The current discourse on innovation is increasingly dominated by artificial intelligence (AI). While this reflects significant technological advancement, our engagement with entrepreneurs has led us to believe that completely centring AI risks neglecting the role of digital innovation more broadly as an operational lever within small and medium enterprises (SMEs). In other words, how are businesses already using digital tools to solve everyday problems?
AI should be understood as just one component of a much broader digital innovation ecosystem. The more interesting story is not the technology itself, but how entrepreneurs integrate it into their businesses to create value.
Beyond this, much of the literature and public discourse implicitly assumes that digital sophistication follows familiar patterns. For example, we often expect businesses located in major urban centres to be early adopters of technology, while rural enterprises are viewed as lagging behind due to infrastructure and resource constraints.
Our observations suggest a more complex reality. During training workshops with women entrepreneurs across South Africa, we encountered urban participants who were only beginning their digital journeys, while some entrepreneurs in rural provinces were already exporting products, leveraging digital platforms, and experimenting with AI-enabled tools.
While the theoretical potential of digital technologies is well established, there is limited empirical insight into how SMEs in emerging markets apply these tools in practice. These observations have led us to engage with SMEs directly to begin studying how digital innovation drives SME competitiveness, and how entrepreneurs in South Africa are interfacing with technology.
Our early observations suggest that SMEs are not passive recipients of technological change. Rather, they are active agents, selectively adopting digital tools to reconfigure their operations and enhance competitiveness.
What does this look like in practice?
Consider the experiences of two South African entrepreneurs operating in very different sectors. One runs a fashion and lifestyle brand in Bloemfontein, creating garments in African prints, such as Ankara and Shweshwe. The other began his entrepreneurial journey as a poultry farmer before developing an agricultural technology platform designed to help farmers monitor flock health and improve decision-making.
At first glance, their businesses appear to have little in common. Yet both encountered operational constraints that threatened growth. For the fashion entrepreneur, the challenge was the cost and logistics of repeatedly organising professional photoshoots to market the clothing designs. In the other, it was the difficulty of monitoring livestock health and farm performance in real time, which once resulted in losses R50 000 of flock because a virus was not detected early.
For both entrepreneurs, the response was not to embark on large-scale digital transformation initiatives, but to identify practical digital solutions to immediate business problems.
These examples illustrate an important finding emerging from our research. SME innovation is often problem-led rather than technology-led. Entrepreneurs adopt digital tools not because they are fashionable or disruptive, but because they offer a practical way to reduce costs, improve efficiency, reach customers, or overcome operational challenges.
Cost reduction and improved marketing capabilities
The fashion business was co-founded by sisters. One is the company’s MD and a lecturer, while the other is the creative director, who originally started designing clothing as a side hustle.
The business’ trajectory changed in 2014 when the sisters entered it into the Free State EnterPrize Job Creation Challenge. After placing third in the “Best Women Entrepreneur” category, the sisters used the prize funding to formalise the business, purchase machinery, invest in training, and lay the foundations for future growth. The company won additional funding in 2019 through the “SimplyBiz Competition” sponsored by Nedbank.
As the business grew, the sisters faced a familiar challenge confronting many small fashion brands: how to create professional marketing content without the costs associated with repeated photoshoots. Sourcing and paying for professional models, photographers, make-up artists, studio rentals, and post-production editing was expensive and time-consuming.
To address this challenge, the creative director began experimenting with AI-generated models and digital content creation. Using image-generation tools alongside platforms such as Canva, Instagram, Facebook and WhatsApp Business, the fashion business has been able to build a digital marketing ecosystem that enables it to showcase products more quickly and cost-effectively.
The directors say the impact has been significant. Marketing content that previously required extensive planning and coordination can now often be produced within hours. The business can showcase a greater number of products, experiment with different styling concepts, and present garments on a wider range of body types and in different settings.
The creative director is careful to point out that AI has not replaced the need for authentic customer engagement or accurate product representation. Rather, it is a complementary tool that has expanded the company’s marketing capabilities. Real product photography remains part of the process. But technological tools have enabled the company to present garments in various settings, poses, and styling concepts that would otherwise require multiple photoshoots, and to experiment with different looks and body types, helping customers visualise how garments might suit different individuals.
In this case, digital tools enabled a small business to reduce costs, increase agility, and compete more effectively in a crowded marketplace.
This emphasis on augmentation rather than replacement has emerged repeatedly during our research. In one recent example, one of us (Prof. Mathibe) had a professional photograph enhanced using AI-powered tools after a university open day. The photographer’s expertise remained central to the process; AI simply helped refine the result. The technology did not replace human creativity or judgement but enhanced it.
The experience echoes what we are observing among SMEs more broadly. Whether through AI-enabled content creation, digital marketing platforms, business management applications, or sector-specific technologies, entrepreneurs are using digital tools to extend their capabilities rather than substitute for them. In the case of the fashion business, this has enabled the business to reduce costs, increase agility and compete more effectively in a crowded marketplace.
Solving an industry issue
While the fashion business illustrates how SMEs can use existing digital tools to strengthen their competitiveness, the experience of entrepreneur Tshepiso Malema demonstrates that small businesses can also become creators of digital innovation.
For instance, when Malema started a poultry farming business at 23, he experienced first-hand many of the operational challenges facing small-scale farmers. Monitoring flock health, maintaining records, tracking productivity, and responding quickly to disease outbreaks often depended on manual processes and fragmented information.
He began exploring how technology could help farmers make better decisions. This eventually led to him to develop Flockify, an AI-powered agricultural platform designed to help farmers improve productivity, reduce losses, and access data-driven insights.
The platform now incorporates tools for flock management, livestock health monitoring, production tracking, farmer education, and decision support. It has gained recognition on both local and international stages, including winning the BRICS+ Youth Innovation Summit’s Agri-Tech Innovations for Food Security category and Africa’s Change The World 2025 social entrepreneurship showcase.
Flockify is an example of how a challenge encountered in an SME can evolve into a technology solution with broader applications. Malema’s experience challenges the assumption that digital innovation is primarily the domain of large corporations or highly technical industries.
While agriculture is often viewed as a traditional sector with limited opportunities for digital transformation, Malema’s experience suggests that some of the strongest opportunities for innovation emerge precisely where operational challenges are most acute.
Emerging observations from the research
- Innovation is problem-led, not technology-led: The entrepreneurs we have encountered have not adopted technology because they wanted to be seen as innovative. Adoption has been in response to specific business challenges, whether reducing the cost of marketing, accessing new markets, monitoring performance, improving customer communication, or streamlining administrative tasks. The technology follows the problem, not the other way around.
- Digital innovation extends far beyond AI: While AI has attracted significant attention, entrepreneurs are drawing value from a much broader ecosystem of digital tools. Social media platforms, WhatsApp Business, digital payment systems, online marketplaces, design applications, cloud-based administration tools, and mobile technologies are all playing an important role in helping SMEs operate more efficiently and compete more effectively.
- Resource constraints often drive creativity: In many cases, the limited budgets, and operational constraints common in SMEs appear to encourage experimentation. Entrepreneurs are finding ways to access capabilities that would previously have been beyond their reach, allowing them to compete with larger organisations without making substantial capital investments.
- Location does not necessarily predict digital sophistication: Some of the most innovative uses of digital technologies were found among entrepreneurs operating outside metropolitan areas. We encountered business owners who were using digital platforms to access customers beyond their immediate geographic markets, experimenting with AI-enabled tools, and exploring export opportunities. At the same time, some urban entrepreneurs were only beginning their digital journeys. These experiences suggest that exposure to information, entrepreneurial orientation, and access to networks may be as important as location in shaping digital adoption.
- Digital innovation is creating new pathways to market access: Entrepreneurs are increasingly using digital platforms to overcome geographic limitations, connect with suppliers and customers, and build visibility for their businesses.
- Technology adoption remains constrained by infrastructure and skills gaps: While the opportunities are significant, entrepreneurs continue to face challenges related to connectivity, data costs, electricity reliability, digital literacy, and awareness of available tools. These barriers highlight the importance of ongoing support, training, and knowledge sharing.
Burgeoning insights
While our research observations are beginning to reveal important patterns, they also raise new questions about how South African SMEs are engaging with digital innovation in practice.
As this research progresses, we hope to develop a deeper understanding of how entrepreneurs across different sectors and regions are using digital capabilities to overcome constraints, create value, and build more competitive businesses.
We invite SME owners and entrepreneurs who are using digital tools to solve practical business challenges to share their experiences as part of our ongoing research into digital innovation and entrepreneurship in South Africa by contacting us: mathibet@gibs.co.za and/or nnamdi.madichie@woxsen.edu.in.
