Digital transformation in small and medium-sized enterprises: key insights for entrepreneurs and policymakers to cultivate a future-ready business

PurposeDigital transformation is a promising phenomenon that facilitates changes in small and medium-sized enterprises (SMEs). The current article examines the factors affecting digital transformation and their impact on a firm’s financial performance.Design/methodology/approachThe authors utilized a quantitative research method utilizing self-administered questionnaires. The primary data for the study were gathered from 511 managers and owners of Indian SMEs. The “statistical package for the social science (SPSS)” followed by the “partial least square structural equation modeling (PLS-SEM)” technique was applied for the data analysis.FindingsThe study findings reveal that information technology capabilities, value co-creation, market pressure and government policies significantly influence digital transformation and organizational innovativeness. Conversely, technological anxiety insignificantly impacts both digital transformation and organizational innovativeness. The findings also confirm a substantial association between digital transformation, organizational innovativeness and financial performance.Practical implicationsThis article is valuable for SME managers, government and practitioners, empowering them to make informed decisions about integrating digital transformation into their business processes. Additionally, the results of this research may serve as a catalyst, encouraging SMEs to embrace digital transformation more willingly and recognizing its potential benefits in enhancing business processes, decision-making and financial performance.Originality/valueThis research proposes a unique research model by integrating theoretical perspectives: resource-based view (RBV), value co-creation (VCC) and processing efficiency theory (PET) to investigate the mediating effect of digital transformation and organizational innovativeness in the association between contextual factors and a firm’s financial performance, specifically within emerging economies.