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Digital Transformation of SMEs: Capturing Complexity

John Jeansson

Krister Bredmar

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 32ND BLED ECONFERENCE
HUMANIZING TECHNOLOGY FOR A SUSTAINABLE SOCIETY
JUNE 16 – 19, 2019, BLED, SLOVENIA, CONFERENCE PROCEEDINGS
A. Pucihar (ed. et al.)

Digital Transformation of SMEs:

Capturing Complexity

JOHN JEANSSON & KRISTER BREDMAR

Abstract The purpose of this paper is to study the ongoing digitalisation

of SMEs in order to gain a richer understanding of the complexity of
digital transformation. Six Swedish SMEs have been studied using a basic
qualitative research approach. Main results of the study are the
identification of internal as well as external drivers of value creation,
categories of digital transformation actions and the presence of a strategic
tension that SMEs had to manage in order to conduct their digital
transformation. One conclusion is a proposed framework which supports
a rich understanding of SMEs digital transformation.

Keywords: • Digitalisation • Digital Transformation • Small and medium-

sized enterprises (SME) • Digital Competitiveness • Complexity •

CORRESPONDENCE ADDRESS: John Jeansson, PhD, Assistant Professor, Linneaus University,

School of Business and Economics, Växjö, Sweden, e-mail: [email protected]. Krister
Bredmar, Ph.D., Associate Professor, Linneaus University, School of Business and Economics,
Växjö , Sweden, e-mail: [email protected].

DOI https://doi.org/10.18690/978-961-286-280-0.28 ISBN 978-961-286-280-0

Dostopno na: http://press.um.si
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1 Introduction

The ongoing digitalisation of society challenges existing business logic, models

and knowledge of companies within almost every industry. In its footsteps
follows both promises of great possibilities and value for those who successfully
adapt and change, as well as great challenges and risk for those who lag behind
(Carr, 2003). Digitalisation has thus, regardless of company size and shape,
emerged as a necessity in order to stay competitive, providing strong incentives
for companies to take action (Johnston, Wade, & McClean, 2007). However,
successful digitalisation does not follow one recipe for all (Andal-Ancion,
Cartwright, & Yip, 2003; Heavin & Power, 2018). Research within the field shows
that companies need to invest in digital technologies but implement digital
transformation in order to take hold of possibilities and value. This implies that
competitive advantage due to digitalisation is not the result of merely technology
installation, but have everything to do with how each company: (1) integrate
technology, people, processes and strategies (Markus & Benjamin, 1997), and (2)
capture the elusive nature of potential value from digital initiatives (Jeansson,
2014). Previous research and empirical findings depict such digital
transformation as a highly complex matter, and a knowledge gap in need of
further attention (Besson & Rowe, 2012; Fortune, 2018; Hess, Matt, Benlian, &
Wiesböck, 2016).

This paper focus on digital transformation within the context of SMEs and this
for two reasons: one, SMEs make up for 99.9% of all companies in Sweden and
99.8% in EU and accounts for 65.5% (Sweden) 66.4% (EU) of all employees,
which speaks of relevance (Muller et al., 2018); two, characteristics of SMEs
provide a complex and at times conflicting context of digital transformation,
which calls for further studies (Li, Su, Zhang, & Mao, 2018; Zach, Munkvold, &
Olsen, 2014). The purpose of the paper is thus to study the ongoing digitalisation
of SMEs in order to gain a richer understanding of the complexity of digital
transformation, so that future digital initiatives of SMEs could be supported. The
paper addresses two research questions: (1) what is the character and nature of
digitalisation in an SME context? (2) how do SMEs act in order to achieve their
digital transformation?
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Digital Transformation of SMEs: Capturing Complexity

2 Theoretical Lens

The paper is positioned between the phenomenon of digitalisation, the context

of SMEs and the field of digital competitiveness. As these three fields converge
they constitutes the theoretical lens of SMEs´ digital transformation.

2.1 The Nature of Digitalisation and Digital Transformation

As we connect digital to different social settings (e.g. digital society, digital

culture, digital divide, digital disruption, digital business, digital customers) we
state that there is more to digital than technology (Reed, 2014). In fact, it could
be argued that it is a digital-social duality that we seek to understand and depict
(Orlikowski, 1992). Within the field of organisational transformation,
transformation denotes change, which could take on two main shapes: (1)
continuous, slow and patchy or (2) discontinuous, fast and systemic (Besson &
Rowe, 2012). When connecting digital and transformation Dehning, Richardson,
and Zmud (2003, p. 654) speak of something “fundamentally altering traditional ways
of doing business by redefining business capabilities, business processes and relationships” as
well as enabling a company to enter “a new marketspace”, or “enabling firm to operate
in different markets, serve different customers…gain considerable competitive advantage by doing
things differently”. Lucas Jr, Agarwal, Clemons, El Sawy, and Weber (2013) further
refine the degree of digital transformational in relationship to the level and nature
of: business process change, creation of a new organisation, change in
relationships, customer reach, and changed market position. The Global Centre
for Digital Business Transformation define digital business transformation to be
“organisational change through the use of digital technologies and business models to improve
performance” (Wade, 2015). To speak of digital transformation is then to speak of:
(1) the use and alignment of digital technologies within a company, (2)
conducting organisational change, (3) enabling activity (4) creating and capturing
new opportunities and value. To conclude and provide a definition of digital
transformation for this paper: “digital transformation is to be understood as the process of
reshaping the business model of a company due to, and through, the adoption and use of digital
technologies, in order to create a setting where new possibilities are enabled and value created”.
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2.2 Strategic Tension of Digital Transformation

As companies embark on their digital transformation journey there is an

underlying strategic tension to pay attention to. A tension between an internal
resource/capability perspective and an external market-based perspective, which
have implications for why and how a company acts in order to gain competitive
advantage or competitive parity. An internal resource/capability perspective
stresses the importance of playing to a company´s strengths when devising
strategies and digital initiatives. It emphasizes: (1) the need to build a strong and
exclusive digital resource base consisting of both tangible and intangible assets
(Prahalad & Hamel, 1990); (2) the need to develop hard-to-imitate competencies
and digital capabilities (Peppard & Ward, 2016; Teece, Pisano, & Shuen, 1997;
Wang & Ahmed, 2007). Companies with a predominantly internal drive set out
to first identify their unique resources then find a suiting market or shape an
existing one (De Wit & Meyer, 2010).

A market-based perspective stresses the company´s external environment as the

main starting point when devising strategies and digital initiatives. It places great
emphasize on understanding customers and competitors (existing as well as
potential), and to adapt to emerging threats and opportunities within a
company´s industry. Its main focus are: (1) to design a digital value proposition
that matches the changing nature of customers’ needs, demands and behaviours
(Berman, 2012); (2) to use digitalisation in order to gain an advantageous market
position (Carr, 2003; Porter Michael, 2001). Companies with a predominantly
external drive set out to first analyse and gain insight into the attractiveness and
profitability of a market, then adapt or develop needed resources and capabilities
to align with market opportunities (De Wit & Meyer, 2010; Porter Michael, 1985).

2.3 Understanding SMEs going Digital

The nature of SMEs provides a specific backdrop to digital transformation. An

SME is by the European commission defined as a company having: (1) less than
250 employees; (2) less than €50 million in turnover; (3) less than €43 million in
balance sheet total (Muller et al., 2018). Because of their size SMEs have specific
characteristics that differs from their larger counterparts (Ghobadian & Gallear,
1997; Welsh & White, 1981). Characteristics that have implications for digital
transformation as they affect SMEs´ management (Cragg, Mills, & Suraweera,
J. Jeansson & K. Bredmar:
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Digital Transformation of SMEs: Capturing Complexity

2013), investment (Levy, Powell, & Yetton, 2001), adoption (Ifinedo, 2011),
implementation and usage (Zach et al., 2014) of digital technologies. Table 1,
provides a shortlist of characteristics to support a richer understanding of
challenges and opportunities faced by SMEs during digital transformation.

Table 1: SME characteristics

SME Characteristics
Environment Organisation Digitalisation

• Mostly local and • Time constraints of • Limited knowledge of

regional markets-few owner-mangers. IS.
international.
• Low degree of • Lack of strategic
• Prone to be financial standardisation and planning.
sensitive to external formalisation.
• Limited in-house IT
forces and
• Low resistance to expertise.
environmental
change.
changes. • Emphasis on
• Organic and fluid packaged
• Dependent on small
culture. applications.
customer base.
• Modest financial • Adoption driven by
• Close and frequent
resources. perceived relative
contact with
advantage,
customers. • Modest human
competitions´
capital and know-
• Limited external pressure and
how.
contacts. management support.

• Affected by powerful • Adoption related to

partners in their prior use of digital
supply chain. technologies.

(Ghobadian & Gallear, (Ghobadian & Gallear, (Ifinedo, 2011; Wilson,

1997; Wong & 1997; Wong & Daniel, & Davies, 2008;
Aspinwall-Roberts, Aspinwall-Roberts, Zach et al., 2014)
2004; Zach et al., 2014) 2004; Zach et al., 2014)
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2.4 Framing Digital Transformation

In order to discuss the nature and actions of SMEs digital transformation based
on previous research three intertwined themes, each having a set of sub-themes,
are proposed. The first theme aims to capture the degree of digitalisation within
a company’s external environment, and to what extent and in what way it affects
the company. The nature of the environment could either enable or hinder a
company’s possibilities to conduct its digital transformation as well as to compete
(Baker, 2012; Oliveira & Martins, 2011). The theme consists of four sub-themes,
two at a macro level: (1) digital infrastructure, which is the available external
digital technology and services necessary for a company to function (Tilson,
Lyytinen, & Sørensen, 2010); (2) regulations and policies, which is government
as well as industry provided regulations/policies and incentives (Gibbs &
Kraemer, 2004); and two at a micro level: (3) industry climate, which is the
competitive structure within an industry and the nature of collaboration between
companies (Baker, 2012); (4) customers, which is the digital behaviour and
maturity of existing as well as potential customers (Berman, 2012).

The second theme aims to capture the degree of digital transformation within a
company, and to capture SMEs´ perceptions and actions of digital
transformation. Companies perception of digital is very much a matter of
prevailing organisational culture and strategy, which affects adoption and usage
of digital technologies as well as development of digital competence (Bharadwaj,
El Sawy, Pavlou, & Venkatraman, 2013; Leidner & Kayworth, 2006; Middleton
& Harper, 2004). The transformation theme consists of four sub-themes: (1)
culture, which is a company´s prevailing organisational and information culture
(Cameron & Quinn, 2011; Choo, 2013); (2) strategy, which is the character of a
company´s digital strategies (Peppard & Ward, 2016); (3) capabilities, which is a
company´s digital competence and capability (Peppard, Lambert, & Edwards,
2000; Wang & Ahmed, 2007); (4) digital technology usage, which is a company´s
adoption and usage of digital technologies and services (Carr, 2003; Renkema,
2000).

The third theme aims to capture the degree and nature of business value gained
from investments in digital initiatives and the ongoing digital transformation.
Achieving potential digital business value has proven to be a challenging task in
need of a structured approach. One challenge being its elusive nature as it is:
J. Jeansson & K. Bredmar:
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Digital Transformation of SMEs: Capturing Complexity

dynamic, take on different shapes, and emerge throughout the whole company
(Farbey, Land, & Targett, 1999; Jeansson, 2014; Ward & Daniel, 2006). The
digital business value theme consists of two sub-themes: (1) internal
performance, which is the perceived benefits and value related to internal
efficiency and effectiveness (Melville, Kraemer, & Gurbaxani, 2004); (2) external
relationships, which is the perceived benefits and value related to market
position, customers and business partners (Porter Michael, 2001).

3 Research Method

The study is part of a larger research project and has been conducted using a
basic qualitative research approach (Merriam, 2009). In such an approach, a
researcher aims to paint a rich picture of the complexity of that which is to be
studied, and to better understand a phenomenon from a participant’s perspective
(Creswell, 2007; Merriam, 2009). In our case, to gain a richer understanding of
actions taken by companies within their natural environment as they make sense
of their ongoing digitalisation.

3.1 Sample Selection

Participating companies were selected using a purposeful sampling strategy. The

logic of such a strategy is to select: “information rich cases for study in depth” (Patton,
1990, p. 169). Companies were further selected using a combination of variation
and criterion sampling. In order to be included in the study companies had to
meet four criteria: one, qualify as an SME according to the employment definition
of European commission (Muller et al., 2018); two, perceived to provide an
interesting and rich picture of digitalisation; three, be active and have a head office
within the Kalmar county of Sweden; four, have more than one employee. Within
these four criteria companies were further selected in order to gain variation of
industries, municipalities and degrees of digitalisation (Creswell, 2007; Patton,
1990). For this paper a total of six companies were selected, see table 2. In order
to gain as rich information as possible interview respondents were selected based
on their role within the company. In order to be selected they had to be either
the CEO of the company or the person responsible for its digitalisation/digital
initiatives.
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Table 2: Selected companies.

Company Industry Employees/turnover Respondent

Company A Processing and wholesale of Employees: 117 CIO
timber. Turnover: €74.7 million

Company B Logistics and freight traffic. Employees: 104 CEO

Turnover: €21.9 million

Company C Conference and golf resort. Employees: 55 CEO

Turnover: €6.2 million

Company D Industrial cleaning and dry- Employees: 38 Production

cleaning. Turnover: €4.1 million manager

Company E Manufacturing of steal parts. Employees: 56 CFO/CIO

Turnover: €8.9 million

Company F Retailer of books and office Employees: 12 CEO

supplies. Turnover: €1.7 million

3.2 Data Collection

Data were collected through interviews and public documents. All interviews
were semi-structured, and although the same interview guide was used in all
interviews the order and wording could vary between interviews depending on
the situation at hand. Additional questions were asked in response to
respondents’ answers (Merriam, 2009). Each interview was approximately one
hour long and were conducted at the facilities of each company. All respondents
approved to have their interview digitally recorded, and all interviews were
transcribed verbatim afterwards. In addition to interviews public documents (i.e.
financial reports, news articles and company webpages) were gathered in order
to gain a richer picture of the company and its environment (Merriam, 2009; Yin,
2003).

3.3 Data Analysis

The interview transcripts were analyzed by two researches both manually and
using software tools (Atlas.ti). The main focus of the analysis was not to study
actual words themselves, but rather the meaning they conveyed (Miles &
Huberman, 1994). The analysis contained four phases. Even though the different
phases were to some degree conducted in a sequential manner, the analysis
J. Jeansson & K. Bredmar:
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Digital Transformation of SMEs: Capturing Complexity

process was highly iterative. During the initial phase transcripts were read in light
of posed research questions and text segments of different sizes were coded in
an inductive, open manner (Merriam, 2009; Miles & Huberman, 1994). During
the second phase coded segments of data were grouped as categories and themes
emerged. In a third phase themes were further analyzed in light of defining
features, structures and processes, causes and consequences and participation
and relationships (Lofland, Snow, Anderson, & Lofland, 2006; Miles &
Huberman, 1994). In a fourth phase data was analyzed through proposed
theoretical lens.

4 Results

4.1 Nature and Impact of External Environment

SMEs described their digital infrastructure as (1) access to high-speed broadband

internet, (2) mobile phone connectivity and (3) access to external digital
competence. A well-functioning internet connection was regarded as important,
if not critical, to most companies. Company E described how they currently were
using ADSL-based internet connection, which did not meet their needs, and how
they joined forces with other local companies in order to put pressure on the
municipality to invest in fixed high-speed internet connectivity. Apart from
company E, all SMEs regarded their digital infrastructure to be sufficient and all
companies were able to find sufficient external digital competence within or
outside the region when needed.

SMEs perceived regulations and policies to have a limited impact on their digital
transformation. Company A, however, described how strict industry regulations
regarding information security affected investments. Company F described how
they, when developing their website, received financial support from regional
development funds due to policies aimed at encouraging companies to invest in
digital initiatives.

In general, SMEs described their industry climate as highly competitive and

painted picture of digitalization and the way it impacted them as dynamic.
Company A and B both described a current on-going industry shift with
increased digitalisation. Company F described a highly digital industry with a
never-ending presence of e-commerce and with several competitors having
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advantages that they could not compete with. However, they also described the
world of physical bookstores and how they regarded themselves to be quite in
the forefront digitally compared to other physical bookstores. Company C
described a similar condition, on one hand a highly digital business environment
competing on several online booking platforms, on the other hand, international
markets with low degree of digitalization, which required the company to be able
to offer their digitally transformed processes manually. Company D and E
painted a picture of digital technologies being industry standard used by all in
order to do business.

Customers were perceived, in general, to be digitally mature. Customer behaviour

and expectations acted at times as drivers for change and new digital initiatives.
This was understood to be necessary but not always enjoyed. The CEO of
company F: “There are many customers coming to the store with their mobile phones showing
a book and asking if we have it. People are very well-informed.”; “If we do not have a book in
store we ask the customer if they want us to order it for them. Some respond that they just as
well could order it themselves online from another store. But when we tell them that we offer a
twenty percent discount on ordered books then nine out of ten want the book…this is something
we are a little proud of.” Company B spoke of customers expecting them to change
the way they did business from physical interactions to B2B exchanges: “I’m not
really happy about this if I am to be honest. You don’t get the chance to have a personal contact
and prove that you are better and more than numbers and boxes. It is boring.” Company A,
E and C all described, in various ways, how they were pressured by customers to
have a certain level of digital transformation in order to be able to do business
and to satisfy customers.

4.2 Internal Digital Transformation

Each SME had their unique organisational culture in which digital transformation
took place. Two companies displayed an interesting contrast: Company E
described themselves as a company with a low degree of digital maturity amongst
employees, hesitating to take digital initiatives, prone to be reactive rather than
pro-active to changes and demands. Company B on the other hand described
themselves as a company with employees actively suggesting digital initiatives,
managers curious and interested to try out new technologies, a willingness to
change and to improve. There were characteristics that SMEs spoke of as
favourable related to digital transformation, such as: a family-like culture where
J. Jeansson & K. Bredmar:
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Digital Transformation of SMEs: Capturing Complexity

everyone helped each other; a solution-oriented approach where employees were

not afraid to step up and take initiatives; a willingness to change and to improve;
the ability to identify more efficient and effective ways of performing tasks;
curiosity and interest in new technologies. There were also characteristics that
SMEs spoke of as challenging related to digital transformation: lack of
management support; lack of understanding or digital competence; lack of
alignment between digital and business strategies; negative or non-existing
experience of digital initiatives.

SMEs tended to have a limited approach to strategies of digital initiatives and

digital transformation. Company A was the only company with a formal and
communicated strategy. Despite lack of formal strategies SMEs made strategic
choices related to their digital transformation. Company C and F both decided
to scale down digital and instead enhance non-digital, physical attributes.
Company C made a strategic decision to associate themselves with attributes such
as the local nature, outdoors, health and recreation rather than being perceived
as a high-tech, digital resort; company F made a strategic decision to be a physical
bookstore where customers could connect with authors, enjoy events and
explore local artists rather than to offer all their products online and become an
e-commerce, multichannel company. Company B, on the other hand, made a
strategic decision to scale up digital and expand their third-party logistics service,
working with drop-shipping and to develop their own e-commerce platform. As
a result, they collaborated with fellow logistics companies and competitors in
order to offer their customers third-party logistics services. No SME undertook
a structured benefits management approach. The CIO of company A expressed
lack of incentives as reasons to why they did not evaluate their digital initiatives.

SMEs acted in different ways to make sure they had access to sufficient digital
competence. In general, SMEs´ combined in-house competence of more or less
digitally skilled employees with outsourcing. Company A combined a full-time
CIO and a full-time employee dedicated to technical support with external
competence. Company B recruited their own systems and software developers
in order to pursue new digital initiatives, and company F gained social media
skills when company owners´ daughter moved back to join the company.
Company E decided to let go of a full-time employee responsible for digital
technologies and appointed the CFO to be responsibility for overseeing
everything digital. The CEO of Company C described how they, as they grew,
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decided to stop using a local restaurant owner who offered technical support on
the side, and to instead outsource most of their needed digital competence to
established companies. Company D, having groups of employees with a low
degree of digital competence, devised a solution limiting the amount and
character of work these groups needed to do in the digital application to a
minimum - “so that nothing could go wrong.” (Production manager company D). Even
though SMEs recognized the importance of digital competence none worked
intentionally to develop digital skills and competence of existing employees.

SMEs described different drivers that initiated their digital technology usage.
Dominant drivers were: increasing efficiency, enhancing customer
communication, improving performance measurement, responding to external
pressure and changed customer demands, and integrating processes. Less
dominant, but not insignificant, drivers were: acting environmentally friendly and
reducing information security threats. All SMEs used a plethora of digital
technologies. Some digital technologies were cross-industry technologies and
used by a majority of SMEs (e.g. websites, mobile devices, social media platforms,
cloud computing, enterprise systems, EDI, data analytics, online third-party
platforms), some were used by only one SME (e.g. CRM-applications, company
E; internet of things applications, company B; intranet, company C), and some
being industry specific (e.g. laundry software solutions, company D; vehicle
management applications, company B; golf course watering systems, company
E). SMEs main investment approach was to purchase standard applications and
then pay for some level of individual configuration. However, company A and C
both developed custom-made applications with support from external
competence, and company F collaborated with other physical bookstores on a
national level in order to develop needed technical solutions.

4.3 Creating and Capturing Business Value

Perceived benefits and value of internal performance mainly related to: (1)
increased efficiency; (2) doing things better. Company D spoke of their digital
applications supporting capacity growth as they expanded their physical
production location: “The system has no limits so it has nothing to do with it, it is all about
how much capacity we (physically) could manage.” (Production manager, company D).
Company B described how they were able to grow without having to recruit due
to their enterprise system usage and digital procurement and invoice processes.
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Digital Transformation of SMEs: Capturing Complexity

Company A spoke of value in terms of reducing the number of employees but

still be able to maintain a high level of capacity. SMEs described benefits and
value in terms of being able to do things better. Company C could access the
same product data and price information throughout all locations due to
integrated information systems, reducing data redundancy. The CEO of
company B was able to do his job better as he had access to information no
matter his geographical location. Company A spoke of several benefits such as
better logistics, increased control of shipments, increased inventory control and
improved decision making. Company D and E both perceived an increased
ability to measure performances.

Three categories of perceived external value emerged. Category one: increased

competitive advantage and market position. Company A pointed out the
integration and alignment of digital technologies, people and business processes
as the main reason for their advantage: “Yes, I can see that the way we work, because
there are many sawmills that have the same digital applications as we have. But the way we
work and use (the digital application) enables us to follow a package all the way from production
which I feel provides a competitive advantage - as we have made that change, which I do not
think the others have done yet, even if they have the opportunity to do so.” (CIO company
A). Company B pointed out the digital communication between their trucks and
the head office as a source of competitive advantage. Company C spoke of digital
initiatives as a hygiene factor and how it enabled competitive parity. Category
two: increased customer value. Company F perceived online communication
channels as strong customer value creators. The CEO described how working
with newsletters and email lists created tangible benefits in terms of increased
sales, and intangible benefits in terms of increased customer satisfaction,
engagement and commitment. Company E described increased customer value
as digital technologies enabled them to provide higher information quality.
Category three: new products/services. Company B gained new customers, new
business opportunities and increased revenues as a result of participating on
online exchange platforms. Company C perceived increased bookings with 23%
due to online booking platform participation and a new branding approach.
Company A described how digital applications enabled relationships and
transactions with international customers. Company B described how developing
new digital products and services made it possible to: enter a new market, reach
new customers, provide a new range of services to existing customers, and gain
new revenues.
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5 Discussion and Conclusions

Overall, the results painted a picture of the nature of SME digital transformation
as a complex, dynamic, and on-going phenomenon (figure 1). Digital
transformation does not follow a set of pre-determined steps for all SMEs to
follow, instead participating SMEs had to find their own way of combining digital
technologies, people and processes. As stated by previous research, digital
transformation requires companies to alter traditional ways, redefine
competencies, processes and relationships with business partners as well as
customers (Lucas Jr et al., 2013). This held true in all studied companies and
indicates the presence of a deep structure change where SMEs have to re-think
business models and key processes. Most SMEs spoke of change as continuous
and rather slow in contrast to a discontinuous, fast change (Besson & Rowe,
2012). Most SMEs displayed a low resistance to change, which acted as an enabler
(Zach et al., 2014). When employees displayed resistance towards change initiated
by digital initiatives, managers tended to find a solution and follow through with
intended digital initiatives.

The results indicate that SMEs need to manage the impact of their external digital
environment at the same time as they manage internal digital transformation in
order to create and capture potential digital business value. In doing so SMEs
tend to have two sets of drivers: (1) external drivers of strategic benefits to (a)
increase reach and richness of offered value proposition and (b) adapt to
customer and competitor pressure; (2) internal drivers of
operational/management benefits to (a) increase capacity and (b) do things
better.
J. Jeansson & K. Bredmar:
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Digital Transformation of SMEs: Capturing Complexity

Figure 1: The nature and complexity of SME digital transformation, the SMEdit-
framework.

Actions of digital transformation follow three categories: (1) actions of

understanding and responding to the dynamic nature of digitalization (e.g.,
collaborating with other companies in order to promote change, applying for
external government funding in order to conduct digital initiatives, adapting to
digital technologies suggested by customers); (2) actions of managing the
dynamic nature of capabilities and digital technologies (e.g., recruiting digitally
skilled employees, re-structure work to suit employee levels of digital
competence, develop, configure and adapt digital technologies); (3) actions of
creating and capturing the elusive nature of digital business value (integrating
digital technologies, people and company processes). Results indicate that SMEs
need to be able to act within all three categories, sometimes simultaneously, in
order to conduct their digital transformation successfully. Something that poses
a challenge as most studied SMEs tended to lack clear strategies for digital
initiatives and due to size related challenges (Wong & Aspinwall-Roberts, 2004).
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Results further showed the presence of three strategic tensions that SMEs needed
to pay attention to as they conducted their digital transformation. In practice, the
first tension resembled the tension suggested by De Wit and Meyer (2010) the
most: (1) balancing actions of adapting to external pressure of digitalisation
versus holding on to internal capabilities and desires (e.g., turning physical store
into an e-commerce business versus running in-store events and promoting
physical customer interactions). The second tension is one of competencies: (2)
balancing the nature and level of having in-house versus outsourcing digital
competence (e.g., employing systems developers and having high degree of
control versus paying external consults having less control). The third tension is
one of: (3) balancing the role and level of digital versus physical in all aspects of
the company (e.g., focus on being perceived as a high-tech, digital business versus
focus on being perceived as a low-tech, physical nature and sports business).
Identified tensions were on-going in their nature and emerged as SMEs had to
make strategic choices. All tensions are understandable in light of faced
challenges due to SMEs´ size (Zach et al., 2014).

In the end, a richer understanding of the complexity of SMEs digital

transformation has been gained through identified drivers, categories of actions
and strategic tensions. Used theoretical lens provided added support and a richer
picture. Based on the results a framework SMEdit (SME digital transformation)
is proposed and summed up in figure 1. The framework offers thoughts and
structure for further research as well as a way for SMEs to discuss and approach
the complexity of digital transformation.

The paper is not without limitations and should be understood based on its
context. Interviews were made with the CEO of the company or the person
responsible for its digitalisation/digital initiatives. Including a number of
employees from each company could have provided added value to
understanding the complexity of digital transformation.
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Digital Transformation of SMEs: Capturing Complexity

Acknowledgments

The authors wish to acknowledge the European Union and Region Kalmar for funding
the REDIT (regional digital transformation)-project. They further wish to
acknowledge participating companies for giving generously of their time and
knowledge.

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