SUCCESSFUL FACTORS AND INFLUENCING MECHANISM OF THE DIGITAL TRANSFORMATION IN SMES IN BATTICALOA}DISTRTCT

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.