Project – The Effect of Digital Business Model Innovation on the Survival of Micro and Small Enterprises in an Inflationary Economy. A Study of Selected small businesses in Ikeja, Lagos State

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Micro and small enterprises (MSEs) constitute an important part of economic activity in developing economies because they provide employment, generate household income, encourage entrepreneurship, and supply goods and services to local communities. These enterprises operate across sectors such as retail trade, food services, fashion, personal care, repairs, logistics, and professional services. Their relatively small scale often enables them to respond quickly to customer preferences, but limited financial resources, managerial capacity, and access to formal financing may make them vulnerable to economic shocks. The Organisation for Economic Co-operation and Development (OECD, 2023) identifies small and medium-sized enterprises as important contributors to employment, innovation, and economic resilience, while recognising that their capacity to adapt varies with their resources and operating environments. In Nigeria, micro and small enterprises are particularly relevant because they provide livelihood opportunities for many individuals and households and serve customers who may be underserved by larger firms. Their continued survival is therefore important not only to business owners but also to employment, local commerce, and community welfare. Understanding the strategies that help these enterprises remain operational during periods of inflation is consequently an important issue in entrepreneurship and business administration.

An inflationary economy is an economic environment characterised by sustained increases in the general price level, which reduce the purchasing power of money over time. Inflation can affect small businesses through rising wholesale prices, higher transportation expenses, increased electricity and fuel costs, expensive rents, higher wages, and changes in customers’ purchasing behaviour. When operating expenses rise faster than selling prices or revenue, an enterprise may experience declining profit margins and reduced working capital. The International Monetary Fund (IMF, 2023) explains that persistent inflation complicates economic decision-making by creating uncertainty about future prices, wages, financing costs, and consumer demand. For small businesses, these pressures can be particularly serious because they may lack the bargaining power, financial reserves, and credit facilities available to larger organisations. Business owners may respond by adjusting prices, reducing product quantities, negotiating with suppliers, changing distribution arrangements, or introducing alternative payment options. However, isolated adjustments may not be sufficient when inflation affects several parts of the business simultaneously. This situation makes it necessary to investigate whether changes to the underlying business model, particularly those enabled by digital technologies, can help micro and small enterprises maintain operations and remain competitive.

Digital business model innovation refers to the redesign or substantial modification of how a business creates value for customers, delivers products or services, and generates revenue through the use of digital technologies. It goes beyond simply purchasing a smartphone, opening a social media account, or accepting electronic payments. It involves using digital capabilities to change how the enterprise identifies customers, develops its offerings, manages transactions, organises operations, and earns income. For example, a neighbourhood retailer may introduce WhatsApp ordering and local delivery, a fashion business may accept online orders and customer deposits, or a food vendor may use digital pre-orders to reduce waste and plan purchases more accurately. Teece (2010) explains that a business model articulates how an enterprise creates and delivers value and captures value in return, while Foss and Saebi (2017) demonstrate that business model innovation is a distinct field of management research concerned with changes to the architecture and logic of business activities. In the Nigerian context, Iheanachor, David-West, and Umukoro (2021) examined business model innovation among mobile money agents and showed how business models can be adapted to align available resources with customer demand. These perspectives establish a useful foundation for examining digital business model innovation as a possible survival strategy for MSEs facing rising operating costs and changing consumer behaviour.

Digital technologies have created new opportunities for small businesses to communicate with customers, receive orders, process payments, coordinate suppliers, and promote products without relying entirely on physical premises or traditional marketing channels. Social media applications, electronic payment systems, online marketplaces, mobile banking, digital inventory tools, and customer relationship platforms can help enterprises modify how they conduct business. However, the benefits depend on whether these technologies are integrated into an effective business model rather than adopted as isolated tools. Owoseni and Twinomurinzi (2019) investigated how small and medium-sized enterprises in Lagos use mobile applications to develop dynamic capabilities and adapt to their operating environment. Their findings highlighted the relevance of social media, productivity applications, and mobile banking to the ways enterprises organise and sustain their activities. Similarly, Eze et al. (2020) examined factors influencing the adoption of digital marketing devices among Nigerian microbusinesses and identified technological, organisational, and environmental considerations that shape adoption. These studies suggest that digital tools can support business adaptation, but they do not establish that every digital initiative necessarily improves survival during inflation. The present study therefore focuses on the extent to which digital technologies are used to redesign business activities, revenue generation, and customer service among selected small businesses in Ikeja, Lagos State.

Business survival refers to an enterprise’s ability to continue operating, meet its essential obligations, retain customers, generate sufficient revenue, and remain viable over time. During inflationary periods, survival may become difficult when input costs rise, customers reduce discretionary spending, suppliers demand faster payment, and access to working capital becomes more expensive or uncertain. Small businesses may be forced to increase selling prices, reduce profit margins, cut expenses, change suppliers, or narrow their product ranges. These responses can preserve cash in the short term but may also reduce customer satisfaction or weaken competitiveness if implemented without careful planning. The IMF (2023) highlights the wider uncertainty and economic pressures associated with persistent inflation, while the OECD (2023) emphasises the importance of SME resilience and adaptive capacity in changing business environments. For Nigerian enterprises, digital business model innovation may offer ways to broaden customer reach, reduce transaction friction, coordinate purchasing, introduce new sales channels, and adjust service delivery. Nevertheless, digital systems can also involve data costs, transaction charges, equipment expenses, training requirements, and cybersecurity risks. It is therefore important to examine whether the benefits of digital business model innovation are sufficient to support survival under inflationary pressure, rather than assuming that digitalisation automatically protects small businesses from economic difficulties.

Enterprise resilience refers to the capacity of a business to withstand disruptions, adapt to changing circumstances, and continue providing value despite external pressures. In emerging economies, resilience may depend on the enterprise’s ability to combine available resources, digital capabilities, customer relationships, and operational flexibility. Ashiru, Nakpodia, and You (2023) investigated the role of emerging digital communication technologies in the resilience of Nigerian small and medium-sized enterprises during the COVID-19 pandemic. Their findings showed that digital communication technologies supported connections with employees, customers, and suppliers, enabled collaboration, encouraged process diversification, and strengthened supply-chain flexibility. Although the study focused on pandemic-related disruption rather than inflation, its findings offer relevant evidence that digital technologies can help Nigerian businesses adapt when conventional operating arrangements are disrupted. Iheanachor et al. (2021) also showed that business model innovation can be important to the viability and sustainability of financial service agents in an emerging-market setting. However, resilience during a health crisis and survival during sustained price increases are not identical outcomes. The present study therefore seeks to establish whether comparable digital adaptations, including online sales, digital customer engagement, electronic payments, and changes in delivery and revenue arrangements, are associated with the survival of micro and small enterprises operating under inflationary conditions.

Ikeja, the capital of Lagos State, is an important commercial and administrative area containing retail outlets, food businesses, fashion enterprises, service providers, wholesalers, technology-related businesses, and other forms of small-scale commercial activity. These enterprises operate within a competitive urban market in which customer convenience, pricing, accessibility, and service quality may influence purchasing decisions. Inflation can intensify competition by increasing the cost of stock replenishment, transportation, utilities, rent, and other operating inputs, while reducing the real purchasing power of customers. Digital business model innovation may enable some enterprises to respond through online ordering, social commerce, mobile payments, customer loyalty arrangements, delivery partnerships, and more flexible product or service offerings. Nevertheless, evidence from other Nigerian locations or studies of general digital adoption cannot fully explain the experience of businesses in Ikeja. For example, Owoseni and Twinomurinzi (2019) provide evidence on mobile application use among enterprises in Lagos, while Ashiru et al. (2023) demonstrate the potential role of digital communication technologies in Nigerian SME resilience. These studies establish the relevance of digital adaptation but leave room for further investigation into the specific relationship between digital business model innovation and business survival during inflationary conditions. Accordingly, this study examines selected small businesses in Ikeja, Lagos State, to assess the digital innovations they employ, the challenges they face, and the extent to which these innovations contribute to continued business operations in an inflationary economy.

1.2 Statement of the Problem

Micro and small enterprises play an important role in Nigeria’s economy, yet their continued survival can be threatened by rising operating costs, reduced consumer purchasing power, increasing competition, and limited access to affordable finance. In an inflationary economy, business owners may find it difficult to maintain profit margins when the cost of purchasing stock, transporting goods, paying rent, and providing services increases faster than revenue. The International Monetary Fund (IMF, 2023) discusses the economic uncertainty associated with persistent inflation and its implications for spending and business decisions. For small businesses, these pressures may result in reduced working capital, declining sales, delayed payments, downsizing, or business closure. Although owners may respond by increasing prices or reducing expenditure, such measures do not always address the underlying challenges of customer retention, inefficient operations, and limited market access. The problem, therefore, is the difficulty of sustaining viable business operations when inflation places simultaneous pressure on costs, revenue, and customer demand.

A second problem concerns the extent to which traditional business models remain suitable for operating in a changing economic environment. Businesses that depend exclusively on walk-in customers, cash-based transactions, fixed sales channels, or conventional supplier arrangements may have limited flexibility when consumer behaviour and operating costs change. Digital business model innovation offers opportunities to redesign these arrangements through online sales, electronic payments, digital marketing, delivery partnerships, customer data management, and alternative revenue channels. Teece (2010) explains that the business model determines how an organisation creates, delivers, and captures value, while Foss and Saebi (2017) identify business model innovation as an important area of strategic management research. However, the adoption of digital tools does not necessarily mean that an enterprise has successfully innovated its business model. A business may use social media for advertising without changing its revenue structure, customer service processes, or methods of value delivery. The problem is therefore not simply whether small businesses use digital technologies, but whether they integrate these technologies into meaningful changes in their business models that help them respond to inflationary pressures.

A third problem relates to the practical limitations that may prevent digital business model innovation from producing the expected benefits. Small businesses may face unreliable connectivity, limited digital skills, transaction charges, cybersecurity concerns, inadequate working capital, and difficulties integrating digital channels with existing operations. Eze et al. (2020) identified technological, organisational, and environmental factors influencing digital marketing adoption among Nigerian microbusinesses, indicating that the successful use of digital tools depends on more than their availability. Similarly, Ashiru et al. (2023) found that emerging digital communication technologies supported resilience among Nigerian SMEs by strengthening business relationships, collaboration, process diversification, and supply-chain flexibility. Nevertheless, these findings do not establish that all forms of digital business model innovation reduce the effects of inflation on micro and small enterprises. Digital adoption may produce additional expenses without generating sufficient sales or operational savings, especially when the technology does not match customer preferences or business needs. There is therefore a need to investigate the forms of digital innovation adopted by selected small businesses in Ikeja and the practical constraints that affect their usefulness for business survival.

The fourth problem is the need for context-specific empirical evidence on the effect of digital business model innovation on the survival of micro and small enterprises in an inflationary economy. Existing research provides evidence on digital technology adoption, enterprise resilience, and business model innovation in Nigeria, including studies of Lagos-based businesses (Owoseni & Twinomurinzi, 2019; Ashiru et al., 2023; Iheanachor et al., 2021). However, these studies examine related but distinct issues and do not, on their own, establish the extent to which digital business model innovation supports the survival of selected small businesses in Ikeja during inflationary conditions. Specifically, the relationship between changes in value delivery, digital customer engagement, electronic transactions, and revenue-generation methods and indicators of business survival requires further examination. This study therefore seeks to investigate the effect of digital business model innovation on the survival of selected small businesses in Ikeja, Lagos State, with particular attention to the inflationary environment in which they operate. The findings are expected to provide evidence that can guide business owners, policymakers, and enterprise-support organisations in identifying practical strategies for sustaining small businesses under economic pressure.

1.3 Aim and Objectives of the Study

1.3.1 Aim of the Study

The aim of this study is to examine the effect of digital business model innovation on the survival of micro and small enterprises in an inflationary economy, using selected small businesses in Ikeja, Lagos State, as the case study.

1.3.2 Specific Objectives

The specific objectives are to:

1. Examine the extent of digital business model innovation among selected small businesses in Ikeja, Lagos State.

2. Determine the effect of digital sales and marketing innovation on the survival of selected small businesses in Ikeja.

3. Assess the effect of digital payment systems and digitally enabled operational innovations on the survival of selected small businesses in Ikeja.

4. Identify the major challenges affecting the adoption and effective utilisation of digital business model innovation among selected small businesses in Ikeja in an inflationary economy.

1.4 Research Questions

The following research questions will guide the study:

1. To what extent do selected small businesses in Ikeja, Lagos State, adopt digital business model innovation?

2. What is the effect of digital sales and marketing innovation on the survival of selected small businesses in Ikeja?

3. How do digital payment systems and digitally enabled operational innovations affect the survival of selected small businesses in Ikeja?

4. What are the major challenges affecting the adoption and effective utilisation of digital business model innovation among selected small businesses in Ikeja in an inflationary economy?

1.5 Research Hypothesis

The following null hypothesis is formulated in line with the central aim of the study:

H₀: Digital business model innovation has no statistically significant effect on the survival of selected small businesses in Ikeja, Lagos State, in an inflationary economy.

The hypothesis will be tested using an appropriate statistical technique, such as regression analysis, depending on the research design, sample size, and measurement of digital business model innovation and business survival.

1.6 Significance of the Study

The study is expected to be significant to the following groups.

1.6.1 Owners and Managers of Micro and Small Enterprises

The findings may help business owners understand how digital business model innovation can support customer acquisition, customer retention, revenue generation, and operational flexibility. The study may also help them distinguish between adopting digital tools and making strategic changes to the way their businesses create, deliver, and capture value. This distinction can assist owners in deciding which digital initiatives are appropriate for their financial resources and business objectives.

1.6.2 Entrepreneurs and Prospective Business Owners

The study may provide useful insights for individuals planning to establish businesses in an inflationary environment. By identifying practical digital approaches and implementation challenges, the findings may help prospective entrepreneurs develop business models that incorporate flexible sales channels, digital customer engagement, and efficient payment arrangements from the beginning.

1.6.3 Government and Policymakers

The study may provide evidence for institutions responsible for enterprise development, digital transformation, entrepreneurship, and small-business support. Its findings may inform policies relating to digital literacy, access to affordable technology, financial inclusion, enterprise training, and support mechanisms for small businesses experiencing rising operating costs.

1.6.4 Financial Institutions and Fintech Providers

Banks, payment-service providers, and financial technology companies may benefit from a better understanding of the digital transaction and operational needs of small businesses. The findings may help these organisations develop payment services and digital financial solutions that are accessible, reliable, and appropriate for enterprises operating with limited capital.

1.6.5 Business Consultants and Enterprise-Support Organisations

Consultants, business development service providers, trade associations, and enterprise-support organisations may use the findings to design training and advisory programmes for small businesses. The study may help them identify areas where enterprises require support in digital marketing, online sales, payment systems, customer relationship management, and business model redesign.

1.6.6 Academic Researchers and Students

The study may contribute to academic discussions on digital business model innovation, entrepreneurship, inflation, and small-business survival. It may also provide a reference point for future research examining other locations, business sectors, economic conditions, and forms of digital innovation in Nigeria and comparable emerging economies.

1.7 Scope of the Study

The study focuses on the effect of digital business model innovation on the survival of selected small businesses in Ikeja, Lagos State, within an inflationary economic environment.

Content scope: The study covers the extent of digital business model innovation, digital sales and marketing, digital payment systems, digitally enabled operational changes, business survival, and challenges affecting digital innovation.

Geographical scope: The study is restricted to selected small businesses operating in Ikeja, Lagos State. The findings will be interpreted within this geographical context and should not automatically be generalised to every business in Lagos State or Nigeria.

Respondent scope: Respondents may include business owners, proprietors, managers, and other personnel directly involved in business operations, digital marketing, sales, payments, and strategic decision-making.

Methodological scope: The study may adopt a survey research design using structured questionnaires administered to eligible business owners or managers. Where available, relevant business records may supplement questionnaire data. Data analysis may involve descriptive statistics and an appropriate inferential technique for testing the stated hypothesis.

For this study, digital business model innovation will refer to substantive changes in the way a business creates, delivers, or captures value through digital technologies. Business survival may be assessed using indicators such as continued operation, the ability to meet essential expenses, customer retention, revenue continuity, and the capacity to maintain business activities during inflationary pressure.

1.8 Limitations of the Study

The study may encounter limitations relating to access to reliable business records, respondents’ willingness to disclose financial information, and differences in the extent of digital adoption among selected businesses. Some owners may be reluctant to provide information about sales, operating expenses, revenue changes, or business difficulties because such information is commercially sensitive.

Another possible limitation is the difficulty of separating the effects of digital business model innovation from other factors influencing business survival. Inflation, competition, access to finance, business location, managerial experience, and customer purchasing power may independently or jointly influence enterprise performance. Consequently, the study should avoid attributing every improvement or decline in business survival exclusively to digital innovation.

To minimise these limitations, the researcher should explain the purpose of the study, protect respondents’ confidentiality, use clear and measurable research questions, and seek supporting business records where available. The study should also distinguish respondents’ perceptions of business survival from independently verified financial or operational outcomes.

1.9 Operational Definition of Terms

Digital Business Model Innovation: The introduction or substantial modification of digital methods through which a business creates value, delivers products or services, interacts with customers, and generates revenue.

Micro and Small Enterprises (MSEs): Small-scale business organisations involved in commercial, manufacturing, or service activities. Their classification for this study will follow the applicable Nigerian enterprise classification and the study’s defined eligibility criteria.

Inflationary Economy: An economic environment characterised by sustained increases in the general price level, resulting in a reduction in the purchasing power of money and potentially increasing business operating expenses.

Business Survival: The ability of an enterprise to continue operating, meet essential obligations, retain customers, and maintain viable business activities despite economic and competitive pressures.

Digital Sales and Marketing Innovation: The use of digital channels and technologies to reach customers, promote products, receive orders, improve customer engagement, and generate sales.

Digital Payment Systems: Electronic methods of making and receiving payments, including bank transfers, payment applications, point-of-sale transactions, and other recognised electronic payment channels.

Operational Innovation: Changes to business processes, purchasing, inventory management, customer service, or distribution arrangements intended to improve efficiency and adaptability.

Customer Retention: The ability of a business to maintain existing customer relationships and encourage repeat purchases over time.

Revenue Continuity: The ability of an enterprise to sustain income-generating activities and maintain a viable flow of revenue despite changes in market conditions.

Selected Small Businesses: The eligible businesses deliberately or systematically chosen for investigation in Ikeja, Lagos State, according to the study’s sampling criteria.

1.10 Organisation of the Study

The study will be organised into five chapters.

Chapter One: Introduction. This chapter presents the background to the study, statement of the problem, aim and objectives, research questions, research hypothesis, significance, scope, limitations, and operational definitions of terms.

Chapter Two: Literature Review. This chapter reviews relevant conceptual, theoretical, and empirical literature on digital business model innovation, inflation, enterprise resilience, and the survival of micro and small enterprises. It also discusses the theoretical framework, identifies the research gap, and presents the conceptual framework.

Chapter Three: Research Methodology. This chapter explains the research design, population, sample size, sampling technique, sources of data, research instrument, validity and reliability procedures, methods of data collection, and techniques of data analysis.

Chapter Four: Data Presentation, Analysis and Discussion. This chapter presents the collected data, analyses the findings in line with the research objectives, tests the hypothesis, and discusses the results in relation to the reviewed literature.

Chapter Five: Summary, Conclusion and Recommendations. This chapter summarises the major findings, presents the conclusion, provides recommendations, identifies the study’s contribution, and suggests areas for further research.

Project – The Effect of Digital Business Model Innovation on the Survival of Micro and Small Enterprises in an Inflationary Economy. A Study of Selected small businesses in Ikeja, Lagos State