Small research and development (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 Organisation for Economic Cooperation and Development 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 12 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.