**Abstract**

This paper proposes a conceptual implementation model for small and medium enterprises (SMEs) to follow as part of their digital transformation. The conceptual model can be translated into a practical step-by-step guide for SMEs to apply during their digital transformation. The model is based on gradually developing industrial capabilities that can influence production processes performance. We employed a comparative case study approach to capture the lessons learned by SMEs in their journey to develop and implement a production digitalization system for deviation management and performance improvement. The model was validated in the cases of study capturing the actual SMEs' needs. Managerial capabilities of production processes such as monitoring and control demonstrate to influence the performance positively. The proposed model aims for a full digital transformation by following a gradual approach to being resource-efficient and integrating their business needs. This paper is an extension of work originally presented in APMS 2020, IFIP AICT 592.

**Keywords:** Managerial Capabilities, SME, Sustainable Production, Digitalization, Manufacturing Industry
