Dynamic capabilities at the digital-succession nexus: How family firms navigate dual transformation through three developmental pathways

While digital transformation is crucial for the sustainability of family businesses, existing frameworks inadequately explain how digitalization capabilities develop during succession, particularly in emerging markets. Through a qualitative comparative case study of six Croatian family firms undergoing simultaneous first-time succession and digitalization, this study examines how founder engagement influences the development of dynamic capabilities (DC). Drawing on DCs framework, this study identified three patterns: (1) actively supportive founders enable comprehensive capabilities (sensing, seizing, and transforming) through structured efforts, facilitating successful transitions (2) traditional control with selective permission (i.e., passive support by founders); yields moderate capabilities for partial adaptation; and (3) founders' resistance, despite successors’ enthusiasm, limits firms to basic sensing. These manifest through three pathways: technological adaptation fosters integrative capabilities, external knowledge integration builds absorptive capacity, and internal development enhances organizational learning, each shaped by founder-successor dynamics. This research advances theory by revealing how family relationships can override market forces in capability building, thereby challenging assumptions about the inevitability of digital technology. Findings emphasize that success requires aligned intergenerational support, with founder attitudes as critical gatekeepers. The Croatian context—characterized by institutional voids and cultural tensions—makes these dynamics particularly visible for emerging economies.