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Knowledge Management, Knowledge Creation, and Open Innovation in Icelandic SMEs:

Knowledge Management, Knowledge Creation, and Open Innovation in Icelandic SMEs: The aim of this article is to present findings on knowledge management (KM) and knowledge creation, as well as open innovation in small and medium-sized enterprises (SMEs) in Iceland. Two SME company case studies are presented in the form of a case study involving semistructured interviews with managers and selected employees and in-field observation. Company Alpha is a software company, whereas Company Beta is a family company which produces drinks and snacks. Knowledge creation and innovation is a learning process in both companies. The two companies show very different open- innovation models in practice. The findings regarding the two companies are in accordance with the arguments of Chiaroni et al., where they state that high-tech companies tend to prefer inside-out strategies of open innovation, whereas low-tech companies prefer outside-in strategies. Company Alpha relates to customers late in the process, whereas Company Beta relies on knowledge from customers and suppliers and for new knowledge early on in the process. Keywords knowledge, knowledge creation, open innovation, SMEs, case studies, Iceland 2005). Thus, refreshing a company’s products, processes, Introduction and its very market or brand image may be a powerful incen- To strengthen their innovation potential, companies need to tive toward innovative and creative ways of approaching increase investment devoted to knowledge creation and situations and solving problems (Ueki, Ueki, Linowes, & innovation, so they can build new products, services, or pro- Mroczkowski, 2011). Traditionally, innovation was seen to cedures. Significant research has been conducted in this con- take place within a single company; companies managed text emphasizing the connection between knowledge innovation mainly by utilizing their own techniques and accumulation and its management on one hand, and novel resources to create innovative goods within their research business ideas and practices on the other. It has been widely facilities (Lee, Park, Yoon, & Park, 2010; Wynarczyk, 2013). recognized by researchers that there is a deep-seated positive Open innovation, in contrast, refers to the inflow of knowl- correlation between knowledge management (KM) and edge from both the company itself and its customers and innovation in business operations (Miller & Morris, 1999; sales representatives on the external market which may act as Nonaka, 1991; Nonaka & Takeuchi, 1995; Sankowska, 2013; powerful forces for promoting new products and venturing Wang & Wang, 2012). into untested market sectors. It is by no means easy to arrive New knowledge is frequently engendered by innovative at a precise definition of such a loose term as open innova- concepts or urgent needs, either arising within the company tion, although vast research is available on the subject, espe- itself or emanating from external market pressures. Thus, cially in larger, technological companies (Chiaroni, Chiesa, novel and creative perspectives often find their way into a & Frattini, 2011; Lee et al., 2010). firm through external forces dominating the market or by way of cooperation with academic establishments and research laboratories (outside trends and pressures), or alter- natively, they may arise as a result of the originality and University of Iceland, Reykjavik, Iceland inventiveness of company staff, for example, because of Corresponding Author: pressure from customers, competitive disadvantages, altera- Ingi Runar Edvardsson, School of Business, University of Iceland, Gimli, tions in law which may affect company products or proce- 101 Reykjavik, Iceland. dures (Daft, 2007; Hughes, O’Regan, & Sims, 2009; Sparrow, Email: ingire@hi.is Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open KM has been defined by Edvardsson and Oskarsson Research Question 2: How are customers and other (2013) as: “developing, sharing and applying knowledge external stakeholders involved in the innovation process? within the organisation to gain and sustain a competitive advantage” (p. 13). Moreover, they argue that the “KM lit- The layout of the article is as follows: The next section erature has focused on internal processes, such as knowledge contains aspects pertaining to theoretical considerations, fol- transfer, knowledge sharing culture, organizational learning, lowed by a methodological section. Findings are then pre- ICT etc., to enhance productivity and sales, lower cost, or sented and, finally, conclusions. increase innovation and quality.” KM, especially, within large corporation has been the subject of wide-ranging Theoretical Background research. It would appear, however, that researchers have not been excessively attracted to corporate size and thus tended KM to look past SMEs which undeniably also deserve their atten- tion (Durst & Edvardsson, 2012; McAdam & Reid, 2001). KM is, as already noted, focuses on knowledge creation and Knowledge accumulation, management, and utilization applications inside a corporate entity for the purpose of may be classified in a variety of ways, for example, collect- strengthening its position on the market (Davenport & ing or registering data, packing knowledge in user-friendly Prusak, 1998; Edvardsson, 2009; Jashapara, 2011; formats (data cleaning, formatting, and indexation), as well Lichtenthaler & Lichtenthaler, 2009). Companies have made as distribution and reprocessing (Markus, 2001). During the extensive use of KM to improve various aspects of their above processes, novel aspects of knowledge and opportuni- operations, facilitate decision making, stimulate innovation, ties for its use may come to light as a result of knowledge and enhance productivity (Edvardsson, 2006). adaption and organization. The fundamental emphasis of this Hansen, Nohria, and Tierney (1999) have identified two article is on the ways knowledge is engendered and created, fundamental strategies for administering knowledge within as well as paying close attention to the character of open a corporation, that is, “codification” and “personalisation.” innovation; hence, other aspects of the KM process will not The first refers to the codification of formal and objective be dealt with further. explicit knowledge that relates to words, numbers, and The engendering of knowledge is described as an ongoing specifications and is generally accessible in data bases for procedure by which knowledge comes into existence through the use of company staff. With the successful use of latest cooperation or individual effort and is refined and enhanced technologies in the field of intranets, data mining, knowl- within a corporate system (V on Krogh, Nonaka, & Rechsteiner, edge mapping, and electronic libraries, companies can 2012). streamline their operations to improve their competitive- Knowledge creation can be seen as the starting point of ness. Hansen et al. (1999) write, “The reuse of knowledge both KM and innovation. A recent literature review indicates saves work, reduces communications costs, and allows a that there is little research on knowledge creation in SMEs company to take on more projects” (p. 110). The uses of (Massaro, Handley, Bagnoli, & Dumay, 2016). Growing knowledge described above are akin to exploitative learn- number of studies have shown that KM strategies could play ing, through which firms can improve their performance in a significant role in enhancing innovation. However, there a safe and effective manner (Clegg & Clarke, 1999). are limited researches on the relationship between KM strat- Personalization strategy relates to an individual’s tacit egies and innovation (Yousif, Al-Hakim, & Hassan, 2013), knowledge, often shared through personal contacts, where especially, on the role of KM for the implementation of insights and intuition can play a major role in solving com- open-innovation practices (Martinez-Conesa, Soto-Acosta, plex problems (Clegg & Clarke, 1999). Personalization & Carayannis, 2017). Furthermore, only a few recent studies strategy seeks to create interaction and sharing of tacit have analyzed open innovation in the specific context of knowledge among employees in the company (Meroño- SMEs (Laursen & Salter, 2006; Lee et al., 2010; Spithoven, Cerdan, Lopez-Nicolas, & Sabater-Sánchez, 2007), often Vanhaverbeke, & Roijakkers, 2013; Van de Vrande, De Jong, through person to person communication, the mediation of Vanhaverbeke, & De Rochemont, 2009). earlier learning, and shared work practices. This kind of In light of the current situation of limited knowledge on knowledge often takes the form of highly developed exper- the relationship between open innovation, KM, and knowl- tise which can be used to deal with unique problems where edge creation in SMEs, this article has the aim of presenting a creative approach is needed, for example, in the field of findings on these processes in SMEs in Iceland. Two case strategy consulting. Personalization and explorative learn- studies will be introduced in this context to answer the fol- ing often go hand in hand, sharing common characteristics lowing questions: such as research-based innovation, relaxed controls, and readiness to take a certain degree of risk. Key concepts here Research Question 1: How do Icelandic SMEs deal with are flexibility and emphasis on research and learning to knowledge creation, knowledge sharing, and storage? develop new skills and abilities (Clegg & Clarke, 1999). Grimsdottir and Edvardsson 3 resorting to established routines, whereas more advanced Knowledge Creation cognitive learning will focus on creating original methods Knowledge creation has been assessed in terms of a 3-fold and modes of thinking and doing which may engender impor- classification, that is, process, volume, and end result tant innovation in corporate functions (Spicer & Sadler- (Mitchell & Boyle, 2009). The process aspect evaluates Smith, 2006). According to Garvin (1993), firms that focus stages of producing innovative knowledge, such as the appli- on learning specialize in stimulating innovative knowledge cation of figurative terms in which to render external knowl- by emphasizing frequent experience in facing and solving edge. In terms of volume, knowledge generation is measured problems, testing new methods, benefiting from experience, with a view to its immediate product which generally and communicating knowledge to colleagues. Management involves considerable addition to current knowledge, for should encourage employees to ask questions, debate and example, through the presentation of novel concepts. The challenge diverse opinions, engage in collaborative problem end result of knowledge generation focuses on a specific solving, and learn and remain alert to opportunities for inno- value-added process or article such as improved services, vative approaches leading to knowledge creation. Indeed, replacement of inefficient routines, or an enhanced proto- increased interest has been noted in the role of managers in type. All these stages are of course inseparable from the con- the process of knowledge accumulation and transfer cept of innovation. (Thompson & Heron, 2005). According to Berraies, Chaher, The routes to knowledge creation can take many and and Yahia (2014), managers are often in an ideal position to diverse forms. Nonaka and Konno (1998) and Nonaka, promote the ideology which leads to an upward curve of Toyama, and Konno (2000) see the interaction between tacit improvement and knowledge creation. It is, therefore, of and explicit knowledge as coming about by means of social- utmost importance that managers should develop and main- ization, externalization, combination, and internalization tain the mode of leadership which stimulates employees and (SECI), leading to new and enhanced levels of knowledge. enables them to freely express their individualism. The literature sees learning and knowledge generation Collaborative learning is thought to be a fundamental more or less as two sides of the same coin. Kolb (1984) argues prerequisite for energizing knowledge creation by that the basic function of learning is creating new knowledge, enabling employees to benefit from knowledge of diverse generated by a profound understanding and transmutation of origin and character. Shared knowledge evolves by means experience. Argyris (1999) maintains that organizational of constant communication and exchange of opinions learning consists in identifying errors and putting them right. among employees working together toward a shared goal. For this to happen, it is of course necessary to properly under- The groups stimulate critical modes of thought by chal- stand the cause of the error in question, as well as being able lenging current solutions and premises and by suggesting to formulate how it should be corrected. In this manner, firms alternatives (Hedlund, 1994; Jakubik, 2008; Nejatian, can turn experience into a learning process and resort to the Nejati, Zarei, & Soltani, 2013). Cooperation is mostly proper measures to prevent reoccurrence of an error or over- organized and administered through corporate initiatives. sight. Such circumstances, as pointed out by Allard (2003), However, knowledge generation often occurs spontane- often spring from an urgent problem whose solution can only ously as a result of communication and cooperation among be achieved through the creation of new knowledge. individuals or task groups where persons with a variety of According to Nonaka and Takeuchi (1995), knowledge cre- specializations discover opportunities for practical inno- ation often occurs as a result of two kinds of learning which vation concealed within a project (Nonaka & Takeuchi, supplement each other, that is, learning how to deal with 1995). Teamwork has proven to be an economic engender dilemmas arising from current conditions and subsequently innovative knowledge and to build a basis for intelligent creating a new set of conditions where the dilemmas do not working procedures and further education among employ- occur. Ueki et al. (2011) maintain that if company staff are ees (Awad & Ghaziri, 2004; Szarka, Grant, & Flannery, presented with challenging situations and trained in develop- 2004). ing appropriate solutions this will stimulate corporate knowl- edge creation. The types of knowledge-enhancing situations Knowledge Creation in SMEs in question may involve interdepartmental development tasks, job rotation, various aspects of career advancement, SMEs often tend to be low-power hierarchies, characterized teamwork, and learning through the medium of the Internet. by an egalitarian mode of management which can act as a An organization’s success and ability to innovate and evolve stimulus to originality and creative enterprise; there is an air novel work practices depends on its capacity for mastering of informality with few rules, and bureaucracy is kept to a complex cognitive learning processes, whereas simpler and minimum. Often the owner is practically the sole agent of more basic learning routines tend to exercise a restrictive supervision and control (Daft, 2007). In some respects, the influence on knowledge creation and work practices. Simpler structure of SMEs is more flexible and adaptable than that of forms of learning involve responding to the everyday demands larger corporations; SMEs have fewer employees who tend of internal or external circumstances by automatically to work together more closely. This often makes it easier to 4 SAGE Open respond positively to innovation, not least because of a and outflows of knowledge to accelerate internal innovation, coherent small company culture, relatively simple structures, and to expand the markets for external use of innovation, and direct communication with managers. The main draw- respectively” (p. 15). Three open-innovation practices are backs of SMEs, however, often relate to their limited experi- commonly mentioned in the literature: outside-in process, ences, insufficient technical manpower, and financial inside-out process, and couples processes. Wynarczyk (2013) restrictions, all of which can act as barriers to innovation and explains these concepts in the following manner: knowledge stimulation. SMEs are less hierarchical which The “outside-in” process is based on the assumption that the firm means that managers are nearer to the operational functions, adds to its own knowledge-base through inter-firm linkages with often close to their markets and thus apt to have a better suppliers, customers and/or collaboration with other external understanding of their operational circumstances than large institutions (e.g. universities). The “inside-out” process refers to corporations with far-flung operations (Wong & Aspinwall, generating and accelerating profits by transferring innovative ideas 2004). As referred to above, the control of SMEs tends to be to market, through, for example, selling or licensing out intellectual informal and personal, often emanating from the owner/man- property (IP). Enkel et al. (2009) argue that this form of open ager (Daft, 2007). Also, decisions can be made more swiftly innovation enables firms to reap the benefits of their innovative due to their smallness and simple, flexible management ideas at an earlier stage rather than attempting to translate them structures (Culkin & Smith, 2000; Wong & Aspinwall, 2004). into new products themselves. The “coupled process” refers to Due to limited access to resources, SMEs often need to partnership or “co-creation” with (mainly) complementary rely on secondhand knowledge (e.g., trade, academic and partners through, for example, supply chain, clusters, alliances, co-operation, and joint ventures. (pp. 260-261) professional journals, conferences and research within their own industrial or business sector) or through person to per- Studies show that open innovation is a positive factor for son communication. Only a small portion of the human SMEs to overcome their challenges and increase their profit- resources within an SME can be devoted to the gathering and ability (Gassmann, Enkel, & Chesbrough, 2010) as in gen- analysis of knowledge; mostly, this would be the function of eral, SMEs lack both organizational and technical skills for managers who, however, also have many other tasks to han- their effectiveness (Rahman & Ramos, 2010). Studies also dle (Lowik, van Rossum, Kraaijenbrink, & Groen, 2012). indicate that larger companies use open innovation more Thus, SMEs are more likely to depend on procedures such as than smaller companies, although the latter have a lot to gain meetings with suppliers and customers, rather than undertak- from this to compensate for limited resources and insuffi- ing more formal, expensive, and systematic knowledge cient market research (Huizingh, 2011; Wynarczyk, 2013). acquisition activities (Cegarra-Navarro & Martínez-Conesa, According to some scholars, SMEs gain more from open 2007). Given those internal resource constraints to which innovation than larger firms because SMEs are less devolu- many SMEs are exposed, external knowledge sources may tion of authority, are more risk takers, and can react quickly be assumed to have a critical role in terms of knowledge cre- to changes in the business environment (Hossain, 2015). ation (Egbu, Hari, & Renukappa, 2005) as SMEs seem to Open innovation practices in SMEs seem to be more com- look more outwards for sources of innovation (Desouza & mon in the later stages of innovation, especially, when pre- Awazu, 2006). A recent case study from Singapore showed paring for the actual commercialization of new products or that the search for and acquisition of new knowledge was practices. Employee characteristics may matter for open almost exclusively undertaken by an SME owner on whose innovation as the adoption of strategies regarding open capability and resources the company had to rely in matters source software supply is likely to be facilitated by a univer- of data and knowledge relating to the industry in question sity-educated workforce. Open innovation seems, moreover, (Wee & Chua, 2013). Durst, Edvardsson, and Bruns (2013) more likely in situations characterized by globalization, new investigated knowledge creation undertakings in small business models, technological intensity, and turbulence German construction companies and identified external (Huizingh, 2011). impact on knowledge generation. The researchers also found Chiaroni et al. (2011) argue that low-tech industries pre- that although managing directors make use of external fer outside-in strategies of open innovation, whereas inside- knowledge of varying origin, they seem to emphasize the use out strategies are far more common in high-tech companies, of reliable knowledge sources. The results of this study con- in addition Van de Vrande et al. (2009) discovered that tribute to the rather insufficient research on the topic of medium-sized companies practice open innovation to a knowledge generation in SMEs. greater extent than smaller companies and utilize open inno- vation for market-related motives or for keeping up with Open Innovation in SMEs competitors. SMEs face unique challenges for innovation (Hossain, 2015) which include lack of resources, structure of No consensus exists as to the precise meaning of the concept the company, complications regarding scientific field and “open innovation” (Chiaroni et al., 2011). However, the defi- access to latest scientific developments (Abouzeedan, nition by Chesbrough (2003) has gained popularity, where he Klofsten, & Hedner, 2013). SMEs are less active than large explains open innovation as “the use of purposive inflows Grimsdottir and Edvardsson 5 firms in open innovation because of their particular charac- were chosen according to size and nature of operations. teristics such as culture and strategy (Hossain, 2015). Also, Previous research on SMEs has shown that company size they face challenges that are related with external factors, does have an impact on formal strategy, decision making, such as venturing, customer participations, networking, formalization, and KM practices (Edvardsson, 2009). The development and outsourcing (Van de Vrande et al., 2009). chosen companies were also prominent in innovations and According to Laursen and Salter (2006), SMEs that are more innovation activity. open to external sources are more likely to succeed in inno- Six interviews were conducted with managers and key vation. Networking can be a useful way to facilitate open employees in the KM, knowledge creation, and open- innovation among SMEs and to focus to both formal and innovation process, three in each company. The interviews informal relationships with stakeholders (Lee et al., 2010; were recorded and transcribed; field notes were also taken. Padilla-Meléndez, Del Aguila-Obra, & Lockett, 2013). Other documentation relating to the companies, address- According to Theyel (2013), SMEs prefer networking with ing relevant issues were also examined, as well as the customers rather than suppliers. companies’ web pages. Data collection took place in April A culture that acknowledges and encourages learning and to October 2015. Interview duration was 60 to 90 min. creativity and emphasizes motivation for collaboration and Observation in the companies was used to gain insight knowledge openness is essential for open innovation (Csath, into the work environment and to formulate a comprehen- 2012). Openness can be a managerial challenges in SMEs as sive understanding of the phenomena under study. It it requires some higher order management capabilities to improved the quality of the data collection and interpreta- coordinate external knowledge flow within the company’s tion and facilitated the development of new research ques- internal innovation activities (Brunswicker & Vanhaverbeke, tions. Field note framework was developed and written in 2015). Such managemnet skills are needed so that the knowl- reports. Other documents related to the companies and edge can be organized and adapted to achieve the company addressed relevant issues on KM, knowledge creation, innovation strategy (Robertson, Casali, & Jacobson, 2012). and open innovation were also examined, as well as the company web pages. Document analysis provided data which supported the lines of data coming from interviews Methodology and observations. This research uses qualitative methodology and is designed Qualitative case study data analysis commences as soon as as a case study (Eisenhardt, 1989). A qualitative research researchers begin assembling data from the case under inves- design was chosen as we are dealing with complicated little- tigation (Merriam, 1998; Miles & Huberman, 1994; Stake, known phenomenon. A case study was chosen because the 1995). This case study, contained two stages of analysis: phenomena under study consist of iterative activities which within-case analysis and cross-case analysis. The within-case makes this a viable approach. Because of limited KM, analysis involves detailed write-ups for each case, resulting in knowledge creation, and innovation in SMEs in Iceland, this strong familiarity with each case which, in turn, facilitated approach enables a more contextual assessment of social comparison between different cases. The analytical process of phenomena in real-life contexts (Yin, 1994) and insufficient data started alongside data collection to find emerging themes, prior research means that themes and patterns need to be the process of making meaning out of the data (Merriam, located rather than confirmed (Edmondson & McManus, 1998). After transcription of each interview and observation, 2007; Eisenhardt, 1989). This exploratory research consists notes were read thoroughly to see which codes and themes of two case studies in SMEs in Iceland. To identify relevant emerge from the data. The researchers used codes to classify a cases for the study, the authors utilized nonprobabilistic sam- series of otherwise independent events, statements, and obser- pling which is acknowledged as the most appropriate strat- vations collected from the data (Charmaz, 2014). First, open egy in qualitative research designs (Merriam, 1998). The coding was applied where concepts are established, and their most common form of which is the purposeful sample strat- attributes and characteristics are identified in data. During egy (Patton, 2002), which was used to select cases for this open coding, the data are separated into discrete parts, ana- research. The motive behind purposeful sampling relates to lyzed in depth, and similarities and differences noted (Strauss selecting “information-rich” cases, providing an in-depth & Corbin, 1998). Step 2 was axial coding, involving restruc- insight into the phenomena being researched. Intensity sam- turing the data which have been fragmented through open cod- pling was adopted where the researcher had to carry out a ing, by establishing links between categories and their preliminary investigation to decide on the type of variation subcategories (Strauss & Corbin, 1998). Finally, selective cod- characterizing the situation under study. One can then sam- ing was used to merge and filter the categories, thus account- ple intense examples of the phenomenon of interest—KM, ing for the phenomenon under analysis (Darke, Shanks, & knowledge creation, and open innovation in SMEs (Patton, Broadbent, 1998). Once each individual case had been ana- 2002). Intensity sampling was used for the purpose of select- lyzed, cross-case analysis commenced, in which the authors ing the companies considered most interesting to examine compared findings across cases and looked for similarities and and most suited to the subject of the research. The companies differences between the two cases. 6 SAGE Open and strong and actually operate as small individual start-up Findings companies according to one interviewee. The production Knowledge Creation, KM, and Open Innovation in process is extremely disciplined and employees use a road- Company Alpha map to define and organize procedures. According to one interviewee, the whole process needs to be monitored; new Company Alpha is a high technology company, where pro- knowledge can be generated at all stages on the journey gram development is the core business activity. The com- toward creating new products or service. Training and fur- pany has received many awards for its products and ther education is mostly conducted within the company and, innovations. Alpha is a leader in finance technology solu- according to all of the interviewees, employees gain new tions, combining technological innovation and entrepreneur- knowledge from the specialists being brought to the com- ship. The products and solutions are used worldwide by pany who then work closely with the employees on on-going institutions, companies, and individual consumers. The com- projects. There are not many instances of employees going to pany is one of those that came out of the financial collapse of courses or conferences external to the company. Iceland and is a fast growing concern with around 100 External sources are not of great importance in the devel- employees. Alpha uses the Scrum development framework, opmental process, but their feedback is essential at its later and most projects are implemented in teams. The manage- stages. Many ideas or comments from clients (individuals) ment team consists of eight people, three of whom are the reach the company every day. Also, courses for customers founders of the company. Company Alpha has participated in are held, thus engendering feedback about the company’s various competitions and conferences relating to innovation products. One interviewee said, “I hardly ever go to a recep- and received awards for its products. The majority of the tion without taking out my phone and showing someone staff has a university education, are 30 to 40 years of age something new or talking about it, so one always gets feed- with more than 10 years’ work experience. back.” Representatives of client companies often voice their Knowledge creation within Company Alpha is mainly a own opinions on product design. Another interviewee com- group process, where the expertise of staff members is the mented on this is in this way: “[often these are] ideas we main resource, giving the company a leading edge. Managers have tried and that we know have not worked for us; so at rely strongly on employees for identifying new possibilities. times the interplay can be quite entertaining.” The inter- “We work hard trying to find something new,” one inter- viewee also mentioned that, in addition, ideas were put for- viewee said. Employees have the flexibility to create and ward which were a bit outside the framework and which come up with new ideas; they must, however, make all deci- might or might not be feasible; a situation where possibilities sions in cooperation with their team. Employees begin by are limited, and there is a question of what the system can or selling the team their idea and then a decision is made on cannot do and what is the most sensible route to take. whether it should achieve a high ranking. Teams are the main When new ideas in Company Alpha are promoted to company units, and support for these units and their structure development work, the whole team is called to a meeting, is of prime importance. and a design sprint is implemented to understand the prob- More precisely, new ideas come to light in connection lem and to create what are called “personas.” According to with product development in the company, both from the interviewees, this is extremely fast creative work. employees and from customers. According to one inter- Meetings and brainstorming sessions with customers are viewee, there are often several hundred ideas on the table and widely used when new ideas are promoted to development about half of them could be of interest. New knowledge is work. When the process has reached the stage of testing a mostly gained in connection with problem solving. “The product, a group of users is brought in to test the innovation. chances of solving a problem at the first attempt are mini- As one interviewee stated, mal,” according to one interviewee. Continuous learning takes place by doing a task repeatedly with new and varying We take people who are completely “cold,” it could be people methods. Most effort goes into simplifying tasks to such an from the street, employees or their partners. In some instances extent that people begin to understand them. Making things this testing is recorded by video and customer reactions to the simple takes a lot of time; employees work on a problem for product are monitored. This is in fact the way to create a kind of a long time and then all of a sudden there is a “eureka” demo edition of the product; we then let someone use it and provide us with feedback. moment when someone realizes that the proposal for a solu- tion was too complicated or that the task was developing into The testing department has also sent out requests to peo- something quite different. ple for assistance in testing a new product and for gathering All respondents saw teamwork as a key element in knowl- opinions. The company is a leader on the market, so that edge acquisition. Most projects in Company Alpha are competitors look to them for innovation. Interviewees implemented in teams. Teams enjoy considerable autonomy emphasized that there is very significant competition in this and thus have the freedom and flexibility essential to the sector, but mostly with foreign parties. The interviewees all knowledge creation process. The teams are very independent Grimsdottir and Edvardsson 7 had good contact networks in this field of enterprise when Documentation and archiving of knowledge is conducted the company was founded, and they have been maintained. in a structured manner in the company. The publishing pro- This has a major impact on appointing employees, as well as cess demands that everything is documented. The gathering gaining customers and access to the knowledge they need. of knowledge from employees is mainly by a chain of exper- According to interviewees, employees are very active in iments and tests by the employees in question: “It requires using their contact networks to increase their knowledge and many diagrams and many pages that are written then dis- to gain new customers which can, among other things, lead carded, and the whole process started again from scratch. to a new service, strategy, or product. Then we progress to testing and iterations in repeated cycles.” Knowledge sharing activities within Company Alpha are According to an interviewee, all staff are expected to toe a mainly according to a personalization strategy. The shared very strict line, and they have access to an inner network in space for employees to discuss projects is considered by the which everything is registered. “Nevertheless, I would say interviewees to provide the company with valuable new that we can do better there.” The company’s inner network is knowledge, for instance, Q & A meetings and Techtalk which where staff record interesting information. One interviewee is held twice a week, where an employee presents a project described it more fully as follows: solution he or she is working on. Employees gather at these So that if you find some article, presentation or something that events and follow developments. To a large extent, knowl- has caught your interest, you just post it and then people may or edge sharing takes part in conversations between employees may not have time to look at it. Also, we have an instrument to and within groups. The teams all have their own organiza- manage ideas so that all staff access these and post suggestions tional walls which show their work. One interviewee said for some innovation and other members of staff can make their this was a good example of brainstorming between employ- own choices. ees and there was a strong flow and continuous dissemina- tion of knowledge throughout the whole day. The emphasis The interviewees say that this is a web tool to which is on creativity where employees are encouraged to create everyone has access, and each and everyone can go on it and and share new knowledge with special Idea Days where contribute their ideas. Then, other staff members can com- employees present their ideas and solve problems they have ment on these and choose between the ideas. This is followed long struggled with. Regular meetings are held with each up and a decision is made on whether or not the idea will be team where employees go over the status, and problems are placed on the agenda for further development. discussed and larger meetings convened with all employees. One interviewee mentioned that in spite of all the communi- cation paths to which employees have access, it is important Knowledge Creation, KM, and Open Innovation in to communicate face to face. As he described here: Company Beta Forwarding information can be difficult, I want people to talk to Company Beta is a family company which produces drinks each other. You can enter whatever you like on Wiki and into and snacks. It distributes its goods to shops and also has its any other system, but it that does not ensure that someone is own retail outlet. The company also offers many kinds of going to read it. So I would say, rather, just stand up and ask the services connected to their products and has been in business person next to you; find out whether he has solved a similar for over 20 years. At first, the founder of the business was the problem . . . only staff member and, as a consequence, had to handle all aspects of the company himself. He advertised his products, Employees use the intranet, email, blog, chat threads, held courses, and tried to sell his goods in restaurants and Slack, Hangouts, Twitter, and Facebook to share knowledge supermarkets. It was 5 years from the founding of the com- and provide new solutions and ideas. Employees submit pany that its first outlet opened. Today, the company has a questions relating to problems that need to be solved and great many sales outlets, a production/factory, and around receive information from other employees who have encoun- 100 employees. The staff members fall into two categories: tered the same problems, or they are referred to documenta- on one hand, managers and key employees who have worked tion that can prove useful. Twitter has been the main source for the company for a long time and have gained a great deal of new knowledge for many of the company’s employees as of experience and on the other, young people who are work- one interviewee described, “I take the advice from people ing alongside study programs. Staff turnover is, therefore, who are working in this sector. They put articles on the wall high as is usual in this type of business. or their thoughts, on something that is innovative.” Knowledge creation in Company Beta is based on various Employees regularly try new media that facilitate their access paths, such as the staff of the company, making trips abroad, to knowledge, and the interviewee added that “The really attending conferences, reading journals, and using Internet important thing here is to have your finger on the pulse. media. New knowledge is frequently acquired through con- Regardless of whether it is Twitter or SnapChat, to be an tacts with customers and suppliers. The work is diverse, and early adopter and use the best practice that we know others innovative ideas come in from all directions and by different have used successfully.” 8 SAGE Open routes. The management and its staff are also an important experiments, and each stage is recorded. When an experi- spring of creative innovation, and company management ment has been completed, a meeting is held, and the whole look, in a significant degree, to foreign shores where most of process is revised to determine whether the innovations have the suppliers are situated, to gain yet more knowledge. been granted enough time to prove themselves. The inter- Organized training and education is mostly held within the views clearly established that communication with custom- company itself. The “educator” sees, for the most part, to the ers is of vital importance with regard to the origin of new training of staff. He has worked for the company for 10 years knowledge. Suggestions and recommendations from cus- during which time he has developed considerable expertise tomers, and even suppliers, constitute a highly significant with regard to the company’s products and marketing tech- source of new knowledge within the company. The provision niques. He forwards the information to the staff through of information to customers can also be of high value. The interviews, individual training, or the communal networks. company strongly emphasizes being able to tell the story The director of the company also attends to the education behind the products and inform customers about aspects they and training of staff, writes newsletters containing various take a special interest in, for example, the origins of raw information about the products and operations at any given materials or how the name of the product came about. This time, and is in charge of training branch managers with kind of information is important to some customers and pro- regard to a deeper knowledge of goods and services. Courses vides opportunities for a dialogue and contact with custom- are also held by parties outside the company. Training inside ers, whose perspective of the products is highly significant the company is mostly informal. Staff learn from each other, and carefully listened to, according to the interviewees. and those who have longer experience are encouraged to Demands are made on businesses to master the latest pass on information to new recruits. The role of the educator developments in their sector, and this depends on certain is also to monitor the competition environment and assess fluctuations in fashion at each time. The interviewees agree whether there is a need for increased knowledge, as well as that customers’ opinions are a tool of the greatest impor- being on the lookout for any innovations. If this is the case, a tance, that is, listening to the client and understanding his or prompt response must be shown regarding education and her wishes as long as they conform to the company’s values. training in accordance to interviewees. “Staff must be a little Customers are also important in connection with innovative on their toes about this,” says one interviewee. Another con- ideas, and their feedback is of great help. Employees are gen- siders the tried and tested method of consulting staff mem- erally encouraged to test and further develop their ideas in bers who one knows and trusts is the best method of gaining cooperation with the company’s customers who are often knowledge. Competitions within Company Beta are used for asked to taste the product and provide feedback. In general, training and innovation. In such competitions, employees are this applies to regular customers, both individuals and given the opportunity to present their ideas, and usually, a groups. “The entire process revolves around customer new product comes into being as a result. According to the demand, that’s the source and origin,” according to one interviewees, this method is seen as a suitable platform for interviewee. the creation of new products or services, as well as offering There are instances that when employees have inadequate opportunities for enhancing staff knowledge. Employees knowledge of the product requested, they do not hesitate to learn a good deal by observing one another in these competi- consult the customer if he or she is knowledgeable about a tions and by staging their own ideas, where the aim is to har- product he or she wishes the company to make. Thus, the ness employees’ initiative and creativity. Staff participation employee and the client cooperate in further developing the is voluntary, but those who take part are rewarded with a product and a transfer of new knowledge from client to com- salary increase, and the positive attention earned by the win- pany occurs. In such cases, these are often products similar ners. The interviewees agree that the in-house contests to those customers have received abroad. In some cases, cus- already held, stimulate staff creativity and often serve as tomers have special requirements, and some of them have catalysts for innovative ideas, which may bear fruit in the developed their own product in cooperation with company creation of new products. Employees are encouraged to pres- staff and can then order it when it suits them. When custom- ent ideas which they would like to try out. A Facebook group ers ask for products that are not available, employees often has been set up in relation to the competitions, where innova- access the Internet to seek information and knowledge, so tive products are announced, including the name of the that they can respond to their customers’ wishes. Such pro- employee who originated the idea and won the contest on cesses often lead to innovation. One interviewee gives an each occasion. Employees also participate in various larger example of a customer relationship which is likely to stimu- competitions abroad, where innovation is stronger and more late innovative product development. As he describes the diverse than in Iceland. In the context of all in-house idea process, a customer who had been with the company for sev- processing, a team of employees is always formed to further eral years made contact to discuss the products which he felt develop the concepts in question, tests are conducted, and were not as good as they used to be. The company responded subsequently the project is presented to a group of employ- by saying that they follow the flow of new times and differ- ees for feedback. All new products are subjected to tests and ent fashions and that their products had developed and Grimsdottir and Edvardsson 9 changed accordingly. After considering the matter, however, Documentation of knowledge is done within data bases it was decided to comply with the customer’s wishes and and computer systems, where information is recorded with develop a new product in consultation with the customer. regard to projects, work procedures, and communication. It Company staff further developed the concept, and this work varies, however, to what extent employees use the systems in led to a new product currently about to be marketed. their daily work. No formal strategy exists in connection The competitive environment strongly influences whether with the preservation and recording of data and information. and when a company needs new knowledge. The interview- All courses, recipes, and other materials of practical use are ees say there is intense and steady competition, and there- recorded and saved as information useful to employees. The fore, companies are constantly trying to create something interviewees agreed that the storage and documentation of now to reach more customers. This sector is growing rapidly knowledge was sometimes rather loosely organized and that at present, and the competition is intense. The competitive stricter rules and formal procedures should be put in place. environment largely revolves around demand and reputation. One interviewee stated that, nevertheless, employees had There is hardly any contact between competing businesses; ready access to everything that has been recorded and empha- cooperation is almost nonexistent as is communication with sized the material presented in the social media: “But then companies in the same sector, according to the interview- there are the human resources, you see, they are irreplace- ees—the focus is all on tough competition. able; if I quit, my knowledge would no longer be available . Employees use, among other things, Internet media, meet- . . .” Employees make use of social media to access and dis- ings, and discussions to share knowledge. The interviewees tribute information. Facebook is used a good deal for com- agree that knowledge should be disseminated through infor- munication, but one interviewee says it poses a significant mal communication between individuals and by attending challenge to use those media, although, in fact, that applies to meetings and happenings on offer. A large number of work- all media. stations can be a certain barrier to knowledge communica- tion, and therefore, it is important to make good use of the Comparison of the Two Cases media the company has access to to maintain contact with as many employees as possible. “It is of course a bit of a chal- Table 1 highlights the similarities and differences in KM, lenge to be involved in many workstations and link employ- knowledge creation, and open innovation in Company Alpha ees by discussion,” says one interviewee and emphasizes, at and Company Beta. the same time, that the sharing of knowledge always consti- Both of the companies are SMEs with around 100 employ- tutes a challenge. Regular meetings are convened where cur- ees. They operate in different industries; high technological rent projects are discussed and results analyzed. The results software company and manufacturer of drinks and snacks. then become new knowledge which can be used in future As such they provide intense examples of the subject under projects. Employees and managers introduce their own ideas study. The companies show a vast difference in the knowl- at meetings, as well as present suggestions from other staff edge creation process and how they relate to external sources. members. Those can be innovations or improved goods and/ They show similarity, however, in this way they share knowl- or services. If the idea is considered viable, it is developed edge in a personal way, through social media, and within and tested. The interviewees made clear that sharing of teams. The two companies document core knowledge in a knowledge occurs mostly through conversations between systematic way, but other knowledge tends not to be staff members and within groups. A personalization strategy documented. is in place. Customers have expressed the wish that the company Conclusion should be accessible on social media. When managers travel abroad to meet suppliers, information relating to the trip has The objective of the article was to present findings on KM, been uploaded for customers’ benefit. The interviewees knowledge creation, and open innovation in SMEs in Iceland. believe Facebook constitutes a good avenue to meet as many Two case studies were presented seeking answers to the customers as possible. To reach the younger generation, the questions: (a) How do the Icelandic SMEs deal with knowl- communication medium Snapchat currently appears to be edge creation, knowledge sharing, and storage? and (b) How the main platform: “We must ‘snap’ to be ahead of the are customers and other external stakeholders involved in the com[petition].” One interviewee says the company has grad- innovation process? ually moved in the direction of listening more to what the New knowledge in Company Alpha originates from new customer says. It is not only important for customers to gain business ideas and problems that need to be solved. Groups of an insight into the production process or where the raw mate- employees work on the development of new solutions by rial comes from, according to interviewee. Staff awareness experimenting and sharing knowledge through brainstorming of the origin of raw materials is a foundation for employees’ and discussing ideas, which can be described as collaborative ambition to expand their knowledge about the product they learning. As previously stated, Alpha operations involve a are involved in. great deal of teamwork. Teams are considered to enhance 10 SAGE Open Table 1. Characteristics of KM, Knowledge Creation, and Open Innovation in the Two Case Companies. Company Alpha Company Beta Number of employees Around 100. Around 100. Main activity Software development. Drinks and snacks. Knowledge creation New ideas come to light in connection with Staff go abroad, attend conferences, read journals, product development among staff. Teamwork etc. Competitions within and outside the of expertise as key element. company are sources of innovation. External sources (customer, Not important until late in the process. Meeting Customers and suppliers are very important in suppliers, etc.) and brainstorming sessions with customers promoting new knowledge, both regarding raw widely used. materials and end products. Knowledge sharing activities Largely takes part in conversations between Personal conversations, teamwork, training, social employees and within groups. Social media also media. used to share knowledge. Documentation of knowledge The documentation of the software is highly Receipts, course material, and other practical structured, but not other knowledge. materials are saved in data bases. No formal strategy exists on documentation of knowledge. Note. KM = knowledge management. mindful working practices, and employees have the opportu- which according to Csath (2012) is important for open inno- nity to create a new vision, to provide information and vation. Customers and suppliers are heavily consulted in the research it from various viewpoints, and to gain and create development and testing of products. Company Beta, thus, new knowledge. It may be said, therefore, that the company has many features of outside-in innovation practice (Chiaroni has built up a structure which acknowledges and encourages et al., 2011; Wynarczyk, 2013). learning, creativity, employee motivation, and ambition for Communication with customers is extremely important as knowledge openness, as well as collaboration; all of this a source of new knowledge within the company. Customer being of importance for open innovation (Csath, 2012). demand for new products and services and the willingness of Customers and external stakeholders are rarely consulted employees and managers to meet these requests play a major until the end of the process. Although their feedback is role in the company in seeking new knowledge, at the same important, it is only limited in the knowledge creation pro- time being the basis for innovation. For this reason, the com- cess in general. The company focuses on one main product, pany uses networking extensively in connection with inno- software, where customers are most likely to be involved vation which, according to Lee et al. (2010) and when the process has reached the stage of testing a product. Padilla-Meléndez et al. (2013), can be an important factor in Customers’ suggestions or requirements regarding new prod- open innovation. Innovation, therefore, largely occurs as a ucts and the company’s working practices are of vital impor- result of communication with customers. tance as catalysts for new knowledge within the companies. The two case companies share many characteristics of Company Alpha has, accordingly, some features of an inside- SMEs; they lack some formal strategy on KM, dissemina- out innovation model (Chiaroni et al., 2011; Wynarczyk, tion, and storage (Durst & Edvardsson, 2012; McAdam & 2013). Reid, 2001). Knowledge creation and innovation is a learn- In company Beta, knowledge gathering by employees ing process in both companies. Knowledge sharing is takes place largely through training and education. Employees mainly through personalization strategy, although the also seek knowledge from other employees through commu- development process is intensively documented. They nication channels within the company. New knowledge orig- come close to the findings of Garvin (1993) where he inates mainly from new ideas on product development where argues that new knowledge is created in organizations by a employees work on the development of new solutions by constant process of problem solving, experimenting with experimenting and sharing knowledge through testing and innovative methods, learning from experience, and sharing discussing ideas; this can be described as individual and col- knowledge. Collaborative knowledge acquisition is also laborative learning (Hedlund, 1994; Jakubik, 2008; Nejatian prevalent in the two cases, where new knowledge comes et al., 2013). The findings show that most learning takes into being through critical dialogue among employees place when employees have the possibility of gathering new working together in a collaborative effort to find joint solu- knowledge through experiments and tests where they have tions to work-related problems (Hedlund, 1994; Jakubik, the opportunity to disseminate their own ideas and to learn 2008). Both companies have thus developed a learning cul- from others. In-house events such as competitions are, there- ture which supports learning and knowledge creation, fore, important to create this forum. With this arrangement, which is important in open innovation Csath (2012), but the company supports learning and knowledge gathering, each in its own way. As openness can be a managerial Grimsdottir and Edvardsson 11 challenge for SMEs (Brunswicker & Vanhaverbeke, 2015), Declaration of Conflicting Interests the companies have the resources to make extensive use of The author(s) declared no potential conflicts of interest with respect KM to improve and stimulate innovation (Edvardsson, to the research, authorship, and/or publication of this article. 2006). It is interesting to note that both companies leverage social media and networking to disseminate and receive Funding knowledge internally. Employees have the freedom to con- The author(s) disclosed receipt of the following financial support tinue developing ideas with customers, and management for the research, authorship, and/or publication of this article: One supports an increased flow of knowledge from the outside. of the author received a doctoral scholarship from University of In both companies, various factors relating to KM support Iceland to conduct the research. open innovation, and the companies also have to overcome challenges and barriers. ORCID iD Interestingly, the two companies show very different Ingi Runar Edvardsson https://orcid.org/0000-0002-1167-3994 open-innovation models in practice and that shows the diver- sity among SMEs. The findings regarding the two companies are in accordance with the arguments of Chiaroni et al. References (2011) where they state that high-tech companies tend to pre- Abouzeedan, A., Klofsten, M., & Hedner, T. (2013). 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Achieving Author Biographies organizational learning through team competition. Engineering Elsa Grimsdottir has a MSc in Human Resource Mangement and Management Journal, 16(1), 21-31. Management and Strategy form the Univerity of Iceland. She is Theyel, N. (2013). Extending open innovation throughout the value now a doctoral student at the School of Business, University of chain by small and medium-sized manufacturers. International Iceland. Her research interests are related to knowledge creation, Small Business Journal, 31, 256-274. knowledge management, learning and open innovation. Thompson, M., & Heron, P. (2005). The difference a manager Ingi Runar Edvardsson is a professor of management and head of can make: Organizational justice and knowledge worker the School of Business, University of Iceland. He has a PhD in commitment. The International Journal of Human Resource industrial sociology from Lund University, Sweden and his research Management, 16, 383-404. and publication has been in the fields of knowledge managment, Ueki, H., Ueki, M., Linowes, R., & Mroczkowski, T. (2011). A HRM, outsourcing and labour markets. comparative study of enablers of knowledge creation in Japan http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png SAGE Open SAGE

Knowledge Management, Knowledge Creation, and Open Innovation in Icelandic SMEs:

Grimsdottir, Elsa; Edvardsson, Ingi Runar
SAGE Open , Volume 8 (4): 1 – Oct 22, 2018
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Abstract

The aim of this article is to present findings on knowledge management (KM) and knowledge creation, as well as open innovation in small and medium-sized enterprises (SMEs) in Iceland. Two SME company case studies are presented in the form of a case study involving semistructured interviews with managers and selected employees and in-field observation. Company Alpha is a software company, whereas Company Beta is a family company which produces drinks and snacks. Knowledge creation and innovation is a learning process in both companies. The two companies show very different open- innovation models in practice. The findings regarding the two companies are in accordance with the arguments of Chiaroni et al., where they state that high-tech companies tend to prefer inside-out strategies of open innovation, whereas low-tech companies prefer outside-in strategies. Company Alpha relates to customers late in the process, whereas Company Beta relies on knowledge from customers and suppliers and for new knowledge early on in the process. Keywords knowledge, knowledge creation, open innovation, SMEs, case studies, Iceland 2005). Thus, refreshing a company’s products, processes, Introduction and its very market or brand image may be a powerful incen- To strengthen their innovation potential, companies need to tive toward innovative and creative ways of approaching increase investment devoted to knowledge creation and situations and solving problems (Ueki, Ueki, Linowes, & innovation, so they can build new products, services, or pro- Mroczkowski, 2011). Traditionally, innovation was seen to cedures. Significant research has been conducted in this con- take place within a single company; companies managed text emphasizing the connection between knowledge innovation mainly by utilizing their own techniques and accumulation and its management on one hand, and novel resources to create innovative goods within their research business ideas and practices on the other. It has been widely facilities (Lee, Park, Yoon, & Park, 2010; Wynarczyk, 2013). recognized by researchers that there is a deep-seated positive Open innovation, in contrast, refers to the inflow of knowl- correlation between knowledge management (KM) and edge from both the company itself and its customers and innovation in business operations (Miller & Morris, 1999; sales representatives on the external market which may act as Nonaka, 1991; Nonaka & Takeuchi, 1995; Sankowska, 2013; powerful forces for promoting new products and venturing Wang & Wang, 2012). into untested market sectors. It is by no means easy to arrive New knowledge is frequently engendered by innovative at a precise definition of such a loose term as open innova- concepts or urgent needs, either arising within the company tion, although vast research is available on the subject, espe- itself or emanating from external market pressures. Thus, cially in larger, technological companies (Chiaroni, Chiesa, novel and creative perspectives often find their way into a & Frattini, 2011; Lee et al., 2010). firm through external forces dominating the market or by way of cooperation with academic establishments and research laboratories (outside trends and pressures), or alter- natively, they may arise as a result of the originality and University of Iceland, Reykjavik, Iceland inventiveness of company staff, for example, because of Corresponding Author: pressure from customers, competitive disadvantages, altera- Ingi Runar Edvardsson, School of Business, University of Iceland, Gimli, tions in law which may affect company products or proce- 101 Reykjavik, Iceland. dures (Daft, 2007; Hughes, O’Regan, & Sims, 2009; Sparrow, Email: ingire@hi.is Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open KM has been defined by Edvardsson and Oskarsson Research Question 2: How are customers and other (2013) as: “developing, sharing and applying knowledge external stakeholders involved in the innovation process? within the organisation to gain and sustain a competitive advantage” (p. 13). Moreover, they argue that the “KM lit- The layout of the article is as follows: The next section erature has focused on internal processes, such as knowledge contains aspects pertaining to theoretical considerations, fol- transfer, knowledge sharing culture, organizational learning, lowed by a methodological section. Findings are then pre- ICT etc., to enhance productivity and sales, lower cost, or sented and, finally, conclusions. increase innovation and quality.” KM, especially, within large corporation has been the subject of wide-ranging Theoretical Background research. It would appear, however, that researchers have not been excessively attracted to corporate size and thus tended KM to look past SMEs which undeniably also deserve their atten- tion (Durst & Edvardsson, 2012; McAdam & Reid, 2001). KM is, as already noted, focuses on knowledge creation and Knowledge accumulation, management, and utilization applications inside a corporate entity for the purpose of may be classified in a variety of ways, for example, collect- strengthening its position on the market (Davenport & ing or registering data, packing knowledge in user-friendly Prusak, 1998; Edvardsson, 2009; Jashapara, 2011; formats (data cleaning, formatting, and indexation), as well Lichtenthaler & Lichtenthaler, 2009). Companies have made as distribution and reprocessing (Markus, 2001). During the extensive use of KM to improve various aspects of their above processes, novel aspects of knowledge and opportuni- operations, facilitate decision making, stimulate innovation, ties for its use may come to light as a result of knowledge and enhance productivity (Edvardsson, 2006). adaption and organization. The fundamental emphasis of this Hansen, Nohria, and Tierney (1999) have identified two article is on the ways knowledge is engendered and created, fundamental strategies for administering knowledge within as well as paying close attention to the character of open a corporation, that is, “codification” and “personalisation.” innovation; hence, other aspects of the KM process will not The first refers to the codification of formal and objective be dealt with further. explicit knowledge that relates to words, numbers, and The engendering of knowledge is described as an ongoing specifications and is generally accessible in data bases for procedure by which knowledge comes into existence through the use of company staff. With the successful use of latest cooperation or individual effort and is refined and enhanced technologies in the field of intranets, data mining, knowl- within a corporate system (V on Krogh, Nonaka, & Rechsteiner, edge mapping, and electronic libraries, companies can 2012). streamline their operations to improve their competitive- Knowledge creation can be seen as the starting point of ness. Hansen et al. (1999) write, “The reuse of knowledge both KM and innovation. A recent literature review indicates saves work, reduces communications costs, and allows a that there is little research on knowledge creation in SMEs company to take on more projects” (p. 110). The uses of (Massaro, Handley, Bagnoli, & Dumay, 2016). Growing knowledge described above are akin to exploitative learn- number of studies have shown that KM strategies could play ing, through which firms can improve their performance in a significant role in enhancing innovation. However, there a safe and effective manner (Clegg & Clarke, 1999). are limited researches on the relationship between KM strat- Personalization strategy relates to an individual’s tacit egies and innovation (Yousif, Al-Hakim, & Hassan, 2013), knowledge, often shared through personal contacts, where especially, on the role of KM for the implementation of insights and intuition can play a major role in solving com- open-innovation practices (Martinez-Conesa, Soto-Acosta, plex problems (Clegg & Clarke, 1999). Personalization & Carayannis, 2017). Furthermore, only a few recent studies strategy seeks to create interaction and sharing of tacit have analyzed open innovation in the specific context of knowledge among employees in the company (Meroño- SMEs (Laursen & Salter, 2006; Lee et al., 2010; Spithoven, Cerdan, Lopez-Nicolas, & Sabater-Sánchez, 2007), often Vanhaverbeke, & Roijakkers, 2013; Van de Vrande, De Jong, through person to person communication, the mediation of Vanhaverbeke, & De Rochemont, 2009). earlier learning, and shared work practices. This kind of In light of the current situation of limited knowledge on knowledge often takes the form of highly developed exper- the relationship between open innovation, KM, and knowl- tise which can be used to deal with unique problems where edge creation in SMEs, this article has the aim of presenting a creative approach is needed, for example, in the field of findings on these processes in SMEs in Iceland. Two case strategy consulting. Personalization and explorative learn- studies will be introduced in this context to answer the fol- ing often go hand in hand, sharing common characteristics lowing questions: such as research-based innovation, relaxed controls, and readiness to take a certain degree of risk. Key concepts here Research Question 1: How do Icelandic SMEs deal with are flexibility and emphasis on research and learning to knowledge creation, knowledge sharing, and storage? develop new skills and abilities (Clegg & Clarke, 1999). Grimsdottir and Edvardsson 3 resorting to established routines, whereas more advanced Knowledge Creation cognitive learning will focus on creating original methods Knowledge creation has been assessed in terms of a 3-fold and modes of thinking and doing which may engender impor- classification, that is, process, volume, and end result tant innovation in corporate functions (Spicer & Sadler- (Mitchell & Boyle, 2009). The process aspect evaluates Smith, 2006). According to Garvin (1993), firms that focus stages of producing innovative knowledge, such as the appli- on learning specialize in stimulating innovative knowledge cation of figurative terms in which to render external knowl- by emphasizing frequent experience in facing and solving edge. In terms of volume, knowledge generation is measured problems, testing new methods, benefiting from experience, with a view to its immediate product which generally and communicating knowledge to colleagues. Management involves considerable addition to current knowledge, for should encourage employees to ask questions, debate and example, through the presentation of novel concepts. The challenge diverse opinions, engage in collaborative problem end result of knowledge generation focuses on a specific solving, and learn and remain alert to opportunities for inno- value-added process or article such as improved services, vative approaches leading to knowledge creation. Indeed, replacement of inefficient routines, or an enhanced proto- increased interest has been noted in the role of managers in type. All these stages are of course inseparable from the con- the process of knowledge accumulation and transfer cept of innovation. (Thompson & Heron, 2005). According to Berraies, Chaher, The routes to knowledge creation can take many and and Yahia (2014), managers are often in an ideal position to diverse forms. Nonaka and Konno (1998) and Nonaka, promote the ideology which leads to an upward curve of Toyama, and Konno (2000) see the interaction between tacit improvement and knowledge creation. It is, therefore, of and explicit knowledge as coming about by means of social- utmost importance that managers should develop and main- ization, externalization, combination, and internalization tain the mode of leadership which stimulates employees and (SECI), leading to new and enhanced levels of knowledge. enables them to freely express their individualism. The literature sees learning and knowledge generation Collaborative learning is thought to be a fundamental more or less as two sides of the same coin. Kolb (1984) argues prerequisite for energizing knowledge creation by that the basic function of learning is creating new knowledge, enabling employees to benefit from knowledge of diverse generated by a profound understanding and transmutation of origin and character. Shared knowledge evolves by means experience. Argyris (1999) maintains that organizational of constant communication and exchange of opinions learning consists in identifying errors and putting them right. among employees working together toward a shared goal. For this to happen, it is of course necessary to properly under- The groups stimulate critical modes of thought by chal- stand the cause of the error in question, as well as being able lenging current solutions and premises and by suggesting to formulate how it should be corrected. In this manner, firms alternatives (Hedlund, 1994; Jakubik, 2008; Nejatian, can turn experience into a learning process and resort to the Nejati, Zarei, & Soltani, 2013). Cooperation is mostly proper measures to prevent reoccurrence of an error or over- organized and administered through corporate initiatives. sight. Such circumstances, as pointed out by Allard (2003), However, knowledge generation often occurs spontane- often spring from an urgent problem whose solution can only ously as a result of communication and cooperation among be achieved through the creation of new knowledge. individuals or task groups where persons with a variety of According to Nonaka and Takeuchi (1995), knowledge cre- specializations discover opportunities for practical inno- ation often occurs as a result of two kinds of learning which vation concealed within a project (Nonaka & Takeuchi, supplement each other, that is, learning how to deal with 1995). Teamwork has proven to be an economic engender dilemmas arising from current conditions and subsequently innovative knowledge and to build a basis for intelligent creating a new set of conditions where the dilemmas do not working procedures and further education among employ- occur. Ueki et al. (2011) maintain that if company staff are ees (Awad & Ghaziri, 2004; Szarka, Grant, & Flannery, presented with challenging situations and trained in develop- 2004). ing appropriate solutions this will stimulate corporate knowl- edge creation. The types of knowledge-enhancing situations Knowledge Creation in SMEs in question may involve interdepartmental development tasks, job rotation, various aspects of career advancement, SMEs often tend to be low-power hierarchies, characterized teamwork, and learning through the medium of the Internet. by an egalitarian mode of management which can act as a An organization’s success and ability to innovate and evolve stimulus to originality and creative enterprise; there is an air novel work practices depends on its capacity for mastering of informality with few rules, and bureaucracy is kept to a complex cognitive learning processes, whereas simpler and minimum. Often the owner is practically the sole agent of more basic learning routines tend to exercise a restrictive supervision and control (Daft, 2007). In some respects, the influence on knowledge creation and work practices. Simpler structure of SMEs is more flexible and adaptable than that of forms of learning involve responding to the everyday demands larger corporations; SMEs have fewer employees who tend of internal or external circumstances by automatically to work together more closely. This often makes it easier to 4 SAGE Open respond positively to innovation, not least because of a and outflows of knowledge to accelerate internal innovation, coherent small company culture, relatively simple structures, and to expand the markets for external use of innovation, and direct communication with managers. The main draw- respectively” (p. 15). Three open-innovation practices are backs of SMEs, however, often relate to their limited experi- commonly mentioned in the literature: outside-in process, ences, insufficient technical manpower, and financial inside-out process, and couples processes. Wynarczyk (2013) restrictions, all of which can act as barriers to innovation and explains these concepts in the following manner: knowledge stimulation. SMEs are less hierarchical which The “outside-in” process is based on the assumption that the firm means that managers are nearer to the operational functions, adds to its own knowledge-base through inter-firm linkages with often close to their markets and thus apt to have a better suppliers, customers and/or collaboration with other external understanding of their operational circumstances than large institutions (e.g. universities). The “inside-out” process refers to corporations with far-flung operations (Wong & Aspinwall, generating and accelerating profits by transferring innovative ideas 2004). As referred to above, the control of SMEs tends to be to market, through, for example, selling or licensing out intellectual informal and personal, often emanating from the owner/man- property (IP). Enkel et al. (2009) argue that this form of open ager (Daft, 2007). Also, decisions can be made more swiftly innovation enables firms to reap the benefits of their innovative due to their smallness and simple, flexible management ideas at an earlier stage rather than attempting to translate them structures (Culkin & Smith, 2000; Wong & Aspinwall, 2004). into new products themselves. The “coupled process” refers to Due to limited access to resources, SMEs often need to partnership or “co-creation” with (mainly) complementary rely on secondhand knowledge (e.g., trade, academic and partners through, for example, supply chain, clusters, alliances, co-operation, and joint ventures. (pp. 260-261) professional journals, conferences and research within their own industrial or business sector) or through person to per- Studies show that open innovation is a positive factor for son communication. Only a small portion of the human SMEs to overcome their challenges and increase their profit- resources within an SME can be devoted to the gathering and ability (Gassmann, Enkel, & Chesbrough, 2010) as in gen- analysis of knowledge; mostly, this would be the function of eral, SMEs lack both organizational and technical skills for managers who, however, also have many other tasks to han- their effectiveness (Rahman & Ramos, 2010). Studies also dle (Lowik, van Rossum, Kraaijenbrink, & Groen, 2012). indicate that larger companies use open innovation more Thus, SMEs are more likely to depend on procedures such as than smaller companies, although the latter have a lot to gain meetings with suppliers and customers, rather than undertak- from this to compensate for limited resources and insuffi- ing more formal, expensive, and systematic knowledge cient market research (Huizingh, 2011; Wynarczyk, 2013). acquisition activities (Cegarra-Navarro & Martínez-Conesa, According to some scholars, SMEs gain more from open 2007). Given those internal resource constraints to which innovation than larger firms because SMEs are less devolu- many SMEs are exposed, external knowledge sources may tion of authority, are more risk takers, and can react quickly be assumed to have a critical role in terms of knowledge cre- to changes in the business environment (Hossain, 2015). ation (Egbu, Hari, & Renukappa, 2005) as SMEs seem to Open innovation practices in SMEs seem to be more com- look more outwards for sources of innovation (Desouza & mon in the later stages of innovation, especially, when pre- Awazu, 2006). A recent case study from Singapore showed paring for the actual commercialization of new products or that the search for and acquisition of new knowledge was practices. Employee characteristics may matter for open almost exclusively undertaken by an SME owner on whose innovation as the adoption of strategies regarding open capability and resources the company had to rely in matters source software supply is likely to be facilitated by a univer- of data and knowledge relating to the industry in question sity-educated workforce. Open innovation seems, moreover, (Wee & Chua, 2013). Durst, Edvardsson, and Bruns (2013) more likely in situations characterized by globalization, new investigated knowledge creation undertakings in small business models, technological intensity, and turbulence German construction companies and identified external (Huizingh, 2011). impact on knowledge generation. The researchers also found Chiaroni et al. (2011) argue that low-tech industries pre- that although managing directors make use of external fer outside-in strategies of open innovation, whereas inside- knowledge of varying origin, they seem to emphasize the use out strategies are far more common in high-tech companies, of reliable knowledge sources. The results of this study con- in addition Van de Vrande et al. (2009) discovered that tribute to the rather insufficient research on the topic of medium-sized companies practice open innovation to a knowledge generation in SMEs. greater extent than smaller companies and utilize open inno- vation for market-related motives or for keeping up with Open Innovation in SMEs competitors. SMEs face unique challenges for innovation (Hossain, 2015) which include lack of resources, structure of No consensus exists as to the precise meaning of the concept the company, complications regarding scientific field and “open innovation” (Chiaroni et al., 2011). However, the defi- access to latest scientific developments (Abouzeedan, nition by Chesbrough (2003) has gained popularity, where he Klofsten, & Hedner, 2013). SMEs are less active than large explains open innovation as “the use of purposive inflows Grimsdottir and Edvardsson 5 firms in open innovation because of their particular charac- were chosen according to size and nature of operations. teristics such as culture and strategy (Hossain, 2015). Also, Previous research on SMEs has shown that company size they face challenges that are related with external factors, does have an impact on formal strategy, decision making, such as venturing, customer participations, networking, formalization, and KM practices (Edvardsson, 2009). The development and outsourcing (Van de Vrande et al., 2009). chosen companies were also prominent in innovations and According to Laursen and Salter (2006), SMEs that are more innovation activity. open to external sources are more likely to succeed in inno- Six interviews were conducted with managers and key vation. Networking can be a useful way to facilitate open employees in the KM, knowledge creation, and open- innovation among SMEs and to focus to both formal and innovation process, three in each company. The interviews informal relationships with stakeholders (Lee et al., 2010; were recorded and transcribed; field notes were also taken. Padilla-Meléndez, Del Aguila-Obra, & Lockett, 2013). Other documentation relating to the companies, address- According to Theyel (2013), SMEs prefer networking with ing relevant issues were also examined, as well as the customers rather than suppliers. companies’ web pages. Data collection took place in April A culture that acknowledges and encourages learning and to October 2015. Interview duration was 60 to 90 min. creativity and emphasizes motivation for collaboration and Observation in the companies was used to gain insight knowledge openness is essential for open innovation (Csath, into the work environment and to formulate a comprehen- 2012). Openness can be a managerial challenges in SMEs as sive understanding of the phenomena under study. It it requires some higher order management capabilities to improved the quality of the data collection and interpreta- coordinate external knowledge flow within the company’s tion and facilitated the development of new research ques- internal innovation activities (Brunswicker & Vanhaverbeke, tions. Field note framework was developed and written in 2015). Such managemnet skills are needed so that the knowl- reports. Other documents related to the companies and edge can be organized and adapted to achieve the company addressed relevant issues on KM, knowledge creation, innovation strategy (Robertson, Casali, & Jacobson, 2012). and open innovation were also examined, as well as the company web pages. Document analysis provided data which supported the lines of data coming from interviews Methodology and observations. This research uses qualitative methodology and is designed Qualitative case study data analysis commences as soon as as a case study (Eisenhardt, 1989). A qualitative research researchers begin assembling data from the case under inves- design was chosen as we are dealing with complicated little- tigation (Merriam, 1998; Miles & Huberman, 1994; Stake, known phenomenon. A case study was chosen because the 1995). This case study, contained two stages of analysis: phenomena under study consist of iterative activities which within-case analysis and cross-case analysis. The within-case makes this a viable approach. Because of limited KM, analysis involves detailed write-ups for each case, resulting in knowledge creation, and innovation in SMEs in Iceland, this strong familiarity with each case which, in turn, facilitated approach enables a more contextual assessment of social comparison between different cases. The analytical process of phenomena in real-life contexts (Yin, 1994) and insufficient data started alongside data collection to find emerging themes, prior research means that themes and patterns need to be the process of making meaning out of the data (Merriam, located rather than confirmed (Edmondson & McManus, 1998). After transcription of each interview and observation, 2007; Eisenhardt, 1989). This exploratory research consists notes were read thoroughly to see which codes and themes of two case studies in SMEs in Iceland. To identify relevant emerge from the data. The researchers used codes to classify a cases for the study, the authors utilized nonprobabilistic sam- series of otherwise independent events, statements, and obser- pling which is acknowledged as the most appropriate strat- vations collected from the data (Charmaz, 2014). First, open egy in qualitative research designs (Merriam, 1998). The coding was applied where concepts are established, and their most common form of which is the purposeful sample strat- attributes and characteristics are identified in data. During egy (Patton, 2002), which was used to select cases for this open coding, the data are separated into discrete parts, ana- research. The motive behind purposeful sampling relates to lyzed in depth, and similarities and differences noted (Strauss selecting “information-rich” cases, providing an in-depth & Corbin, 1998). Step 2 was axial coding, involving restruc- insight into the phenomena being researched. Intensity sam- turing the data which have been fragmented through open cod- pling was adopted where the researcher had to carry out a ing, by establishing links between categories and their preliminary investigation to decide on the type of variation subcategories (Strauss & Corbin, 1998). Finally, selective cod- characterizing the situation under study. One can then sam- ing was used to merge and filter the categories, thus account- ple intense examples of the phenomenon of interest—KM, ing for the phenomenon under analysis (Darke, Shanks, & knowledge creation, and open innovation in SMEs (Patton, Broadbent, 1998). Once each individual case had been ana- 2002). Intensity sampling was used for the purpose of select- lyzed, cross-case analysis commenced, in which the authors ing the companies considered most interesting to examine compared findings across cases and looked for similarities and and most suited to the subject of the research. The companies differences between the two cases. 6 SAGE Open and strong and actually operate as small individual start-up Findings companies according to one interviewee. The production Knowledge Creation, KM, and Open Innovation in process is extremely disciplined and employees use a road- Company Alpha map to define and organize procedures. According to one interviewee, the whole process needs to be monitored; new Company Alpha is a high technology company, where pro- knowledge can be generated at all stages on the journey gram development is the core business activity. The com- toward creating new products or service. Training and fur- pany has received many awards for its products and ther education is mostly conducted within the company and, innovations. Alpha is a leader in finance technology solu- according to all of the interviewees, employees gain new tions, combining technological innovation and entrepreneur- knowledge from the specialists being brought to the com- ship. The products and solutions are used worldwide by pany who then work closely with the employees on on-going institutions, companies, and individual consumers. The com- projects. There are not many instances of employees going to pany is one of those that came out of the financial collapse of courses or conferences external to the company. Iceland and is a fast growing concern with around 100 External sources are not of great importance in the devel- employees. Alpha uses the Scrum development framework, opmental process, but their feedback is essential at its later and most projects are implemented in teams. The manage- stages. Many ideas or comments from clients (individuals) ment team consists of eight people, three of whom are the reach the company every day. Also, courses for customers founders of the company. Company Alpha has participated in are held, thus engendering feedback about the company’s various competitions and conferences relating to innovation products. One interviewee said, “I hardly ever go to a recep- and received awards for its products. The majority of the tion without taking out my phone and showing someone staff has a university education, are 30 to 40 years of age something new or talking about it, so one always gets feed- with more than 10 years’ work experience. back.” Representatives of client companies often voice their Knowledge creation within Company Alpha is mainly a own opinions on product design. Another interviewee com- group process, where the expertise of staff members is the mented on this is in this way: “[often these are] ideas we main resource, giving the company a leading edge. Managers have tried and that we know have not worked for us; so at rely strongly on employees for identifying new possibilities. times the interplay can be quite entertaining.” The inter- “We work hard trying to find something new,” one inter- viewee also mentioned that, in addition, ideas were put for- viewee said. Employees have the flexibility to create and ward which were a bit outside the framework and which come up with new ideas; they must, however, make all deci- might or might not be feasible; a situation where possibilities sions in cooperation with their team. Employees begin by are limited, and there is a question of what the system can or selling the team their idea and then a decision is made on cannot do and what is the most sensible route to take. whether it should achieve a high ranking. Teams are the main When new ideas in Company Alpha are promoted to company units, and support for these units and their structure development work, the whole team is called to a meeting, is of prime importance. and a design sprint is implemented to understand the prob- More precisely, new ideas come to light in connection lem and to create what are called “personas.” According to with product development in the company, both from the interviewees, this is extremely fast creative work. employees and from customers. According to one inter- Meetings and brainstorming sessions with customers are viewee, there are often several hundred ideas on the table and widely used when new ideas are promoted to development about half of them could be of interest. New knowledge is work. When the process has reached the stage of testing a mostly gained in connection with problem solving. “The product, a group of users is brought in to test the innovation. chances of solving a problem at the first attempt are mini- As one interviewee stated, mal,” according to one interviewee. Continuous learning takes place by doing a task repeatedly with new and varying We take people who are completely “cold,” it could be people methods. Most effort goes into simplifying tasks to such an from the street, employees or their partners. In some instances extent that people begin to understand them. Making things this testing is recorded by video and customer reactions to the simple takes a lot of time; employees work on a problem for product are monitored. This is in fact the way to create a kind of a long time and then all of a sudden there is a “eureka” demo edition of the product; we then let someone use it and provide us with feedback. moment when someone realizes that the proposal for a solu- tion was too complicated or that the task was developing into The testing department has also sent out requests to peo- something quite different. ple for assistance in testing a new product and for gathering All respondents saw teamwork as a key element in knowl- opinions. The company is a leader on the market, so that edge acquisition. Most projects in Company Alpha are competitors look to them for innovation. Interviewees implemented in teams. Teams enjoy considerable autonomy emphasized that there is very significant competition in this and thus have the freedom and flexibility essential to the sector, but mostly with foreign parties. The interviewees all knowledge creation process. The teams are very independent Grimsdottir and Edvardsson 7 had good contact networks in this field of enterprise when Documentation and archiving of knowledge is conducted the company was founded, and they have been maintained. in a structured manner in the company. The publishing pro- This has a major impact on appointing employees, as well as cess demands that everything is documented. The gathering gaining customers and access to the knowledge they need. of knowledge from employees is mainly by a chain of exper- According to interviewees, employees are very active in iments and tests by the employees in question: “It requires using their contact networks to increase their knowledge and many diagrams and many pages that are written then dis- to gain new customers which can, among other things, lead carded, and the whole process started again from scratch. to a new service, strategy, or product. Then we progress to testing and iterations in repeated cycles.” Knowledge sharing activities within Company Alpha are According to an interviewee, all staff are expected to toe a mainly according to a personalization strategy. The shared very strict line, and they have access to an inner network in space for employees to discuss projects is considered by the which everything is registered. “Nevertheless, I would say interviewees to provide the company with valuable new that we can do better there.” The company’s inner network is knowledge, for instance, Q & A meetings and Techtalk which where staff record interesting information. One interviewee is held twice a week, where an employee presents a project described it more fully as follows: solution he or she is working on. Employees gather at these So that if you find some article, presentation or something that events and follow developments. To a large extent, knowl- has caught your interest, you just post it and then people may or edge sharing takes part in conversations between employees may not have time to look at it. Also, we have an instrument to and within groups. The teams all have their own organiza- manage ideas so that all staff access these and post suggestions tional walls which show their work. One interviewee said for some innovation and other members of staff can make their this was a good example of brainstorming between employ- own choices. ees and there was a strong flow and continuous dissemina- tion of knowledge throughout the whole day. The emphasis The interviewees say that this is a web tool to which is on creativity where employees are encouraged to create everyone has access, and each and everyone can go on it and and share new knowledge with special Idea Days where contribute their ideas. Then, other staff members can com- employees present their ideas and solve problems they have ment on these and choose between the ideas. This is followed long struggled with. Regular meetings are held with each up and a decision is made on whether or not the idea will be team where employees go over the status, and problems are placed on the agenda for further development. discussed and larger meetings convened with all employees. One interviewee mentioned that in spite of all the communi- cation paths to which employees have access, it is important Knowledge Creation, KM, and Open Innovation in to communicate face to face. As he described here: Company Beta Forwarding information can be difficult, I want people to talk to Company Beta is a family company which produces drinks each other. You can enter whatever you like on Wiki and into and snacks. It distributes its goods to shops and also has its any other system, but it that does not ensure that someone is own retail outlet. The company also offers many kinds of going to read it. So I would say, rather, just stand up and ask the services connected to their products and has been in business person next to you; find out whether he has solved a similar for over 20 years. At first, the founder of the business was the problem . . . only staff member and, as a consequence, had to handle all aspects of the company himself. He advertised his products, Employees use the intranet, email, blog, chat threads, held courses, and tried to sell his goods in restaurants and Slack, Hangouts, Twitter, and Facebook to share knowledge supermarkets. It was 5 years from the founding of the com- and provide new solutions and ideas. Employees submit pany that its first outlet opened. Today, the company has a questions relating to problems that need to be solved and great many sales outlets, a production/factory, and around receive information from other employees who have encoun- 100 employees. The staff members fall into two categories: tered the same problems, or they are referred to documenta- on one hand, managers and key employees who have worked tion that can prove useful. Twitter has been the main source for the company for a long time and have gained a great deal of new knowledge for many of the company’s employees as of experience and on the other, young people who are work- one interviewee described, “I take the advice from people ing alongside study programs. Staff turnover is, therefore, who are working in this sector. They put articles on the wall high as is usual in this type of business. or their thoughts, on something that is innovative.” Knowledge creation in Company Beta is based on various Employees regularly try new media that facilitate their access paths, such as the staff of the company, making trips abroad, to knowledge, and the interviewee added that “The really attending conferences, reading journals, and using Internet important thing here is to have your finger on the pulse. media. New knowledge is frequently acquired through con- Regardless of whether it is Twitter or SnapChat, to be an tacts with customers and suppliers. The work is diverse, and early adopter and use the best practice that we know others innovative ideas come in from all directions and by different have used successfully.” 8 SAGE Open routes. The management and its staff are also an important experiments, and each stage is recorded. When an experi- spring of creative innovation, and company management ment has been completed, a meeting is held, and the whole look, in a significant degree, to foreign shores where most of process is revised to determine whether the innovations have the suppliers are situated, to gain yet more knowledge. been granted enough time to prove themselves. The inter- Organized training and education is mostly held within the views clearly established that communication with custom- company itself. The “educator” sees, for the most part, to the ers is of vital importance with regard to the origin of new training of staff. He has worked for the company for 10 years knowledge. Suggestions and recommendations from cus- during which time he has developed considerable expertise tomers, and even suppliers, constitute a highly significant with regard to the company’s products and marketing tech- source of new knowledge within the company. The provision niques. He forwards the information to the staff through of information to customers can also be of high value. The interviews, individual training, or the communal networks. company strongly emphasizes being able to tell the story The director of the company also attends to the education behind the products and inform customers about aspects they and training of staff, writes newsletters containing various take a special interest in, for example, the origins of raw information about the products and operations at any given materials or how the name of the product came about. This time, and is in charge of training branch managers with kind of information is important to some customers and pro- regard to a deeper knowledge of goods and services. Courses vides opportunities for a dialogue and contact with custom- are also held by parties outside the company. Training inside ers, whose perspective of the products is highly significant the company is mostly informal. Staff learn from each other, and carefully listened to, according to the interviewees. and those who have longer experience are encouraged to Demands are made on businesses to master the latest pass on information to new recruits. The role of the educator developments in their sector, and this depends on certain is also to monitor the competition environment and assess fluctuations in fashion at each time. The interviewees agree whether there is a need for increased knowledge, as well as that customers’ opinions are a tool of the greatest impor- being on the lookout for any innovations. If this is the case, a tance, that is, listening to the client and understanding his or prompt response must be shown regarding education and her wishes as long as they conform to the company’s values. training in accordance to interviewees. “Staff must be a little Customers are also important in connection with innovative on their toes about this,” says one interviewee. Another con- ideas, and their feedback is of great help. Employees are gen- siders the tried and tested method of consulting staff mem- erally encouraged to test and further develop their ideas in bers who one knows and trusts is the best method of gaining cooperation with the company’s customers who are often knowledge. Competitions within Company Beta are used for asked to taste the product and provide feedback. In general, training and innovation. In such competitions, employees are this applies to regular customers, both individuals and given the opportunity to present their ideas, and usually, a groups. “The entire process revolves around customer new product comes into being as a result. According to the demand, that’s the source and origin,” according to one interviewees, this method is seen as a suitable platform for interviewee. the creation of new products or services, as well as offering There are instances that when employees have inadequate opportunities for enhancing staff knowledge. Employees knowledge of the product requested, they do not hesitate to learn a good deal by observing one another in these competi- consult the customer if he or she is knowledgeable about a tions and by staging their own ideas, where the aim is to har- product he or she wishes the company to make. Thus, the ness employees’ initiative and creativity. Staff participation employee and the client cooperate in further developing the is voluntary, but those who take part are rewarded with a product and a transfer of new knowledge from client to com- salary increase, and the positive attention earned by the win- pany occurs. In such cases, these are often products similar ners. The interviewees agree that the in-house contests to those customers have received abroad. In some cases, cus- already held, stimulate staff creativity and often serve as tomers have special requirements, and some of them have catalysts for innovative ideas, which may bear fruit in the developed their own product in cooperation with company creation of new products. Employees are encouraged to pres- staff and can then order it when it suits them. When custom- ent ideas which they would like to try out. A Facebook group ers ask for products that are not available, employees often has been set up in relation to the competitions, where innova- access the Internet to seek information and knowledge, so tive products are announced, including the name of the that they can respond to their customers’ wishes. Such pro- employee who originated the idea and won the contest on cesses often lead to innovation. One interviewee gives an each occasion. Employees also participate in various larger example of a customer relationship which is likely to stimu- competitions abroad, where innovation is stronger and more late innovative product development. As he describes the diverse than in Iceland. In the context of all in-house idea process, a customer who had been with the company for sev- processing, a team of employees is always formed to further eral years made contact to discuss the products which he felt develop the concepts in question, tests are conducted, and were not as good as they used to be. The company responded subsequently the project is presented to a group of employ- by saying that they follow the flow of new times and differ- ees for feedback. All new products are subjected to tests and ent fashions and that their products had developed and Grimsdottir and Edvardsson 9 changed accordingly. After considering the matter, however, Documentation of knowledge is done within data bases it was decided to comply with the customer’s wishes and and computer systems, where information is recorded with develop a new product in consultation with the customer. regard to projects, work procedures, and communication. It Company staff further developed the concept, and this work varies, however, to what extent employees use the systems in led to a new product currently about to be marketed. their daily work. No formal strategy exists in connection The competitive environment strongly influences whether with the preservation and recording of data and information. and when a company needs new knowledge. The interview- All courses, recipes, and other materials of practical use are ees say there is intense and steady competition, and there- recorded and saved as information useful to employees. The fore, companies are constantly trying to create something interviewees agreed that the storage and documentation of now to reach more customers. This sector is growing rapidly knowledge was sometimes rather loosely organized and that at present, and the competition is intense. The competitive stricter rules and formal procedures should be put in place. environment largely revolves around demand and reputation. One interviewee stated that, nevertheless, employees had There is hardly any contact between competing businesses; ready access to everything that has been recorded and empha- cooperation is almost nonexistent as is communication with sized the material presented in the social media: “But then companies in the same sector, according to the interview- there are the human resources, you see, they are irreplace- ees—the focus is all on tough competition. able; if I quit, my knowledge would no longer be available . Employees use, among other things, Internet media, meet- . . .” Employees make use of social media to access and dis- ings, and discussions to share knowledge. The interviewees tribute information. Facebook is used a good deal for com- agree that knowledge should be disseminated through infor- munication, but one interviewee says it poses a significant mal communication between individuals and by attending challenge to use those media, although, in fact, that applies to meetings and happenings on offer. A large number of work- all media. stations can be a certain barrier to knowledge communica- tion, and therefore, it is important to make good use of the Comparison of the Two Cases media the company has access to to maintain contact with as many employees as possible. “It is of course a bit of a chal- Table 1 highlights the similarities and differences in KM, lenge to be involved in many workstations and link employ- knowledge creation, and open innovation in Company Alpha ees by discussion,” says one interviewee and emphasizes, at and Company Beta. the same time, that the sharing of knowledge always consti- Both of the companies are SMEs with around 100 employ- tutes a challenge. Regular meetings are convened where cur- ees. They operate in different industries; high technological rent projects are discussed and results analyzed. The results software company and manufacturer of drinks and snacks. then become new knowledge which can be used in future As such they provide intense examples of the subject under projects. Employees and managers introduce their own ideas study. The companies show a vast difference in the knowl- at meetings, as well as present suggestions from other staff edge creation process and how they relate to external sources. members. Those can be innovations or improved goods and/ They show similarity, however, in this way they share knowl- or services. If the idea is considered viable, it is developed edge in a personal way, through social media, and within and tested. The interviewees made clear that sharing of teams. The two companies document core knowledge in a knowledge occurs mostly through conversations between systematic way, but other knowledge tends not to be staff members and within groups. A personalization strategy documented. is in place. Customers have expressed the wish that the company Conclusion should be accessible on social media. When managers travel abroad to meet suppliers, information relating to the trip has The objective of the article was to present findings on KM, been uploaded for customers’ benefit. The interviewees knowledge creation, and open innovation in SMEs in Iceland. believe Facebook constitutes a good avenue to meet as many Two case studies were presented seeking answers to the customers as possible. To reach the younger generation, the questions: (a) How do the Icelandic SMEs deal with knowl- communication medium Snapchat currently appears to be edge creation, knowledge sharing, and storage? and (b) How the main platform: “We must ‘snap’ to be ahead of the are customers and other external stakeholders involved in the com[petition].” One interviewee says the company has grad- innovation process? ually moved in the direction of listening more to what the New knowledge in Company Alpha originates from new customer says. It is not only important for customers to gain business ideas and problems that need to be solved. Groups of an insight into the production process or where the raw mate- employees work on the development of new solutions by rial comes from, according to interviewee. Staff awareness experimenting and sharing knowledge through brainstorming of the origin of raw materials is a foundation for employees’ and discussing ideas, which can be described as collaborative ambition to expand their knowledge about the product they learning. As previously stated, Alpha operations involve a are involved in. great deal of teamwork. Teams are considered to enhance 10 SAGE Open Table 1. Characteristics of KM, Knowledge Creation, and Open Innovation in the Two Case Companies. Company Alpha Company Beta Number of employees Around 100. Around 100. Main activity Software development. Drinks and snacks. Knowledge creation New ideas come to light in connection with Staff go abroad, attend conferences, read journals, product development among staff. Teamwork etc. Competitions within and outside the of expertise as key element. company are sources of innovation. External sources (customer, Not important until late in the process. Meeting Customers and suppliers are very important in suppliers, etc.) and brainstorming sessions with customers promoting new knowledge, both regarding raw widely used. materials and end products. Knowledge sharing activities Largely takes part in conversations between Personal conversations, teamwork, training, social employees and within groups. Social media also media. used to share knowledge. Documentation of knowledge The documentation of the software is highly Receipts, course material, and other practical structured, but not other knowledge. materials are saved in data bases. No formal strategy exists on documentation of knowledge. Note. KM = knowledge management. mindful working practices, and employees have the opportu- which according to Csath (2012) is important for open inno- nity to create a new vision, to provide information and vation. Customers and suppliers are heavily consulted in the research it from various viewpoints, and to gain and create development and testing of products. Company Beta, thus, new knowledge. It may be said, therefore, that the company has many features of outside-in innovation practice (Chiaroni has built up a structure which acknowledges and encourages et al., 2011; Wynarczyk, 2013). learning, creativity, employee motivation, and ambition for Communication with customers is extremely important as knowledge openness, as well as collaboration; all of this a source of new knowledge within the company. Customer being of importance for open innovation (Csath, 2012). demand for new products and services and the willingness of Customers and external stakeholders are rarely consulted employees and managers to meet these requests play a major until the end of the process. Although their feedback is role in the company in seeking new knowledge, at the same important, it is only limited in the knowledge creation pro- time being the basis for innovation. For this reason, the com- cess in general. The company focuses on one main product, pany uses networking extensively in connection with inno- software, where customers are most likely to be involved vation which, according to Lee et al. (2010) and when the process has reached the stage of testing a product. Padilla-Meléndez et al. (2013), can be an important factor in Customers’ suggestions or requirements regarding new prod- open innovation. Innovation, therefore, largely occurs as a ucts and the company’s working practices are of vital impor- result of communication with customers. tance as catalysts for new knowledge within the companies. The two case companies share many characteristics of Company Alpha has, accordingly, some features of an inside- SMEs; they lack some formal strategy on KM, dissemina- out innovation model (Chiaroni et al., 2011; Wynarczyk, tion, and storage (Durst & Edvardsson, 2012; McAdam & 2013). Reid, 2001). Knowledge creation and innovation is a learn- In company Beta, knowledge gathering by employees ing process in both companies. Knowledge sharing is takes place largely through training and education. Employees mainly through personalization strategy, although the also seek knowledge from other employees through commu- development process is intensively documented. They nication channels within the company. New knowledge orig- come close to the findings of Garvin (1993) where he inates mainly from new ideas on product development where argues that new knowledge is created in organizations by a employees work on the development of new solutions by constant process of problem solving, experimenting with experimenting and sharing knowledge through testing and innovative methods, learning from experience, and sharing discussing ideas; this can be described as individual and col- knowledge. Collaborative knowledge acquisition is also laborative learning (Hedlund, 1994; Jakubik, 2008; Nejatian prevalent in the two cases, where new knowledge comes et al., 2013). The findings show that most learning takes into being through critical dialogue among employees place when employees have the possibility of gathering new working together in a collaborative effort to find joint solu- knowledge through experiments and tests where they have tions to work-related problems (Hedlund, 1994; Jakubik, the opportunity to disseminate their own ideas and to learn 2008). Both companies have thus developed a learning cul- from others. In-house events such as competitions are, there- ture which supports learning and knowledge creation, fore, important to create this forum. With this arrangement, which is important in open innovation Csath (2012), but the company supports learning and knowledge gathering, each in its own way. As openness can be a managerial Grimsdottir and Edvardsson 11 challenge for SMEs (Brunswicker & Vanhaverbeke, 2015), Declaration of Conflicting Interests the companies have the resources to make extensive use of The author(s) declared no potential conflicts of interest with respect KM to improve and stimulate innovation (Edvardsson, to the research, authorship, and/or publication of this article. 2006). It is interesting to note that both companies leverage social media and networking to disseminate and receive Funding knowledge internally. Employees have the freedom to con- The author(s) disclosed receipt of the following financial support tinue developing ideas with customers, and management for the research, authorship, and/or publication of this article: One supports an increased flow of knowledge from the outside. of the author received a doctoral scholarship from University of In both companies, various factors relating to KM support Iceland to conduct the research. open innovation, and the companies also have to overcome challenges and barriers. ORCID iD Interestingly, the two companies show very different Ingi Runar Edvardsson https://orcid.org/0000-0002-1167-3994 open-innovation models in practice and that shows the diver- sity among SMEs. The findings regarding the two companies are in accordance with the arguments of Chiaroni et al. References (2011) where they state that high-tech companies tend to pre- Abouzeedan, A., Klofsten, M., & Hedner, T. (2013). 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Achieving Author Biographies organizational learning through team competition. Engineering Elsa Grimsdottir has a MSc in Human Resource Mangement and Management Journal, 16(1), 21-31. Management and Strategy form the Univerity of Iceland. She is Theyel, N. (2013). Extending open innovation throughout the value now a doctoral student at the School of Business, University of chain by small and medium-sized manufacturers. International Iceland. Her research interests are related to knowledge creation, Small Business Journal, 31, 256-274. knowledge management, learning and open innovation. Thompson, M., & Heron, P. (2005). The difference a manager Ingi Runar Edvardsson is a professor of management and head of can make: Organizational justice and knowledge worker the School of Business, University of Iceland. He has a PhD in commitment. The International Journal of Human Resource industrial sociology from Lund University, Sweden and his research Management, 16, 383-404. and publication has been in the fields of knowledge managment, Ueki, H., Ueki, M., Linowes, R., & Mroczkowski, T. (2011). A HRM, outsourcing and labour markets. comparative study of enablers of knowledge creation in Japan

Journal

SAGE Open – SAGE

Published: Oct 22, 2018

Keywords: knowledge; knowledge creation; open innovation; SMEs; case studies; Iceland

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