Can university knowledge exchange give small businesses the ability to gain competitive advantage? The main purpose of this study is, first, to understand the limitations for small firms in absorbing knowledge from higher education institutions and, second, to ascertain whether access to knowledge resources, such as a university, can be an antecedent factor for building absorptive capacity in small and medium-sized enterprises (SMEs) and creating business value. The paper is a conceptual study in which a model for knowledge exchange between a management school and SMEs is proposed. The model was developed, drawing on the
literature and prior SME knowledge exchange expertise of the management school, to deliver a three-year project funded by the European Regional Development Fund. The project, ‘Innovation for Growth’, is designed to embed innovation in the business processes and practices of 300 SMEs in the north-west of England. This paper offers recommendations for improving policy aimed at supporting the innovation process of small firms; a proposed model of knowledge exchange between university and small firms; and a strategy for small businesses to improve their absorptive capacity.