sources of innovation and the integration of innovation processes from a knowledge-based perspective (Grant, 1996). Although a fascinating array of innovation research has been carried out in the context of R&D issues and economic factors, it only looks innovation inside out but not outside in. The gaps between knowledge/innovation, larger/smaller firm’s perspectives and inside/outside innovation processes should be filled in to map a more comprehensive picture of the proposition. Therefore, this research is aimed to bridge these gaps through the identifying sources of innovation and the integration of internal and external supporting processes of innovation to accumulate innovation capacity and then to support innovation supply chain (Desbarats, 1999) from a knowledge-based perspective for SMEs.

Existing studies on innovation processes were reviewed and their limitations were identified. By integrating insights drawn from these studies as well as adding some new approaches, the author proposed an integrated KBI (knowledge-based innovation) model, which is believed to be more complete and practical for high-tech SMEs. The importance of the proposed model was theoretically discussed and justified through the case study in four high-tech SMEs from Taiwan. In addition, nine research propositions were proposed to link theories and practices for practitioners and future researchers. The modified integrated KBI model and propositions can act as a list of items for high-tech SMEs to address when adopting knowledge-based innovation. This helps to ensure that the essential issues and approaches are covered during implementation. For academics, it provides a common language for them to discuss and study the approaches crucial for the success of knowledge-based innovation in high-tech SMEs.

This study is probably the first to provide an integrated innovation model for implementing innovation in the high-tech SMEs under knowledge-based perspective. It gives valuable information, which hopefully will help high-tech SMEs to accomplish knowledge-based innovation for achieving sustaining innovation and value creation and then to achieve sustainable competitive advantage. The results of the study will benefit not only the construction of knowledge-based innovation framework, but also the business model transformation of competitive advantage.

Keywords: Knowledge management, knowledge-based innovation, high-tech, SMEs, innovation supply chain


1.         Introduction

1.1.      Background Of The Study

In response to the intensification of global competition, many firms throughout the world have developed international operation strategies to establish a worldwide production, distribution, and marketing network (such as Intel and Microsoft). Investments in globalization operation such as high-tech industry are frequently made due to the strategic benefits that they can bring (Markusen et al, 1986).

In the past ten more years, USA converges global outstanding talents to create and accumulate uncounted knowledge and then successfully transfer these knowledge into commodity. The success KM (Knowledge Management) strategy of USA undoubtedly declares twenty one century formally step into the era of knowledge economy. This thinking largely impacts on Taiwan high-tech firms, as they are long-term cooperating with USA high-tech industries. Therefore, Taiwanese high-tech firms all have seen knowledge as a maintainable and sustainable competitive advantage (Porter, 1990) and start to implement correct and effective development strategies, through knowledge management (KM) to bring sustaining innovation and value creation into organizational structure. During past twenty years, the most successful two high tech industries are ICT industries and semiconductor industries. These two industries represent Taiwan’s successful transformation from SME’s labor intensity to high-tech industrial capital intensity, technology intensity and knowledge intensity.

However, though the success of high-tech industry brings the growth of economy for Taiwan but it cannot resolve the real economic problems of Taiwan. Traditional industries to be withered, the raising of unemployed rate and the large shifting of industries to China, these problems maybe cause from Taiwan government too emphasis on high-tech industries, i.e. ICT (Information and Communication technology) industries, and ignore traditional industries especially is the SMEs, under this wrong concept, Taiwanese firms believe only ICT industries are just high-tech industries. Actually, high-tech could be applied in every industry. This policy causes SMEs increasingly decrease competitiveness and the situation of shifting out to Mainland China is very seriously.

According to past ten years of successful experiences for high-tech industries in Taiwan, the study believes "universalization of technology and knowledge", especially the totally raise the technology level of SMEs and upgrade and transform to knowledge enterprises is the unique way to make SMEs remain in Taiwan.

Currently, there are 98 per cent of industries are SMEs in Taiwan (SMEA, 2005), though SMEs have the advantage of management flexibility but they also have the dilemmas to raise capitals and lack of management talents to implement KM and innovation. Particularly, past SMEs are traditional industry, their management model are totally different to high-tech industry. Currently, more and more SMEs trend to high-tech industry, therefore, how to integrate SMEs and innovation management of high-tech industry is the future development directions and key points for Taiwanese SMEs in the study. Additionally, the study has also further explored the possibility for creating a knowledge-based innovation integrated model for high-tech SMEs to link theories and practices for achieving sustainable competitive advantage.

1.2.      Needs For The Study

In the era of dynamic competitive knowledge economy which emphasis on knowledge accumulation, diffusion and application, how to speed up industrial intellect capital to utilize for innovation and value-added, facilitate industrial knowledge transformation and knowledge industrialization, it has been the important issues and missions of whole industrial for worldwide countries.

According to the survey from IDC Taiwan, Taiwan industries all are highly emphasis on KM, there are 96% of industries, which interviewed by IDC view KM as important or very important management tool. Most of firms identify “knowledge” in the all value chain which constitute from R&D, design, manufacturing, marketing to after sale, its value contribution about 50%, but only 15% of firms identify them to reach the level of good or very good on developing knowledge for the effectiveness of innovation-value production. This shows Taiwan industries have already understood the importance of knowledge management but they are still not grope about how to propose concretive action to implement KM for innovation, the current situation is more clearly to Taiwanese firms--they are still learning how to impel KM to innovate.

In today’s highly competitive global business scenario, it is generally accepted that the sustainability of a firm’s competitive advantage will depend on its innovative capacity based on knowledge acquisition, integration and application (Pyka, 2002; Sveiby, 2001; Lang, 2001). The pressure to keep innovating is felt more by firms in high-tech sectors due to rapid technological change and shortening product and process life cycles. High-tech organizations are beginning to accept the inevitable challenge of coping with, and excelling in, knowledge-based innovation (KBI) as a means of remaining competitive. Many authors have pointed out that firms, especially those in high-tech sectors, need to respond quickly by adopting more innovative business models, innovation processes and a culture that fosters innovative behavior (Mosey et al., 2002).

While the importance of knowledge-based innovation is well established, there is still a need to develop an integrated perspective of various factors associated with knowledge-based innovation activities. Existing studies have derived their innovation processes from large company perspectives rather than the SMEs. Limited research has been aimed at identifying sources of innovation and integrating supporting processes of innovation from a knowledge-based perspective for SMEs (Sveiby, 1997). The major aim of this research is to identify sources of innovation and integrating supporting processes of innovation to accumulate innovation capacity from a knowledge-based perspective for high-tech SMEs.

In this context, high-tech firms, especially the high-tech SMEs, face a major dilemma as to the type of strategic orientation that should be adopted in order to promote innovative capacity. Policy makers at the national level would also like to see whether specific knowledge-based innovation patterns exist so that appropriate support policies could be developed to foster the emergence of desired patterns. Thus, it appears that there is a need for pursuing research in identifying the key issues that influence knowledge-based innovation, with emphasis on high-tech SMEs.

1.3.      Research Problems Of The Study

Based on the above research backgrounds and needs, the most important issue will be which sources of innovation and supportive processes of innovation are necessary to integrate for leveraging innovation capacity in high-tech SMEs in order to achieve sustainable competitive advantage? The study aims to explore nine research problems as follows:

1.                  Which sources of innovation can be used to leverage innovation capacity for high-tech SMEs?

2.                  What is the most important source of innovation in high-tech SMEs?

3.                  Which enablers of internal supporting processes of innovation are necessary to enhance innovation in high-tech SMEs?

4.                  Which enablers of external supporting processes of innovation are necessary to enhance innovation in high-tech SMEs?

5.                  How can sources of innovation, and the internal and external supporting processes of innovation, be integrated to facilitate continuous innovation in high-tech SMEs?

6.                  How can this understanding be extended to include the entire innovation supply chain to maintain sustainable competitive advantage for high-tech SMEs?

7.                  How SMEs integrate sources of innovation, internal and external supporting processes of innovation, and innovation supply chain to create a business model for maintaining sustainable competitive advantage for high-tech SMEs?

8.                  What is the advantage of KBI model of large SMEs can be used to assist small SMEs to implement knowledge based innovation initiative?

9.                  What is the advantage of KBI capacity of small SMEs can be used to assist large SMEs to improve their KBI model?

1.4.      Research Objectives Of The Study

Based on the above research problems, this research would explore mainly on the core innovation capacity (IC) of high-tech SMEs in Taiwan and to identify processes that can support their innovation. The objective is to find the ways on how the Taiwanese high-tech SMEs could accumulate core IC, and integrates sources of innovation and supporting processes of innovation for future competitive advantage. Therefore, the main aims of this research are:

Ø      Identify sources of innovation, and internal and external supporting processes of innovation for high-tech SMEs.

Ø      Explore how innovation capacity can be successfully accumulated in high-tech SMEs, through leveraging innovation sources and processes to foster a culture of continuous innovation with a view towards achieving sustainable competitive advantage.

Ø      Based on the findings of items 1-2, develop an integrated knowledge-based innovation model for high-tech SMEs.

Ø      Based on the model, investigate the supporting processes of innovation management in Taiwan, through the conduct of case studies, and put forward exploratory ideas that could assist in creating a blueprint for deepening Taiwan’s innovation reforms and for supporting sustaining innovation in high-tech SMEs.

Ø      Develop an innovation supply chain model for high-tech SMEs to link core innovation system and to support sustaining innovation with their overseas branches and partners.

Ø      Integrate sources of innovation, internal and external supporting processes of innovation, and innovation supply chain into an integrated innovation model for high-tech SMEs.

Ø      Adopt the knowledge already available on KBI management in both large and small high-tech SMEs to examine how to integrate sources and supporting processes of innovation under knowledge-based perspectives.

Ø      Identify the advantage of KBI theories and practices of large SMEs to assist small SMEs to implement knowledge based innovation initiatives.

Ø      Identify the advantage of KBI theories and practices of small SMEs to assist large SMEs to implement knowledge based innovation initiatives.

Ø      Compare advantage and disadvantage of KBI model for both large and small high-tech SMEs to assist each other to improve and create an optimal KBI model for them to maintain sustainable competitive advantage.

2.         Literature Review

This chapter provides a comprehensive review of the literature. The initial part examines the corporate values, visions and missions (Scott et al., 1993; Stone, 1996), basic definition of innovation, various perspectives of innovation, key elements of effective innovation management, sources of innovation (Leonard-Barton, 1995; Drucker, 1985; Miles, 1994; Von Hippel, 1988). This is followed by an examination of the literature on innovation capacity (Szeto, 2000), knowledge-based innovation, and knowledge and innovation in high-tech industries (Sveiby, 1994). The third part of the literature review then presents a summary of literature related to the link between KM and innovation (Nonaka & Takeuchi, 1995). The last part then looks at supportive processes of innovation and introduces the concept of the innovation supply chain (Desbarats, 1999; Sciquest, 2004; Taiwan Economic Daily, 2003). Debate while there exists considerable literature on innovation management and KM, the literature that examines the link between the two is somewhat limited (Daniel, 2002; Carneiro, 2000; McNaughton, 2002).

Today, one of the challenges facing high-tech SMEs is on finding ways and means to achieve sustainable competitive advantage through sustaining innovation. Thus, knowledge-based innovation (KBI) that links innovation management and KM is an area of great importance to high-tech SMEs since it can help to foster competitive advantage (Salavou et al, 2004). Firstly, the study will identify “what does a knowledge-based innovation constitute?” Given the universal role of the Internet, electronic commerce/ e-business and communication technologies as the main drivers of innovation and knowledge strategies, it seems a good chance to connect the two strands of thinking behind KM and innovation.

To establish possible integration of framework, this study explores the linkages between KM and innovation to shed light on how they can be drawn closer. The actions associated with managing the flow and use of knowledge in an innovation process is another core component (Amidon, 1997), it means KBI covers a diverse range of management issues (e.g. knowledge management and innovation, technology innovation (Teece, 1986; 1996; Twiss, 1992), managing and organizing innovation, and cultivating innovation culture (Martins, 2003); open source innovation (Ulhøi, 2004; Rigby & Zook, 2002), cooperation innovation (Von Stamm, 2004), innovation networks and e-knowledge networks (Warkentin et al, 2001)).

A definition needs to be specified to put in perspective of its impact on firm itself and its suppliers, customers, partners and competitors. Besides, the study want to identify the key elements that underscore the critical importance of knowledge and the associated management actions required for innovation. Due to these objectives, this study aims to contribute a more profound understanding and more comprehensive picture on the management of KBI.

3.         The Development Of Integrated Innovation Model And Research Methodology

This chapter describes the construction of the integrated innovation model (Figure 1) and the research design of the study including two-phased design and each is with distinct methodology. According to literature review, the study develops a conceptual integrated innovation model for high-tech SMEs to fit the research objectives of the study The integrated innovation model includes corporate values, visions and missions, sources of innovation, innovation capacity, internal and external supporting processes of innovation and ISC (Innovation Supply Chain).

First, initial questionnaire guide of interview was sent to 50 high-tech SMEs (Hecker, 1999) in Taiwan to select four companies to be case study for this research. Second, in-depth interviews with senior managers/ directors from four selected high-tech companies were used to collect data. This research adopts case study (Yin, 1994) to assess actual sources of innovation and determinants of internal and external supporting processes of innovation and how they can be leveraged to accumulate innovation capacity to the decision to implement an innovation management in the context of the high-tech SMEs for achieving sustaining innovation and value creation and then to reach SCA (sustainable competitive advantage). The completed questionnaire, company reports/industry-specific newsletters and an in-depth interview created an established chain of evidence.

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Figure 1: An Integrated Model Of Knowledge-Based Innovation For High-Tech SMEs


4.         Data Analysis For Case Studies

This chapter implements the data analysis for case studies in four high-tech firms in Taiwan, all interviews undertaken are recorded and transcribed. The transcripts are then coded with concepts and transformed and simplified in order to facilitate display, analysis and comparison. The coding is revised and developed as the research progressed. Displays are developed for the different concepts, summarizing the response of each respondent and allowing cross-case analysis.

The study summarized the finding of case studies as follows:

Ø      The sources of innovation identified in the case studies are customers, suppliers, partners and employees for smaller high-tech SMEs, and to increase competitors, research institute and academics for larger high-tech SMEs. Customer needs is the most important innovation source for high-tech SMEs to accumulate innovation capacity.

Ø      The innovation determinants identified in the case studies include knowledge innovation, technology innovation, managing and organizing innovation (Johannessen et al, 1999), and the cultivating innovation culture for the internal supporting processes of innovation, and the open/sources innovation, cooperation innovation, innovation network and e-knowledge network for the external supporting processes of innovation.

Ø      Efficient innovation management for high-tech SMEs involves a successful integration of both internal and external supporting processes of innovation that facilitates the innovative processes of products and services to the consumers at the right time and right place in accordance with consumer needs.

Ø      Two smaller SMEs (Case A and Case B) have implemented part of integration of supporting processes of innovation (one-sidedly emphasize to internal supporting processes). Two larger SMEs (Case C and Case D) have implemented full of integration of supporting processes of innovation (two-sidedly emphasize to internal and external supporting processes).

Ø      Two larger SMEs (Case C and Case D) have recognized the ISC could guarantee reliability, flexibility, and scalability for SMEs. ISC also can help SMEs to get inter-connected with all relevant parties in the commerce process and extend the reach of business to the global market.

Ø      All of these case study companies have constructed a core innovation system through integrating both internal and external supporting processes of innovation. It fills the gaps of knowledge/innovation and internal/external supporting processes of innovation and to map a more comprehensive picture of the propositions.

Ø      All of these case study companies have recognized SMEs can accumulate innovation capacity through leveraging innovation sources, internal and external supporting processes of innovation.

Ø      Two larger SMEs (Case C and Case D) have recognized the synergies for inter-link between the determinants of both internal and external supporting processes of innovation and this can synergize the innovation capacity.

Two larger SMEs have constructed complete ISC systems to assist in the forming and improving of sustaining innovation. However two smaller SMEs have only constructed partial ISC.

All of these case study companies have recognized the link between core innovation system and ISC can form a cyclic sustaining innovation and achieve sustaining innovation and value creation and then to reach sustainable competitive advantage.

5.         The Modified Models And Propositions

5.1.      The Modified Models

This chapter presents two modified models (Figure 2 and 3) for smaller SMEs and larger SMEs and some useful and valuable propositions for academics and practitioners. They are due to the analysis and results of the case studies which deriving from company information (such as profiles and company websites), interview questionnaires, in-depth interviews, cross case analysis and the comparison of fours case studies, and interpret the results from qualitative data.

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Figure 2: The Modified Integrated Innovation Model For Smaller SMEs 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 


Figure 3: The Modified Integrated Innovation Model For Larger SMEs

Note: KI= Knowledge Innovation, TI= Technological Innovation, M&O I= Managing& Organizing Innovation, CCI= Cultivating Culture Innovation, OI= Open source/ market Innovation, CI= Cooperation Innovation, IN= Innovation Network, EKN= E-Knowledge Network

The integrated model can be an easy-to-follow innovation model for high-tech SMEs to address when adopting knowledge-based innovation. This helps to ensure that the essential determinants and approaches for innovation process are covered during sources of innovation, internal and external innovation processes to innovation supply chain. For industries, it provides a practical and complete business model for them to be reference and study the innovation approaches (the advantage and disadvantage), which are crucial for the success of knowledge-based innovation in high-tech SMEs.

5.2.      Research Propositions Of The Study

According to the findings of case studies and above comparisons between smaller and larger SMEs and two modified integrated innovation models, the study proposed one main research proposition (RP) and ten sub research propositions for future researchers and practitioners as follows:

RP: High-tech SMEs through leveraging innovation sources and internal and external supporting processes of innovation to accumulate innovation capacity and construct a core innovation system, and through the linkage and support between core innovation system and ISC to achieve sustaining innovation and value creation and then reach sustainable competitive advantage.

RP1: Customer needs is the most important innovation source for high-tech SMEs to accumulate innovation capacity and support both internal and external supporting processes of innovation.

RP2: Smaller high-tech SMEs could implement partial integration for internal supporting processes of innovation (the integration of knowledge innovation and technology innovation; the integration of managing & organizing and cultivating innovation culture) to reach partial synergy and enhance innovation capacity.

RP3: Smaller high-tech SMEs could implement partial integration for external supporting processes of innovation (the integration of open-source innovation and cooperative innovation; the integration of innovation network and e-knowledge network) to reach partial synergy and enhance innovation capacity.

RP4: Larger high-tech SMEs have a good linkage (cross and inter-linkage) between knowledge innovation, technology innovation, managing & organizing and cultivating innovation culture for internal supporting processes of innovation to reach cyclic synergy and enhance innovation capacity.

RP5: Larger high-tech SMEs have a good linkage (cross and inter-linkage) between open-source innovation, cooperative innovation, innovation network and e-knowledge network for external supporting processes of innovation to reach cyclic synergy and enhance innovation capacity.

RP6: High-tech SMEs through leveraging innovation sources and both internal and external supporting processes of innovation can accumulate innovation capacity and construct a core innovation system to link and support ISC.

RP7: Smaller high-tech SMEs through integrating research, development, design/ engineering, marketing and distribution to construct a partial integration of ISC.

RP8: Larger high-tech SMEs through integrating research, development, design, manufacturing (outsourcing), marketing and distribution to construct a complete integration of ISC.

RP9: High-tech SMEs through the linkage and support between core innovation system and ISC to construct an integrated KBI model to reach sustaining innovation and value creation and form a cyclic synergy and then achieve sustainable competitive advantage.

RP10: High-tech SMEs through KBI model to create four relationships assets for value creation, both internal and external. Having a good product or service at a competitive price is not enough. Outstanding employees, efficient suppliers and supply chains, and trusted partners are critical to create competitive differentiation and long-term survival. Satisfying customers is the source of sustainable value creation. Strategy requires a clear articulation of targeted customer segments and value proposition required to please them. These assets are the most valuable and goals should be established to leverage and manage them most effectively.

The propositions can act as a list of items for high-tech SMEs to address when adopting knowledge-based innovation. This helps to ensure that the essential issues and approaches are covered during ideas, concepts, implementation and commercialization. For academics, it provides a common language for them to discuss and study the approaches, which are crucial for the success of knowledge-based innovation in high-tech SMEs for future research.

6.         Conclusions And Recommendations

The study contributions an integrated innovation model and some useful propositions for high-tech SMEs under knowledge-based innovation theory lens, also, it provides valuable insights and recommendations for the owners/ managers in SMEs, academics and practitioners for future research. The integrated innovation model is to assist high-tech SMEs to leverage sources of innovation, internal supporting innovation processes and external supporting innovation processes to accumulate innovation capacity and link to innovation supply chain to form a cyclic sustaining innovation to be the main impellers of high technology industrial innovation for achieving sustainable competitive advantage. According this integrated innovation model, the study proposed one main research proposition and ten sub research propositions for practitioners in high-tech industries and future researchers.

The study suggests high-tech SMEs to utilize the knowledge-based innovation then the company has about itself and its customers, partners and suppliers, and applying it to the marketplace. Then, these companies, even if very small, have the opportunity to outmaneuver all bigger players and come in ahead of last year's champions. For the limited resources, personnel and monetary, high-tech SMEs especially need to construct their knowledge-based innovation framework step by step and to integrate innovation sources and supporting processes to accumulate innovation capacity and therefore to form corporate core competence to maintain sustainable competitive advantage. Furthermore, due to the integrated innovation model and propositions, the study suggests the future researchers are able to do the empirical study for more high-tech SMEs to obtain a generalization results in specific high-tech industries. Also, the integrated innovation models and propositions can be used to do case study or empirical study for the other SMEs.

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Contact the Author:

Dr Te Fu Chen, Assistant Professor, Department of International Business, Ching Yun University, Taiwan; PhD, School of Management, University of Western Sydney, Australia; Email: phd2003@gmail.com