Exploring Digital Transformation Journey Among Micro, Small-, and Medium-Sized Enterprises

Abstract

This paper aims to explore the patterns in micro, small-, and medium-sized enterprises’ (MSMEs) digital transformation journey during recent years. Using an emergent concurrent mixed-methods approach, we combined insights from six in-depth interviews with MSME managers and owners with survey data from 66 MSMEs. The findings reveal major inhibitors and accelerators of MSMEs’ digital transformation and demonstrate how they cope with them by engaging in digitalisation actions. This study also provides insights into how inhibitors, accelerators, and digitalisation actions vary across MSME sizes. While an increased adoption of digital technology was observed among the participating MSMEs, this study identifies three distinct digital transformation paths: necessary, experimental, and committed. Each path is shaped by a unique combination of inhibitors and accelerators. From the practical perspective, this research provides insights for MSME managers and owners on how to tailor their digital transformation efforts to their unique inhibitors and accelerators. In addition, our insights can help policy makers to promote the digital transformation of MSMEs through appropriate measures and support mechanisms tailored to the specific needs of smaller enterprises.

1. Introduction

In the business environment, one of the most important catalysts driving business productivity and competitive advantage is digital transformation [1]. This paradigm shift goes far beyond mere technological integration and encompasses the use of digital technologies together with the strategic exploitation of key resources and capabilities. The overarching objective of this transformation is to revolutionise the enterprise and redefine its value proposition for its multiple stakeholders. Such a fundamental change implies a complete transformation that brings significant improvements and requires a new way of working and thinking [2]. The thoughtful and innovative deployment of digital technology brings a number of opportunities, including cost reduction, increased operational efficiency, enhanced innovation capacity, increased consumer engagement, and new opportunities for market expansion [3].

The year 2020’s unprecedented shocks caused by the COVID-19 pandemic brought a threat to various sectors of the economy. Enterprises around the world faced a range of challenges, including disruptions in supply chains, reduced demand for goods and services, inventory shortages, reduced investment in development, and government-mandated closures. The impact of the pandemic was not the same across all sectors, with the hospitality and tourism sectors among the worst affected [4]. Furthermore, the ability to cope with the COVID-19 pandemic was closely linked to the size of the enterprise, its resources, and its technological, managerial, and employee capacities. In this context, micro, small-, and medium-sized enterprises (MSMEs) were particularly vulnerable [5]. Many MSMEs faced a slower journey to restore their businesses to pre-crisis levels [6]. This vulnerability was also highlighted after the global financial crisis in 2008, during which MSMEs experienced a sudden drop in demand, resulting in financial distress due to a reduction in income [7]. The consequences of the COVID-19 crisis were remarkably similar to those of the previous financial crises. In particular, 71% of Italian MSMEs were directly affected by the crisis, while 50% of German MSMEs anticipated long-term negative effects [8]. Nevertheless, some MSMEs, due to their compact size and inherent flexibility, have demonstrated agility that their larger counterparts have often struggled to emulate.

In response to the recent challenges, a large number of MSMEs have relied more heavily on digital technologies [9]. These enterprises have recognised that digital technologies play a key role in ensuring business continuity, especially in times of crisis, as they provide support to core activities such as sales and marketing [10,11]. Importantly, smaller enterprises have also started to adopt digital technologies previously not considered essential to their businesses, enabling them to survive in turbulent times [12]. Digital technologies have facilitated interactions between employees, customers, and suppliers, enabled remote working, and in some cases influenced changes in MSMEs’ value propositions and business models [13]. Unfortunately, some micro and small enterprises have not been able to take advantage of digital technology, as their business models were mainly dependent on face-to-face transactions or they lacked the necessary digital infrastructure and skills [14].

In a broader context, MSMEs are lagging behind in their digitalisation endeavours compared to larger enterprises. This situation is resulting in a digital divide [15], which is not only the result of financial constraints and lack of digital skills, but also due to a lack of clear digital transformation strategies and objectives [16]. As MSMEs represent the majority of the EU market and are the largest employer and contributor to the EU economy, their competitiveness, which cannot be achieved without digital and sustainable transformation, is of high importance. Therefore, various initiatives were launched at the European and national level to promote the adoption and use of digital technologies in MSMEs. These initiatives include financial incentives such as tax reductions and financial support, technological upgrades to increase security, and human capital development programmes to nurture digital skills [17]. In addition, national MSME organisations, including chambers of crafts, chambers of commerce, and digital innovation centres, play a key role in sharing expertise on different aspects of digitalisation with MSMEs. Nevertheless, their efforts are only slowly meeting expectations as it is evident that the majority of MSMEs still lag behind in digital transformation endeavours compared to larger enterprises [15].

In recent years, most studies have focused on the challenges posed by COVID-19 and to some extent also on how MSMEs respond to these challenges by using digital technology [14,18,19,20,21,22]. Unfortunately, the findings are fragmented and there are a lot of uncertainties about how enterprises can implement digital technologies to foster digital transformation. Moreover, although micro enterprises account for over 90% of the total business population in the European Union [15] and exploit the opportunities of digitalisation to some extent [23], they are usually ignored in small business research. In addition, theoretical conceptualisations and guidelines for digital transformation in the context of MSMEs are limited [24]. Therefore, this study intends to explore MSME experiences with digital transformation in turbulent times by identifying the inhibitors and accelerators of MSMEs’ digital transformation and how MSMEs cope with these inhibitors and accelerators by engaging in the digital transformation. To achieve these objectives, this study employed an emergent concurrent mixed-methods approach, integrating six in-depth interviews with MSME managers and owners alongside survey responses from 66 MSMEs. This study offers insights into the inhibitors and accelerators that MSMEs have encountered in recent years and how they coped with them by engaging in different digitalisation actions. It further explores differences across various MSMEs’ sizes and identifies the main digital paths they have taken. In doing so, we highlight good practices that facilitate the digital transformation process which can be useful to MSME managers to better engage in their digital transformation. Results of our research can also be useful for policy makers, who can gain a better understanding of digital transformation practices of MSMEs and tailor appropriate measures and support mechanisms to stimulate MSMEs’ digital transformation.

2. Literature Review

2.1. MSMEs’ Digital Transformation

Digital transformation is not only crucial for large enterprises but also for MSMEs, which play an important role in the economy. This was evident during the COVID-19 pandemic, when many enterprises had to adopt different technologies to survive [25]. Nevertheless, the adoption of digital technologies in MSMEs differs from that in larger enterprises. Researchers [24,26] therefore emphasise the need to develop novel theoretical models and tailored approaches specifically designed for SMEs. In recent research, some attempts have been made to identify digital transformation pathways or address some aspects related to planning in the process of digital transformation. For instance, Ref. [22] examined various MSMEs that have responded differently to digitalisation based on the status of digital transformation, including the extent of implemented changes and acquired capabilities, a concept also referred to as digital maturity [27]. MSMEs with a high level of digital maturity have accelerated their transition to be fully digitalised enterprises. On the other hand, MSMEs with low digital maturity have focused exclusively on digitalising their sales functions, while MSMEs with limited digital competence have chosen to outsource their digitalisation activities to external partners. In another study by [28], it was suggested to assess the current state of MSMEs’ digital maturity and readiness before they start digital transformation. Digital maturity offers management a framework of scoring criteria that enables them to evaluate their current status and monitor the progress of their digital transformation over time. Previous research has developed various scales to assess an organisation’s digital maturity [29], many of which have been adapted to ensure broad applicability across diverse contexts while maintaining simplicity and effectiveness [30].

Although digital transformation is essential to succeed in the competitive business environment, many MSMEs focus on the wrong components of digital transformation, resulting in changes that have little impact on their performance [25]. To better understand the digital transformation needs, leaders need to invest in the understanding of their MSME’s digital maturity. This will enable them to plan and strategise digital transformation with greater efficiency and positive outcomes [29]. Unfortunately, digital maturity assessment is not the only key to success as it does not provide insights on how to develop an effective digital transformation strategy and start digital transformation. Successful digital transformation goes beyond the deployment of digital technologies and requires, among other things, pioneering top management with the necessary skills, investment in digital literacy of employees, and an innovative culture [31].

2.2. Inhibitors and Accelerators of MSMEs’ Digital Transformation

Digital transformation is a complex and endless process. Although digital technologies offer many new opportunities, MSMEs face various challenges that hinder their digital transformation. According to the existing literature, to overcome these challenges MSMEs need to have control over several complementary resources [32] while receiving some push from the environment [33].

Recent research has highlighted the importance of the resource-based theory (RBT) as a theoretical foundation for explaining and understanding the impact of organisational characteristics on digital transformation. Key elements such as digital resources and capabilities, organisational structure [32], culture [34], and commitment [35] serve as fundamental pillars for successful digital transformation. Moreover, enterprises need to align their changes with their overall strategy to effectively achieve digital transformation goals [32,34]. When MSMEs do not have control over complementary resources, they can be considered as inhibitors.

A traditional RBT adopts an internally-driven perspective that emphasises the importance of internal organisational resources. As enterprises do not operate in isolation from the external environment, researchers have proposed various extensions to the theory. For instance, Ref. [36] have combined RBT with “extended” resource-based theory (ERBV) while [37] have combined RBT with resource-dependency theory (RDT). The external environment can be understood as an accelerator that drives the digital transformation of enterprises. This includes not only external resources, such as government support [38] and partnerships [39], but also other triggers such as digital advancements [32,40] and other unforeseen environmental changes [22], which have been identified as accelerators of digital transformation. Key inhibitors and accelerators identified in recent literature are presented in

Table 1. Identified key inhibitors and accelerators.

Inhibitors/Accelerators	References
Inhibitors
Lack of financial resources	[41,42,43]
Lack of digital capability	[3,44,45,46]
Lack of knowledge and skills	[47,48]
Non-availability of digital resources	[42,49,50]
Unclear digital business strategy	[26,49,51,52]
Lack of change management competences	[53,54,55]
Low level of employee engagement	[56,57]
Accelerators
Customer behaviour and expectations	[32,56,58,59]
Digital shifts in the industry	[32,53,60]
Regulative changes	[61,62,63]
Accessibility of advanced digital technologies	[64,65]

.

2.3. Digital Transformation Paths

Unfortunately, there is no universal approach to digital transformation as enterprises have different levels of digital maturity and priorities. According to [66], there are four digital transformation pathways that enterprises can take. The industrialising path prioritises operational efficiency, especially if enterprises already provide a satisfactory customer experience and want to improve their operational processes. Initially, dealing only with legacy systems and internal data can create a sense of slow progress, potentially leading to disillusionment and failure. However, persevering through this phase is crucial to stimulate innovation and the introduction of new services. The second path puts customer experience at the forefront. At the beginning of this path, enterprises may experience short-term gains in customer satisfaction scores and sales due to local innovation projects that address different needs. However, the challenge lies in the complexity and higher cost caused by stand-alone systems. Therefore, it is essential to shift the focus to operational efficiency and integration of systems once the crucial customer experience goals are achieved. To avoid this, enterprises can adopt a path where they alternate between focusing on improving the customer experience and operational efficiency through smaller, well-defined projects.

While the aforementioned paths are more applicable to larger enterprises [67], the three pathways of digital transformation in the setting in SMEs identified by [22] appear to be more suitable for smaller enterprises. The first path means accelerating the pace of digital transformation, the second path involves digitalising sales functions, and the third path involves working with digital partners to tap into the market. It should be noted that the perspective of micro enterprises has been neglected in this study, leading to limited understanding of smaller enterprises. Moreover, the provided insights were limited to manufacturing MSMEs, despite evidence that digital transformation also provides benefits to MSMEs in the service sector.

Ref. [31] enriched the existing literature on digital transformation path models (e.g., Refs. [68,69,70]) by explaining actions SMEs took to facilitate digital transformation. By describing these actions, the patterns of how digital transformation happened were explained. Similarly, [22] identified digitalisation actions and categorised them into different levels of their engagement in the innovation: non-use, orientation, preparation, testing, routines, and refinement and integration as suggested by [71].

3. Materials and Methods

This study employed an emergent concurrent mixed-methods approach. The use of a qualitative research approach has proven to be crucial to gain a deeper understanding of the phenomenon under study when a lack of extensive literature on the topic exists [72,73]. The multi-layered nature of the research is consistent with the aim of uncovering potential patterns in the complex pathways of MSMEs’ digital transformation [74]. As the qualitative research progressed, it became clear that adding a quantitative component would strengthen the findings through triangulation. Therefore, we conducted a survey in parallel with the qualitative data collection to complement and strengthen the research through a mixed-methods approach.

We followed the convergent parallel design procedure outlined by [75]. In the first step, we determined qualitative approach and during the collection of the qualitative data we determined quantitative approach and started with collection of quantitative data. In the second step, we separately analysed qualitative and quantitative data. In the third step, we merged the two sets of results, and in the final step, we interpreted the merged results.

3.1. Sampling Logic and Data Collection

For the qualitative research, we developed a case study protocol as multiple researchers were involved in the research process [76]. In the protocol, we defined data collection method, articulated the case selection criteria, and provided reporting guidelines and a roadmap for the analysis of results. To ensure the depth and breadth of our insights into phenomena under study, our semi-structured interviews were carefully designed to explore aspects related to MSMEs’ digital transformation activities in recent years (see the list of questions in Appendix A). These questions were used to analyse in depth the inhibitors and accelerators of digital transformation, along with the digitalisation actions taken to facilitate digital transformation and were informed by prior research (in particular [22,68,69,70]). For the quantitative research, we developed a closed-ended survey instrument and identified the sample. The survey measured the following dimensions: organisational readiness, supply chain uncertainty, government support, and digital transformation intensity. The digital transformation intensity items were adapted from [30], supply chain uncertainty items were adopted from [59,60], and RBV theory was used as conceptual underpinning to evaluate resources MSMEs can exploit to intensify digital transformation.

Our empirical research is based on a foundation of six in-depth interviews with MSME managers/owners and survey responses of 66 SMEs. In selecting the sample for the case study, we have followed the European Union criteria—number of employees (micro enterprise—less than 10 employees, small enterprises—less than 50, and medium-sized—less than 250 employees), turnover and balance sheet total [77]. Our sampling strategy purposefully selected manufacturing and service MSMEs, with the exception of the ICT sector (see the details in Appendix B). We selected these MSMEs specifically for their notable ability to adapt to the significantly changed business environment during the COVID-19 crisis, making them particularly relevant to the focus of our study. Our interviews were conducted using online collaboration tools and phone calls, which allowed us to explore in depth the underlying details of digitalisation-related actions taken in recent years. The interviews lasted an average of 75 min, which allowed for an in-depth exploration of the topics covered. The interviews were recorded and carefully transcribed to allow a more comprehensive analysis of the data. These transcripts, research notes, and other material available online helped researchers to prepare a comprehensive report that served as the main medium for the subsequent analytical stages. In line with confidentiality requirements, the identities of the MSMEs interviewed in the transcribed data were carefully concealed to protect the privacy and proprietary information of the entities under study.

In selecting the sample for the survey, we used Slovenian Business Register database and applied stratified random sampling to 600 MSMEs, dividing them equally by MSME size category (200 per size). Stratified sampling was chosen due to its capability to provide a known likelihood of each member being selected, which is particularly valuable for multi-level respondent targeting. The basis for categorising MSMEs by size included specific metrics, such as the number of employees, annual revenue, and industry sector, ensuring a comprehensive representation. Additionally, the sample was randomly drawn from the entire MSME population in Slovenia to cover a diverse range of perspectives. Survey administration involved emailing a request for participation, detailing the survey’s purpose, confidentiality measures, and follow-up reminder after three days to encourage responses. The specific content and timing of these communications were designed to maximise response rates while minimising potential bias. We used the 1 ka online survey tool due to its user-friendly interface, analytical previews, and versatile output capabilities, which allowed for more seamless data collection. The survey configuration within 1 ka online survey application included demographic and close-ended questions using Likert scales, and dichotomous formats. Out of the 600 contacted MSMEs, the survey yielded 66 valid responses.

3.2. Data Analysis

For the analysis of qualitative data, both deductive and inductive approaches were employed [48]. The first step ensured that the coding process was aligned with previous research. Categories for accelerators, inhibitors, and digitalisation actions were established based on previous research (e.g., see Table 1 and [22]). Two researchers meticulously reviewed all transcripts to identify segments of text relevant to these predefined categories. They then met to discuss their findings and collaborated to refine the coding scheme. To minimise researcher bias and ensure a thorough understanding of the data, the researchers revisited the material, reading it carefully once again. This process allowed them to identify any discrepancies and issues in distinguishing between categories. They refined the coding scheme by adding coding rules and clarifying areas where the boundaries between categories were unclear. Once this revised coding scheme was developed, they began coding the data, starting with case narratives. This initial coding was performed using the agreed-upon framework.

After about a week of analysis, the researchers met again to discuss new codes that had emerged inductively from the data. This iterative process allowed them to capture aspects of the data that had not been anticipated in the deductive coding phase. Several interactions occurred, with modifications to the coding scheme to ensure that all significant themes were captured. The combination of deductive and inductive approaches resulted in two sets of categories, which were eventually integrated by collapsing similar categories into higher-order themes. This process reduced the data into a more manageable structure, leading to a final coding frame consisting of three primary themes: inhibitors, accelerators, and digitalisation actions. The final coding frame was then applied by two coders working interactively to code data units. This process continued until coding consistency was achieved, with several rounds of refinement and validation of the coding frame. Once the research team was satisfied with the reliability and accuracy of the coding scheme, the entire dataset was coded by a single coder. This systematic and iterative approach ensured the robustness and comprehensiveness of the data analysis.

For the quantitative data analysis, SPSS (version 29) was used to conduct both descriptive and inferential statistical analyses, which included a combination of Likert scale and dichotomous scale responses. We used ANOVA to test for significant differences among various sizes of enterprises in their experiences with inhibitors and accelerators, as well as in digitalisation actions they take during their digital transformation journey.

4. Findings

4.1. Participating MSMEs

In the qualitative part of this study, six MSMEs were included. The PhysicalWell-being provider offers a range of therapeutic training, individualised programmes, and group training for a variety of clients. Chocolatier, known for its handmade chocolate confectionery, sells products in six chocolate boutiques located in different regions in Slovenia. The Beauty salon offers top-quality hairdressing services in two salons and a well-established online shop for cosmetic products. The AluminiumFinish provider, a family-run business, boasts extensive expertise in electrochemical surface treatment. The FreshHarvest distributor, another family-owned enterprise, specialises in the distribution of fresh fruit and vegetables. The NutriWell producer is a renowned European producer of food supplements derived from bee products and other natural resources.

Table 2. Characteristics of case MSMEs.

MSME	Employee Size	Annual Sales (EUR)	Target Market	Founded	Informant
PhysicalWellbeing provider	1	100,221.64	National, predominantly B2C	2016	owner
Chocolatier	9	403,781.82	National, B2C, B2B, B2G	1992	owner
Beauty salon	20–25	616,717.26	National, B2B and B2C	2012	owner
AluminiumFinish provider	16	725,433.40	International, only B2B	1993	manager
NutriWell producer	125	29,595,751.00	International, predominantly B2B	1990	director of finance, accounting, controlling and IT
FreshHarvest distributor	71	14,517,436.00	International, predominantly B2B	1954	owner

provides a more detailed overview of the MSMEs included in our sample.

In the quantitative portion of this study, 66 responses were collected from MSMEs. Of these, 38% were small enterprises, followed by medium-sized businesses (33%), and micro-enterprises (29%), spanning different regions and industries in Slovenia. Only 2% of the MSMEs were start-ups, 33% were in the growth phase, and 65% were in the mature phase (

Table 3. Characteristics of MSMEs participating in the survey.

Characteristics	Percentage
Size
Small	37.9%
Medium-sized	33.3%
Micro	28.8%
Business growth phase
Growth phase	65.2%
Mature phase	33.3%
Start-up phase	1.5%
Industry sector
Other services activities	25.2%
Manufacturing	23.3%
Wholesale and retail trade	21.2%
Water supply, sewerage, waste management, and remediation	7.6%
Agriculture, forestry, and fishing	4.5%
Transporting and storage	4.5%
Professional, scientific, and technical activities	4.5%
Information and communication	3.2%
Construction	3.0%
Real estate activities	1.5%
Education	1.5%

).

When it comes to digital technologies adoption, only 44% of the MSMEs reported using enterprise resource management (ERP) solutions, while 40% utilised mobile applications, 32% employed customer relationship management (CRM) systems, and 30% used business intelligence (BI) tools. In contrast, a significant majority used accounting software (72%) and opted for easy-to-implement, low-cost solutions such as office suites (e.g., Google Workspace, Microsoft 365) (98%), online communication tools (e.g., MS Teams, Zoom, Skype) (85%), and social media platforms (56%).

4.2. Qualitative Findings

By using a sequential qualitative approach, we identified inhibitors and accelerators to digital transformation experienced by MSMEs and how MSMEs cope with these inhibitors and accelerators.

Table 4. Data structure of inhibitors and accelerators experienced by MSMEs in recent turbulent environment.

	1st Order Concepts	2nd Order Themes	Aggregated Dimensions
Inhibitors	Low level of financial reserves	Financial constraints	Lack of financial resources
	Difficult to secure fundings
	Not aware of all the available funding options
	Employees with low level of digital skills	Lack of digital skills	Low digitalisation readiness
	Prioritising the development of other work-related skills
	No investments in digital training
	Insufficient digital technology	Digital technology issues
	Underutilised digital technology
	Dealing with numerous other acute issues that have a higher urgency (e.g., issues with supply chains, changing customer behaviour, …)	Low prioritisation of digitalisation	Change management challenges
	Focusing more on digitalisation of individual areas of a business	Lack of formal digitalisation strategy
	Not understanding that digital transformation means more than just technological implementation
Accelerators	Consumer buying behaviour changes	Supply chain turbulence	Environmental changes
	Better supply chain visibility and management
	Availability of wide range of different digital technologies for different purposes	Digital technology availability
	Accessible and affordable digital technology
	Government funding schemes	Accessibility of government support	External support
	Digitalisation voucher programmes
	Advice, training, and internationalisation support
	Expertise of technology partners to identify and implement the most suitable digital technology	Support from technology partners
	Expertise of technology partners who ensure enterprise stays current with the latest industry trends and opportunities

shows the resulting data structure, which reveals main inhibitors and accelerators of digital transformation in MSMEs.

Table 5. MSMEs’ level of engagement in digitalisation actions.

	Paths to Digital Transformation
	Necessary		Experimental			Committed
Digitalisation actions	Chocolatier	AluminiumFinish provider	PhysicalWellbeing provider	Beauty salon	FreshHarvest distributor	NutriWell producer
Digitalisation of internal core processes (e.g., ERP, sensors)	o	o	•	•	••	••
Adaptation to changing work practices (remote work)	o	o	•	•	•	••
Digitalisation of supplier’s relationship	•	•	o	•	•	•
Digitalisation of customers’ touchpoints	•	o	••	••	••	••
Integration of sensors	o	•	o	o	o	••
Integration of different systems for easy access to data and services	o	o	o	•	o	••
Accumulation of large amount of data	o	o	o	•	o	•
Data processing	o	o	o	o	o	••
Data analysis	o	o	o	o	•	•
Monitoring/identification/warning	o	•	•	•	•	••
Investment in development of digital skills	o	o	•	o	o	•
Investment in digital technology	•	•	•	•	•	••
Promotion of culture that encourages innovation, experimentation, and adaptation	•	o	••	••	••	••
Focus on quick wins and digitalisation in specific areas	•	•	••	•	•	o
Focus on digitalisation of all functions	o	o	o	o	o	••
Collaboration with software partners, such as software vendors or system integrators	o	o	•	•	••	••

Legend: Levels of engagement in digitalisation actions: o non-action, • routine action, •• intensified action.

shows MSMEs’ level of engagement in digitalisation actions. We identified 16 different digitalisation actions, which enterprises took during their digital transformation journey. However, the level of each enterprise engagement in different digitalisation actions varied. To show these variations, we adapted and simplified the categorisation for the level of engagement provided by [71]. Non-action refers to a state in which the enterprise does not make any changes, routine action describes a situation where few if any changes are implemented on an ongoing basis, and intensified action is the state in which the enterprise undertakes significant, planned changes to enhance its operations. Based on the level of MSMEs’ engagement in digitalisation actions, we identified three paths to digital transformation (necessary, experimental, and committed) and categorised MSMEs into these three groups.

Looking from the perspective of three different paths to digital transformation (necessary, experimental, and committed) (Table 5), we indicate in

Table 6. Inhibitors and accelerators experienced by each group of MSMEs.

Inhibitors and Accelerators at Aggregated Level	Paths to Digital Transformation
	Necessary (Two MSMEs)	Experimental (Three MSMEs)	Committed (One MSME)
Lack of financial resources	all	one	none
Low digitalisation readiness	all	one	all
Change management challenges	all	two	none
Environmental changes	one	all	all
External support	none	one	all

how many MSMEs in each group experienced different inhibitors and accelerators presented in Table 4. Based on the results, we then discuss the effect of identified inhibitors and accelerators on each group of MSMEs.

MSMEs with necessary engagement in digital transformation show a limited commitment to digital transformation. These businesses are not fully familiar with digitalisation concepts, and their use of digital technologies is minimal. Their adoption of digital technologies is driven more by external pressures than internal strategic decisions, often focusing on technologies that are easy to implement, low-cost, and quick to adopt. Due to limited digital skills and low readiness for change, these MSMEs primarily concentrate on their day-to-day operations, without a structured digital transformation plan. A significant inhibitor for these businesses is their lack of financial resources, further exacerbated by the economic impact of the COVID-19 pandemic. Although government support exists, these MSMEs are not fully aware of the available assistance, and they continue to rely on their internal, limited funds. The shortage of digital skills among managers and employees is another crucial barrier, as most MSMEs in this group are only capable of adopting basic digital technologies like customer communication technologies, digital payments, and simple cloud-based solutions. While there is recognition that they need to adapt to changing consumer behaviours—especially post-pandemic—there is still a strong focus on traditional business processes like manufacturing and sales through conventional channels. Their digital progress is slow, and they have no clear plan for advancing their digital capabilities in the future. For them, digitalisation is more about survival than strategic growth.

MSMEs with experimental engagement in digital transformation are more aware of digitalisation and are willing to adopt new technologies, but often without a comprehensive strategy. These enterprises pilot low-cost digital technologies in specific areas of their businesses to achieve quick wins, are more proactive in adopting digital technologies, but are still in the early stages of digital transformation. These businesses are aware of digital trends and aim to incorporate them into their operations, although they often lack the resources and experience to do so comprehensively. Their approach is primarily focused on short-term wins rather than a long-term digital strategy. Although financial limitations and a lack of digital expertise are still barriers, these MSMEs are more conscious of the limitations of their existing digital infrastructure and are exploring new digital technologies to better meet their needs. Environmental turbulence, such as shifts in customer behaviour and supply chain disruptions during the COVID-19 pandemic, acts as a key accelerator for their digitalisation efforts. To adapt, these MSMEs have had to engage with customers more through digital channels and experiment with new supply chain solutions. However, they have yet to develop a cohesive digital transformation strategy, and their efforts are often incremental. The digital advancements they have made help them improve efficiency and productivity in specific areas, but they recognise that further investment in digital skills and infrastructure is needed to stay competitive. They also understand the potential for government support but often find that the available programmes are not tailored to their specific needs.

MSMEs with committed engagement in digital transformation are more strategically focused and have integrated digital technologies into key areas of their businesses. These MSMEs see digitalisation as a core component of their long-term business strategy. They have a clearer understanding of how digital technologies can drive growth, improve productivity, and enhance customer engagement. Their focus extends beyond merely adapting to immediate business needs and encompasses a broader vision for future competitiveness. These MSMEs have invested in upgrading their digital infrastructure and developing digital skills among their workforces. They actively seek partnerships with technology providers to ensure they are adopting the right digital solutions and overcoming technological challenges. The accelerators driving their digitalisation include changing customer expectations, supply chain disruptions, and advancements in digital technologies. These businesses are also more adept at utilising external support, including government programmes and digitalisation vouchers, to help fund their transformation efforts. However, they still face challenges, particularly in aligning all aspects of their business with their digital strategy. Although they are experimenting with various digital solutions, they have made significant progress in integrating digital technologies into core business processes. Their approach is more deliberate, focusing on creating a digital culture that supports continuous innovation and adaptability to stay competitive in a rapidly evolving digital landscape. This group views digital transformation as essential not just for surviving but for thriving in a dynamic market environment.

4.3. Quantitative Findings

First, we analysed MSMEs’ preparedness for digital transformation, the challenges they have faced (Figure 1), as well their involvement in digitalisation strategies and their applications for government support programmes (

Table 7. Digitalisation strategies and government support applications among MSMEs.

		Micro	Small-Sized	Medium-Sized
Is digitalisation part of your business strategy?	Yes	67%	82%	86%
	No	33%	18%	14%
Has your organisation received government assistance related to COVID-19 pandemic?	Yes	44%	68%	64%
	No	61%	32%	36%
Has your organisation applied for government support programme to boost digitalisation?	Yes	11%	20%	36%
	No	94%	80%	64%
Have your organisation applied for digitalisation vouchers?	Yes	17%	20%	36%
	No	89%	80%	64%

) over the past several years. We also explored whether there are any significant differences between MSMEs of varying sizes. This comparative analysis allowed us to identify distinct patterns and trends related to enterprise size, shedding light on how micro, small-, medium-sized enterprises navigate the digital transformation landscape.

Figure 1 presents the mean values representing the level of agreement among participating enterprises based on a 5-point Likert scale, where 1 indicates “strongly disagree” and 5 indicates “strongly agree”. Although the ANOVA results do not indicate statistically significant differences, it suggests that small- and medium-sized enterprises were generally better prepared for digital transformation compared to micro enterprises. However, they also encountered more challenges. Additionally, digital strategies and applications for government support programmes were more commonly adopted by small- and medium-sized enterprises than by micro enterprises (Table 7).

Second, we analysed engagement in digital transformation in recent years. We also explored whether there are any significant differences between MSMEs of varying sizes and the level of their engagement in specific digital transformation activities (Figure 2 and

Table 8. MSMEs’ level of engagement in digital transformation activities.

Digitalisation		Micro	Small-Sized	Medium-Sized
We have intensified the use of digital channels (such as online, social media, and mobile) to market products/services	Non-action	16%	24%	32%
	Routine action	16%	32%	18%
	Intensified action	68%	44%	50%
We have intensified digitalisation of our internal core processes	Non-action	16%	20%	0%
	Routine action	47%	24%	23%
	Intensified action	38%	56%	77%
We have intensified collaboration with partners through digital channels	Non-action	26%	20%	9%
	Routine action	32%	36%	23%
	Intensified action	42%	44%	68%
We have intensified the use of data management tools	Non-action	68%	52%	50%
	Routine action	11%	16%	27%
	Intensified action	21%	32%	23%
We have clearly defined roles and responsibilities for digital initiatives	Non-action	37%	20%	5%
	Routine action	42%	40%	36%
	Intensified action	21%	40%	59%
We have engaged employees to take part for the digital transformation	Non-action	32%	24%	9%
	Routine action	16%	36%	14%
	Intensified action	53%	40%	77%
We have invested in the development of digital skills	Non-action	26%	28%	18%
	Routine action	32%	44%	18%
	Intensified action	42%	28%	64%
We have managed to allocate financial resources for digital transformation	Non-action	21%	28%	5%
	Routine action	32%	28%	18%
	Intensified action	47%	44%	77%

). This comparative analysis allowed us to identify distinct patterns in digital transformation activities related to company size.

Figure 2 presents the mean values representing the level of agreement among participating enterprises based on a 5-point Likert scale, where 1 indicates “strongly disagree” and 5 indicates “strongly agree”. It suggests that small- and medium-sized enterprises were generally better engaged in digital transformation compared to micro enterprises with the exception of digital transformation activities related to the use of digital channels for marketing and the use of data management tools. Based on the ANOVA results, significant differences between three groups of MSMEs at the p < 0.05 were found for three digital transformation activities: “We have intensified digitalization of our internal core processes” (F(2,65) = 5.15, p = 0.008), “We have clearly defined roles and responsibilities for digital initiatives” (F(2,65) = 4.04, p = 0.022), “We have engaged employees to take part for the digital transformation” (F(2,63) = 4.91, p = 0.010). The results of the multiple comparison test show that there are statistically significant differences in average agreement with the statement “We have intensified digitalization of our internal core processes” between micro and medium-sized enterprises (p = 0.019) and small- and medium-sized enterprises” (p = 0.034), while with the statement “We have clearly defined roles and responsibilities for digital initiatives”, only between micro and medium-sized enterprises (p = 0.007). Furthermore, there are statistically significant differences in average agreement with the statement “We have engaged employees to take part for the digital transformation” between small- and medium-sized enterprises (p = 0.026). Table 8 shows how MSMEs have approached various aspects of digitalisation, such as marketing, internal processes, collaboration with partners, data management, and employee engagement. To facilitate comparison with qualitative findings, we converted a 5-point Likert scale to three categories in order to obtain three levels of engagement: non-action, routine action, and intensified action. This helped us to highlight the digital maturity gap between micro, small-, and medium-sized enterprises, with the latter being more advanced in most aspects of digital transformation.

5. Discussion

The qualitative and quantitative findings provide a more comprehensive understanding of the digital transformation landscape for MSMEs. Both findings offer insights into the reasons behind digitalisation, help to quantify the level of engagement across various activities, and highlight trends based on enterprise size.

Both findings highlight significant financial and skill-related barriers faced by micro, small-, and medium enterprises (MSMEs). Qualitative insights reveal that MSMEs struggle with securing funding, lack awareness of available financial support, and have a shortage of employees with digital skills. Quantitative data confirm that smaller enterprises are particularly vulnerable to these inhibitors, underscoring the need for targeted interventions, such as improved access to financial support and skill development programmes tailored for micro enterprises. Digital unreadiness, stemming from insufficient digital skills, significantly impedes MSMEs’ ability to select, implement, and manage technology effectively [78,79,80]. While some digital technologies can be adopted at a low cost, many require significant investment, which is a barrier for smaller firms [11,78,80,81]. Additionally, digitalisation often takes a backseat to pressing operational challenges, leading many MSMEs to lack a comprehensive digitalisation strategy, which results in fragmented technology adoption [79,82,83].

Supply chain turbulence has emerged as a catalyst for change, particularly in larger and more digitally mature MSMEs, while shifts in customer behaviour have been more decisive than disruptions in the supply chain. This emphasises the need for a proactive and flexible approach to both supply chain management and customer engagement in an increasingly dynamic market environment. External support plays a crucial role. While government assistance is helpful for some, it needs to be better aligned with the specific requirements of smaller enterprises, such as relevant educational programmes and diverse financing options for implementing various digital technologies [84].

Looking from the size perspective, micro enterprises face distinct challenges and advantages in their digital transformation journey compared to larger SMEs. A significant inhibitor for micro enterprises is their limited financial resources, which restricts their ability to invest in digital technologies and skills development. This lack of funding often leads to a reactive approach to digitalisation, focusing on immediate survival rather than strategic growth. Moreover, micro enterprises often struggle with low digitalisation readiness, as many employees possess insufficient digital skills. This knowledge gap further impedes their ability to adapt to digital changes and hampers innovation. On the accelerator side, micro enterprises benefit from the availability of government support and funding schemes, but they may lack awareness of these opportunities. This disparity highlights how micro enterprises lag behind larger SMEs in both overcoming inhibitors and leveraging accelerators in their digital transformation efforts.

To effectively address the inhibitors and accelerators influencing their progress, the participating MSMEs adopted diverse approaches to digital transformation. This research revealed significant variations in the adoption of digital technology among these enterprises, with engagement levels spanning from passive to experimental and even fully committed to digitalisation. The response of MSMEs to these inhibitors and accelerators appears closely linked to their level of digital maturity [22,28]. In essence, MSMEs that exhibit lower levels of digital maturity, typically the smaller enterprises, demonstrate a limited inclination toward embracing digital transformation. These enterprises are more susceptible to inhibitors and tend to be less receptive to the potential benefits offered by accelerators. This suggests that the digital transformation pathways chosen by MSMEs are influenced not only by their current digital maturity but also by the specific challenges and opportunities they encounter at the time of making decisions regarding digital initiatives. Moreover, this study provides valuable insights into the digital transformation paths of micro enterprises, which have often been overlooked in recent research. By highlighting these paths, we aim to enrich the understanding of how different MSMEs navigate their digital journey. Hereinafter, these paths are first presented and then discussed against the existing literature.

The necessary path to digital transformation is typically taken by MSMEs that are constrained by limited resources and a lack of understanding of digital transformation’s potential benefits. These enterprises focus on essential upgrades, such as establishing an online presence and automating basic internal operations. This pragmatic approach is driven by immediate operational needs rather than strategic digitalisation goals, leading to short-term gains without a comprehensive digital strategy. The decision to implement these upgrades usually comes from the owners or managers, who prioritise day-to-day operations over long-term digital investments.

In contrast, the experimental path to digital transformation is suited for MSMEs that have successfully navigated initial digital upgrades and are eager to explore more advanced technologies. These businesses, which possess a greater digital skill set, engage in small-scale experiments to evaluate new digital solutions. They assess the impact of emerging technologies, such as cloud computing and data analytics, within controlled environments before considering full-scale implementation. Although this approach fosters innovation, it can lead to compatibility issues and data integration challenges, particularly when experimenting without a clear strategy.

The radical path to digital transformation involves a comprehensive integration of digital technology across all organisational functions. MSMEs pursuing this path focus on streamlining processes to enhance efficiency and support employee engagement with digital technologies. By adopting both bottom-up and top-down approaches, these enterprises strive to gather real-time data and insights for informed decision making. While many departments begin to utilise data for daily operations, challenges remain in inter-departmental data sharing, which affects the overall customer experience. This path not only emphasises the use of digital technologies but also recognises the importance of data management and integration, reinforcing the idea that digital transformation is an ongoing process influenced by emerging technologies.

The three identified paths to digital transformation extend the findings from prior research [22,68,69] explicitly including the experiences and challenges faced by micro enterprises. This inclusion is vital, as it addresses a critical gap in existing literature, which has often focused predominantly on larger MSMEs. Moreover, these paths not only integrate the use of digital technologies in specific business areas, as suggested by [69], but also consider the integration and management of data, which was suggested by [70]. By doing this, this research recognises that technology adoption is not merely about implementing new digital technologies but also involves leveraging data effectively to drive decision making, enhance operational efficiency, and foster innovation. Our findings further emphasise that each path builds on the successes of the previous one and allows MSMEs to stay on the same path or move forward to a more advanced digital stage [68]. The committed path to digital transformation indicates attempts towards implementation of advanced digital technologies although it seems that concrete steps still need to be taken in this direction by the majority of MSMEs.

6. Conclusions

6.1. Main Results

The novelty of this study lies in its exploration of MSMEs’ digital transformation practices using a concurrent mixed-methods approach to capture both qualitative and quantitative perspectives on the factors that inhibit or accelerate digital transformation. Unlike previous studies, this research takes into consideration MSMEs from different manufacturing and service industries and not only identifies these factors but also examines the specific digitalisation actions MSMEs have taken to address these inhibitors and accelerators. Furthermore, it highlights three distinct paths to digital transformation based on the level of digital engagement in digitalisation actions.

The tripartite model reveals that progressing from one digital transformation path to another requires a gradual, structured approach. MSMEs starting with the necessary path, which focuses on basic operational upgrades, can move toward more comprehensive digitalisation by building their digital capabilities. This approach allows them to first solidify essential solutions and address immediate needs before advancing to the experimental path, where they can safely pilot new digital technologies. Only after gaining confidence and achieving successful results should they consider transitioning to the committed path, which involves fully integrated digital practices across all business functions. This phased approach not only facilitates a smoother transition between stages but also allows MSMEs to adapt and strengthen their readiness at each step, paving the way for strategic data-driven decision making.

6.2. Theoretical Implications

This study makes contributions to the understanding of digital transformation within the context of MSMEs, particularly through its connection to the RBV theory. By examining how various resources can inhibit and accelerate digitalisation actions, especially as MSMEs engage in digital transformation, this research extends the foundational aims of the RBV as articulated by [85]. This study emphasises that resource combination must be guided by a coherent digitalisation strategy and effective change management practices to ensure smooth transitions and alignment with organisational goals. Furthermore, it highlights the importance of government support; MSMEs that apply for government support are better positioned to navigate challenges such as allocation of financial resources for digital transformation and digitalisation of their internal core.

Notably, this research addresses a gap in existing literature by delving into paths to digital transformation and related necessary resources of MSMEs. While prior studies have largely focused on specific technologies, for instance industry 4.0 technologies [68,69], limited case studies [22], or neglected micro enterprises, this paper presents findings from a concurrent mixed-methods approach involving not only small- and medium-sized enterprises but also micro enterprises. Combining qualitative and quantitative data allowed a more holistic understanding of the complexities of digital transformation in view of the factors influencing digital transformation. This methodological synergy allows for a deeper exploration of the relationships between resource endowments and digital transformation outcomes.

By identifying key resources that can inhibit and accelerate engagement of MSMEs in digital transformation, this study provides a more comprehensive view of the digitalisation activities, emphasising that many MSMEs are still at the early stages of digital transformation. This understanding is crucial for ensuring digital transformation across a diverse range of MSMEs, particularly those still far from committed engagement in digital transformation. Additionally, this paper reveals that dealing with numerous other acute business-wise activities that have a higher urgency often overshadow MSMEs’ digital transformation. This is often due to a shortage of digitally skilled employees and a lack of management awareness of the critical role digital technologies play. As a result, resources are not allocated effectively, and a clear digital strategy is lacking.

6.3. Practical Implications

This study highlights that digital transformation for MSMEs is not merely a one-time technological upgrade but a dynamic and evolving process that involves continuous adaptation to ever-changing market conditions where emerging digital technologies can play an important role. The fast pace of technological advancement necessitates that MSMEs not only adopt new digital technologies but also build a strategy to continuously enhance their digital maturity over time. However, MSMEs, especially those in early or passive stages of digitalisation, face unique challenges such as limited resources, lack of digital readiness, and often inadequate change management capabilities. These inhibitors can greatly hinder digital transformation, but targeted support and well-designed incentives from external sources (government, business partners, IT providers) can help MSMEs overcome these obstacles.

To support MSMEs in effectively navigating the digital transformation journey, our research suggests a multi-layered approach. Firstly, MSMEs should assess their current level of digital maturity and develop a clear understanding of their immediate priorities. Rather than adopting an all-encompassing approach, a phased and resource-conscious strategy is recommended, focusing on aligning digital investments with current needs and capacity. As MSMEs progress, they can start experimenting with smaller-scale digital technologies and, once successful, scale them across the organisation. This approach ensures that new technologies are successfully integrated into business, supporting operational efficiency, and facilitating growth.

Our research identifies three key paths of digital transformation that provide a strategic framework for MSMEs to advance their digital maturity. Along these paths, the role of owners and managers is critical: their commitment to digitalisation, ability to effectively manage change, and willingness to continuously upskill their employees are essential for fostering a culture of innovation and data-driven decision making. This approach helps MSMEs not only improve their digital capabilities but also build a robust foundation for long-term competitive advantage in an increasingly digitalised market landscape.

From a policy perspective, our study emphasises the need for a supportive environment that is specifically tailored to the needs of smaller enterprises. Policymakers can play a transformative role by offering financial incentives and creating educational programmes that equip MSMEs with the skills and knowledge necessary to embrace digital transformation. These programmes should be carefully designed to overcome the unique limitations of smaller enterprises. Furthermore, fostering partnerships between MSMEs and more digitally advanced enterprises, as well as with technology providers, can create a valuable knowledge-sharing ecosystem, helping MSMEs stay informed about the latest digital solutions and best practices.

6.4. Limitation and Further Research

This study presents several limitations that future research should address to enhance both theoretical and practical contributions to understanding MSME digital transformation. First, this study relies on a relatively small sample size from a single country, which limits the generalisability of findings across different geographical and economic contexts. Expanding the sample to include MSMEs from multiple countries and regions would provide valuable cross-cultural and cross-market insights into the digital transformation landscape. Second, digital transformation is complex, and categorising MSMEs into distinct paths to digital transformation may overlook nuanced variations within each path. Different industries, operational strategies, and market demands could cause distinct transformation dynamics that are not fully captured by broad classifications. Third, while RBV provides a useful framework, it may not fully capture the digital-specific challenges faced by MSMEs, such as rapid technological obsolescence and the pace of innovation in digital ecosystems. Complementary theories (e.g., dynamic capabilities theory) might provide a more complete view of resource adaptation in digital transformation. Fourth, this study does not fully incorporate the perspectives of key stakeholders (e.g., employees, customers, and technology partners) who are also impacted by digital transformation decisions. Stakeholder insights could provide a more rounded understanding of the transformation’s practical implications and challenges.

Additionally, this study does not assess various organisational factors that may significantly influence digital transformation outcomes. Variables such as industry type, market focus, organisational culture, and leadership approaches could affect how MSMEs approach digital initiatives and respond to inhibitors and challenges. Future research could incorporate these organisational characteristics to develop a more nuanced understanding of the conditions that facilitate or hinder effective digital transformation. Similarly, this study uses a concurrent mixed-methods approach, which, while valuable, may not capture the depth of longitudinal effects on MSMEs’ digital maturity over time. Future research could consider longitudinal studies to track digital transformation progress and the role of external variables, such as policy changes and technological advancements, on MSMEs’ digital journeys.