Capability-building before transformation: How manufacturing SMEs pursue Industry 4.0 through operational-first digital transformation

Digital transformation has become critical for manufacturing competitiveness, yet small and medium-sized enterprises (SMEs) often struggle to leverage Industry 4.0 technologies because of limited resources and underdeveloped capabilities. While prior research highlights the role of dynamic capabilities and organisational ambidexterity in digital transformation, less is known about how SMEs themselves diagnose digitalisation challenges and prioritise improvement initiatives. This study analyses 17 Detailed Development Plans prepared by manufacturing SMEs within a national Industry 4.0 readiness programme. Using the Gioia methodology, we examine nearly 900 pages of self-assessed challenges and proposed actions. The results suggest that SMEs predominantly interpret Industry 4.0 adoption through an operational lens, emphasising real-time data capture, shop-floor control, and process stabilisation rather than strategic innovation or business model renewal. However, selected cases indicate early planned elements of organisational ambidexterity, where exploitation-oriented digitalisation is combined with exploratory initiatives such as R&D activity, modular capability expansion, and new production technologies. For managers, the findings suggest linking operational digitalisation roadmaps to small-scale exploratory experiments that may help firms gradually move toward ambidextrous capability development. For policymakers, the results indicate that support instruments should follow graduated, capability-staged transformation pathways rather than assuming SMEs are ready for advanced digital adoption.