Evolving Digital Transformation in SMEs: Transitioning From Outsourcing to Internal Integration

ABSTRACT Organisations across various industries continually strive to implement digital transformation (DT) to enhance customer experience and generate new revenue streams. Successful DT journeys require adopting new technologies alongside a comprehensive set of organisational capabilities and skills, heightening the challenge for small and medium enterprises (SMEs). Shifting from its original emphasis on efficiency and cost savings, information technology outsourcing (ITO) is evolving into a tool for SMEs to aid their technology assimilation process; however, engaging IT services while pursuing innovation has often been perceived as a paradox that necessitates careful management. This practitioner paper examines the case study of product and platform‐based DT at Fuertafit, a prominent digital health and fitness SME with a social media reach of approximately 9 million people. The company helps individuals adopt sustainable, healthy behaviours related to physical activity, nutrition, and mental well‐being. Our research aims to understand how SMEs can leverage ITO to support the launch of new products and digital platforms while smoothly transitioning to an in‐house operating model. The case study highlights the benefits of initially leveraging ITO in areas with limited IT skills and resources, identifies several challenges to consider, and provides practical guidelines in the form of five principles for successful product and platform DT in the SME context: (1) make a holistic strategic DT decision including ‘what’ and ‘how’; (2) set up a cross‐functional agile team from the outset; (3) allocate sufficient time and resources to select ITO partners carefully; (4) establish a transparent working methodology and governance; and (5) execute a phased approach to transitioning to internal capabilities.