Learning Spaces, Co-Production of Knowledge and Capability Building in the Service Firm

Modern economies are increasingly realising that the key to their future competitiveness lies in their success in generating and applying new knowledge through a highly trained workforce. The term ‘knowledge-based’ or ‘learning economy’ has emerged to describe those economies in which the production, distribution and use of knowledge are the main drivers of growth, wealth creation and employment across all industrial sectors (OECD 2001a). In recent years the attention has been focussed on knowledge-intensive business services (KIBS) and research and technology organisations (RTOs) as the providers of knowledge-intensive services to both manufacturing and services companies. This literature has largely focussed on the role of KIBS and RTOs as organisations critical to the modern economy (Hauknes, 2000; Hales, 2000; Miles, 1999). However there is limited literature on the relationship between knowledge management and innovation in services firms; e.g. how service firms engage in formal and informal processes of knowledge transfer that facilitates continuous service or process innovation. This paper discusses the learning space of the service firm, the critical elements involved in the coproduction of knowledge and how the management of these processes contributes to building innovation capability in the firm. The paper argues that informal transactions of knowledge play a critical role on the innovation capability building of service firms in addition to the more formal role played by KIBS and RTOs. The paper also discusses the relationship of managing knowledge transactions with firm capability building and innovation. The paper present results from surveys and in-depth interviews that were conducted among 87 service firms in Australia.