The research proposes an analytic framework to configure the policy portfolio for diffusing knowledge embedded in higher-education institutes. A modified Delphi method was first proposed to derive the key factors for enabling and enhancing the diffusion mechanism. The influence relationships between these factors were derived using the Decision-Making Trial and Evaluation Laboratory (DEMATEL). The analytic network process (ANP) derived weights associated with the key factors. Finally, the Grey Relational Analysis (GRA) was used to derive the policy instruments based on the Grey Relationships between the key factors and the policy instruments. An empirical study based on Taiwanese higher-education institutes also/then verified the feasibility of the proposed analytic framework. These findings suggest that research and development activities, publications, and networks of academic exchange play primary roles in knowledge diffusion in higher-education institutions. Motivation, human resources, and investment are the most important policy instruments to use for improving knowledge diffusion in the higher-education system.