The Role of Digital Transformation in Driving Entrepreneurship and Enhancing Organizational Capabilities in Small and Medium-Sized Enterprises

Abstract

Digital transformation (DT) is one of the key drivers of competitiveness and sustainability for Indian small and medium-sized enterprises (SMEs) in the rapidly emerging technology-driven business climate. In this paper, the determinants of DT amongst Indian SMEs are evaluated through data analysis of a heterogeneous sample of 242 entrepreneurs. Having adopted an evolutionary frame of mind, the study has delineated DT as an ever-evolving adaptive process fueled by four drivers, namely organizational capability, environmental factors, technological potential, and readiness in finance. The study finds these SMEs at various levels of digital evolution, from the early adopters utilizing sophisticated digital instruments for development and innovation to laggard firms being overwhelmed by financial constraint, skill shortage, and resistance to change. Market competition and customer pressure are powerful external drivers, whereas leadership willingness, employee digital skills, and technology availability drive the speed and degree of digital adoption. The research offers valuable insights for entrepreneurs who are interested in applying digital solutions to their business models and policymakers who are interested in designing purpose-driven interventions like financial incentives, upskilling, and enhanced digital infrastructure to encourage SME digitalization. By identifying the important enablers and inhibitors, this study acquires an additional level of insight into the digital transformation landscape in the SME sector and its long-term growth and resilience implications.