This paper investigates technology policy for national governments, particularly the importance of education and training and the role of institutions of higher education as components of such policies for the diffusion and absorption of knowledge, as part of an overall strategy for improving the competitive edge of a nation's enterprises. The paper concentrates on key factors for success in building up strategic alliances between institutions and industry. An examination of the relation between technology policy and the innovation process looks at a linear model and an interactive model and elaborates on the changing approach towards these different models. The paper discusses the three phases of the model used in the Netherlands, which begins with a pre-competitive phase involving conceptualization of the business concept, then testing of the business concept, and finally commercial development of the product. A section on education and training in the Netherlands also looks at linear and interactive models for technology diffusion and describes the interactive Dutch approach. A list of seven success factors is offered. Eight references are included. (JB)