The ongoing disruption of the ecosystem in which local municipalities operate requires them to reconfigure their business models to enhance performance (Parida, Sjödin & Reim 2019). The continuous emergence of digital technologies provides local municipalities with an opportunity to improve their efficiency through digital transformation. Today, digital transformation is a major item on local municipalities’ strategic agenda (Singh, Klarner & Hess 2020). Integrating digital technologies into how an organisation operates has a direct relationship with organisational performance (Sousa-Zomer, Neely & Martinez 2020). Thus, digital technologies such as cloud computing, social media platforms, AI, and virtual reality in local municipalities can enhance their service delivery performance. The study by Dang (2025) dubbed the integration of digital technologies into organisational operations ‘digital transformation’. McKinsey Global Publishing’s 2024 updated version of Digital Transformation defines digital transformation as the rewiring of an organisation to create value through the integration of technologies. Schneider et al. (2023) describe digital transformation as a strategic use of digital technologies to reshape business processes, customer experience, and organisational culture. Wang and Ma (2022) viewed digital transformation as an initiative to renovate organisations through digital technologies to enhance operations by automating tasks, activities, or processes and, consequently, refresh their value proposition. In the context of the public sector, digital transformation is defined as a process of implementing government innovations facilitated by information and communication technologies, which reformulates internal processes, organisational structures, governance, service delivery models, regulatory aspects, relationships between levels of government, and between private and public operators (De Magalhães Santos 2024). From the definitions, the outcome of digital transformation is value-creation, which is directly linked to organisational processes that satisfy customer and organisational needs. However, for organisations such as local municipalities to leverage the opportunities presented by digital technologies, they need dynamic capabilities to reconfigure organisational resources and competences (Sousa-Zomer et al. 2020).

Big data, cloud technology, artificial intelligence and machine learning (AI/ML), enhanced robotics, data analytics, 3D printing, and blockchain are significantly disrupting industrial operations (Ghosh et al. 2022). Different sectors are making moves to recalibrate their business models through the adoption of digital technologies. Therefore, rural local municipalities are also taking advantage of digital technologies and are integrating digital technologies such as big data, AI, robotics, and data analytics into local municipalities’ service delivery models to enhance service delivery. A digital transformation initiative in Santander City, Spain, received a million-dollar grant for a digital technology project to install AI sensors to examine parking trends, water management, waste management, and personalise citizens’ services (Androutsopoulou et al. 2019), thus automating activities known to be performed by humans. It is enticing for local municipalities to undertake digital transformation projects because of the potential benefits associated with a digitally transformed business model (Delioğlu & Uysal 2022). Through digital transformation initiatives, local municipalities are enhancing efficiency and service quality by reducing service lead times, increasing transparency, and enabling seamless service delivery (Lindgren et al. 2019). Moreover, public participation in government is enhanced through the adoption of digital technologies (Veeramootoo, Nunkoo & Dwivedi 2018). The perceived benefits of digital technologies are driving government authorities worldwide to respond to technological developments. Digital transformation in local municipalities is more than just using and maintaining a technology environment, as it is directly linked to the service delivery model and citizens’ experience (Ellström et al. 2022). Digital technologies are transforming people’s and organisations’ activities, and in government, they can be seen as a symbol of modernity and responsiveness to citizens’ demands (Haro-de-Rosario, Sáez-Martín & Del Carmen Caba-Pérez 2018). Furthermore, Lember, Kettel and Tõnurist (2018) indicate that introducing new technological applications in local municipalities adds value, such as increasing life expectancies, reducing crime rates, shortening service delivery turnaround times, and improving trust between the government and its citizens. However, most municipalities, especially in developing countries, face challenges such as constrained budgets, a lack of human capabilities, and infrastructure and know-how (Luna-Reyes et al. 2020). The concept of digital transformation in the public sector is still in its infancy (Schneider et al. 2023). However, research in this area is now gaining consistency (De Magalhães Santos 2024). According to Mai et al. (2024), most organisations venturing into digital transformation are falling behind; they are hindered by a lack of comprehensive strategic policy, management, and infrastructure (Dang 2025). In addition, Adelakun et al. (2025) indicated that failures in digital transformation initiatives result from executives’ lack of understanding of digital transformation, organisational power dynamics, and insufficient support and interest from other parts of management. Furthermore, managers’ inability to sense the urgency of change is a critical factor contributing to digital transformation failure (Ellström et al. 2022). According to Sailer, Stutzmann and Kobold (2019), digital transformation initiatives are failing because business functions operate in silos. The study by De Magalhães Santos (2024) highlighted the key limitations faced by leaders involved in public-sector digital transformation initiatives, which include a lack of technical and non-technical skills, silos of institutional arrangements, distrust and lack of incentives for change, lack of a vision, lack of involvement, and lack of strategic thinking. The issue of culture was raised by Ghosh et al. (2022) as one key factor behind the failure of most digital initiatives, as it can prevent changes in an organisation. To respond to environmental changes through digital transformation, local municipalities need to develop technological capacity, which is the ability to explore, develop, and adapt to new technologies into the service delivery model (Lember et al. 2018). These capacities are developed by understanding the mechanisms that drive the speed and direction of technological development, such as identifying the right technologies to pursue at the right time, as Vial (2021) indicates. The study by Sousa-Zomer et al. (2020) highlighted key components that an organisation must develop to enhance digital transformation, including establishing partnerships with other organisations and developing digital skills and knowledge for leadership positions. Ellström et al. (2022) and Luna-Reyes et al. (2020) further highlighted the significant need to build dynamic capabilities for digital transformation. There is a need to develop dynamic capabilities to successfully transform digitally (Kowalski et al. 2025). Dynamic capability is defined as the firm’s ability to integrate, build, and reconfigure internal and external competencies to address a rapidly changing environment (Schneider et al. 2023). These capabilities, according to Dang (2025), are built on three main activities: sensing, seizing, and transforming, and, according to De Mendonça and De Andrade (2018), dynamic capabilities are at the centre of local municipalities’ digital transformation success or failure. This study employs the dynamic capabilities view (DVC) to understand why rural local municipalities are failing to realise the benefits of digital transformation through digital initiatives.

The literature suggests that digital transformation in the public sector is still in its early stages, and the concept is still developing (Ellström et al. 2022). For this reason, the researcher employs a deductive qualitative approach to gain deeper insights into digital transformation initiatives in the public-sector, with dynamic capability theory as the point of departure for data collection and analysis. The nature of the research questions positions the study within an interpretive research paradigm. Using a qualitative research approach, the study contributed to enriching the concept of digital transformation in rural local municipalities (Azungah 2018), as its flexibility enabled the researcher to delve deeper into a concept still in its early stages of development. The study aims to investigate why local municipalities are failing to realise value from digital transformation initiatives by interviewing department heads in rural municipalities. Therefore, to achieve the study objective, a case study with a deductive approach was employed. The selection of a case study qualitative research approach for this study is underlined by the interpretive nature of the study research question (Baškarada 2014), which seeks to get an answer to the question of why rural local municipalities are failing to successfully benefit from digital transformation initiatives. As a result of the infancy of the digital transformation concept in the public sector, especially in South Africa, multiple cases (rural local municipalities) were considered preferable to a single case to achieve a more robust outcome. According to Baškarada (2014), a case study is more suitable when the researcher has little control over the event and when little is known about the phenomenon under study. Although in qualitative research the issue of sample size is considered less important, as the focus is on the sample that offers more in-depth information, the researcher purposefully recruited nine departmental managers across different departments in rural local municipalities through purposive and snowball sampling techniques. The recruitment process was mainly through office visits, emails, and telephone calls.

Nine face-to-face semi-structured interviews were conducted with departmental managers from rural local municipalities across different districts of Limpopo province. According to Peel (2020), semi-structured interviews are guided by open-ended questions designed around predetermined themes derived from the microfoundations of the three elements of dynamic capability theory (sensing, seizing, and reconfiguring). Furthermore, the semi-structured interview was preferred for its flexibility in probing issues through questions and follow-ups; thus, the interviewees were not limited in their elaboration on the topic of digital transformation in local municipalities (Swain 2018). Table 1 shows the profile of the interviewees for this study. The interview guide primarily covered questions about participants’ understanding of digital transformation and initiatives in local municipalities. For ethical considerations, all participants were briefed about the study and its objectives, and, most importantly, informed of the audio recording of the interviews, with the consent form also provided to participants.

The study employed a hybrid thematic (deductive and inductive) data analysis, enabling the study to benefit from the advantages of both a theoretically driven and a data-driven approach (Joffe 2011; Gaol et al. 2023). Deductive thematic analysis is a theory-driven approach, as indicated by Bonner et al. (2021), whereas inductive thematic analysis is a data-driven approach. However, combining the two into a hybrid thematic analysis ensures that participants’ voices are valued while simultaneously allowing a theory-driven analysis (Proudfoot 2023). This approach adds value to the quality of the study’s findings.

Deductive: In this approach, the initial coding process begins with predetermined coding systems (Gaol et al. 2023) derived from the microfoundations of dynamic capabilities theory and the existing literature, which lay the foundation for the deductive approach.

Inductive: to avoid missing critical insights into digital transformation in local government, an inductive thematic analysis was conducted, allowing the researcher to generate and capture emerging findings that did not align with the existing literature. A three-phase, seven-stage analysis proposed by Swain (2018) was adopted. Table 2 illustrates the thematic analysis conducted to gain better insight into digital transformation initiatives in local municipalities.

Ethical clearance to conduct this study was obtained from the University of Venda Research Ethics Committee (No. FMCL/21/BIS/03/1309).

The South African government has been continuously prioritising digital transformation to enhance service delivery, citizens’ satisfaction, and trust in government at all levels and across government operations. However, the study reveals that rural local governments, which are closely tied to citizens, are struggling to realise the benefits of digital transformation as a result of the absence of digital transformation dynamic capabilities and their microfoundations. The study reveals the following:

Awareness and knowledge of emerging technologies and digital transformation are important to organisations’ digital transformation initiatives, and a digitally literate leader is more likely to promote them than a non-digital leader. Leaders in organisations, who are less knowledgeable about digital transformation, are more likely to negatively impact the success of digital transformation implementation in any institution. Digital transformation awareness is a critical component in driving an organisation’s ability to sense. It is less likely that local municipalities will perceive digital transformation as beneficial if leaders are unaware of the variety of digital technologies in their environment:

Rural local municipalities in Limpopo are largely dominated by digital migrants (those who are now making moves to understand digital technologies), and most of those in leadership are digital migrants in the process of learning and understanding the value of digital technologies in the value proposition. Digital transformation initiatives require individual and organisational competence to successfully deliver on the desired results. Digital transformation initiatives are not only about technology but also about people within the organisation and the organisation itself. The success of digital initiatives relies on the organisation’s ability to scan the environment for opportunities; however, this study shows a gap in local municipalities’ sensing capabilities. Local municipalities and citizens are less likely to benefit from digital technologies as a result of a lack of awareness of existing technologies that could enhance their performance. The study further highlighted a skills gap. Departmental managers in rural local municipalities highlighted the need for training to develop their digital skills relevant to the development of dynamic capabilities for digital transformation in local municipalities. The presence of digital skills within an organisation enables it to both sense and seize the identified opportunities. Rural local municipalities are currently struggling to sense the potential of digital transformation because of a lack of awareness:

Digital transformation requires different expertise to support the business model reconfiguration process. Organisations engage in digital transformation initiatives for different objectives; however, before investing in a potential digital transformation to enhance organisational performance, they need to assess their existing internal infrastructure (Ellström et al. 2022). Investing in digital transformation initiatives without the necessary skills to manage, monitor, and interpret results and findings will not translate into objective achievement but will be a waste of resources. Hence, there is a need to have people with the right expertise and technical capabilities, such as business analyst skills, to support digital transformation initiatives, as indicated by interviewees. Thus, sensing capabilities must be supported by other capabilities for rural local municipalities to maximise the benefits of digital transformation initiatives and enhance service delivery performances:

The study results show that some rural local municipalities are making strides towards digitally transforming how they communicate with their stakeholders, taking advantage of social media and communication platforms such as Microsoft Teams. However, a lack of expertise continues to hinder local municipalities from venturing into more advanced digital transformation initiatives. As a country, South Africa is still characterised by a lack of technological skills, and few people are in the field of IT. The shortage of IT experts in the country is significantly affecting the public sector, as they must compete with the private sector for these specialised employees. As a result of the salary structure, IT experts are ending up in private companies rather than public institutions such as the local municipalities.

Information technology projects must be funded, and in most cases, their costs are high. Once the opportunity is identified, the local municipality must invest in digital transformation initiatives and allocate infrastructure. Thus, an improper funding model may significantly affect any organisation and its managers’ intentions to digitally transform how the organisation operates. There is a direct link between finances and IT infrastructure, and it should be a local municipality that develops cross-functional capabilities among the organisation’s business units (Ellström et al. 2022):

Some parts of rural local municipalities still lack Internet connectivity, a fundamental component of digital transformation. One of the study participants indicated that installing Fourth Industrial Revolution (4IR) technologies for water pumping and purification in some areas of Musina is impossible because of network connectivity issues. This fact further emphasises the need for partnership to support digital transformation in rural local municipalities. Sousa-Zomer et al. (2020) and Marheine and Petrik (2021) indicated that discovering and establishing external partnerships are significant for an organisation pursuing digital transformation. In the context of local municipalities, there is a need to identify partners, such as Internet Service Providers, to collaborate with on their digital transformation initiatives, specifically in infrastructure support.

Finance departments are finding it difficult to allocate funds to purchase digital transformation infrastructure to seize potential opportunities, as indicated by interviewees. The current rural local municipality set-up requires digital transformation projects to be funded internally.

Rural local municipality departmental managers, such as finance and human resource managers, lack awareness, which is one major cause of delay in the adoption and use of emerging technologies in rural local municipalities. A sensed opportunity requires the involvement of both the finance and the human resources departments to allocate sufficient funds and assign staff members with the knowledge and skills to seize and reconfigure the local municipality’s business model. Digital transformation in local municipalities should be considered a long-term goal, given limited funding and infrastructure. This change will allow local municipalities to decompose the digital transformation into smaller projects (Ellström et al. 2022), which are easier to fund, thereby removing the financial barrier.

The approaches and choices an organisation adopt to create value are a critical aspect of any organisation. Digital transformation projects promise to bring benefits to rural local municipalities and their operating models. However, these technologies are not plug-and-play; there must be standard guidelines to follow or a framework to guide implementation. This study found that managers in rural local municipalities face IT policies that are not linked to other functional departments, such as finance and human resources. The digital transformation process requires a strategy, the ability to sense, seize, and reconfigure; thus, the success of digital transformation depends on its strategies to sense for opportunities, seize them, and reconfigure. Rural local municipalities lack clear, proper guidelines to help those involved deliver a digital transformation initiative that will enhance their performance:

As a sphere closer to the people, local government is more responsible for delivering quality services to the stakeholders. In this digital era, leadership in rural local municipalities currently lacks clear, supporting guidelines and strategies to ensure a smooth transition to a digitally transformed business model. Thus, even though some interviewees intend to digitally transform the local municipality’s operations, they are unsure where to start, resulting in missed opportunities for both municipalities and citizens. Furthermore, managers in rural local municipalities are still faced with misalignment between business and IT strategies. Interviewees indicated that the implementation of some strategic policies is delayed because the local municipality lacks sufficient resources. Misalignment of IT-business strategies and delays in implementing IT policies result from poor strategic flexibility, which is very significant in responding to a turbulent environment and citizens’ technological demands. For a local municipality to be able to respond to changes in the environment, it needs to be strategically flexible, a key routine or microfoundation described by Ellström et al. (2022) for a successful digital transformation initiative.

Deficiencies in external associates and/or collaborations are one of the challenges faced by rural municipalities in digital technology initiatives. External associations are very significant for any organisation’s digital transformation, as they provide the skills and expertise required. Furthermore, an external associate may come as a source of project funding. Establishing partnerships with organisations, such as institutions of higher education and private organisations, is vital to digital transformation processes:

In the South African rural local municipality context, the existing, insignificant relationships among education entities, municipalities, and private companies are not benefiting rural municipalities, as both rural local municipalities and their citizens still face a lack of awareness, skills, and technical capabilities essential for digital transformation. External associates are critical to local municipalities’ digital transformation by enhancing sensing capabilities: bridging and sharing knowledge about digital technologies, transferring digital expertise, securing financial and infrastructural contributions, and relying on experts from other institutions to reconfigure local municipalities’ resources and business models. All these sensing capabilities can be obtained from institutions, such as local universities and private organisations. Interviewees believe that the lack of existing relationships between the government and other external stakeholders is negatively affecting digital transformation initiatives in local municipalities. This impact was also highlighted by De Magalhães Santos (2024).

Delivering a successful digital transformation initiative is a strategic imperative for South Africa and its local municipalities to enhance service-provision to the citizens. The study results shows that rural municipalities are struggling to initiate digital transformation initiatives. The study suggests that the success of digital transformation initiatives depends on their ability to develop digital dynamic capabilities through microfoundations, or routines identified and described by Ellström et al. (2022), which enable successful digital transformation. Cross-industrial digital sensing, which involves scanning for information outside the system, can be achieved through networking with partners from outside. Inside-out digital infrastructure sensing involves the capability to manage and understand an organisation’s existing infrastructure. Digital strategy development requires that organisations involved in digital transformation must be strategically flexible and adaptive to new opportunities to respond to changing customer demands. Determine enterprise boundaries implicates that organisations that wish to digitally transform, must assess internal organisational competencies; by doing so, the organisation knows what to outsource and what to keep in-house. Decompose digital transformation into specific projects by creating a digital portfolio with separate projects for easy prioritisation and to avoid bottlenecks. Lastly, a unified digital infrastructure which will require connecting things, people, and data within the organisation and facilitating mutual understanding and collaboration across business units and departments. This goal can be achieved through communication.

Digital transformation in organisations is continually proving to be important, as it positively impacts organisational performance. In local municipalities, digital transformation also promises a more efficient and effective operating model. However, there is a need to build dynamic digital transformation capabilities in the local municipality. The South African government should prioritise building a culture of digital transformation to enhance understanding of emerging technologies. The SITA needs to partner with SALGA (the South African Local Government Association), rural local municipalities, and other strategic partners to build microfoundations to support the development of digital dynamic capabilities.

A digital transformation initiative in rural local municipalities affects all stakeholders, including leaders (professionals and politicians), municipal staff, and community members. Therefore, changes in their perceptions, awareness, skills, and interests are more likely to influence their decision to adopt or reject digital transformation initiatives. Digitally savvy stakeholders are highly critical of local municipalities’ digital transformation initiatives. Digital transformation is cross-functional; therefore, initiatives to build dynamic capabilities should be stakeholder-focused to ensure interoperability and strong relationships among departments and all stakeholders.

The success of digital transformation also depends on internal relationships among organisational departments, i.e. the financial department should understand what the IT department is trying to achieve, and the human resources department should understand the expertise the IT department requires and the way to remunerate them. Furthermore, as part of their IT strategic development, rural local municipalities need to reconfigure their internal funding model to a bucket funding model to ensure that digital transformation is allocated sufficient funds. Rural local municipalities in Limpopo need to strategically be flexible; thus, they need to constantly review their strategies to align them with technological needs and environmental turbulence. Constantly reviewing business and IT strategies enables an organisation to identify value opportunities and convert them into tangible organisational benefits. In digital transformation, project portfolio management is key; therefore, local municipalities must be able to select the right projects and prioritise them. Additionally, if Rural Local Municipalities choose and prioritize the appropriate projects, they will find it simpler to concentrate on a limited number of significant projects instead of pursuing numerous projects simultaneously, which could ultimately hinder IT value creation. This change can be achieved by recruiting people with relevant IT skills to support digital initiatives, establishing partnerships with external companies, colleges, and universities, and benchmarking with other municipalities that are getting it right nationally and internationally.

An investigation into rural local municipalities’ perceptions and their capacity for digital transformation will be significant for future research.

Dynamic capability theory has been widely used by several authors across disciplines to examine how organisations respond to environmental changes. Local municipalities have very different organisational structures, comprising managers of different kinds, some of whom are digital-savvy and some who are not. There is a need for clearly defined microfoundations or routines that help local municipalities build and/or develop their sensing, seizing, and reconfiguration capabilities, as performed by Ellström et al. (2022). Rural local municipalities in Limpopo are still far behind in utilising digital technologies to enhance service provision. Previous studies by De Magalhães Santos (2024) and Ellström et al. (2022) have posited dynamic capability and its microfoundations for successful digital transformation. This study heightened the significance of dynamic capabilities for digital transformation in rural local municipalities by further identifying the establishment of partnerships with universities as a micro-foundation for enhancing local municipalities’ dynamic capabilities (sensing, seizing, and reconfiguring).