This study sets out to explain knowledge management (KM) and innovation management (IM) developments within the context of knowledge-intensive business services (KIBS). The existing literature on KM development identifies theories on scope, key antecedents, styles and readiness, while theories on innovation management development are centred on contextual and evolutionary dimensions. None consider the development of both knowledge management and innovation management together, especially in the context of KIBS. The research was conducted using an in-depth investigation of a UK-based management consulting organisation, spanning three iterative phases to achieve theory saturation. The data generated was analysed with data analysis software (Nvivo) in order to facilitate grounded analysis and theory development. The role of the researcher in the case organisation was that of an observing facilitator and there was sensitive interaction with existing theories/literature throughout the process, although theory development was grounded in the research data. The three key findings of this research indicate that organisational responsiveness to the key environmental factors of competitive environment, client expectation and changing industry dynamics shapes the way knowledge and innovation management develop in the organisation. Second, that in KIBS business performance is essentially determined by client perception of value, an impression largely developed during service delivery. The research found a significant level of co-creation activity occurring out of the organisation's relational engagement. The organisation's knowledge and innovation management activities reflect this relational dimension of development, a process that has a significant influence on the development of knowledge and innovation management. Third, that there is a conflicted understanding of innovation performance in the organisation, varying from the consideration of it being an outcome of an innovative product or delivery, to it being the level of innovation in the delivery process rather than just its outcome. These conflicting understandings elicit certain responsiveness in the organisation thataffects the development of knowledge and innovation management. An original model grounded in data has been developed from the research, which seeks to suggest that these three factors of environmental responsiveness, client relational engagement, and conflicted understanding around innovation performance, combined together shape the development of knowledge and innovation management in the research organisation. The limitations of the research are discussed, along with wider implications.