Artificial intelligence and digital capabilities on firm performance in the digital economy: A mediation model of business model innovation

PURPOSE: This study examines the relationships among AI capabilities, digital capabilities, and firm performance in the digital economy, with a particular focus on the mediating role of business model innovation. Despite substantial investments in AI and digital technologies, many firms struggle to translate these advancements into improved performance, often because they lack effective organizational mechanisms to convert technological potential into value. By addressing this issue, the study seeks to contribute to the literature by empirically examining business model innovation as a mediating mechanism linking technological capabilities and firm performance. METHODOLOGY: The study employs a quantitative approach using survey data collected from 286 firms in Vietnam. The data are analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine the direct and indirect relationships between AI capabilities, digital capabilities, and firm performance, with business model innovation as a mediating variable. FINDINGS: Both AI and digital capabilities are positively associated with firm performance, directly and indirectly through business model innovation. In addition, both AI capabilities and digital capabilities are positively associated with business model innovation, with the estimated coefficient for AI capabilities being numerically larger than that for digital capabilities. Business model innovation is also positively associated with firm performance, suggesting its role as a mediating mechanism linking technological capabilities to firm performance. IMPLICATIONS: This study contributes to the resource-based view and dynamic capabilities theory by highlighting the role of business model innovation as a mechanism through which technological capabilities are associated with firm performance. The findings suggest that firms may benefit from aligning AI capabilities and digital capabilities with business model innovation to enhance performance outcomes. ORIGINALITY & VALUE: This study provides empirical evidence on the mediating role of business model innovation in the relationship between AI capabilities, digital capabilities, and firm performance. By integrating the resource-based view and dynamic capabilities theory, it offers a more comprehensive understanding of how technological capabilities are associated with firm performance in the digital economy.