Artificial Intelligence as an Entrepreneurial Capability: The Impact of AI Adoption, Entrepreneurial Orientation, and Business Model Innovation on MSME Performance

Abstract

Artificial Intelligence (AI) has transitioned from a specialized operational technology into a foundational entrepreneurial dynamic capability for Micro, Small, and Medium Enterprises (MSMEs). This study examines how AI adoption fosters business model innovation (BMI) and MSME performance, analyzing the mediating mechanism of BMI and the moderating role of entrepreneurial orientation (EO). Drawing on an explanatory quantitative design, empirical survey data were collected from 250 digital MSME entrepreneurs and managers across Indonesia. Data were evaluated using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS 4.0. Empirical results indicate that: (1) AI adoption positively and significantly enhances business model innovation (β = 0.534; p < 0.001) and MSME performance (β = 0.226; p < 0.001); (2) business model innovation substantially boosts MSME performance (β = 0.495; p < 0.001); (3) entrepreneurial orientation positively moderates the link between AI adoption and business model innovation (β = 0.188; p < 0.001); and (4) business model innovation significantly mediates the influence of AI adoption on MSME performance (indirect effect β = 0.264; p < 0.001; 95% CI [0.208; 0.329]). The structural model accounts for 64.8% of the variance in MSME performance (R² = 0.648). These findings highlight that realizing AI-driven performance gains necessitates aligning smart technological assets with an aggressive entrepreneurial posture and value-proposition reconfiguration.