Using the dynamic capabilities and absorptive capacity as theoretical lenses, this paper investigates the capabilities required to exploit digital technologies in products and/or in processes. We propose that the capabilities to acquire knowledge from external sources, internal sources and manufacturing operations drive the assimilation and transformation capabilities through the formulation of a digital manufacturing strategy, which in turn determine the capability to exploit digital technologies in products and/or in processes. This paper has adopted a quantitative survey. The respondents are from a sample of innovative SMEs of the Piedmont region, a high innovative region with a historical industrial tradition that represent a fruitful context to investigate how SMEs approach Industry 4.0. Employing the factor analysis and structural equation modelling we found that: (1) the use of multiple external knowledge sources supports SMEs both in the introduction of product and process innovation using both operational and informational technologies; (2) the use of multiple internal knowledge sources support SMEs in the introduction of process innovation using information technologies; (3) multiple manufacturing capabilities are positively related with the introduction of digital product innovation strategies. The sample of SMEs is limited to the Piedmont region (North Italy) which limits the generalizability to other contexts. Future research should enlarge this study in other empirical settings.