| This research is based on the importance of innovation in an organization to be able to continue to compete in this globalization era .Especially for small and medium enterprises that is very much in need of innovation to compete with large companies.There are some views that if the model management of knowledge (tacit knowledge ) is good then it will affect the innovation of an organization .In addition to managing the management of knowledge , wealth ( intellectual capital) of an organization that is invisible is also an important factor for innovation of the organization, hence this research is done to find out the influence of the management of knowledge and intellectual capital of an organization towards innovation of an UKM. This study was conducted to analyze the effect of using the results of the questionnaire and then processed using SEM software Partial Least Square (PLS). The results of data processing based on the results of the PLS software shows that tacit knowledge does not affect the innovation, due to the lack of attention from UKM Karya Kulit to develop knowledge of each employee that resulted in difficulties to give ideas or innovation. Results for Intellectual Capital which affect the innovation can happen because the owners of UKM have unknowingly implemented or considered factors of Intellectual Capital at every process in UKM |