Digitalization – Navigating Stormy Waters

Digitalization, or the integration of digital technologies and artificial intelligence (AI) into business processes, is moving rapidly. Large companies are often leaders in digital transformation, but small companies can gain significantly by leveraging digital tools tailored to their unique needs. However, managers of small companies find it challenging to decide which strategy to employ. Digitalization is a crucial issue, but it is like navigating stormy waters.

Sail with the wind!

Small companies are discovering new ways to innovate, compete, and grow in an increasingly digital world. According to a study by Restrepo-Morales et al. (2024), small companies can optimize their processes and automate tasks, leading to increased productivity and cost savings by adopting digital technologies. Automating repetitive tasks such as invoicing, payroll, and customer service reduces human error and administrative burden. Cloud-based platforms ensure that teams can work seamlessly regardless of location. Additionally, digital inventory management and logistics tools optimize supply chain operations, reducing waste and improving overall profitability.

Beyond making existing operations more efficient, digitalization also augments small companies’ financial performance (Rosyidiana & Narsa, 2024) and enables them to explore new revenue models. For example, subscription-based services, online marketplaces, and digital products provide opportunities for diversification. Additionally, emerging technologies such as AI and blockchain offer potential for novel solutions.

Digitalization enables small companies to offer personalized and interactive pre- to post-sales customer service (Costa et al., 2024). Data analytics provide insights into consumer preferences and behavior, allowing companies to tailor marketing strategies and offerings. Social media platforms, chatbots, and email automation enhance real-time customer interactions, improving engagement and loyalty. Furthermore, e-commerce solutions make it easier for small companies to sell products and services online and become omnichannel businesses.

Moreover, the adoption of data science empowers small companies to make informed strategic decisions (Tawil et al, 2024). Predictive analytics can help to, for example, forecast market trends, optimize pricing strategies, and identify potential risks. Digital dashboards allow companies to monitor performance indicators, ensuring responsiveness in a rapidly changing business environment.

Finally, digitalization opens the door to global expansion for companies looking to grow beyond domestic markets, directly by facilitating access to larger markets and indirectly by improving productivity (Añón Higón & Bonvin, 2024).  E-commerce platforms, digital payment systems, and AI-powered language tools facilitate cross-border transactions, making it easier to enter new markets.

Avoid the rocks!

Embracing digital tools may be necessary for competing successfully, innovation, and growth, but it is crucial to avoid sailing aground. Chen et al. (2024) are talking about the “digitalization paradox”, implying that digitalization is assumed to have a positive impact on company performance, but it is not always the case.

Implementing digital tools, software, and infrastructure requires significant investments, making it difficult for companies with limited budgets to compete with larger competitors. Another struggle is to integrate new digital tools with existing systems. Compatibility issues can lead to additional costs and inefficiency. Moreover, technology evolves rapidly. Digital systems demand continuous investments in updating and maintenance to run smoothly and efficiently. Outdated and neglected systems are vulnerable to technical failures. A website crash, payment system error, or cloud storage outage can disrupt operations, leading to lost revenue.

Another challenge is the resource and knowledge dilemma. Far from all entrepreneurs or employees have enough technical expertise required to manage digitalization, for example, they may not know how to take proper cybersecurity measures.  The cost and time required for learning how to use new software, manage online platforms, or implement AI-driven solutions can be a major hurdle. As digitalization means mastering new skills, not everyone welcomes it. Employees may resist adopting new digital tools, due to difficulties in learning new systems.

The last challenge is strategic alignment. Digitalization is not only a technological upgrade, but it also necessitates changes in strategic decision-making, organizational structure, and business processes. A misalignment between strategy, available resources, and actual needs may lead to poor execution and performance. For example, small companies often emphasize personal relationships with their customers. Automated email responses, chatbots, and digital transactions aiming at improving efficiency may reduce the human touch that customers appreciate.

The nautical chart

Novia’s project “Digiboost Sydösterbotten” aims to enhance the digital skills of small companies in the South Ostrobothnia region in Finland. A fresh analysis of 25 interviews with participating entrepreneurs and companies draws up a multifaceted chart where opportunities and challenges meet. It reveals that many of the focal small companies have taken significant steps in the journey towards digitalization, especially in administration and accounting. Digital booking and accounting systems are widely used, but manual processes remain due to a lack of integration of the systems. While the companies recognize the benefits of digitalization, they often lack the time, resources, and expertise to implement it, which is in line with other similar studies (e.g. Restrepo-Morales, 2024).

The study also shows that social media is the primary marketing tool, with Facebook and Instagram being the most used platforms. Some of them are experimenting with TikTok to reach younger audiences. However, marketing efforts often lack a clear strategy, and many companies have limited knowledge of tools like Google Ads, SEO, and automated marketing systems. Furthermore, e-commerce strategies vary widely. While some companies have functional e-commerce, others still rely on in-person or phone sales. Many companies lack a proper website despite recognizing its importance. There is growing interest in developing online sales with integrated payment systems. Thus, there is a strong interest among the focal companies in improving digital marketing and sales, given the right support and training. The first development step could be to improve the functionality of the digital channels (Costa et al., 2024). 

Adopting AI is still in its infancy in the focal group. Some companies use AI for image and language processing, but most lack a clear understanding of how it could benefit them. Uncertainty, skepticism, and a shortage of practical examples contribute to the hesitation in adopting AI. A “bystander strategy” with gradual exploration prevails (Kim & Seo, 2023). Cybersecurity is also in its initial stages. Many of the focal companies have basic firewalls and antivirus software, but there is a need for better knowledge on protecting customer data and using secure login methods. As cyber threats increase, improving cybersecurity is becoming more critical (Costa et al., 2024).

Arrive at the port!

The study in South Ostrobothnia, as well as the studies by Chen et al. (2024) and Restrepo Morales et al. (2024) reveal that, for example, insufficient resources and time, high investment costs, employee resistance, lack of knowledge and capability, high security requirements, and an absence of a digital-oriented business culture are key obstacles in the transformation of small companies. The findings highlight the complex challenges faced by small companies and emphasize the need to address the obstacles.

Small companies should evaluate their strategic priorities, core resources, and competencies, as well as the preconditions before choosing a strategic direction for digitalization. While digitalization opens the door to a vast array of opportunities, companies need more than good intentions. Access to education, workshops, tools, hands-on assistance, and external experts is essential. The “Digiboost Sydösterbotten” project aims to bridge this gap by equipping small companies with the nautical chart and compass they need to arrive at the port.

Sea marks

Añón Higón, D. & Bonvin, D. (2024). Digitalization and trade participation of SMEs. Small Business Economics, 62(3), 857-877. https://doi.org/10.1007/s11187-023-00799-7.

Chen, X., Zhang, X.-e., Cai, Z. & Chen, J. (2024). The non-linear impact of digitalization on the performance of SMEs: a hypothesis test based on the digitalization paradox. Systems, 12 (4), 139. https://doi.org/10.3390/systems12040139.

Costa, A. C. F., Capelo Neto, F., Espuny, M., da Rocha, A. B. T. & de Oliveira, O. J. (2024). Digitalization of customer service in small and medium-sized enterprises: drivers for the development and improvement. International Journal of Entrepreneurial Behavior & Research, 30(2/3), 305-341. https://doi.org/10.1108/IJEBR-10-2022-0953.

Kim, J-S. & Seo, D. (2023). Foresight and strategic decision-making framework from artificial intelligence technology development to utilization activities in small-and-medium-sized enterprises. Foresight, 25(6), 769-787. https://doi.org/10.1108/fs-06-2022-0069.  

Restrepo-Morales, J. A., Ararat-Herrera, J. A., López-Cadavid, D. A. & Camacho-Vargas, A. (2024). Breaking the digitalization barrier for SMEs: a fuzzy logic approach to overcoming challenges in business transformation. Journal of Innovation and Entrepreneurship, 13, Article 84. https://doi.org/10.1186/s13731-024-00429-w. 

Rosyidiana, R. N., & Narsa, I. M. (2024). Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance. Cogent Business & Management, 11(1), 1-16. https://doi.org/10.1080/23311975.2024.2342488.

Tawil, A.-R.H., Mohamed, M., Schmoor, X., Vlachos, K. & Haidar, D. (2024). Trends and challenges towards effective data-driven decision making in UK small and medium-sized enterprises: case studies and lessons learnt from the analysis of 85 small and medium-sized enterprises. Big Data and Cognitive Computing, 8(7), 79. https://doi.org/10.3390/bdcc8070079.

Texten har granskats och godkänts av Novias redaktionsråd 11.4.2025.