Engaging Small Businesses in Innovation: Building Absorptive Capacity through ‘R&D Clubs’

Summary Small businesses in Australia tend to perform poorly on R&D and innovation, due to limitations on their absorptive capacity and a lack of resources. Network organizations, such as ‘R&D clubs’, are one means through which the absorptive capacity and innovation capability of small businesses can be improved. Such clubs can assist member firms with new knowledge exploration and new knowledge exploitation, the key elements of a strategic innovation capability. Five case studies of R&D clubs in Australia are examined with a focus on their approaches to developing the innovation capabilities of their members. The network organizations studied offer a medium to facilitate the development of social capital among their participants, and this increases the diffusion of information, creates higher levels of trust, encourages cooperative behaviour and facilitates learning and innovation. Industry members of each of the clubs have different levels of innovation capability, ranging from ‘unaware/passive’ to ‘strategic’ approaches to innovation, and this is reflected in the conditions for collaboration and the types of research project pursued. In building the absorptive capacity and innovation capability of their members, all of the case study clubs adopted ‘broadcast’ methods to raise awareness, offered ‘agent-assisted’ mechanisms to help members assimilate and exploit new knowledge, and provided ‘peer-assisted’ opportunities to learn about innovation and its benefits. The case study findings emphasize the importance of linkages and agents in helping to build the absorptive capacity of network members, and show how social capital underpins ‘peer-assisted’ capacity-building approaches. While ‘e-Collaboration’ has more recently been advocated as a key means to improve the performance of smaller firms, we conclude that direct social interaction is necessary to build effective communication, common understandings, resilient trust and the interpersonal relationships that facilitate the sharing of information and organizational learning.