There is a widespread consensus among researchers as well as policy makers about the importance of workplace learning from the perspective of lifelong learning, but also from the perspective of long term competitiveness and innovativeness in firms (Lundvall & Johnson 1994; Maskell, et al, 1998). In line with this, we have also witnessed a rapid growth of organizations investing in human capital (CEDEFOP, 2001), and there has been a general increase of research on learning and competence development in organizations (Salas & Cannon-Bowers, 2001). In spite of the widespread consensus regarding the importance of work- based learning, little is known about processes of learning at work, and the conditions that are likely to facilitate or constrain such processes. Furthermore, our present knowledge in this field is to a great extent based on studies of larger private companies and public organizations. Research on learning and competence development in small business has until quite recently been a neglected area (Curran & Blackburn, 2001). The purpose of this paper is to increase our understanding of how competence development initiatives are carried out and managed by SMEs. This is foremost achieved by elaborating two questions: (a) What motives and driving forces encourage SMEs to undertake learning activities? (b) What methods and strategies are used? Data was collected as part of an ongoing project on learning and development processes in SMEs that have received support from the European Social Fund (Objective 3). The sample included in this study comprises 18 SMEs, representing private enterprises and public organizations, the production of goods as well as services. Interviews were conducted with four to six representatives from each firm/organization, including management, union representatives and members of staff. In total, 94 interviews were analyzed. The interviews were focused on motives for development and learning activities, the participation of staff, plans and strategies for competence development. Data will be analyzed and discussed in relation to two competing theoretical perspectives: a technological-functional view (e.g. Collins, 1979) and an institutional perspective (e.g. Scott, 1995; Scott & Meyer, 1991). According to the first of these perspectives, competence development is viewed as a conscious and rationally planned strategy for meeting such things as new or increased competence requirements due to altered environmental conditions (e.g. new customer requirements) or changes in the organization, i.e. it is based on an instrumental and rationalistic view of education. Contrary to this, the institutional perspective as elaborated here emphasizes that investments in competence development are controlled, not by rational goals-means considerations, but by a striving towards increased legitimacy (inwards or outwards) by adapting to more or less temporarily predominating ideas about rationality, efficiency or modernity in the field of business of the firm. References:CEDEFOP (2001). Training and learning for competence. Second report on vocational training research in Europe. Luxembourg: Office for Official Publications of the European Communities.Collins, R. (1979). The Credential Society. A historical sociology of education and stratification. New York: Academic Press. Curran, J. & Blackburn. R. A. (2001). (Eds.). Researching the Small Enterprise. London: Sage.Lundvall, B-Å. & Johnson, B. (1994). The Learning Economy. Journal of Industry Studies, 2, 1, 23-42. Maskell, P., Eskelinen, H., Hannibalsson, I., Malmberg, A. & Vatne, E. (1998). Competitiveness, Localized Learning and Regional Development. Specialisation and prosperity in small open economies. London: Routledge. Scott, W. R. (1995). Institutions and Organizations. Thousand Oaks: Sage Publications.Scott, W. R. & Meyer. J. W. (1991). The Rise of Training Programs in Firms and Agencies. An Institutional Perspective. Research in Organizational Behavior, 13, 297-326.