Background: The effect of COVID-19 on different businesses has been, to put it mildly, challenging. The effect is unique, volatile, and to a large degree dependent on each company’s capability to handle the crisis. With the imposing restrictions and regulations from the Public Health Agency, restaurants in Sweden are facing a new type of crisis. While some businesses interpretations digital transformation as disruptions, instead they should be considered a golden opportunity to improve and add more value to the organization. This has created unique challenges and introduced a growing need for organizations to take different stages towards innovating their business models. Hence, a popular theoretical lens for handling disruptive changes through business model innovation is the dynamic capability framework, which consists of sensing, seizing, and lastly, transforming.

Purpose: The purpose of this thesis was to discover digital transformation through the framework of dynamic capabilities within small restaurants. The research is designed at investigating the nature of building dynamic capabilities for business model innovation on the road to the ongoing digital transformation.

Method: To research how organizations build dynamic capabilities for business model innovation towards digital transformation, this study was supported by unstructured and semi-structured interviews. The interviews consisted of 7 in total, with managers from each of these 7 case companies whose businesses are popular and attractive actors in the restaurant & bar sector. Additionally, primary data was collected through customer reviews and social media to provide supplementary and supportive information about the case companies' various activities and popularity.

Conclusion: Our study exposed that business model innovation for digital transformation contained processes within 3 domains – Value Proposition, Channels, Customer Relationships as well as Key Activities. Additionally, the findings of our study acknowledged that small restaurant and bars enterprises build dynamic capabilities via a total of 6 activities. These included: Risk assessment & digital scouting; Information management & Digital learning; Digital asset investment; Digital agility; Dynamic mindset and lastly, Resource allocation.