Critical Literature Review of the Innovation and Adaptation Strategies of SMEs Led by First- and Second-Generation Leaders

The paper offers a comprehensive and critical review of the literature on the innovative and adaptive behavior of small and medium-sized family businesses, with a particular focus on differences between first- and second-generation leaders in the Central and Eastern European (CEE) context. Drawing on the Resource-Based View (RBV), the Knowledge-Based View (KBV) and the dynamic capabilities framework, the review synthesizes theoretical and empirical contributions on decision-making, knowledge processes, financing structures and open-innovation networks. Using a structured literature review protocol, we identify, screen and analyze peer-reviewed studies published mainly between 2000 and mid-2024 in leading international databases. The synthesis reveals that the relationship between innovation and performance in SMEs is highly context-specific: founders tend to favor exploitative, path-dependent innovation directions, while successors are more inclined towards exploratory, digitally and environmentally oriented strategies. However, this greater openness is strongly conditioned by institutional and financial constraints, particularly in risk-averse CEE environments. Leadership quality, intergenerational knowledge transfer and absorption capacity rise as key mediating mechanisms, whereas regional intermediaries and platform-based ecosystems partly compensate for resource and capability gaps. The review makes three main contributions: (1) it clarifies how generational leadership interacts with resource constraints and institutional conditions in CEE family SMEs; (2) it develops a thematic synthesis across four critical domains - decision-making, knowledge sharing, financing and openness; and (3) it derives an agenda for future research and a set of practice- and policy-oriented implications for supporting digital and green transformation in family SMEs.