Digital Transformation in SMEs: How Strategic Orientation and Digital Capabilities Drive Value Creation and Innovation

Abstract

This paper examines how small and medium-sized enterprises (SMEs) generate value and innovation through digital transformation, focusing on the interplay between strategic orientation and digital capability development. While digital transformation is widely recognized as a strategic imperative, existing studies remain largely centered on large firms or linear technology adoption models. This means the ongoing, adaptive, and resource-limited experiences of SMEs have received less attention. Drawing on qualitative data from in-depth interviews with five SME leaders in Switzerland, this study investigates how SMEs frame digital value, develop enabling capabilities, and translate constrained resources into innovation outcomes. The study identifies four empirical themes: strategic framing of digital value, capabilities as catalysts, co-creation and network innovation, and resource constraints and strategic trade-offs. These themes show that SME digital transformation is not simply a process of adopting digital tools, but an adaptive journey in which strategic intent, technological integration, managerial learning, and external collaboration are continuously aligned. Building on these themes, this research proposes the Digital Synergy Loop—a conceptual framework capturing the iterative alignment of strategy and capability as the foundation for digital value creation. The framework comprises five interconnected stages: strategic intent and direction, capability development, digital synergy formation, value creation and innovation outcomes, and strategic refinement and feedback. By integrating the Resource-Based View, Dynamic Capabilities Theory, and effectuation logic, the study contributes to SME digital transformation literature by explaining how firms mobilize existing resources, build capabilities iteratively, and use stakeholder relationships to compensate for internal constraints. It therefore reframes digitalization as a strategic, relational, and feedback-driven capability process rather than merely a one-off technological investment. Practically, the findings suggest that SMEs should approach digital transformation through focused strategic intent, incremental capability building, co-creation with partners, and reflective feedback mechanisms. The study also offers policy implications, highlighting the need for adaptive capability-building support rather than technology subsidies alone.