Why Small Businesses Struggle to Implement AI
10 mins read
Published Apr 2, 2025
Digital transformation has become increasingly central to the long-term viability of small and medium-sized enterprises (SMEs), yet adoption remains uneven due to structural and organizational constraints. The literature consistently identifies limited technological knowledge, financial constraints, inadequate digital infrastructure, and shortages of skilled personnel as the primary barriers facing SMEs. Studies using the Technology–Organization–Environment (TOE) framework show that adoption decisions are shaped not only by technological availability, but also by internal organizational readiness and external pressures (Ta & Lin, 2023). Entrepreneurial orientation plays a critical moderating role, amplifying the benefits of digital technologies when firm leadership is proactive, opportunity-driven, and open to innovation (Vrontis et al., 2022). Without this mindset, even well-designed digital tools struggle to generate meaningful returns.
Despite these challenges, the potential gains from digital transformation are substantial. Empirical research demonstrates that digital adoption improves operational efficiency, customer experience, and firm competitiveness across sectors. Compatibility between new technologies and existing systems is especially important, as SMEs often lack the resources to overhaul legacy processes entirely (bin et al., 2021). Ghobakhloo et al. (2022) emphasize that knowledge capabilities and value-chain readiness are necessary preconditions for successful digitalization, particularly in the context of Industry 4.0 technologies. Sectoral differences further illustrate this dynamic: while construction has lagged due to low technological integration, service-oriented sectors such as retail, logistics, and agriculture have leveraged e-commerce, cloud computing, and data analytics to expand market reach and improve governance outcomes (Tsai et al., 2021; Ouyang & Sciences, 2023; Glaros et al., 2023).
Financial and human capital constraints remain the most binding obstacles to transformation. Limited access to capital restricts SMEs’ ability to invest not only in technology acquisition, but also in employee training and long-term system maintenance (Xue et al., 2020). A lack of technical expertise further compounds this issue, making it difficult for small firms to assess return on investment, select appropriate tools, or manage implementation effectively (Thong, 2001). Resistance to change—rooted in organizational culture, employee uncertainty, and limited understanding of digital benefits—also slows adoption. Research highlights the importance of structured change management strategies, including training, communication, and employee involvement, to overcome this resistance and ensure sustainable adoption (Riswandi & Permadi, 2022).
When successfully implemented, digital transformation enables SMEs to reach wider markets, automate routine processes, and reallocate resources toward strategic growth. Digital marketing, e-commerce platforms, cloud-based workflows, and automated data analytics have been shown to reduce operating costs, improve customer service, and enhance productivity (Rohmah et al., 2023; Yuen & Sciences, 2023). Given the economic significance of small businesses—accounting for 44% of U.S. economic activity and the majority of net job creation—scaling digital adoption among SMEs has implications that extend beyond firm-level performance (U.S. SBA). The evidence suggests that practical, education-driven approaches—such as accessible training programs, sector-specific guidance, and integrated digital solutions—are essential to translating technological potential into measurable economic and social outcomes.
