In this paper we describe an analytical model to determine the innovation capability of a small and medium enterprise (SME) as the first step towards the continuous improvement of performance in such a dimension of an organization. The model first assesses organizational variables and classifies companies by using the Flowsort? multicriteria method. As second step, the classification module categorizes SMEs into four classes of companies: passive, reactive, proactive, proactive. From this sorting and the subsequent analysis of the variables measured by the survey, it is determined the set of best management practices for innovation that the company needs to implement in order to increase their level of performance. The application of the model to nine companies in Chile is shown along with numerical results. Evaluations show that the classification is consistent with expert judgment and that effectively identifies those areas that contribute most to the increase of the innovation capability in the SMEs.