Navigating Digital Challenges for SMEs: A Two-Tier Approach to Risks Mitigation and Sustainability

Abstract

The global significance of SMEs has traditionally been recognized as a key driver of economic growth and sustainability. The emergence of digital technologies and Information and Communication Technology for Development (ICT4D) holds significant potential to further enhance this impact. However, SMEs in developing countries have faced challenges in adopting sustainable, resource-intensive digital systems. Factors such as limited skills, financial constraints, and the alignment of suitable solutions hinder this adoption. To address these challenges and promote sustainable digital transformation, this study proposes a two-tier approach. The first prong employs Natural Language Processing (NLP) techniques, including Word2Vec, for global analysis and digital systems identification. The second prong involves a country-specific analysis of SMEs’ digital requirements. This two-tier analysis aims to uncover the actual digital needs of SMEs while shedding light on high-intensity global SME activities that, if integrated through ICT4D, could effectively address the risks and challenges SMEs face in adopting, implementing, and maintaining digital systems. In addition, the study develops systems required by SMEs to optimize their business processes and production, thereby promoting their growth and sustainability in the digital era. The results of this study demonstrate the effectiveness of these proposed methods in addressing digital challenges for SMEs and fostering sustainable development.

1. Introduction

Micro-, small, and medium enterprises (MSMEs) play a crucial role in global economies due to their ability to generate employment, reduce poverty, promote innovation, and contribute to a country’s Gross Domestic Product (GDP) [1,2]. In South Africa, there are approximately 6.2 million MMEs, with 54% being micro-enterprises and 15% located in rural areas [3]. Among these, two-thirds are owner-operated without employees, and only 32% have staff comprising one to ten employees [3]. However, MMEs face significant challenges, with survival rates being alarmingly low; 70–80% fail within the first year, and only half of those who survive the first year make it to the fifth year [3]. Further to this, 58% of small and medium enterprises (SMEs) operate informally, which restricts their access to funding through loans, government grants, and other support programs such as skills development, consequently reducing their contribution to the formal economy [3]. These challenges have substantial socioeconomic impacts for South Africa, given that SMEs contribute over 40% to the GDP and account for 87% of the labor market [3]. This is evidenced by South Africa’s high unemployment rate, which stood at 32.9% in the first quarter of 2023 [4].

The lack of access to finance is a key challenge for the growth and sustainability of SMEs in developing countries. Factors such as high interest rates and the opacity of SMEs impact their ability to secure financing. Consequently, these financial constraints limit SMEs’ ability to invest in advanced Information and Communication Technology (ICT) solutions. ICT offers SMEs opportunities to address growth and sustainability challenges [5,6]. Research has shown that SMEs using ICT experience increased market potential, a better understanding of their clients, and a more efficient product creation process [5,6,7]. Digital platforms have also been recognized as tools to support SMEs’ growth and sustainability [8,9]. These are defined as software-based systems that enable interaction between parties [10]. The interactions can range from financial transactions to customer service and logistics handling, involving personnel within the SME or between the SME and external parties such as suppliers and customers. Gareeb and Naicker [8] identify digital adoption as an enabler for SMEs’ long-term competitive advantage, performance, and growth. For example, SMEs using E-commerce platforms can expand their market reach without significant physical infrastructure investment, leading to increased sales and revenue. Conversely, inadequate ICT adoption can exacerbate challenges for SMEs. For example, an SME that fails to adopt digital inventory management systems may experience frequent stockouts or overstocking, resulting in lost sales and increased holding costs.

While digital platforms are widely acknowledged as open, widespread, and affordable, this does not always apply to SMEs, particularly from the perspective of developing countries. Digital platforms are often designed with a focus on large enterprises, leaving a gap in the availability of platforms suitable for SMEs. In developing countries such as South Africa, where SMEs are often informal, rural-based, and owner-run with minimal employees, there is a need for an affordable, user-friendly digital platform. This platform should facilitate both internal and external interactions, require minimal technical expertise, and have low infrastructure requirements.

To address the gap in digital platform adoption and suitability for SMEs, this study proposes a two-tier approach that includes conducting a country-specific analysis of SME digital requirements and a global analysis using Natural Language Processing (NLP) techniques, including word-to-vector (Word2Vec), for digital systems identification and to create a quantification structure of actual activities performed that should be prioritized for digitalization. The aim of this study is to uncover the digital requirements of SMEs, shedding light on intensive global SME activities that, if integrated through Information and Communication Technology for Development (ICT4D), could effectively mitigate risks and challenges associated with SME system requirements. Furthermore, the study seeks to develop systems required by SMEs to optimize their business processes and production, thereby promoting their growth and sustainability in the digital era.

This paper is organized as follows. Section 2 discusses the opportunities presented by digital transformation for SMEs and the challenges and risks of adopting digital platforms. Section 3 introduces the theoretical framework, including Risk Compensation Theory, Social Action Theory, and Information Retrieval Theory, to ground the study. Section 4 outlines the materials and methods employed for the analysis. Section 5 presents the results of the analyses. Section 6 discusses the implications of the results. Finally, Section 7 concludes the paper.

2. Literature Review

The drive towards digitalization has presented unparalleled opportunities for enterprises across various industries [10]. Concurrently, the rapid advancement of digital technology has led to the emergence of diverse digital platforms [11]. These platforms are defined as extensible digital cores that incorporate complementary components for third-party integration [11]. Furthermore, digital platforms are characterized by their openness [12], affordability, and extensive reach [11]. According to Kenny and Zysman [13], digital platforms available in this digital age are characterized by their diverse functions and structures. For example, Google and Facebook serve as digital platforms offering search and social media services while also providing an underlying infrastructure upon which other platforms can be developed [13]. Amazon, Etsy, and eBay function as marketplaces [13]. Amazon Web Services (AWSs) go beyond being a marketplace by providing essential infrastructure and tools that empower others to build even more platforms [13]. The utilization of digital platforms offers SMEs the opportunity to foster innovation, enhance their flexibility in strategic approaches, and expedite decision-making processes [14]. Consequently, SMEs are actively encouraging and supporting the development of innovative business models by adopting and utilizing various digital platforms [15].

2.1. Opportunities Presented by Digital Transformation for SMEs

The spread of advanced communication technologies has led to the adoption and integration of ICT4D in resource-limited countries [16,17]. According to Benard et al. [17], this trend is further amplified by the incorporation and adoption of state-of-the-art technologies such as cloud computing, the Internet of Things (IoT), blockchain, mobile devices, and digital computing tools. Therefore, the network offers a distinct and advantageous pathway for addressing multifaceted challenges of societal, technical, and economic development [17]. In the context of the community, ICTs assume a pivotal role, and their effective use has demonstrated substantial outcomes in terms of socioeconomic progress and environmental sustainability [18]. Accordingly, SMEs stand to benefit significantly through from integration of a diverse range of sophisticated information and digital technologies into their operations along the entire value chain [19].

According to Xie et al. [11], the incorporation of a digital advertising platform presents a transformative opportunity for SMEs to strategically reconfigure their business processes and foster a culture of heightened innovation within their business models. This approach includes adopting an automated business model that is customized to effectively serve the needs of their lower-end customer segment [11]. Simultaneously, SMEs can focus on enhancing and diversifying their traditional business models to address the distinct demands of their consumers [10]. By embracing comprehensive digital strategies, SMEs can position themselves for sustained growth, enhanced competitiveness, and deeper market penetration [10]. Teoh et al. [20] supported this notion by proposing that SMEs can enhance their competitive edge through the adoption of digital technology, leading to innovative improvements in value creation, value proposition, value delivery, and value capture.

Access to financial resources plays an important role in shaping the activities and development of SMEs [21]. The ability to acquire capital drives the innovation of business models, thereby exerting a favorable influence on financial performance within the organization [22]. Embracing digital finance enhances SMEs’ market position through servitization and improves supply chains, facilitating better access to finance [22,23]. In addition to financial benefits, digital technology brings about significant changes in regulatory burdens for SMEs [23]. For example, electronic invoicing helps SMEs adhere to taxation regulations while concurrently mitigating the burden of administrative duties [24]. Cloud computing, consolidated service centers, and their interconnected infrastructure not only alleviate administrative complexities but also enhance the efficiency of government operations [25]. These digital advancements collectively empower SMEs, enabling them to operate more efficiently and competitively in the modern business landscape [26].

2.2. Challenges and Risks of Adopting Digital Platforms

Globally, numerous scholarly investigations have examined various factors that impede the prosperity and sustainability of SMEs [27,28,29,30,31,32,33,34,35,36,37]. Studies conducted by Al-Tit, Omri, and Euchi [35] and Zutshi et al. [36] have highlighted four primary challenges encountered by SMEs. These challenges include the following:

• Obstacles related to financial resources involve time-consuming procedures for loan acquisition and an extensive list of prerequisites.
• A deficiency in a critical understanding of local, regional, and international market variables and their evolving circumstances.
• Entrepreneurs are grappling with the challenge of expanding their customer base beyond local markets, whether regionally or internationally, due to inadequate marketing strategies.
• Shortcomings in managerial competencies spanning human resources, financial management, and administrative domains.

Similarly, Alqassabi [37] reported that SMEs encounter various limitations that impede their prosperity and restrict their opportunities for expansion; a notable limitation is the absence of proficient managerial abilities among entrepreneurs. Managers who lack the essential skills needed to drive the progress of the company may show challenges with the management of the available financial, human, or other resources [37].

To be a critical factor for competitiveness, digital technology adoption requires a significant pool of skilled labor and stakeholders who recognize its importance, alongside managers who are willing to embrace such technological innovations [38]. The full potential of these technologies for enhancing competitiveness remains unrealized without a clear understanding of how to synchronize digital skills and tools with the broader digitalization or digital transformation vision of SMEs [39]. According to Le-Dain et al. [22], for SMEs to fully benefit from digital transformation, specific human capabilities are crucial. However, the deficiency in digital technology skills and knowledge continues to be a significant impediment for SMEs [40].

While digital technology presents SMEs with the opportunity to effectively communicate their value and establish a strong digital reputation. These enterprises often face brand risks such as dilution and changes in mechanisms [22]. Another challenge for SMEs is the cost of developing a robust IT structure to address concerns about intellectual property loss through cloud services [41]. Furthermore, the integration of innovative technologies into the SME environment is distinctly influenced by existing institutional and governmental frameworks [42]. These entities play an important role in governing copyright issues, tax implications, and jurisdictional concerns, which, in turn, impact decision-making processes regarding the adoption of digital technology [22]. Unfortunately, when this regulatory framework does not support digital transformation, it acts as a barrier for SMEs [22]. Another challenge, as stated by Tamvada et al. [43], is that the implementation of Industry 4.0 technologies poses significant financial, technological, and operational risks for SMEs, and they categorize these risks into sub-risks, as shown in

Table 1. Summary of Industry-4.0-associated risks. Source: [43].

Risks	Sub-Risks
Financial risks	Risk of obsolescence of an investment in technology Unclear economic benefit Risk of false investments
Operational risks	Maintenance Higher complexity Inadequate qualification of employees Internal resistance and corporate culture shifts of competencies Manufacturing process management-based risk Operation method and tool-based risks Denial-of-Service (DoS) infrastructure shortcomings Lack of expertise Organizational risk
Technological risk	Technical complexity Technical integration Lacking standards/international standards differ Increasing dependence on technology Retrofitting IT interface problems Availability of adequate IT Infrastructure Increased system maintenance/incompatibilities Lacking an understanding of data-driven business models Infrastructure shortcomings/network congestions Awareness and organizational structure
Business risk	Losing a competitive advantage Transformation of business models Loss of core competencies Power shifts Transparency of data can be misused Diminishing barriers to market entrance Additional demands of customers New competitors Legal and political aspects Theft of industrial trade secrets and intellectual property Dependence on technology providers Short-term strategy
Supply chain risks	Loss of suppliers (barriers to technologies) Coordination complexity Radical changes in the supply chain Loss of bargaining power over the supplier Different standards used along the supply chain Loss of competitive advantages
Cybersecurity risk	Transfer data from and to unauthorized devices Data breach/theft/tampering and spoofing IT security and IoT security Manipulation of data/communication/hardware/software Information security Eavesdropping Cloud abuse Malware attack Hacking

.

The challenges and risks associated with adopting digital platforms are undeniable but can be mitigated. As businesses embrace digital technologies to remain competitive and meet evolving customer demands, businesses must be aware of the financial constraints, skill gaps, and resistance to change that may hinder successful adoption. Despite these challenges, it is essential to recognize that digital transformation offers significant opportunities for businesses to streamline processes, enhance customer experiences, and expand their reach in a globalized marketplace. By proactively addressing the challenges and implementing risk management strategies, organizations can position themselves for success in the digital age. As such, SMEs should prioritize workforce training, foster a culture of innovation and adaptability, and invest in technologies that align with their specific needs.

3. Theoretical Framework

This study is grounded in Risk Compensation Theory, Social Action Theory, and Information Retrieval (IR) Theory to provide a comprehensive framework for understanding and addressing the digital transformation challenges faced by SMEs. Risk Compensation Theory, also known as the risk homeostasis theory or the ‘Peltzman effect’ [44], suggests that people adjust their behavior based on their perception of available safety measures. This adjustment may partially or completely invalidate the advantages of enhanced security [45]. According to the theory, when individuals engage in a particular behavior, it can lead to increased engagement in other related behaviors, even if those were not the intended focus [45]. In the context of SMEs adopting digital technologies, this theory helps explain how business owners and managers might balance the perceived risks of digital adoption (e.g., financial costs, operational disruptions, etc.) with the potential benefits (e.g., improved efficiency, market reach, etc.). By understanding these compensatory behaviors, digital solutions can be designed to minimize perceived risks and maximize adoption rates.

Social Action Theory focuses on the ways individuals’ actions and interactions shape and influence social structures and institutions [46]. Applying this theory to SMEs and their digital adoption allows an exploration of how social dynamics, such as trust in technology and collaborative efforts among stakeholders, influence the integration of digital systems. The involvement of universities and researchers as collective drivers of social action can build trust and facilitate the adoption of digital technologies by SMEs, promoting sustainable development.

Information Retrieval (IR) Theory provides the foundation for extracting relevant data and insights from vast amounts of textual information. IR focuses on the methods and techniques used to retrieve documents to meet a user’s information needs [47,48,49]. It encompasses techniques such as querying, indexing, and ranking [50]. By employing methods like keyword-based querying and content indexing, researchers can systematically extract information aligned with their study objectives. In this study, IR techniques, including NLP, are employed to analyze global data related to SMEs and digital technologies. This approach enables the identification of key digital systems and high-intensity activities that can address the specific needs and challenges of SMEs.

Together, these theoretical frameworks offer a robust foundation for the methodology, guiding the analysis and interpretation of data to address the risks, social dynamics, and information needs associated with the digital transformation of SMEs. This integrated approach not only enhances the understanding of the factors influencing digital adoption but also supports the development of effective strategies to promote sustainable digital transformation in SMEs.

4. Materials and Methods

This study followed two high-level methodologies: (1) an AI Track, as illustrated in Figure 1 and Figure 2, and (2) an Awareness and Data Collection Track, as illustrated in Figure 3. Both methodologies are grounded in the theories discussed above.

4.1. AI Track

Figure 1 of the AI Track (Track 1) employed IR theories, specifically NLP techniques grounded in IR. Data collection was conducted through keyword-based querying. The queried databases included ScienceDirect, Web of Science (WoS), IEEE Xplore, and JSTOR, resulting in 8794 downloaded articles, book chapters, and business reports. The data were subsequently filtered to include documents relevant to digital systems in SMEs, resulting in 4347 relevant documents. These documents underwent text-mining techniques such as cleaning, stop words removal, stemming, and lemmatization. The processed textual data were then stored as a corpus, from which digital systems relevant to SMEs from a global perspective were identified.

Word2Vec

Word2Vec is a popular word embedding technique in NLP that converts words or phrases into numerical vectors, also known as word embeddings. This technique captures the semantic meaning and relationships between words by representing them in a multi-dimensional vector space [51]. Word2Vec uses neural networks to learn word embeddings from a large corpus of text data. The key concept behind Word2Vec is that words with similar contexts will have similar vector representations in this vector space. This enables algorithms to perform tasks such as semantic similarity analysis and classification more efficiently. The performance of Word2Vec depends on two user-defined parameters: the dimensionality (i.e., size) of the vector representation and the maximum distance (i.e., window) between a word and its surrounding words in a sentence [51]. In this study, a dimensionality of 300 was chosen. This dimension size was selected to provide a balance between capturing sufficient semantic information and maintaining computational efficiency, as higher dimensions can lead to overfitting and increased computational demands.

The Word2Vec model was trained on the final corpus, as illustrated in Figure 2. of Track 1. During this process, each word in the corpus was converted into a 1 by 300-dimensional word vector. Cosine similarity was then used to calculate the affinities between words, specifically digital systems. Cosine similarity measures the cosine of the angle between two vectors, providing a metric that indicates how similar the vectors are, regardless of their magnitude. Correlation matrices were then constructed to display the affinity relationships between different digital systems. These matrices are visualized using heatmaps.

4.2. Awareness and Data Collection Track (Track 2)

Track 2 is grounded in Social Action Theory. This theory is applicable because SMEs are vulnerable, and through social collective action, they find comfort and support to move forward. In this study, a large sample was adopted to socialize digital technologies through collective training sessions and data collection of digital requirements. The research team is a neutral party, not a profit-seeking company, which fosters a higher level of trust and acceptance among SMEs. The study conducted a review of the existing literature on the role of SMEs in economies, both globally and in South Africa. Following an analysis of the literature review, the research team identified several challenges that SMEs encounter when attempting to implement digital systems and technologies. Based on the information obtained, the study argued that SMEs, when appropriately implementing digital technologies through effective training and adoption, can improve their performance and global competitiveness. To support this argument, researchers conducted training sessions with identified SME owners in the Food and Beverage SETA (Sector Education and Training Authority) in South Africa and adopted a quantitative approach to collect data. Pre- and post-training, the participating SMEs were provided with a questionnaire survey to indicate their current status (as-is) and desired status (to-be) in the implementation of digital technologies [40].

Track 2 included data collection from SMEs, as well as the development and testing of an Enterprise Resource Planning (ERP) platform. The platform’s design and functionalities were based on the collective requirements of various SMEs from the food and beverage sector in South Africa.

5. Results

This section presents and discusses the results of the analysis conducted using AI techniques on a global scale, as well as the results from country-specific analyses.

5.1. The Global Insights

The primary objective of the AI Track was to identify and select digital systems commonly required by SMEs across various business functions. Through NLP techniques, including text mining, this study identified a diverse array of digital systems. The focus was then narrowed down to just four departments: Operations, Finance, Human Resources (HR), and Sales and Marketing. The decision to concentrate on these specific departments was motivated by their vital roles in SMEs and their direct impact on overall business efficiency and success. From the extracted information, a selection process was carried out to include only the most relevant and frequently cited digital systems for each department.

A Word2Vec model was employed to train word embeddings for the identified digital systems for each organizational function (Operations, Finance, HR, and Sales and Marketing). The resulting embedding vectors were chosen to have a dimensionality of 300, as this dimensionality has been recognized as effective for capturing semantic relationships in word embeddings [50]. By using the trained word embeddings, this study was able to explore and quantify the correlations between digital systems across different functions. The results of the correlation analysis are visualized using heatmaps, as depicted in Figure 4, Figure 5 and Figure 6. These heatmaps provide a representation of the strength of correlations between the digital systems from Operations, Finance, HR, and Sales and Marketing. Darker spots in the heatmaps indicate higher correlation values, signifying a stronger relationship between specific digital systems and implying potential interconnections and complementary usage across different functions. The correlation values are calculated using the Cosine similarity rule within the context of Word2Vec.

Figure 4a demonstrates a strong correlation between E-marketing and Applicant Tracking Systems (ATSs). This result is in alignment with the insights presented in reference [52], where the authors illuminated the connection between E-marketing and E-recruiting. The observed result strengthens the understanding of how E-marketing practices can influence the efficiency and effectiveness of applicant tracking processes within an organization. Furthermore, the analysis reveals a strong correlation between the Business Intelligence (BI) system and the Sales Performance Management system, as illustrated in Figure 4b. The high correlation value obtained is consistent with the findings discussed in [53], where the relationship between business process and organizational performance was explored. This convergence of results further strengthens the credibility of the identified correlation.

The affinity analysis also reveals a significant correlation between ERP and Employee Self-Service systems in Figure 5a, suggesting a potential interplay between these digital tools in streamlining organizational operations and empowering employees with self-service capabilities. A noteworthy relationship is also observed between BI and Compensation and Benefit systems (see Figure 5a), implying that BI systems may play an important role in optimizing compensation strategies and benefit administration. The significance of this correlation is reinforced by findings in reference [54]. Additionally, a notable correlation is identified between Customer Support and Profit Management systems in Figure 5b, indicating a potential relationship between these two functions in influencing overall profitability and customer satisfaction. The observed correlation underscores the significance of efficient customer support practices in contributing to effective profit management strategies and enhancing organizational performance, as supported by the findings in [55]. A strong relationship is also observed between the Sales Enablement systems and the Profit Management systems. The identified connection reinforces the understanding of how these systems are inter-related and can potentially contribute to enhancing overall business performance. This correlation is supported by the study conducted by [56], which investigated the synergistic effects of integrating sales enablement and profit management systems.

Figure 6a,b further illustrates the correlations between Finance systems and Operations, as well as HR systems.

The global analysis using the Word2Vec technique reveals that digital systems across various organizational functions, such as Operations, Finance, HR, and Sales and Marketing, are highly inter-related. This finding suggests that integrating these systems can lead to significant improvements in organizational efficiency and overall performance. By understanding and utilizing the interconnections between various digital systems, SMEs can optimize their internal processes and drive sustainable growth. The strategic alignment of these digital systems allows SMEs to not only overcome the challenges associated with digital transformation but also position themselves for long-term success in the digital era. The observed correlations between these digital systems are consistent with findings in the existing literature, reinforcing the validity and reliability of the results.

5.2. South Africa Specific Analysis

Between 2021 and 2022, the University of Johannesburg, in collaboration with the Food and Beverage SETA, took a proactive approach to drive digital transformation among SMEs by conducting a series of awareness workshops [40]. These workshops served as an educational/training platform to highlight the significance of embracing digital technologies to enhance competitiveness and growth within the SME sector. In conjunction with the awareness workshops, the researchers conducted a questionnaire survey where SMEs were encouraged to identify and explore digital platforms that could potentially contribute to their success and sustainability in the business landscape, as well as the technologies they were currently using [40]. The workshop encompassed six business functional areas of strategic planning, operations, finance, marketing, maintenance, and human resources. The questionnaire was categorized into the as-is and to-be to define the current and desired status of the SME. The SMEs indicated their status as:

• No system (s1)
• Paper system: no continuous assessment (s2)
• Paper system: continuous assessment (s3)
• Basic software-based system (s4)
• Fully integrated system (s5)

A sample of the questionnaire is illustrated in Figure 7. The SMEs completed the relevant section of the questionnaire after the respective module was taught. Samples of the completed questionnaire are provided in

Table 2. Sample of a completed questionnaire on scheduling processes.

	Which Type of System Do You Use to Perform Scheduling Processes?
Company Name	Operations	Finance	Marketing	Maintenance	HR
Company 1	Paper system: no continuous assessment	Paper system: continuous assessment	Basic software-based system	Paper system: no continuous assessment	Paper system: no continuous assessment
Company 2	No system	Paper system: no continuous assessment	Paper system: no continuous assessment	No system	No system
Company 3	No system	No system	No system	No system	No system
Company 4	No system	No system	No system	No system	No system
Company 5	No system	No system	No system	No system	No system
Company 6	Basic software-based system	Basic software-based system	Basic software-based system	Basic software-based system	Basic software-based system
Company 7	Basic software-based system	No system	No system	No system	Basic software-based system
Company 8	No system	Basic software-based system	Basic software-based system	Basic software-based system	Basic software-based system

and

Table 3. Sample of a completed questionnaire on performance monitoring.

	Which Type of System Do You Use to Monitor Performance in Each Function?
Company Name	Operations	Finance	Marketing	Maintenance	HR
Company 1	Paper system: continuous assessment	Basic software-based system	Basic software-based system	Paper system: no continuous assessment	Paper system: continuous assessment
Company 2	No system	No system	No system	No system	No system
Company 3	No system	No system	No system	No system	No system
Company 4	No system	No system	No system	No system	No system
Company 5	No system	No system	No system	No system	No system
Company 6	No system	No system	No system	No system	No system
Company 7	No system	Fully integrated system	Paper system: continuous assessment	Fully integrated system	No system
Company 8	No system	No system	No system	No system	No system

.

A total of 220 SMEs participated in the training; however, only 150 questionnaires were valid for analysis due to incomplete submissions and some SMEs not submitting the questionnaires. Considering the SME’s requirements for document management, financial management, planning, and performance monitoring, the results are aligned with these business functionalities. Figure 8 illustrates the difference between the current (as-is) and desired (to-be) states for document management, financial management, planning, and performance monitoring functions.

Data Collection and User Requirements

The monitoring performance functionality demonstrated the largest decrease in change, moving from an as-is state (no system) of 72% to a to-be state of 46%. This represents the most significant change in status, highlighting the importance of performance monitoring for SMEs. Further, performance monitoring demonstrated a positive change of 19% for a fully integrated system. This is a critical function of a business as it defines the current state, including challenges, opportunities for improvement, and good practice. This information would enable an SME to improve planning, including meeting customer demand, purchasing, and logistics.

Importantly, all functions demonstrated an increased need for a fully integrated system from the as-is to to-be states. Document management showed the most significant positive change for fully integrated systems, increasing from an as-is state of 3% to a to-be state of 27%. This was followed by planning, financial management, and monitoring performance, respectively. Document management is crucial for SMEs, encompassing tasks such as tax purposes, financial accounting, funding applications, customer monitoring, and stock monitoring. Planning is an essential function for SMEs, impacting all aspects of SME operations, from HR to finance, logistics, and operations/services. If SMEs can accurately plan for expected product or service demand, they can hire the required staff with the necessary skills and purchase the required resources with time to source and negotiate for the best prices. This ensures cash flow to mitigate unexpected challenges. This ultimately improves the performance of the SME. Financial management ensures that the SME complies with financial governance and regulations, which is essential for applying for funding and loans and attracting new customers. Most businesses require SMEs to align with financial compliance, as evidenced by the required SME documentation, before conducting business.

Notably, SMEs aim to transition directly from having no system to a fully integrated one. Monitoring performance is crucial for SMEs, requiring various systems for effectiveness across HR to planning, with set key performance targets for measurement. This transition from no system to fully integrated affirms digital adoption as being critical for SME competitiveness, sustainability, growth, and risk reduction, ultimately contributing to SME success. Notably, monitoring performance is the only functionality showing progression from no system to fully integrated. These findings highlight a shift in status transition between the as-is and to-be states regarding digital platform utilization among SMEs. The outcomes distinctly illustrate the change in the current state of “As-Is” when compared to the desired state of “To-Be” of these SMEs. While some SMEs indicated they had no system in place for monitoring performance, comparing their current and desired statuses revealed a substantial change. Most SMEs reported having no system in place for their current state (as-is); the analysis of the ‘To-Be’ status showed a significant shift, with an average of 20% of SMEs, indicating a need for a fully integrated system. These findings underscore the impact of skill and digital awareness gaps, which have left many SMEs without systems to support their growth. However, as knowledge and access to digital technologies increase, there is a notable rise in demand for fully integrated systems.

5.3. The Development of the SME Digital Systems

To mitigate the challenges faced by SMEs and provide support, this study designed and developed digital platforms identified as essential for SME growth. To simplify access for SMEs, the study adopted a single ERP architecture approach, where these platforms function as integrated modules. These digital platforms, highlighted and described in Figure 9, were selected based on their proven potential to improve the performance of SMEs in South Africa. Developing each platform as a standalone solution would require significant resources, particularly when deploying them in the cloud or other environments. Additionally, SMEs would need to create multiple accounts and logins for each function to access these individual platforms. To address this issue, an ERP system and an integrated set of functions as modules were developed. This ERP system encompasses all the necessary platforms to meet the needs of SMEs. The high-level functional requirements of the ERP are noted below:

• Be able to create digital invoices and unique invoice numbers and populate an income and expenditure database/SME.
• Be able to create and host websites without the need for software development skills, with a simplified approach using wireframes, low code, and ease of use for an entrepreneur.
• Be able to create a business case in a digitally mentored manner, i.e., the system provides prompts and examples for every input.
• Allow SMEs to sell products to consumers via a free-to-use marketplace.
• Be able to allow SMEs to market products through digital identification of distributors and automated digital networking, including catalog sharing.
• Digital cataloging with a filtered input.

The above requirements were designed into a combined three-tier design, including a front-end, a back-end server, and a database (SQL) server.

Figure 9. Digital Systems.

Figure 9. Digital Systems.

5.4. Development of the Platforms

Prior to their integration into an ERP system, the platforms were developed as standalone solutions. The technology stack used across all platforms included CSS, HTML, and JavaScript for the front end. These technologies were selected due to the development team’s skill set and their widespread popularity. For the back end, Python 3’s Django full-stack framework was adopted. Django provides all the necessary libraries for developing the platforms and facilitates the easy integration of different platforms. The SQL Server was used to store all the datasets. SQL Server is a popular database server, and it is also available as open source. The Microsoft Agile development approach was adopted for the development and integration of the platforms. After development, these platforms were integrated to create a unified ERP system. Django enables these platforms to function as a single Django application within one project. In Django, an application is a small library representing a distinct part of a larger project, while a project is a web application built using Django. The project operates on a single server, allowing the Django application to share a common database. This integration minimizes redundancies across the platforms. For instance, all platforms use a unified authentication system, requiring SMEs to sign up only once to access all platforms. The remaining platforms are developed within the integrated ERP framework. Figure 10 provides an overview of the ERP architecture.

5.5. Overall Architecture

In the ERP, the integrated platforms are designed to work together seamlessly. While signing up, the user will need to provide their personal details, including full names, ID or passport numbers, a password, and contact details. Furthermore, they will also need to provide their company details, including company name, address, town/city, postal code, and contact details. The sign-up process also includes the terms and conditions agreement, which a user has to agree to for a successful sign-up process. Upon completing the sign-up process, the user can access all the apps by signing in with their email address and the password they created. After successfully signing in, the user will be redirected to a landing page that includes the path to the invoice generator, business case, digital marketing, and marketplace, among other modules.

5.5.1. Invoice Generator Module

The invoice generator module forms part of the overall system. The module is free and designed to assist SMEs in creating invoices for their businesses. By allowing SMEs to create professional invoices quickly and efficiently, the module simplifies the process of receiving payments from consumers. The module’s user-friendly design makes it simple for users to incorporate data from customer and project records. For example, if SMEs want to create a new invoice for a customer with whom they have previously conducted business, they can copy the older invoice and edit the information. Furthermore, the module allows SMEs to send emails to customers directly from the platform. Integration facilitates the ability to summarize the personal and purchase details of each customer. The platform also has the capacity to run tax reports, which further streamlines the invoice creation process. Overall, the invoice generator is an excellent tool for SMEs who are seeking to improve their business operations and streamline their invoicing processes.

5.5.2. Business Case Module

For clients or users who want to create digital business case templates for their businesses, the business case module is an essential resource. Users can easily obtain all the necessary data and create a business case template due to the module’s user-friendly interface. Users have the option of downloading the generated templates as PDFs or having them emailed to their personal or business email address from a secure database where they are kept. Furthermore, the module provides a number of customization options that let users modify their business case templates to meet their specific requirements and preferences. This guarantees the generated templates are accurate and pertinent, giving users a complete tool to assess their business ideas and make wise decisions.

5.5.3. Digital Marketing Module

The DIY website is a flexible module that gives SMEs the capability to build and host free websites for their businesses without software development skills. It gives SMEs a powerful online presence and the ability to expand their consumer base. With simple tools that do not require any prior website development experience, the websites are made to be easily customizable. SMEs can easily alter the website content to suit their unique requirements and preferences. Further, the websites have an integrated messaging system that enables users to contact SMEs directly from the website. This facilitates seamless communication and enhances customer service.

5.5.4. Marketplace/Order Management

The SME order management module provides SMEs with an effective and streamlined method for managing sales, helping them easily sell products and communicate with customers. Furthermore, the module allows SMEs to create specials and discounts for the products they are selling. The module is equipped with an easy-to-use user interface that allows SMEs to navigate and utilize its features effectively. It can also create receipts with the help of the invoice generator module, which are then sent to both the SME and the customer via email once the customer has placed an order for a product.

The implementation of an ERP system will enable SMEs to optimize their business operations, thereby improving overall growth and performance. Currently, researchers are conducting tests on the system with designated SMEs to assess its efficacy and identify potential areas for improvement. The initial testing phase has, thus far, produced positive results.

6. Discussion

Transitioning towards the adoption of digital technologies presents significant challenges for SMEs. This process inherently introduces what is commonly known as “digital risk”, a complex issue stemming from the multifaceted nature of digital transformation. Factors contributing to this challenge include the intricacies of technology deployment, financial implications, and organizational restructuring. The findings of this study distinctly highlight a notable shift in operational status, depicting the transition from the current state of “As-Is” to the desired future state of “To-Be” of SMEs. These results underline the current lack of adoption of digital systems by SMEs. Furthermore, the study implements the application of Word2Vec and correlation analysis to digital systems, which allowed for a deeper exploration of the interplay between digital systems across functions. The findings provide valuable insights for SMEs in optimizing their digital strategies, identifying opportunities for cross-functional collaboration, and making informed decisions to enhance overall organizational efficiency and effectiveness. In recognition of the imperative to address the pressing challenges posed by digital risk, this study has advanced the conceptualization and development of application systems as an effective strategy to confront and mitigate the inherent challenges entailed in the adoption of digital technologies.

7. Conclusions

The traditional role of SMEs as vital drivers of economic growth remains globally recognized. However, the complexities of digital migration present challenges, particularly for SMEs constrained by limited resources. In essence, this paper highlights the significance of tailored approaches in harnessing the potential of digitalization for SMEs. The synthesis of localized needs and global trends is poised to enable SMEs to overcome barriers and forge a more equitable pathway toward digital adoption, ultimately contributing to their sustained growth and competitiveness in contemporary economic development.