Keeping pace with the digital transformation - exploring the digital orientation of SMEs

In the digital era, organizations strategically adopt digital transformation to thrive and prosper. In particular, they allocate substantial resources to cultivate digital orientation. However, limited research has explored how digital orientation impacts the performance of small and medium-sized enterprises (SMEs). Our study sheds light on this relationship, examining it through the lens of a resource-based view (RBV) and dynamic capability (DC) perspective. We empirically quantify digital orientation and its subdimensions using textual data extracted from SME websites. Our findings unveil a U-shaped relationship: while high performance is observable at both extremes of the spectrum, an initial increase in digital orientation is associated with performance setbacks until a specific threshold of digital orientation is reached, after which performance once again begins to improve. As a result, SMEs should consider a strategic allocation of resources while pursuing digital orientation to build capabilities during their digital transformation journey. In today's rapidly evolving digital environment, organizations are strategically adapting to technological advances to succeed. They are investing in enhancing their digital orientation, yet research on how these investments impact the performance of small and medium-sized enterprises (SMEs) is limited. Our study explores this impact from two perspectives: the utilization of resources and the development of dynamic capabilities. We assess digital orientation and its various dimensions by analyzing text data from SME websites. Our findings reveal a notable trend: initially, as SMEs enhance their digital orientation, they may experience performance dips. However, once they achieve a certain level of digital orientation, their performance begins to improve. This underscores the importance for SMEs to strategically manage their resources and develop the necessary capabilities for a successful digital transformation.