Generative AI Adoption and MSME Productivity: The Mediating Role of Digital Capability and Moderating Role of Organizational Readiness

Abstract

This study examines the influence of Generative AI adoption on the productivity of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia, considering the mediating role of digital capabilities and the moderating role of organizational readiness. Employing a quantitative approach with a structured survey design administered to 317 MSME practitioners across the technology, trade, and service sectors in various Indonesian provinces, this study applies a Partial Least Squares Structural Equation Modeling (PLS-SEM) framework. Results indicate that Generative AI adoption positively and significantly affects MSME productivity (β = 0.412; p < 0.001). Digital capability is confirmed as a partial mediator (indirect effect = 0.178; 95% CI [0.112–0.244]). Organizational readiness significantly strengthens the relationship between digital capability and productivity (interaction β = 0.231; p < 0.01). These findings imply that MSME development programs need to integrate AI literacy training with simultaneous strengthening of digital capability and organizational readiness. The study contributes to the technology adoption literature within the digital economy context of developing nations.