AI capabilities driven sustainability: the effect of AI oriented- leadership and frugal innovation on firm sustainable performance

Purpose – This study aims to investigate the interplay between AI-capabilities and AI oriented leadership in eliciting sustainable performance. Specifically, this study submits that AI capabilities influence frugal innovation which in turn promotes firm sustainable performance. Moreover, the said relationship is moderated by AI-oriented leadership. Design/methodology/approach – This study used survey method to collect data from 162 manufacturing SMEs. The data was analyzed using PLS-SEM to test the hypotheses. Findings – Results indicate that AI-capabilities are important source of firm sustainability performance where it determines sustainability performance directly as well as through frugal innovation. The mediating mechanism offers the insights into how AI capabilities can be translated into overall organizational gains. The recognition of frugal innovation as an important mediator offers a comprehensive insight of the mechanisms through which AI capabilities affect firm sustainable performance. In addition, AI-oriented leadership was found to have positive moderating effect for the relationship between AI-capabilities and frugal innovation. Results also support the moderated mediation effect suggesting that AI-oriented leaders who can successfully utilize AI resources and enhance an innovative and creative culture have greater likelihood of optimum exploiting of AI-capabilities in achieving sustainable performance. Originality/value – Considering the importance of sustainable performance, this study is the first study that examines the direct and indirect effect AI capabilities on sustainable performances.