Technology, as being identified by Porter (1998), is one of five forces that drive industry competition. Firms have to face the fact that they should innovate by using advanced technologies for their survival. Accordingly evaluating the technological strengths and weaknesses becomes an imperative for both academics and practitioners. However traditional performance audits are biased against technological innovation. This gap results in a new type of performance measurement model called "Technology Audit". Technology audit is an analysis performed to identify the strengths and weaknesses of the technological assets of an organization and to evaluate the opportunities and threats from which potential for international competitiveness arises. The instrument of technology audit can provide a sound basis for policy making for both small and medium sized firms (SMEs) and big firms. Here the term SME has a vital importance. SMEs account for more than 80 percent of jobs in developing countries. The economists claim that economic activity moves away from large firms to SMEs and so their survival and growth becomes very important. This empirical study tries to describe the technology audit process and with a comprehensive literature review and conduct a technology audit on SMEs located in Istanbul. Even though it has been widely accepted that the SMEs that survive are important sources of innovation and contribute to a large proportion of growth at the economy-wide level there has been little study done of the innovative behavior of SMEs in general and of the innovative behavior of SMEs in developing countries in particular. Based on a survey conducted on 53 manufacturing SMEs, we found that there is i-) a medium level of awareness considering the importance of technology and innovation within SMEs of Istanbul, ii-) a deficiency in networking and collaboration, 3-) lack of university industry collaboration and 4-) economic insufficiencies for funding innovative activities in Istanbul.