It has long been recognised that innovation is a key motor of economic change, as it stimulates intense forms of competition. In order to innovate, our research suggests that businesses need to be proactive, able to audit the environment to identify change and opportunity.\ud \ud They must be open to challenge, and prepared to experiment; but most of all learning is the key. Small businesses face particular obstacles whilst innovating on account of their size; these include a lack of time, funds, staff and expertise. Consequently, small businesses have a high propensity to failure. The records show that some 66% of businesses cease trading during the 3 to 10 year period. Successfully managing a business is a challenge that calls on a wide range of skills and knowledge (Levy et al 2004).\ud \ud For most business managers, it is the pooling of experience that generates the most useful knowledge and builds competence. Experience has demonstrated the value of bringing small numbers of businesses together in facilitated groups where, in a non-competitive environment, they gain the synergetic benefits arising from the sharing of their combined knowledge and experience. This paper presents early results from a research project aimed at assessing the impact of action learning on the innovative capability of small and medium sized firms.\ud \ud Teams of senior managers from non-competing sectors embarked on a one-year process of group-based learning, underpinned by the methods and approach of action learning. Each participant identified an innovation goal of critical\ud importance to their organisation. In terms of continuous innovation this can involve goals directed at product, service and business process improvement. Operational improvements using inter-organisational action learning have been described and documented by Coghlan et al (2002). In this project, specific improvements in innovation management capability have been examined. Action learning ‘sets’ and targeted learning were employed to support the\ud learning required to allow action towards the achievement of these goals (Levy and Knowles, 2003). The paper tests the proposition that Action Learning, supported by targeted learning, is an effective, time and cost efficient method for supporting technological product and process innovation.\ud \ud The paper argues that action learning develops innovation managers into "reflective practitioners". Reflective practice is a fundamental competence needed to enable effective innovation management (Pedler 1996) (Weinstein 1998). The paper reports that action learning set members found the process to be beneficial for supporting continuous innovation in their firms. The regular ‘touchpoint’ of the action learning process helped to create a continuity in thinking about innovation in their business. Indeed, the totality of meetings, when analysed identifies a process of continuous innovation of business thinking, business strategy and process.\ud \ud The paper will present the results of post-programme interviews with participants and highlight learning and best practice in the use of Action Learning as a method for supporting Continuous Innovation in SMEs. Areas for further\ud research will also be discussed and emerging research questions highlighted
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