We conducted qualitative analysis to answer the first research question and the results are presented in Figure 1
. The data structure presented in Figure 1
describes the findings from the interviews. These are presented as codes, themes, and dimensions, and from here, we identified strategies for carrying out digital transformation, which is the answer to the second research question. Based on the results of the qualitative data, we categorized the sample SMEs into three groups, based on the emerging problems they experienced, which is discussed below. The italicized texts, followed with the hashtag symbol—i.e., #-and the number in brackets, indicate the key actions that are the main elements of this digital transformation; the list of actions is presented in Table 2
. As shown in the table, the prominent actions by the case study firms are shown in the shaded area. These actions emerge from the coding, which we conducted using the grounded theory, as explained in Section 3.4
4.1. Group 1: “Ready to Jump” to a Digitalized Firm
There was only one case study company that fell into this group: FashionCo. The SME in this category has a long history of adopting digital technology. In fact, it has adopted a hybrid business, which combines both online and offline, even though the offline business model is still more dominant. The COVID-19 pandemic has been a stimulus that has accelerated planned digital transformation.
The case study firm combines entrepreneurial attitudes with digital strategizing, which requires a strong orientation toward digital culture. The owner of the firm has implemented digital visioning and strategizing (#1)
. The company owners have a good conceptual understanding of the digital technology vision, as was indicated by their preparations for digitalization long before the emergence of the COVID-19 pandemic, as shown by the following statement:
“We are convinced that technology is the driver of change. As an established company, we do not feel much any changes that come from technology. But over time, society and market behavior changed. If we are not careful, after a while the market will be eroded and our customers will switch to competitors”.
(Marketing manager, FashionCo.)
Prior to the pandemic, the case company had implemented digitalization in its sales function, and when the pandemic emerged, it extended this adoption to other functions. The digitalization of business processes, for example, collaboration with the digital shopping platforms Lazada, Bukalapak, Blibli etc., has driven the market forward and encouraged other functions to adapt and adopt digital technologies. Moreover, the case company in this group has begun to encourage digitalization in various organizational functions (#2)
, the majority of which relate to increasing automation and the standardization of business processes. Below is an expression of the informant describing this circumstance:
“We know that Facebook, Instagram, and Twitter are used in different ways, the purpose of their usage is different, and the algorithms used are different as well. There are some people who just link each other Facebook, Instagram, and Twitter without a clear idea what is the reason behind this linkage. They just do it. As a matter of fact, these social media are intended for different purposes. [They are used] not for selling as the first priority; but on the contrary, firstly [it is used for raising] awareness, after [it has been successfully raising] awareness, then [we can] offer a problem solution to customers”.
(Online marketing staff, FashionCo.)
The firm is able to understand the details of digital technologies because it is supported by a small ad-hoc team that has a specific task (#3). This team is responsible for implementing digital technology in a structured manner with a project approach. The manager of the case company believes that waiting for the business environment to stabilize, and not making changes to business models is not a good decision; instead, he believes the firm’s prospects could get worse if it does not immerse itself in the changes. Therefore, the manager attempts to instill a sense of urgency to master digital technology among individuals within the firm (#4).
During the pandemic, there was no time for companies to train employees because they had to generate revenue generation within days. Companies benefited by the learning culture that has been created within the organization, which shortens the time it takes for technology to be adopted through self-learning. This culture has enabled the firm to compress the time taken for adoption to take place through self-learning (#5)
. This learning culture has combined with a long history of digital knowledge within the firm, as explained below:
“Today’s technology is different from those that were developed in the early 1990s. The logic of how the software works at that time still works for the current application. Even without being taught, I can, it is even faster and more effective if I study on my own because the current technology is more user-friendly”.
This learning culture is seen as being a pivotal enabler of dynamic capabilities, particularly the ability to seize opportunities and perform transformation [1
]. This digital transformation is undertaken through a series of changes carried out gradually (#6)
, with each stage carried out within a short time period. This implementation is coordinated with an ad-hoc team, who is given a specific time period and assigned a specific task. In this way, this transformation process can be done in a more structured manner in which the company is clear about what it is attempting to achieve during each stage of the transformation.
Digital technologies have enabled the firm to reach customers more easily, diversify its product lines, and shorten the product life cycles. Also, the firm realizes that new technology often makes business processes easier, faster, and cheaper. Therefore, the firm tries to catch up with emerging technologies (#7) and harnesses them in creative ways. For example, one of the last actions of a case study company is to take advantage of the self-serve platform of TikTok to promote its products.
In line with the widespread technology adoption within the company, there has been an accelerated exchange of information and knowledge, leading to more efficient business processes. This adoption process has caused momentary disruption of the company’s operations due to the changes required, but the newly-formed business process runs more efficiently after the adjustment. To support these business process changes, the firm undertakes an organizational structure adjustment with the new business process (#8). This adjustment process is supported by flexible resources and individuals who are willing to carry out continuous learning.
4.2. Group 2: Experiencing Financial Distress
This group represents SMEs who experience financial distress—i.e., ShellfishCraftCo., ContemporaryBatikCo., TraditionalBatikCo., RestaurantCo.—and it seems this is the major issue experienced by the SMEs. The main priority of SMEs in this group is avoiding immediate collapse by conducting revenue generation. Two of the four SMEs in this group are retail firms, and are thus more vulnerable to economic uncertainty than supermarkets. All SMEs in this group agreed that they should take extraordinary steps to avoid collapse. For this reason, the firms push themselves to make decisions by investing in digital technologies. One of the informants described the emerging business conditions as follows:
“We are not sure whether digitalization will save us. But we are sure that if we don’t digitize, we will definitely collapse. Even if digitalization fails, at least, digitalization will prolong our lives so that we have more time for preparation to overcome this situation with other steps”.
SMEs in this group focus on digitizing the sales function because it organizes activities that generate revenue that can save the firms from collapse. The low digital maturity of the firms makes it too risky for them to implement digital technologies across all functions. Products that have been digitalized are also limited to a few categories that are suitable for online marketing. In short, the firm conducts selective digital technology adoption (#9)
, as explained below:
“Don’t just look at digitalization in a too simplistic way, as we need to look at the whole business model we have. We need to look at what needs to be digitalized and what doesn’t need to be made digital. For now, we are only digitizing functions that we really need it to keep us alive”.
To achieve the digitalization of the sales function, the SMEs redesigned its distribution and sales channels (#10) from retail and boutique shops to online marketing. Due to this shift, tasks have been redesigned among the employees, with interconnected activities combined and assigned to the same staff. In a similar vein, resources were regrouped and allocated to do certain tasks to promote productivity and value. For example, some of the employees were previously assigned to serve customers at the boutique shop, they were assigned new tasks as online sales staff responsible for managing pre-sales, sales, and post-sales activities. Electricity and water bills decreased as the boutique’s operating hours shortened. The firms decided to reduce production volume to avoid having excessive stocks of finished products. As a result, the trade-off between efficiency and resilience became apparent and the implementation of just-in-time was slightly neglected in order to ensure the firms’ survival.
During the pandemic, there has been an increase in digital literacy among customers. In response to this change, the emphasis of the SMEs in this group was to modify the customer value proposition, because the focus of firms during the pandemic was on how to survive by maintaining stable sales volumes. This needs to be done by considering there has been a shift toward new customer segments (#11)
after the implementation of digital transformation, as explained in the following information:
“Technology not only changes how products are manufactured, but also the behavior of competitors, customers, and the business context. The existing customers may be our existing customers, but with new behavior, so that they are less relevant to the value delivery or value we offer currently”.
The SMEs case study in this group is still at an early stage of adopting digital technologies. In the meantime, there has been a shift in customers’ behavior during the COVID-19 pandemic. In response to this circumstance, the case study companies focus on certain products suitable for digital marketing (#12). Due to the early adoption of digital technology, the case study firms decided to select a technology that is easy to adopt and is the most supportive for generating revenue.
Digital technology adoption has encouraged the case study firms to discover new resource configurations (#13) to improve their efficiency. The resources are focused on activities that are aimed at generating revenue and overriding activities not related to revenue, such as new supplier searching, new product development, and employee training. Digitalization helps firms to identify unseen opportunities about how to utilize existing resources and assets that belong to parties outside the firms.
To some extent, the adoption of digital technologies by serendipity helps firms to improve the value of output by combining the assets outside the firm with existing resources. Also, traditional activities which are in sequence are combined. For example, warehouse staff, who previously had duties to procure raw materials and manage the inventory only, have been given an additional task to service the delivery orders to customers who purchase online. All of these make the business process for sales simpler than the existing one. Activities that are not contributing to revenue generations are reduced and the business process for sales is simplified (#14).
The case study firms want to grasp opportunities by adopting all the digital technologies that customers are most likely to use. Even though some case study firms have developed websites—i.e., ShellfishCraftCo.—the rest prefer to adopt online trading platforms (#17) to support delivery value because the process of adopting it is much simpler. Some of the trading platforms selected by the SMEs case studies are, among others, Shopee, Lazada, Bukalapak, and Blibli. The adoptions of the trading platforms require firms to collaborate with external parties to support sales (#15), including logistic service providers, electronic merchant services, electronic payment services etc.
The SMEs in this group are not ready yet for a digital transformation across all the functions within the organization. The total transformation cannot be achieved simply by developing a website. To overcome this issue, the case study firms combine several digital technologies simultaneously (#16)—i.e., WhatsApp, e-mail, LINE, Facebook, Twitter, Instagram—to expand the customers’ coverage. In some ways, the simultaneous adoption of several technologies is not always effective, but the case study firms are determined to do this to generate revenue as they are experiencing liquidity issues.
The case study firms are aware that a lot of data and information are available in the digital world; therefore, the managers strive to figure out how to retrieve the data and information to support the continuity of the business. There is no doubt that conducting detailed and thorough big data analysis will be expensive. Realizing the difficulty of conducting advanced big data analysis, the case study firms have focused on the adoption of digital technology that only requires a simple effort to exploit insights from digital analysis (#18)
, such as utilizing social media to detect trend signals from market developments. For example, ShellfishCraftCo. created an ad-hoc team assigned to identify market trends that develop on social media through digital intelligence. This is called digital scouting, which consists of young staff with advanced technology capabilities [6
]. The managers believe that firms should not focus on maximizing profits through the use of digital technologies, as profitability will follow if the firms succeed in providing value to customers during customer engagement.
Our data analysis demonstrated that firms are able to adapt how they use social media properly and realize that social media is not only for introducing products or promoting products, but also to drive customers and communities’ engagement through social media (#19)
, as stated by the following informant:
“Social media is not only for product promotion, brand promotion, or product promotion. Using social media is not as simple as you think, like saying: tomorrow there is a 20% discount, then the day after tomorrow we will increase it to 50%, and after that we have buy one get one free. That is not how it works. The first priority of using social media is how to build awareness, the second is to increase engagement, and then interact with the firms’ followers”.
(Marketing staff, ShellfishCraftCo.)
4.3. Group 3: Lacking Digital Literacy but Rich of Social Capital
The two SMEs—i.e., FurnitureCo. and HandicraftCo.—included in this group have two main characteristics: the lowest level of digital literacy but a well-established social capital in their business ecosystem. SMEs in this group are looking for digital partners to overcome their very limited level digital literacy. The encouragement of digital strategizing in firms with very limited digital literacy is risky for the firm itself. This group of firms follows a different path in responding to the trend of digital transformation. A senior owner of an SME is quite confident about an alternative approach they are taking today, explaining:
“I understand that new firms are usually very aggressive, their managers think that it is compulsory to make their business online. They never think whether it is going to make profit or not, as long as they can go online, they feel safe from the threat of environmental changes. They think they can conquer the world with digital technology. But, please remember, I am from the baby boomer generation, I have gone through a long history of technological changes in different generations. I have proven to be more adaptive to changes [than them], enthusiasm is good for you to move forward, but if you have it too much, it will be dangerous”.
SMEs in this group rely on a product-based business model (#20). The firms focus on manufacturing products and selling them to customers. Managers realize that they have to follow the customer-centric trend but the problem is how to integrate this into the organizations’ business processes. To cope with this issue, the firms collaborate with partners possessing excellent digital skills (#21).
In addition, the SMEs in this group are supported by employees who have been working for a long time so that a creative attitude is embedded in the basic character, which is formed from the accumulation of knowledge over a long period. This kind of character cannot be formed through training or formal education. This basic character enables the staff to acquire skills that are aligned with emerging opportunities (#22).
This is how the manager describes this circumstance:
“I do not want to be greedy. I do not want to follow the mainstream to go online. I am sure those who are doing business online will come to me to purchase our products [and sell them online]. Our employees have a set of skills that other entrepreneurs do not have. When the market shifts, our products will also be able to shift, and we make that possible due to the skills of our people”.
The creative attitude of the employees is, to some extent, strongly related to flexibility. With the use of flexible resources (#23)
, the firms can target new customers by offering to use different product categories. Undeniably, the COVID-19 pandemic has driven new demands that never existed before. The following is an example where SMEs have shifted their target market to a new product category:
“A few days ago, we received orders for 10,000 face masks. Last week, we received an order for personal protective equipment from a hospital. We have never made both products before, but we can learn quickly to making such products. The expertise of our workforce can be transferred quickly across various products because they are very well experienced”.
Due to the nature of their production system, which is made to order, firms must be able to meet the production schedule with a tight production schedule. The majority of these orders come from industrial customers, who need products in large quantities, with a customized product design, and on a tight schedule (#24). These orders do not come to the firms directly from customers, but with the assistance of partners. The partner’s ability to find industrial customers who are willing to order products in large volumes is a pivotal factor that determines the success of the partnership. This partnership is unlikely to be successful if the orders come from individual customers because the number of orders will not achieve production economies of scale.
These partners, who have excellent digital capabilities, can act as the eyes and ears of the SMEs in this group. The partners will give early warnings to SMEs in case there are emerging signals of changes in the market. In this way, this group of SMEs still have access to emerging market trends. This communication also supports the managers, who are responsible for the firms’ strategic and business directions. They are often trapped in routines, which can blind them to the need to adapt to changing environments. Communication with these partners can remind managers to become more sensitive, even though the firms do not adopt digital technologies, particularly during this pandemic period.
The managers of SMEs in this group are entrepreneurs, who are engaged in the business ecosystem that their firms operate in. Within this business ecosystem, the managers always seek opportunities to expand their networks with potential partners. These entrepreneurs occupy a unique position in the community, as they fulfill the needs of community members in different ways. It is undeniable that these managers, who are also the owners, have a dominant role in establishing business partnerships (#25) with partners from the business ecosystem.
Company owners who have managed their firms for a long time are able to build partnerships with similar community members, as well as potential partners who are difficult to work with because of the knowledge gap barrier. These partners are typically start-up firms who possess expertise in digital technologies but lack product manufacturing knowledge. Through the partnership, managers of SMEs receive information regarding customer behavior from their partners, and the managers articulate it into product ideas and final products (#26). During the midst of the pandemic, SMEs and start-ups were more willing to build a partnership as both parties realized that their business sustainability was in danger.