Higher-order dynamic capabilities of SMEs: emergence in a high-velocity environment

This study explores how resource-constrained small and medium-sized enterprises (SMEs) developed higher-order dynamic capabilities (HDCs) in response to the unprecedented turbulence of the COVID-19 pandemic. Building on the dynamic capabilities framework, HDCs are conceptualised as meta-capabilities that reshape lower-level routines and enable strategic renewal, especially under high environmental velocity and uncertainty. While prior research has centred on large or high-tech innovative firms, evidence on HDCs within traditional-sector SMEs remains limited. Addressing this gap, the paper asks what constitutes the core building blocks, immediate enabling conditions, and short- to medium-term outcomes of SME HDCs during the pandemic. An exploratory multiple-case study of diverse Polish SMEs (chosen for their effective crisis responses) combines in-depth interviews with triangulated secondary data. The analysis reveals that crisis-triggered threat awareness, survival-oriented managerial agency, organisational openness to change, resource flexibility, and improvisational problem-solving enabled rapid resource reconfiguration, path-breaking innovation, market entry, and survival. The findings show that HDCs can form quickly when managers build on existing, sometimes hidden, strengths. The study links routine-based and agency-driven views of dynamic capabilities and offers SME leaders practical guidance on crisis resilience.