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The objectives of this study is first to assess the effect of organizational antecedents on knowledge management capability and its effect on innovation strategy through the moderating effect of environmental dynamism.

The data were collected from SMEs in central region of Malaysia through a cross-sectional survey of 202 owners and analyzed through structural equation modeling using SmartPLS software.

The results show that while formal structure, selection policies, incentives and training and development policies have positive affect on knowledge management capability, there is no effect of innovation culture on knowledge management capability. Knowledge management capability has a positive and significant effect on innovation strategy. Interestingly, the findings show that environmental dynamism strengthens the positive effect of knowledge management capability on innovation strategy.

The findings of this study emphasize on the potential of collaboration among people for creating effective knowledge sharing in organizations and modalities in order to successfully design a collaborative knowledge-based work environment.

The model links organizational antecedents with knowledge management capability and the critical role of knowledge management capability on innovation strategy of SMEs considering environmental dynamism.