Small R&D active firms in knowledge-intensive business services (KIBS) can be characterised as technology experts in niche markets. Their reliance on expertise in one or a few key technology areas involves a continuous challenge to make strategic decisions in terms of future technology and market positioning. The formal management of R&D is considered an important part hereof. However, besides the fact that it is no common practice in about half of these companies little is known about formal R&D management in small firms in KIBS. This paper addresses this gap using a combined quantitative and qualitative research approach. The starting point for the descriptive quantitative empirical analysis is a representative sample of small R&D active firms in KIBS provided by the OECD business R&D survey for Belgium. The presence of formal R&D management is related to aspects of dynamic capabilities. The qualitative research is based on strategic choices in the innovation strategy in twelve purposively chosen small firms during the period 2005 -2011. It maps the evolution of the firm’s technology and market positioning within a setting adapted to small firms in KIBS, and highlights its relation with formal R&D management. The analysis reveals that formal R&D management in small firms in KIBS can be related to more complex linkages between internal innovation strengths and opportunities in the firm’s external environment. Moreover, formal R&D management in KIBS is found to be closely related to dynamics in strategic decision making in terms of market positioning and to innovation success. The influence of formal R&D management on the technology focus in small firms in KIBS turned out to be of minor importance.