Impact of Covid-19 on Digital Transformation

and Sustainability in Small and Medium

Enterprises (SMEs): A Conceptual Framework

Winarsih(B) , Maya Indriastuti, and Khoirul Fuad

Department of Accounting, Faculty of Economics, Universitas Islam Sultan Agung,

Jalan Raya Kaligawe KM 4, Semarang, Indonesia
{winarsih,maya,khoirulfuad}@unissula.ac.id

Abstract. This paper aims to develop a framework for sustainability in SMEs.

SMEs are most vulnerable to the effects of covid-19. The implementation of
social distancing makes people limit activities outside their home, consequently
sales turnover decreases. Therefore, SMEs need to change the mindset in running
business by using technology transformation. It is believed to continue the sus-
tainability of SMEs. However, some SMEs do not have knowledge about digital
skills that are relevant to their business. In fact, during covid-19 condition, online
business can result sustainability in their business that can take place now and in
the future.

Keywords: Covid-19 · Digital transformation · Sustainability · Small and

Medium Enterprises (SMEs)

1 Introduction

The outbreak of Covid-19 pandemic in various parts of the world gives a major impact on
health and economy in terms of trade, investment and tourism. Likewise, in Indonesia,
the implementation of social distancing makes people very careful by limiting activities
outside their home so that it impacts on various business actors, including SMEs.
All this time, the role of SMEs is believed to be able to drive the economy of a
country. However, since covid-19 pandemic, SMEs are most vulnerable compared to
other business. It is because this type of business is very dependent on the velocity of
money from merchandise sales, so that the decreased demand disturbs the company’s
cash flow.
Government policy imposes social distancing and physical distancing limits travel
and consumption. Thus it impacts on transactions in the market. Various elements
affected are restaurants, markets, shopping centers, online transportation, and SMEs.
As the result, people in several regions have changed their shopping patterns and ful-
filled their basic needs online. Some SMEs are worried about the government’s rule to
stay at home or work from home (WFH) which can cause a decrease in productivity. In
fact, the WFH system can actually be run effectively.

© Springer Nature Switzerland AG 2021

L. Barolli et al. (Eds.): CISIS 2020, AISC 1194, pp. 471–476, 2021.
https://doi.org/10.1007/978-3-030-50454-0_48
472 Winarsih et al.

The business people who rely on physical space, such as supermarkets, traditional
food markets, restaurants, car dealers, cinemas, fitness centers, they suffer losses. It is
in contrast to online markets. In a situation like covid-19, the use of technology is the
best solution to keep the sustainability of SMEs. Some SMEs do not know about digital
skills that are relevant to business, so this condition forces them to learn online business.
The crisis due to the covid-19 pandemic has become the right moment for SMEs to
improve the quality of their products or services and to develop various strategies for
offering goods or services based on their business’ concern. Covid-19 should not be a
barrier for SMEs to increase sales, because the SMEs actors can promote their business
through digital marketing.
The digital approach will work well if SMEs have digital transformation so that they
can compete intensively. The strategy is changing their offline store to online purchases
for the sake of safety and convenience. During this pandemic condition, SMEs can
intensify promotions through online applications both for sales and logistics. Since
SMEs are part of digital economic ecosystem, transformation and innovation in digital
skills is needed so that business sustainability can take place now and in the future.

2 Literature Review

During covid-19 pandemic, the aspects that can be considered are the economic process
going well as well as the sales. It can be realized by facilitating purchases safely and
comfortably. In addition, the importance of logistics is not only related to the delivery
of goods to consumers, but also related to the supply chain of raw materials. Moreover
there is a decline in stock in the market. As the solution, it needs digital approach to
have digital transformation. In order to avoid a drastic reduction in sales turnover, the
government prepared a stimulus for SMEs to survive by delaying debt repayments to
banks. In addition, the government helps handle complaints such as the distribution of
disturbed goods, and others. Thus, SMEs actors continue to carry out business strategies
so that income remains stable. It is expected that SMEs actors can make strategic business
decisions based on data, and be prudent to pursue business financial management.
In the current conditions, technology plays a big role in the sustainability of company
operations. Case in point is by adopting cloud-based technology through accounting soft-
ware. It ease the owners to monitor and access financial reports safely and at affordable
costs. In addition, companies have access to systems that include tracking inventory,
sales, and expenses as well as creating workflows that can save valuable business time.
Therefore, cloud-based accounting services can be used as an alternative for companies
to drive their business. Efforts must be made to move SMEs to be part of the digital
economic ecosystem. It can be achieved by providing opportunities for transformation
and innovation.

2.1 Digital Transformation

In general, digital transformation is a radical and comprehensive shift in the use of tech-
nology with the aim of improving company performance. One of digital transformation
definition is from [3], digital transformation is a change caused or influenced by the use
 Impact of Covid-19 on Digital Transformation and Sustainability 473

of digital technology in every aspect of human life.In contrast to the definition of [9],
that digital transformation is as the use of technology with the aim to generally improve
the performance or reach of a company.
Another definition is from [4], where digital transformation is the third and highest
level of digital skills achieved. It happens when the digital use also facilitates innovation,
creativity and it encourages significant changes in the professional or knowledge fields. In
addition, digital transformation is “a change in all strategies quickly because the demands
must change, the operations must be digital and extended supply chain relationships must
be extended.
Furthermore, it needs functional use of the internet in design, manufacturing, market-
ing, sales and presentation which is a data-based management model” [9]. It also includes
security, simulation, internet, cyber security and blockchain [6]. Some of these defini-
tions indicate that there is a comprehensive motivation, innovation and consequences
when using digital transformation. Thus SMEs can easily carry out digital design of busi-
ness model choices, use of information technology and understanding, evaluation, digital
value network design, also feedback from customers [9]. In addition, establishing trans-
parent communication between entrepreneurs and information technology specialists
can be fraud prevention [7].
Digital transformation for SMEs must be supported by governments and stakeholders
[1]. It aims to change business models and company operations in a good way in order
to classify themselves into digital maturity categories [5]. These factors can be classified
into: company characteristics, lack of qualified personnel, limited knowledge of the
technology needed, infrastructure, lack of marketing, adoption of ICT and e-commerce
[8], lack of technology road maps and ecosystems for digital transformation, ensuring
the environment reliable [2].
Digital transformation is an effort to accelerate business by using technology tools
and lookig at opportunities that can help business processes, o that the target market
is wider. When businesses are forced to change because of a pandemic, the advantage
is that they can intensify promotions through online applications. As the result, they
can solve problems in sales and logistics channels. Digital transformation can work if
there is a commitment of SMEs, such as in offering products through social media,
giving discounts, and so on. There are four things that can be implemented for digital
transformation: (1) ensuring business to remain competitive, (2) bringing efficiency in
business processes. (3) Increasing customer satisfaction and (4) making it easier for
business people to make various strategic decisions.
Digital transformation is very useful when businesses are forced to shift, suppose
that online applications can solve two problems at once, namely sales and logistics. The
supply chain can start relying on online platforms that can connect business people with
raw supply producers.
There are three things related to digital adoption, first, the urgency of digital trans-
formation is not just about technology, but more about how businesses can compete
more intensively because it can reduce costs in many aspects. Second, improving digital
474 Winarsih et al.

knowledge and skills related to business. The fact is that not all businesses need a web-
site, some only need to promote through the appropriate channels. Lack of understanding
often makes digital transformation decision taken is less appropriate to the needs of the
business itself. Third, using integrated e-wallet services.

2.2 Sustainability in SMEs

In dealing with the impact of Covid-19, the steps taken to result sustainability in SMEs,
they are: (1) Using social media to promote products or businesses. It can be started by
actively displaying products or businesses and giving promotions. Companies promote
their brands more effectively through digital media, so they can build online communi-
ties in new ways in order to build customer loyalty. Digital marketing provides new tools
for getting to know customers effectively, on a large scale and proactively developing
and enhancing customer experiences. In addition, the owner can do a digital marketing
analysis to find out a good performance. (2) Cashflow must be maintained in order to
manage cash optimally. The current situation causes late in billing and payment to busi-
ness partners. Therefore using online software can help in making billing and payment
documents easily. (3) Re-budgeting, by sorting out which budget items are the priorities
and adjusting the budget to the current conditions. It is in order to keep the business run-
ning with the anticipated risk. Business owners make income and expenditure budget
items as a reference when recording the realization of sales and operational expenses,
so that profit margins can be controlled. Furthermore, business owners can conduct an
analysis of income and expense reports, to make it easier in maing decisions on items
that cost a lot and need to be controlled for their expenses. (4) Monitoring business trans-
actions, where business owners can automatically reconcile banks on all cash and bank
accounts. In addition, in term of cash and bank balances that have not been recorded and
match transactions based on the same number, date, or description of transactions, to
accelerate the reconciliation process. (5) Inventory, which is periodically and a real time
monitoring of inventories that aim to find out average buying and selling prices. It also
informs the availability of goods stock, such as the stock of most demanded products so
that the availability of goods is guaranteed [1].

3 Conceptual Framework

Sustainability framework is designed to enhance SMEs-based digital transformation in

order to facilitate knowledge for business actors during social distancing of covid-19.
This framework can be illustrated in Fig. 1.
 Impact of Covid-19 on Digital Transformation and Sustainability 475

IMPACT OF COVID-19

Digital Transformation of SMEs

Intensive Competition Integrated E-Wallet

Skills and Knowledge

The Use of Social Media Transaction Monitoring Stock Availability

Sustainability of SMEs

Well-Maintained Cash Flow Rebudgeting

Fig. 1. Conceptual framework of sustainability in SMEs

4 Conclusion and Future Research Agenda

Covid-19 can result sustainability in SMEs with digital transformation. The government
and stakeholders can encourage business actors to develop through various policies,
such as dispensation in loan installments and tax exemption. The results of this study
are expected to provide recommendations to related parties, especially in an effort to
increase the existence of SMEs that have an impact on the sustainability of SMEs.
Further research can elaborate by validating the framework design. The data col-
lection will use a questionnaire survey approach and in-depth interviews with creative
industry stakeholders.

References
1. Barann, B., Hermann, A., Cordes, A.K., Chasin, F., Becker, J.: Supporting digital transfor-
mation in small and medium-sized enterprises: a procedure model involving publicly funded
support units. In: Proceedings of the 52nd Hawaii International Conference on System Sciences,
pp. 4977–4986 (2019). https://scholarspace.manoa.hawaii.edu/handle/10125/59935
2. Dholakia, R., Kshetri, N.: Factors impacting the adoption of the internet among SMEs. Small
Bus. Econ. 23(4), 311–322 (2004)
3. Kaplan, B., Truex, D.P., Wastell, D., Wood-Harper, A.T., DeGross, J.: Information Systems
Research: Relevant Theory and Informed Practice. Springer, Heidelberg (2010)
476 Winarsih et al.

4. Lankshear, C., Knobel, M.: Digital Literacies: Concepts, Policies and Practices. Peter Lang
Publishing Inc., NewYork (2008)
5. von Leipzig, T., Gamp, M., Manz, D., Schottle, K., Ohlhausen, P., Oosthuizen, G., Palm, D.,
von Leipzig, K.: Initialising customer-orientated digital transformation in enterprises. Procedia
Manuf. 8, 517–524 (2017)
6. Fernando, M., Ferreira, M.J., Seruca, I.: Enterprise 4.0 – the emerging digital transformed
enterprise? Procedia Comput. Sci. 138, 525–532 (2018)
7. Yadav, N., Gupta, K., Rani, L., Rawat, D.: “Drivers of sustainability practices and SMEs”: a
systematic literature review. Eur. J. Sustain. Dev. 7(4), 531–544 (2018)
8. Patrick, N., Gladys, K.R.: Inhibitors of the adoption of E-commerce by SMMES in two South
Afrcan cities. Int. J. E-Bus. e-Gov. Stud. 10(1), 51–66 (2018)
9. Schallmo, D., Williams, C.A., Boardman, L.: Digital transformation of business models-best
practice, enabler, and roadmap. Int. J. Innov. Manag. 21(8), 1740014-(17 p.) (2018)