This paper is part of an externally funded three year Network for Innovation (iNET), whose main goal is toimprove the innovative capacities of small and medium enterprises (SMEs) in Aerospace and AdvancedEngineering (AAE) across the South West of England. This paper investigates the sourcing and managing ofknowledge exchange as a basis for developing innovation, through the case of the AAE iNET. This is basedupon the strong relationship between learning and innovation, and the theories of resource-based value anddynamic capabilities. It is also based upon the assumption that innovation is significantly influenced by theformation of networks. This view is supported by the literature on triple helix systems which draw the attentionto the point of effective institutional relationships between university, industry and government as being crucialfor knowledge exchange and sustainable innovation and competitiveness.The firm’s capacity for knowledge exchange can be conceptualised through knowledge acquisition,assimilation, transformation and exploitation. Together they determine the organisation’s ability to evaluateand utilise external knowledge known as the ‘relative absorptive capacity’. The process of knowledgeexchange depends on ‘innovative routines’ or ‘dynamic routines’. To this model of dynamic capacity weintroduce the precursor capacity of awareness, and discuss how innovation networks also need to developthis within themselves and their membership
