How small businesses can succeed with digital transformation
Digital transformation helps modernise operations, improve efficiency, and stay competitive through technology.
Published Friday 17 October 2025
Table of contents
Key takeaways
• Start with your biggest pain points by identifying the most time-consuming or error-prone tasks in your business, then focus on digitising one area at a time rather than attempting to transform everything simultaneously.
• Prioritise integrated solutions that connect with other systems you'll need later, as this approach ensures smoother operations and prevents data silos as your digital transformation expands.
• Implement pilot projects with small teams before company-wide rollouts to test new processes, gather feedback, and refine your approach based on real-world results.
• Recognise that successful digital transformation depends more on your team's readiness to embrace change and learn new skills than on the technology itself, so invest in proper training and support throughout the process.
What is digital transformation?
Digital transformation is the complete integration of digital technology across all business areas to fundamentally change how you operate and deliver value to customers.
Digital transformation means you do more than just add new software. You can:
- Replace manual systems with connected digital solutions
- Shift how your team works and thinks about technology
- Plan strategically to ensure a smooth rollout and measurable results
Types of digital transformation
Digital transformation typically falls into four main categories, each targeting different aspects of your business operations.
The 4 types are:
- Digitise workflows such as invoicing, inventory management and customer communications
- Change how you deliver value, for example by adding online sales or subscription services
- Expand into new markets or industries using digital tools
- Encourage your team to embrace digital-first thinking and keep improving
Most small businesses start by digitising processes. This delivers quick efficiency gains and cost savings. In fact, 63% of businesses focus on improving how they work through technology.
Benefits of digital transformation
You can save time and reduce errors by replacing manual processes with digital solutions.
Key benefits include:
- Automate repetitive admin tasks to save time each week
- Access real-time data and insights from central dashboards
- Work together with your team and clients, wherever they are
- Remove double data entry and manual processes that cause mistakes
- Track resources more effectively and spot areas of waste
- Personalise communications and respond faster to your customers
Challenges of digital transformation
Common challenges that you can overcoming with digital transformation include:
- Prepare thoroughly by identifying business inefficiencies, researching technology, analysing costs and benefits, and planning staff training
- Invest in hardware, software and training; check if you qualify for support such as an additional 20% tax deduction on technology spending
- Introduce new systems to your team, clients and suppliers
- Plan for a smooth transition and support your team as they adjust
- Choose systems that integrate well to keep your business running smoothly
Digital transformation examples
Here are common examples of digital transformation.
Accounting software
Online accounting software automatically captures transaction data from bank accounts, point of sale (POS) systems, ecommerce, or invoicing systems to reduce data entry.
Websites and ecommerce
Websites can be your shopfront, a sales tool, and can process online transactions 24 hours a day – offering greater access and availability to customers. Online advertising helps people find your site quickly and easily.
Digital marketing
Lots of popular advertising channels are digital, and often come with built-in analytical tools that help you track your return on investment for each campaign. Digital communications channels also give your customers multiple opportunities to connect with the business.
Client relationship management (CRM)
A client relationship management (CRM) tool helps you understand your customers and personalise your communications. In fact, 27% of professionals say improving customer experience is a key reason for adopting technology. With CRM, you can centralise customer information and interactions across the business, and set up reminders such as when to follow up with prospects.
Getting paid
Automated billing processes take away the pain of manually creating and sending invoices. Invoicing software can also improve your customers' experience by offering multiple convenient ways to pay.
Making payments
Automated accounts payable processes make it easier to capture bills, track what's owed when, and plan and make payments from one place. Accounts payable software gives you greater visibility over your expenses and supports cash flow management.
Tax tools
Online accounting software can automatically record transactions, keep an up-to-date ledger, and create push-button EOFY financial reports to speed up tax time.
Employee management
Employee management tools allow you to manage staff rosters online, review timesheets and manage payroll. This software can also improve employee engagement, by allowing them to update timesheets and their personal information in a centralised database.
Collaboration tools (for workers and clients)
Businesses can choose from a range of handy tools to support workflow management, internal messaging, document sharing and collaboration, and video conferencing or recording. Employees can work on different schedules, using these tools to keep each other up to date, and teams can avoid saving multiple versions of documents.
Project management
Project management software helps you allocate and track tasks, visualise workflows and set clear timelines. Your team can communicate and keep a record of decisions and updates in one place.
Data analytics
Using data analytics software and automating key functions in the business enables you to capture and process a large amount of data about how your business works. This helps you identify patterns and trends, track ROI, and optimise areas like inventory management, marketing spend, or cash flow.
Forecasting and modelling
Forecasting and modelling software uses your data to help you make informed decisions, manage resources and predict cash flow. These tools can estimate your financial performance and give you insights into other key business indicators.
Managing inventory
Inventory management technology gives time back to the business by reducing the burden of manual inventory count activities. This software helps you identify what's flying off the shelves, when to order more inventory, and which inventory lines are most profitable.
How to develop a digital transformation strategy
A digital transformation strategy is your roadmap for systematically modernising your business operations while minimising disruption and maximising returns. This planning is crucial, as research shows 84% of high-growth businesses have a digital transformation strategy, compared to just two-thirds of those that shrank.
Your strategy should include:
- Define what success looks like for your business and how you will measure progress
- Identify which systems to implement first and how they will work with your current processes
- Budget for upfront costs, ongoing subscriptions and training
- Plan pilot projects, staff training and regular feedback sessions
Getting started with digital transformation
Start your digital transformation by focusing on your biggest pain points rather than trying to change everything at once.
Follow these steps:
- Identify your biggest inefficiencies: Look for tasks that consume the most time or cause frequent errors
- Start with one area: Choose accounting, customer management, or inventory as your first focus
- Research integrated solutions: Find software that connects with other systems you'll need later
- Run a pilot project: Test new processes with a small team before rolling out company-wide
- Measure and adjust: Track time savings and efficiency gains to guide your next steps
Successful digital transformation is a gradual process. Focus on quick wins that show value before you expand to other areas.
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FAQs on digital transformation
Here are answers to some common questions small businesses have about digital transformation.
What's the difference between digital transformation and digitisation?
Digitisation is simply converting something from analogue to digital, like scanning a paper invoice to create a PDF. Digital transformation is much broader; it's about using digital technology to fundamentally change how your business operates and delivers value to customers.
How long does digital transformation take for a small business?
There is no set timeline. You can see benefits from small projects in a few weeks, while bigger changes may take a year or more. Start small and build momentum.
Do I need to transform my whole business at once?
You do not need to transform your whole business at once. The most successful changes happen step by step. Start with one process or department, learn from the experience, and then apply those lessons to other areas.
What's the most important part of a successful digital transformation?
Technology helps, but your people are the most important part. Success comes when your team is open to change, ready to learn new skills and confident using new tools.
How much does digital transformation cost for a small business?
Costs vary. You might only need a monthly software subscription, or you may need to invest in new equipment and training. Focus on affordable solutions that solve a clear problem and give you a good return.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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