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“The Impact of COVID-19 on Sustainable Business Models in SMEs” by Iva Gregurec, Martina Tomicic Furjan, and Katarina Tomicic-Pupek (article in “Sustainability” journal, January 2021).

Businesses have been exposed to various challenges during the global pandemic, and their response to this disruption has impacted their resilience as well as their chances to overcome this crisis. Small and medium-sized enterprises (SMEs) are changing their business models to adapt to this changing environment. Service-based industries have been hit particularly hard. This research investigates how SMEs operating in service industries have been coping with the disruptions caused by the COVID-19 pandemic. This research aims to gain insights into which transformation drivers they have focused on and which technologies they have selected to respond to the disruption. These insights regarding SMEs are then explored according to their influence on the redefinition of sustainable business models in SMEs. The review data was analyzed via a customized research framework that contains three dimensions and 30 sub-concepts. The results show the distribution of drivers and technologies across service sectors. They are organized into a Business Model Canvas and could be considered useful for academia and practitioners. The highly unpredictable environment allows for only a few feasible strategic approaches regarding an SME’s decision on to follow incumbents, to become a challenger, or to reinvent themselves based on their own transformation drivers and readiness to apply digital technologies. The global health crisis that started in 2020 impacted businesses of all sizes and in all industries. Although some industries have shown a certain level of resilience or even found a new operating niche, most small and medium-sized entrepreneurs in the services industry found themselves in “new normal” operating environments. The negative impacts of the pandemic have been reported in all spheres of life, and have had economic, political, social, and psychological consequences. However, the strongest impact has been on human health and the perception of human health. In order to slow down the pandemic, several countries have suspended business activities, and have adopted social distancing in order to reduce human-to-human transmission of COVID-19. This has led to lockdowns, reductions in consumption, the closure of communities, and the elimination of businesses. Numerous economic experts see this pandemic as a metaphorical “black swan” event, “that is, a surprising, unpredictable event of great significance and severe consequences that dramatically changes the political and economic environment” that may cause business failures. Technology professionals refer to this as a global disruption, which can be seen as an opportunity or as a challenge to transform business models or implement new technology as a support for business processes. According to Walsh (2020), regardless of their size, numerous companies, large, medium, and small, are, “succumbing to the effects of the coronavirus”. The year 2020 has been projected to “set a record for so-called mega bankruptcies” of many companies . New strategy approaches for small and medium-sized enterprises (SMEs) should help increase the likelihood of overcoming the impact of the pandemic since SMEs have been badly hit financially due to their limited resources and expertise. Based on a common understanding of factors that could impact how businesses are coping with their survival, an approach with three dimensions could be of interest. First, the operating industry and sectors within the industry influence the exposure of SMEs because SMEs tend to be more concentrated in sectors that have been directly affected by COVID-19 response measures (e.g., retail and services). They are typically more credit constrained than larger businesses. For this reason, focusing on how SMEs respond to all challenges posed by a pandemic made sense, especially in the service sector, which has been severely impacted by lockdowns in most countries. Second, various transformation drivers set the course of response and form the direction of transformation. Third, as a means of raising effectiveness, exponential technology development in previous years was seen as a promising tool. At that time, digital technologies did not find a strong and widely based application in the SME sector; however, due to the COVID-19 disruption, SMEs are now trying to avoid a total shut down of economic activities by introducing digital technologies that were not considered a high priority earlier. All three dimensions are in-line with the transformational scenarios seen before the COVID-19 disruption, and could form a solid sustainability framework for changing business models of SMEs. Based on these three dimensions of coping with the disruption caused by the COVID- 19 pandemic, this article provides insights into the following research questions: What drives SME transformation in the service sector, and which technologies are being selected to respond to the pandemic disruption? How does the operating service sector, transformation drivers, and selected technology influence the redefinition of sustainable business models in SMEs?