Hybrid capability systems in UK SMEs: Policy lessons for resilience and regional growth

Small and medium-sized enterprises (SMEs) are central to local and regional economies but often face persistent challenges of growth and resilience under resource constraints. This paper examines how SMEs develop strategic capacity through hybrid capability systems, combinations of formal structures and informal practices across planning, innovation, human resources, and external engagement. Drawing on a diagnostic framework and comparative case studies of four UK-based SMEs, the study shows how diagnostic tools surface capability strengths and gaps in real time, enabling reflective learning for owner-managers and tailored support from business intermediaries. Findings reveal that hybridity is not a transitional stage toward large-firm formalisation but a durable and adaptive organisational mode that supports strategic coherence under uncertainty. The results highlight the need for SME policy frameworks that recognise hybridity as a legitimate growth path, embedding diagnostic tools and network-based interventions into local and regional support provision. The study contributes both practically, by offering actionable guidance for SME leaders and policymakers, and theoretically, by extending strategy-as-practice and dynamic capabilities perspectives to account for the micro-foundations of capability-building in small firms.