AI Capabilities and Its Impact on Organisational Innovation in Malaysian SMEs: The Role of Transformational Leadership and Digital Organisational Culture

Artificial Intelligence capabilities make the organisational innovation process more critical and sustainable, especially in SMEs. This research explored the influence of AI capabilities on organisational innovation within Malaysian SMEs and the role of transformational leadership as a mediator for the above effects, while considering the moderating role of digital organisational culture. The questionnaire was distributed electronically via Google Forms to a study sample of (900) SMEs in Kuala Lumpur, Selangor, and Johor Bahru, targeting owners and managers. Two weeks after distribution, (565) questionnaires were received; however, (215) questionnaires were excluded because the respondents were neither managers nor owners. A total of (350) questionnaires were valid for analysis. Using SMART-PLS software v.4.1.1.6 (PLS-SEM analysis) in analysing data, the study found that AI capability has a positive impact on organisational innovation and a positive impact on transformational leadership. Moreover, transformational leadership has a positive impact on organisational innovation, and transformational leadership mediates the relationship between AI capability and organisational innovation. Furthermore, the study found that digital organisational culture does not moderate the relationship between AI capability and transformational leadership. Digital organisational culture moderates the relationship between AI capability and organisational innovation; also, digital organisational culture moderates the relationship between transformational leadership and organisational innovation.