Investigating how SMEs navigate paradoxes in digital transformation through the lens of dynamic capabilities

Purpose Digital transformation has unfolded across various industries and levels of analysis. Most prior research has predominantly focused on the positive aspects of digital transformation. However, its challenges impacts remain underexplored, especially in the context of small and medium-sized enterprises (SMEs). Digital transformation strategies implemented by large corporations cannot be directly applied to smaller firms through simple scaling down. In light of these differences, this study aims to investigate the challenges of digital transformation through the lens of dynamic capabilities and uses paradox theory as a meta-theoretical framework to explain how organizations manage the inherent tensions emerging from digital transformation processes. Design/methodology/approach Case studies using a qualitative approach have been recognized as suitable for exploratory research, particularly on topics that have not been extensively studied. Based on grounded theory, data collected through interviews, field observations and focus group discussions were analyzed in three stages: open coding, selective coding and axial coding. The use of diverse informants and multiple data collection techniques enabled us to conduct triangulation, thereby ensuring the validity of the findings. Findings Drawing on multiple qualitative case studies, the study identifies a range of challenges of digital transformation associated with each high-order dynamic capability. This study identifies a series of challenges arising from digital transformation during the processes of sensing, seizing and transforming. The study identified twelve specific challenges and further elaborated on how SMEs respond to these challenges. However, these responses also generate further consequences, revealing a cyclical process inherent in digital transformation. Research limitations/implications While this study focuses on high-order capabilities, future research is encouraged to delve deeper into the micro-foundations of dynamic capabilities. Practical implications Managers must be able to identify the optimal level of digital transformation implementation. Maximizing digital transformation is not necessarily better; in fact, it may lead to inefficiencies. Originality/value This study offers a unique contribution by examining the contradictions inherent in digital transformation through the theoretical lenses of paradox theory and dynamic capabilities. The findings of this research can serve as a foundation for future studies or be tested through surveys, allowing the cycle of knowledge development to continue.