In constantly shifting service environments managers face the challenge to renew, modify, and reconfigure their firm’s service offerings as to effectively respond to industry turbulence. Dynamic capabilities have been proposed as a primary means by which firms reconfigure their operational processes to generate such new service offerings. While the role of dynamic capabilities in large organizations has been extensively investigated, their role in small organizations has not received much attention. We explore how dynamic capabilities manifest in small service firms and how they use IT capabilities to achieve these capabilities. Using a multi-site case study in four small service firms, we examine how the four dynamic capabilities identified by Pavlou and El Sawy (2011), namely (i) sensing, (ii) learning, (iii) integrating, and (iv) coordinating capabilities enable a firm to achieve these capabilities. Our study extends the literature on dynamic capabilities to small service providers operating in the defense contracting industry. It explains how they can develop dynamic capabilities by reconfiguring operational capabilities when operating under industry turbulence. Our findings also reveal IT as a critical enabler of dynamic capabilities. For managers, our study offers new insights on how they can better understand, assess, and acquire dynamic capabilities in their firms.