Abstract:
Digital transformation is crucial for small and medium enterprises (SMEs) to remain
competitive, but they face distinct challenges like limited resources and capabilities
compared to larger firms. This study aims to provide empirical insights on the key
factors and mechanisms influencing successful digital transformation in SMEs,
focusing on the Batticaloa district of Sri Lanka. By examining the interplay between
technological , organizational, and environmental factors, the research develops an
integrated framework to guide SMEs through different stages of their digitization
journey. The study employed a quantitative approach, surveying 300 SMEs in
Batticaloa to assess levels of digital transformation alongside associated factors like IT
infrastructure, management capabilities, government support, partnerships, digital
strategy, and top management involvement. Correlation and regression analyses
identified the relationships and impacts of these variables, Mediation analysis further
explored whether organizational factors mediated the effects of technological and
environmental factors on digital transformation success.
The findings revealed high levels of the key factors among SMEs, with strong positive
correlations between the independent variables and digital transformation as the
dependent variable. Regression results showed environmental and technological factors
jointly explained 83.1% of variation in digital transformation levels. Mediation analysis
confirmed organizational factors played a mediating role in this relationship.
The research contributes an empirically-validated framework clarifying how
technological capabilities, environmental conditions, and internal strategy/leadership
jointly drive SME digitization through iterative stages. Recommendations guide
investing in priority areas like IT infrastructure, stakeholder partnerships, digital
roadmaps and upskilling based on transformation phase. Establishing a common
language around digitalization concepts supports clearer communication during
implementation. The insights can enhance SMEs' strategic approach and resource
allocation for competitive digital transformation.
