Digital Transformation Barriers and Performance Enhancement in Indonesian Small and Medium Enterprises: A Structural Equation Modeling Approach

Abstract

Digital transformation is essential for improving the competitiveness and resilience of Indonesian small and medium-sized enterprises (SMEs), yet adoption remains constrained by financial, technological, human resource, and organizational barriers. This study examines how these barriers affect digital adoption success and business performance by integrating the Technology-Organization-Environment (TOE) framework with a mediation-based PLS-SEM model. Using survey data from 650 small and medium-sized enterprises with 5–250 employees across manufacturing, retail, and service sectors, the study analyzes the mediating roles of management support and external assistance utilization. The results show that financial barriers are the strongest constraint, followed by human resource barriers. Management support and external assistance significantly mediate the relationship between barriers and digital adoption success, while digital adoption success positively influences business performance. The study extends TOE-based digital transformation research by explaining barrier-support-adoption-performance pathways in Indonesia’s archipelagic SME context. Practically, the findings highlight the need for targeted financial assistance, digital skills development, and accessible support programs for SMEs.