The UK's university sector is seeking to improve its participation in the knowledge economy and meet policy and financial imperatives. This paper reveals some of the opportunities and pitfalls in making that objective a reality in the context of a single university. The findings and organizational development resulting from an action research project undertaken in a small learning and teaching oriented university in the UK are outlined. The aim of the research was to facilitate an increased capacity for knowledge exchange and participation in enterprise activity. Action research was undertaken in a single organization and in collaboration with the university's academic workforce. The outcomes of an initial survey and a series of interviews were used to create a strategic proposal for developing knowledge exchange. The data revealed that a predominantly professionally-oriented academic staff was prepared to accept external engagement and was not averse to commercial outcomes for knowledge exchange. In contrast, the senior management was unwilling to establish systems and processes or enable organizational learning for knowledge exchange until a complete system restructure had been implemented; and this resulted in a very senior appointment (Pro Vice-Chancellor) being made, to lead external engagement. (Contains 1 note and 1 figure.)