Critical factors affecting digital transformation in manufacturing companies

International Entrepreneurship and Management Journal https://doi.org/10.1007/s11365-024-01056-3 (2025) 21:54 Critical factors affecting digital transformation in manufacturing companies Koteshwar Chirumalla1 · Pejvak Oghazi2,3,4 · Rosa Eluekezi Nnewuku5 · Hatice Tuncay5 · Nima Yahyapour2 Accepted: 8 December 2024 © The Author(s) 2025 Abstract Digital transformation represents a compelling opportunity for manufacturing companies to enhance their competitiveness. This transformative journey offers myriad possibilities, including improved connectivity between workers and machines, as well as seamless machine-to-machine interactions. However, many manufacturing companies encounter challenges when attempting to implement digital transformation effectively. The process of digital transformation is often slow, and most companies find themselves in the early stages of adoption, grappling with the ambiguity surrounding the associated technologies. A systematic approach for the implementation of digital transformation is still elusive for many manufacturing companies. The number of studies exploring digital transformation is increasingly growing, encompassing various sectors and domains. However, within the manufacturing sector, there remains a need for further research and clarity on systematic implementation approaches. To address these issues, this research undertakes a comprehensive analysis to identify the critical factors that influence digital transformation in the manufacturing sector. The objective of this research is to identify the factors that drive the success of digital transformation in manufacturing companies while also uncovering factors that, when neglected, could lead to failure. Through a systematic literature review, this research identifies 11 critical factors. These factors serve as the basis for developing the ARTO model, a structured framework comprising four distinct categories: "Awareness-related factors," "Readiness-related factors," "Technology Selection-related factors," and "Operations-related factors." Moreover, this research incorporates expert perspectives gathered through a survey to refine the ARTO model. This study offers the ARTO model and digital transformation definition as practical tools for successfully implementing digital transformation in manufacturing companies, while also delineating the intricate relationships among the crucial factors. By shedding light on the factors underpinning digital transformation Extended author information available on the last page of the article 13 54 Page 2 of 52 International Entrepreneurship and Management Journal (2025) 21:54 in the manufacturing sector, this research contributes to the ongoing discourse and facilitates more effective adoption of digital transformation strategies. Highlights Digital transformation enhances competitiveness with connectivity and machine interactions. Challenges in implementing digital transformation necessitate the identification of critical influencing factors. Developed ARTO (Awareness, Readiness, Technology, and Operations) model for enabling successful digital transformation based on critical factors. The ARTO model, derived from 11 critical factors, offers a structured framework for successful implementation. The ARTO model and the proposed DT definition guide manufacturing companies in their digital transformation journey. This research sheds light on essential factors, contributing to a more effective adoption of digital transformation strategies. Keywords Digitalization · Industry 4.0 · Digital technologies · Critical factors · Manufacturing industry · Technology integration · Success factors · Smart production · Transition management Introduction In recent times, manufacturing companies have experienced significant transformations driven by technological advancements, increased competition, evolving customer demands, and rising apprehension (Choi et al., 2017; Yin et al., 2018). Consequently, digital transformation (hereafter, DT) has become a critical strategic imperative (Kane et al., 2015; Omol, 2023). Digitalization offers innovative opportunities, enabling companies to address issues such as customer satisfaction, resource optimization, workforce utilization, cost reduction, and quality control (Santos & Martinho, 2020). To seize the full potential of digitalization, companies must actively harness technology to achieve superior outcomes (Lee et al., 2015; Chirumalla, 2021; Johansson et al., 2024). This process of digitalization, coupled with the integration of enabling technologies, introduces enhanced flexibility, adaptability, access to technical systems, increased productivity and efficiency, and reduced labor costs within the market (Synnes & Welo, 2016; Schiffer et al., 2019; Perzylo et al., 2019). The manufacturing industry has witnessed several industrial revolutions, with the most recent being the fourth industrial revolution, often referred to as Industry 4.0 (Santos & Martinho, 2020). Industry 4.0 has led to the rise of DT (Schumacher et al., 2019), which enhances product quality, system monitoring, and shop floor efficiency (Temel & Ayaz, 2019; Merhar et al., 2019). DT encompasses technologies like Internet of Things (IoT), cloud computing, Artificial Intelligence (AI), augmented reality, block chain, 3D printing, big data, and advanced simulations (Illa & Padhi, 2018; Rad et al., 2022; Perzylo et al., 2019). 13 International Entrepreneurship and Management Journal… Page 3 of 52 54 Despite its advantages, companies face challenges in implementing DT, with many still in the early stages of technology adoption (Johansson et al., 2020). Unclear understanding of the associated technologies and a lack of a clear and effective digital strategy and transformation roadmap hinder progress (Buer et al., 2018; De Carolis et al., 2017; Kane et al., 2015). The complexity of DT results in different interpretations and varying levels of readiness among companies (Santos & Martinho, 2020; Kane, 2019). Companies must embrace DT to remain competitive, adapt to changing customer demands, and enhance efficiency (Zhang et al., 2021). However, a lack of knowledge, high costs, and the need for technical skills hinder adoption (Javadi & Chirumalla, 2024; Sanders et al., 2016; Schuh et al., 2014). Insufficient understanding of technology functionality and investment requirements further complicates the process (Schuh et al., 2014). To address these challenges, it is essential to identify the critical factors that influence the successful implementation of DT in manufacturing companies. Critical factors are “those few things that must go well to ensure success for a manager or an organization” (Boyton & Zmud, 1984, p. 17) or “factors that would tend to increase the likelihood of success” (Zhang et al., 2022, p. 3). The presence of these key areas within an organization will facilitate the successful implementation of initiatives (Vrchota et al., 202 (...truncated)