A microfoundational perspective on SMEs’ growth in the digital transformation era

•Individual digital capabilities for SMEs’ growth.•A microfoundational perspective on SMEs’ growth in the digital era.•The need of digital literates in the field of information, communication and software. This research illustrates the relevance of individual digital capabilities for SMEs’ growth and innovation performance. Going beyond Penrosian growth theory, taking a microfoundational perspective demonstrates that these capabilities are crucial for attaining business growth and innovation. From a sample of 2,156,360 European SMEs, our findings highlight SMEs’ need for internal digital capabilities to respond rapidly to market changes. The current workplace requires individual capabilities able to face increasingly complex and interactive tasks. This set of capabilities also drives SMEs towards new perspectives and induces an increasing demand for individual digital capabilities. Employees are thus tasked to be digital literates in the field of information, communication and software. Penrose and others argued that business growth is leveraged primarily by interpersonal relationships based on trust, identification, and mutual obligation. However, today, individual digital capabilities have assumed an equally crucial role for growth and innovation in our increasingly digital competitive reality.