Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

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Journal of Open Innovation: Technology, Market,

and Complexity
journal homepage: www.sciencedirect.com/journal/journal-of-open-innovation-technology-
market-and-complexity

Determining factors related to artificial intelligence (AI) adoption among

Malaysia’s small and medium-sized businesses
Suddin Lada a, Brahim Chekima a, *, Mohd. Rahimie Abdul Karim a, Noor Fzlinda Fabeil a,
Mat Salleh Ayub a, Sharifah Milda Amirul a, Rudy Ansar a, Mohamed Bouteraa a, Lim
Ming Fook a, Hafizah Omar Zaki b
a
Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Malaysia
b
Faculty of Economics & Management, Universiti Kebangsaan Malaysia, Malaysia

A R T I C L E I N F O A B S T R A C T

Keywords: The purpose of the study is to examine the relationship between Competitive Pressure (CP), Top Management
Artificial intelligence Commitment (TMC), Employee Adaptability (EA), External Support (ES), Organization Readiness (OR) and
Competitive pressure Artificial Intelligence Adoption (AIA) among SMES operating in Sabah, Malaysia. By employing judgemental
Top management commitment
sampling a total of 196 respondents were involved (i.e., owners or managers) in varied SME sectors such as
Employee adaptability
External support
services, manufacturing, construction, agriculture, and mining & quarrying. A survey questionnaire was used for
Organization readiness data collection and analysed using Smart PLS 4. The results revealed that top management commitment and
SME organization readiness have a significant relationship with AI adoption. However, competitive pressure,
employee adaptability, and external support have an insignificant impact on AI adoption. This suggests that SME
organizations may benefit from focusing on and enhancing TMC and OR practices to improve Al outcomes.
Overall, these findings can guide decision-making and resource allocation, emphasizing the importance of OR
and TMC in driving desired outcomes related to Al and highlighting areas where efforts may not yield significant
effects. Based on present technological demands, practical implications and future research directions are also
highlighted.

Background insights (Chitturu et al., 2017). Hence, up to the present time, discus­
sions continue to revolve around the topic. Numerous stakeholders
Prioritizing the development of AI skills among SMEs is a strategic engage in conversations regarding AI and SMEs, offering diverse
decision by the Malaysian government, considering they make up 98.5 viewpoints.
% of businesses in Malaysia and play a significant role by contributing The swift ascent of digital technology has catalyzed progress in
36.6 % to the nation’s GDP (SME Corp and Wei, 2018). Forecasts indi­ various domains including products, services, and processes as high­
cate that the upcoming advancements in big data, machine learning, and lighted by Iansiti and Lakhani (2020), as well as innovative business
automation will have remarkable effects on nations, businesses, and models as noted by Sjödin et al., (2020). Amidst this transformative
communities. By 2021, the integration of AI is expected to double the landscape, Artificial Intelligence (AI) assumes a central and pioneering
pace of innovation and boost productivity enhancements by 60 % in role, driving the exploration of new frontiers and possibilities (Lu et al.,
Malaysia (GetITAdmin, 2022). Specifically, the connection between AI 2022). From a marketing perspective, with the advancements in ma­
and SMEs in Sabah, Malaysia, are characterized by the potential for chine learning and big data analytics, AI has become a powerful tool for
innovation, efficiency, and growth. However, SME players embracing AI marketers to gain insights into consumer behavior, optimize marketing
encounter three primary obstacles: lack of thought leadership and campaigns, and improve overall business performance (Davenport et al.,
leadership commitment to AI investment, scarcity of skills and resources 2020; Huang & Rust, 2022; Verma et al., 2021), enabling marketers to
coupled with ongoing learning initiatives, and inadequate advanced make informed decisions and deliver personalized experiences to cus­
analytics, infrastructure, and tools essential for generating actionable tomers (Kumar et al., 2021). By leveraging the power of machine

* Corresponding author.
E-mail address: [email protected] (B. Chekima).

https://doi.org/10.1016/j.joitmc.2023.100144
Received 9 June 2023; Received in revised form 25 August 2023; Accepted 21 September 2023
Available online 29 September 2023
2199-8531/© 2023 The Authors. Published by Elsevier Ltd on behalf of Prof JinHyo Joseph Yun. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

learning and data analytics, SME marketers can gain new insights into Limited understanding and resources in AI adoption for local SMEs
customer behavior and preferences, and use this information to deliver There is a lack of fundamental understanding among local SMEs in
more personalized, effective, and efficient marketing campaigns (Ma Sabah regarding the capabilities and potential benefits of AI. SMEs often
and Sun, 2020; Sarath Kumar Boddu et al., 2022; Volkmar et al., 2022). face challenges due to inadequate resources for adapting and integrating
Regardless of the type of SME business, industry size, product & service AI technologies into their operations.
offered, all this information is extremely important for decision-making.
An essential query that remains incompletely addressed pertains to the Lack of AI adoption studies in Sabah, Malaysia
identification of key determining factors that influence the adoption and Despite the significant contribution of SMEs to the local economy,
acceptance of Artificial Intelligence (AI) within local Small and Medium there is a scarcity of comprehensive studies focused on AI adoption
Enterprises (SMEs). within this region. The unique business ecosystem of Sabah’s SMEs
demands research specific to this context, as broad conclusions drawn
Research gaps and motivation from other studies may not apply directly. Although Sabah’s SMEs
significantly contribute to the GDP, there is a lack of comprehensive
Today’s increasingly competitive business environment necessitates research focused specifically on their AI adoption patterns and
that every industry participant be equipped with the latest technology, challenges.
including artificial intelligence. Therefore, the implementation of AI has
indeed transformed the way organizations including small and medium Sectorial variation and determinants of AI success
enterprises (SMEs) conduct business. AI can be a powerful tool for SMEs in Sabah are spread across diverse sectors, each with its own
strategic marketing decision-making (Davenport et al., 2020), and offers dynamics and challenges. Factors that determine the success or failure of
numerous advantages and opportunities that can help SMEs enhance AI adoption in different sectors of Sabah’s SME landscape remain un­
their operations, improve strategic decision processes, and optimize explored. The specific factors that influence the adoption of AI systems
overall business performance. However, it’s important to note that in SMEs within the Sabah region are yet to be identified. Understanding
implementing AI requires careful planning, investment, and expertize these factors is crucial for developing tailored strategies and frameworks
(OECD, 2021). SMEs need to assess their specific needs, consider the that address the unique challenges faced by Sabah SMEs.
scalability of AI solutions, and ensure proper training and integration
with existing systems. Nonetheless, the potential benefits make AI a Limited perspective on SME management
powerful tool for SMEs to drive growth, innovation, and competitiveness Previous studies have examined AI adoption from various perspec­
in today’s digital era (Campbell et al., 2020; Kumar et al., 2021). tives but might lack insights from the perspective of SME management
However, it is important to ensure that the data used to train AI models (i.e. owners or managers). Investigating AI adoption through the lens of
is accurate and unbiased to avoid unintended consequences. Obviously, SME management could provide valuable insights into decision-making
research in the field of AI and SMEs is still evolving, and several gaps processes and challenges faced by decision-makers. There is a need to
exist that require further investigation (Hansen and Bøgh, 2021; Peri­ develop effective strategies, frameworks, and tools that can assist Sabah
fanis and Kitsios, 2023). Although SMEs contribute to the country’s SMEs in harnessing the benefits of AI technologies.
(Sabah’s) local economic structure, they fall far behind in terms of new
technology and AI adoption (Ambad et al., 2020; Jaganathan et al., Need for effective strategies and tools
2018). The primary causes for the absence of AI integration in local There is a need to develop effective strategies, frameworks, and tools
SMEs are a lack of fundamental understanding of AI capabilities and that can assist Sabah SMEs in harnessing the benefits of AI technologies.
inadequate resources for AI adaptation (Rosa et al., 2021). Furthermore, Addressing this gap would support SMEs in making informed decisions
the number of studies of AI and SME-related research in Sabah Malaysia and navigating the complexities of AI adoption. Addressing these
is also limited. According to the Economic Census 2016–2021, there are research gaps through a focused study can provide valuable insights into
55,702 SME participants in Sabah. In 2021, SME players will contribute the unique challenges and opportunities that AI adoption presents for
a total of $518,075,000 to the gross domestic product (GDP), making the SMEs in Sabah, contributing to more informed decision-making and
study of SME players highly pertinent (SME Corporation Malaysia, strategies in the context of AI integration.
2017).
An extensive study on the influence of AI adaptability has previously Literature review
been conducted (i.e., Dondapati et al., 2022; Keegan et al., 2022; Kopalle
et al., 2022; Manis and Madhavaram, 2023; Mikalef et al., 2021, 2023; Artificial intelligence (AI)
Olstad et al., 2022; Saura et al., 2021). Nevertheless, as SMEs function in
their own unique ecosystems broad conclusions cannot be generalized to AI refers to the field of computer science that focuses on creating
them. Hence, the study seeks to examine the relationship between intelligent machines capable of performing tasks that typically require
Competitive Pressure (CP), Top Management Commitment (TMC), human intelligence (Joiner, 2018). AI systems are designed to analyze
Employee Adaptability (EA), External Support (ES), and Organization and interpret data, learn from experiences, make decisions, and solve
Readiness (OR) on AI adoption from the perspective of SME manage­ problems like human cognition. They rely on algorithms, machine
ment (i.e., owner or manager) in Sabah. Besides, in Sabah Malaysia learning techniques, and large datasets to acquire knowledge, improve
particularly, the factors influencing success or failure in the adoption of performance, and adapt to changing circumstances (Xu et al., 2021). AI
AI systems in SMEs remain unknown. Because Sabah SMEs have five encompasses various subfields, including natural language processing,
different sectors (i.e., services, manufacturing, construction, agriculture, computer vision, robotics, expert systems, and neural networks, and it
and quarrying & mining), addressing these research gaps will contribute finds applications in diverse domains such as healthcare, finance,
to a better understanding of the determining factors associated with AI transportation, gaming, SMEs, and marketing strategy (Baabdullah
adoption among SMEs, leading to the development of effective strate­ et al., 2021; Ma and Sun, 2020; Mikalef et al., 2023; Moradi and Dass,
gies, frameworks, and tools to support SMEs in harnessing the benefits of 2022; Rosa et al., 2021; Thayyib et al., 2023). There are several ways in
AI technologies (Drydakis, 2022; Ragazou et al., 2023). which small and medium-sized enterprises (SMEs) may benefit from the
To provide greater clarity, the subsequent statement delineates use of artificial intelligence technology, including the chance to
certain gaps in research concerning the application of AI within Small streamline internal processes (Bettoni et al., 2021), make better de­
and Medium Enterprises (SMEs) in Sabah, Malaysia. The research gaps cisions (Ragazou et al., 2023), and boost productivity (Wu et al., 2023).
can be summarized as follows: Several earlier studies, however, have discussed the limitations and

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S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

constraints in the application of AI among SME participants (Hansen and significant (Drydakis, 2022). AI technologies, such as automation, ma­
Bøgh, 2021; Moradi and Dass, 2022; Ulrich and Frank, 2021). As a chine learning, and data analytics, are increasingly being implemented
result, the dialog concerning AI and SMEs expands. in various business functions. These technologies can streamline pro­
cesses, improve productivity, and enhance decision-making. However,
Competitive pressure (CP) they also require employees to possess adaptability skills to effectively
utilize and integrate AI into their work (Ganlin et al., 2021). SME em­
CP refers to the influence and intensity of competition faced by ployees with strong adaptability skills can quickly learn how to leverage
businesses in a particular market or industry. It encompasses the factors AI tools, adapt their job roles to work alongside AI systems and acquire
that drive companies to continuously improve their products, services, new skills as required. They can embrace the changes brought by AI,
and strategies to gain a competitive advantage (Baabdullah et al., 2021). embrace the opportunities it presents, and contribute to the successful
CP arises from various sources, such as the presence of rival firms, implementation and utilization of AI technologies within their organi­
customer demands, technological advancements, pricing dynamics, and zation. Overall, EA plays a vital role in enabling SMEs to effectively
regulatory conditions. Businesses must navigate and respond to adopt and integrate AI into their operations, ultimately driving inno­
competitive pressure effectively to sustain and thrive in the marketplace vation, competitiveness, and growth in today’s rapidly changing busi­
(Wu et al., 2023). AI enables competitive analysis, personalized mar­ ness landscape. The following hypothesis is based on the fact that staff
keting, pricing optimization, customer experience enhancement, and adaptability and effective AI integration are mutually dependent.
predictive analytics. It helps businesses gain insights, target customers
H3. : Employee adaptability significantly influences the adoption of AI
effectively, optimize pricing strategies, enhance customer experiences,
technologies.
and make data-driven decisions to stay competitive. A significant
number of empirical investigations found that higher levels of innova­
External Support (ES)
tive adoption are associated with higher levels of competitive pressure
(McDougall et al., 2022; Sin et al., 2016; Tajeddini et al., 2023; Wu et al.,
External support (ES) plays a vital role in facilitating AI adoption for
2023). This pressure also pushes SMEs to incorporate AI into their
SMEs in their business operations. This is because SMEs often lack the
day-to-day operations. Based on the above discussion, CP compels
necessary expertize, resources, and infrastructure to fully leverage the
businesses to utilize AI technology in their marketing strategies (Gon­
potential of AI technology (Maroufkhani et al., 2020). ES in AI adoption
çalves et al., 2022), therefore the following hypothesis is proposed:
for SMEs encompasses expertize, technical assistance, customization,
H1. : Competitive Pressure (CP) pushes SMES significantly for AI data management, training, and continuous support. These services
adaptation. enable SMEs to harness the benefits of AI technology, optimize their
operations, and remain competitive in an increasingly digital business
Top management commitment (TMC) landscape (Drydakis, 2022). By leveraging ES, SMEs can overcome
challenges related to AI implementation and enhance their overall
TMC refers to the level of support and dedication demonstrated by performance in the following ways; improved efficiency, enhanced
the top management of an organization towards a particular initiative or decision-making, competitive advantage, and better customer service
decision (Daoud et al., 2021). In the context of SMEs (small and (Gonçalves et al., 2022; Ragazou et al., 2023; Sjödin et al., 2021).
medium-sized enterprises), TMC plays a crucial role in strategic Therefore, the relationship between external support in AI adoption and
decision-making. Strategic decisions in SMEs involve important choices SMEs’ business performance is symbiotic. ES enables SMEs to overcome
that shape the long-term direction and competitive position of the AI implementation challenges, leverage the power of AI technologies,
business (Dubey et al., 2018; Soltani, 2005). These decisions can include and achieve improved efficiency, better decision-making, competitive
selecting target markets, developing new products or services, entering advantage, enhanced customer service, data-driven insights, and scal­
into partnerships or alliances, adopting new technologies, or exploring ability (Fountaine et al., 2019; OECD, 2021). These factors collectively
international expansion, among others. TMC plays a critical role in the contribute to enhancing SMEs’ overall business performance. Based on
context of SMEs when it comes to strategic decision-making related to the above literature, we proposed the following hypothesis:
the adoption and implementation of artificial intelligence (AI) technol­
H4. : External support (ES) significantly influences the adoption of AI
ogies (Deepu and Ravi, 2021; Jayashree et al., 2021). Previous studies
technologies.
have proven that there is a clear relationship between TMC and AI
Adoption. This is because TMC is essential in SME strategic
Organization readiness (OR)
decision-making regarding AI adoption. It drives the recognition of AI’s
potential, supports its integration, overcomes resistance to change, and
OR in AI adoption has a significant impact on SMEs’ operations and
ensures the realization of AI benefits (Lemos et al., 2022; Rosa et al.,
performance. OR refers to the preparedness of an organization,
2021). TMC plays a crucial role in leveraging AI as a strategic tool to
including its leadership, employees, culture, infrastructure, and pro­
enhance the decision-making, competitiveness, and overall performance
cesses, to effectively adopt and leverage AI technologies (Hradecky
of SMEs. Following the findings above, the following hypothesis will be
et al., 2022). However, before implementing the changes within the
tested.
organization, preparedness for change is crucial (Hashim et al., 2021).
H2. : SME’s Top management commitment (TMC) significantly in­ Additionally, careful and ongoing planning in change management is
fluences AI adaptation. necessary for the introduction of new technology to ensure the effective
achievement of the technology’s goal (Jalagat, 2016). Therefore, high
Employee adaptability (EA) OR aligns AI adoption with business strategy, enables effective change
management, ensures robust data management capabilities, provides
Employee Adaptability (EA) refers to an individual’s ability to adjust suitable technical infrastructure, fosters collaboration and skill devel­
and thrive in changing work environments. It involves being flexible, opment, and promotes a culture of continuous improvement (Aboelm­
open-minded, and quick to learn and adapt to new technologies, pro­ aged, 2014; Hradecky et al., 2022). These factors collectively contribute
cesses, and roles (Murphy, 2016; van Dam, 2009). In the context of to improved operational efficiency, enhanced decision-making, better
SMEs, EA becomes crucial as these businesses often operate in dynamic utilization of resources, and ultimately, higher performance for SMEs.
and competitive markets that require constant adaptation to stay rele­ Based on the above findings, OR in AI adoption significantly influences
vant. The relationship between Employee Adaptability and AI in SMEs is SMEs’ operations and performance, therefore we proposed the following

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hypothesis: Sampling and data collection

H5. : Organization Readiness (OR) significantly influences the adop­
The respondents involved owners or managers of SMEs in varied
tion of AI technologies.
sectors such as services, manufacturing, construction, agriculture, and
mining & quarrying which are located and operated in Sabah Malaysia.
Methodology The owner or management of the company is chosen as the response
since they are the decision makers for the adoption of new technologies
The research methodology involved the identification of six signifi­ such as AI. It is presumed that ownership has comprehensive informa­
cant variables, categorized as INTERNAL (Top Management Commit­ tion about AI customization. The sampling frame consisted of Sabah’s
ment, Organizational Readiness, Employee Adaptation) and EXTERNAL SME industries (a total of 55,702) listed and registered in SME Corpo­
(Competitive Pressure, External Support) factors, to comprehensively ration Malaysia. Before the business owner or manager responded to the
explore AI adoption among SMEs in Sabah, Malaysia. Hypotheses were survey questions sent via email, Google forms, and phone calls, the
formulated based on existing theoretical models and previous research researcher requested permission from the management. The data
studies (Daoud et al., 2021; Rosa et al., 2021), establishing testable re­ collection were made between January and April 2023. The minimum
lationships between the variables. The resulting conceptual model, sample size was determined using G*Power, a software tool developed
depicted in Figure 1, visually represents these relationships and draws by Faul et al. (2009). Given that the model consists of five predictors, the
on established theoretical foundations to provide a comprehensive un­ effect size is established at 0.15, and the desired power is set at 0.95. In
derstanding of the factors influencing AI adoption within the local SME business and social science studies, it is commonly recommended that a
context. minimum power of 0.8 be utilized as the minimum acceptable power
(Hair et al., 2013; Gefen et al., 2010). The minimum sample size
required was determined to be 138 by computations. A total of 300
Research instruments
questionnaires were distributed, retrieving 196 valid responses, estab­
lishing a response rate of 65.3 %, which is deemed satisfactory and
Six significant variables, categorized as INTERNAL factors (Top
Management Commitment (TMC), Organizational Readiness (OR), and exceeding the minimum amount required. This study utilizes a judge­
mental sampling technique, spanning various industries and business
Employee Adaptation (EA)) and EXTERNAL factors (Competition Pres­
sure (CP) and External Support (ES)), formed the conceptual foundation sizes. It selectively chooses respondents who hold executive or mana­
of the proposed model. Fig. 1 depicts our proposed research model, gerial roles and are actively involved in deploying artificial intelligence
which is based on the examined theoretical models and the main factors inside their respective companies. To rule out Common Method Bias
described above. (CMB) of the measurement items in the developed model, this study
The study utilizes a seven-point Likert scale with options ranging adopted Harman’s single-factor test. The first component accounted for
from 1 (strongly disagree) to 7 (strongly agree). All six variables of the 36.8% of the total variation. Because a single component does not
model are measured this way and adopted from Daoud et al. (2021) and explain the majority of the variance, CMB is determined to be insignif­
Rosa et al. (2021). The draft version of the measurement scale has been icant in this circumstance (Podsakoff et al., 2003).
validated (i.e. face validity) by two experts (i.e., academicians) and two
SME owners. Based on their input, the questionnaire was revised for Results
usage in a pilot study to check understandability and reliability. The unit
of analysis was the individual. Smart PLS 4 was used to analyse the data, Respondents profile
and the Path model was utilized to test the hypothesis using regression
coefficients. Smart PLS 4 was chosen because it is appropriate for the The data represents the distribution of Small and Medium-sized
analysis of small data samples and the study is focused on validating a Enterprises (SMEs) across different sectors. Table 1 shows the number
theoretical framework from a prediction standpoint (Hair et al., 2019). of SMEs and the corresponding percentage for each sector. In total, there

Fig. 1. Conceptual framework of the study.

Source: Adopted and modified from (Daoud et al., 2021; Rosa et al., 2021).

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S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

Table 1 Table 2
Respondents’ profile based on sector. Construct validity and reliability.
SMEs sector N (owner/ manager) % Construct Code/ Loadings AVE CR Cronbach’s
Items Alpha
Services 65 33.16
Manufacturing 32 16.32 Artificial Intelligence AI1 0.992 0.980 0.995 0.993
Construction 21 10.71 Adoption (AI) AI2 0.985
Agriculture 76 38.77 AI3 0.994
Quarrying & Mining 2 1.02 AI4 0.990
Age Competitive Pressure CP1 0.879 0.771 0.931 0.903
18–25 years old 6 3.06 (CP) CP2 0.823
26–33 years old 29 14.79 CP3 0.895
34–41 years old 66 33.67 CP5 0.914
42–49 years old 53 27.04 Employee EA1 0.824 0.641 0.877 0.824
50 and above 42 21.42 Adaptability (EA) EA2 0.872
Gender EA3 0.802
Male 124 63.26 EA4 0.696
Female 72 36.73 External Support (ES) ES2 0.960 0.710 0.894 0.880
ES3 0.849
ES4 0.760
are 196 SMEs participated in this study, with each sector contributing to Organization OR1 0.996 0.959 0.989 0.986
the overall percentage. The services sector has the highest number of Readiness (OR) OR2 0.964
OR3 0.973
SMEs, with 65 enterprises, accounting for 33.16 % of the total. OR4 0.982
Manufacturing comes next with 32 enterprises, representing 16.32 % of Top Management TMC1 0.875 0.961 0.990 0.986
the total. The construction sector has 21 SMEs, accounting for 10.71 % Commitment (TMC) TMC3 0.871
of the total. Agriculture has the largest number of SMEs, with 76 en­ TMC4 0.876
TMC5 0.850
terprises, representing 38.77 % of the total. Lastly, the quarrying and
mining sector has the lowest number of SMEs, with only 2 enterprises,
making up 1.02 % of the total. In terms of age, the largest group falls between 0.64 and 0.990. These values represent the quantity of
within the 34–41-year-old category, with 66 respondents. This is fol­ observed indicator variance that is explained by their respective latent
lowed by the 42–49-year-old category with 53 respondents. The smallest constructs. Higher AE values indicate that the constructs explain a
age group is the 18–25 years old category, with only 6 participants. In greater proportion of the indicator variance. Cronbach’s Alpha values
terms of gender, the majority of respondents are male, with 124 par­ range from 0.800 to 0.993. Similar to CR, Cronbach’s Alpha is a measure
ticipants, while the female respondents are represented by 72 partici­ of internal consistency reliability. Cronbach’s Alpha values that are
pants. The sector profile of samples is consistent and representative of greater indicate greater reliability and consistency among the mea­
the SMEs in Sabah (DOSM, 2021). surement model’s elements.

Validity of measurement model

Discriminant validity
The validity of a measurement model refers to the degree to which
the model accurately measures the construct or concept it is intended to The objective of the discriminant validity assessment is to ensure that
measure. It is an essential aspect of research and ensures that the mea­ a reflective construct has the strongest associations with its own in­
surements used in a study are reliable and meaningful. According to dicators in the PLS path model (Hair et al., 2017; Hair et al., 2019). The
Hoyle (2011) and Kline (2010), a measurement model assesses latent Fronell-Larcker criterion is one of the most widely used methods for
variables or composite variables. Meanwhile, measurement model val­ evaluating the discriminant validity of measurement models (Ab Hamid
idity is measured by using three criteria which are construct validity, et al., 2017). According to this criterion, the square root of the average
convergent validity and discriminant validity (Ahmad et al., 2016; Hair variance extracted (AVE) by a construct must be greater than the con­
et al., 2019). struct’s correlation with all other constructs (Ab Hamid et al., 2017;
David Alarcón and Sanchez, 2015). However, we decided to utilize the
Convergent validity Heterotrait-Monotrait ratio of the correlation (TMT) approach criterion
because it has high sensitivity and specificity in detecting discriminant
To assess the convergence of constructs, factor loadings, composite validity problems (Henseler et al., 2015). Based on the HTMT values in
reliability (CR) and average variance explained (AVE), and reliability Table 3, it can be concluded that the measurement model demonstrates
(Cronbach’s Alpha) were calculated (Fornell & Larcker, 1981). When all satisfactory discriminant validity among the constructs under investi­
three of the following requirements are met, there is evidence for gation. Specifically, all values are below 0.85, suggesting that there is
convergent validity: (a) CR values are 0.7 or higher, (b) all standardized
factor loadings are 0.5 or greater, and (c) AVE values are 0.5 or greater Table 3
(Cheung et al., 2023; Henseler et al., 2015). Based on the result in Discriminant validity: Heterotrait-Monotrait ratio (HTMT).
Table 2, it appears that the measurement model meets the requirements Construct AI CP EA ES OR TMC
for construct reliability (CR), standardized loading, average variance Artificial Intelligence 0.980
extracted (AE), and reliability of the construct (Cronbach’s Alpha). The (AI)
CR values range from 0.995 to 0.877, indicating the measurement Competitive Pressure 0.206 0.771
model’s high internal consistency and dependability. A higher CR value (CP)
Employee Adaptability 0.339 0.361 0.641
indicates that the observed indicators measure their respective latent
(EA)
constructs with greater reliability. The range of standard loading values External Support (ES) 0.078 0.504 0.219 0.710
is between 0.696 and 0.992. These values represent the intensity of the Organization Readiness 0.585 0.206 0.222 0.127 0.959
relationship between the observed indicators and their respective latent (OR)
constructs. Greater standardized loadings indicate that the indicators Top Management 0.508 0.556 0.511 0.112 0.392 0.961
Commitment (TMC)
are significantly related to the underlying constructs. The AE values vary

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S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

adequate discriminant validity among the constructs. Each construct’s decision-making and resource allocation, emphasizing the importance
correlations with indicators of other constructs are lower than their of OR and TMC in driving desired outcomes related to Al and high­
correlations with indicators of the same construct, indicating that the lighting areas where efforts may not yield significant effects. Unfortu­
constructs are distinct and not highly overlapping. nately, this outcome differs slightly from the conclusions of earlier
research (Rosa et al., 2021), where it was determined that both TMC and
Assessment of structural model OR did not exhibit significance. Simultaneously, it’s worth noting a
parallel between the findings of the present study and previous research
In PLS-SEM, the structural model evaluation focuses on determining conducted by Daoud et al. in 2021. Their study also examined the CP
the significance and relevance of path coefficients, followed by the variable and concluded that it holds significance, thus providing further
model’s explanatory and predictive power. Specifically, the structural support for the hypothesis under consideration.
model reflects the paths hypothesized in the research framework. The
hypothesized paths from the research framework are reflected in the Discussion
structural model. The significance of pathways, as well as the R2 and Q2,
are used for the evaluation. Based on Fig. 2, shows that the R2 value of a The study showed that Top Management Commitment (TMC) and
model is 0.441, which means that approximately 44.1 % of the vari­ Organization Readiness (OR) had a substantial effect on AI adoption,
ability in the dependent variable can be explained by the independent confirming hypotheses H2 and H5. The considerable positive relation­
variables included in the model. In other words, the independent vari­ ship between TMC, OR, and AI adoption implies that investments in
ables (i.e., CP, ES, EA, OR, and TMC) collectively account for 44.1 % of these areas may have a major influence on AI outcomes for SMEs. These
the variation observed in the dependent variable (i.e., AI). results may help to guide decision-making and resource allocation by
The quality or goodness of the model is measured by the strength of emphasizing the relevance of OR and TMC in obtaining desired AI goals
each structural path, which is determined by the R2 value for the and recognizing areas where efforts may be ineffective. For strategic
dependent variable, which should be equal to or greater than "0.1" (Falk decision-making, the significant relationship between OR and Al implies
and Miller, 2014). Table 4 and Fig. 2 show that the R2 value of 0.441 is that organizations should focus on optimizing their organization readi­
more than 0.1. As a result, predictive capacity is established. Q2 also ness to improve Al outcomes (Aboelmaged, 2014). This could involve
confirms the predictive importance of endogenous components. A Q2 streamlining processes, enhancing efficiency, and investing in techno­
greater than "0" indicates that the model is predictively relevant (Q2 = logical advancements to leverage the potential benefits of Al. Given the
0.339). In addition, the model fit was evaluated using SRMR. The SRMR significant relationship between TMC and AI, organizations should
score was 0.059, which is less than the necessary value of "0.10", indi­ prioritize the development and training of employees in relevant tech­
cating an acceptable model fit (Hair et al., 2016). nological and managerial competencies. This includes providing op­
The results revealed that Top Management Commitment (TMC) and portunities for upskilling and reskilling to ensure that the workforce
Organization Readiness (OR) have a significant impact on Artificial In­ possesses the necessary skills to effectively utilize AI technologies.
telligence (AI) adoption (OR – AI: β = 0.444, t = 6.324, p < 0.001) and However, contradictory results were observed in small and
(TMC – AI: β = 0.333, t = 4.16, p < 0.001). Hence, H2 and H5 were medium-sized enterprises lacking top management commitment (Fur­
supported. However, the results also revealed that CP, EA, and ES have uholt and Ørvik, 2006). This study asserts that the lack of support from
an insignificant impact on AI. Hence, H1, H3, and H4 were not sup­ top management is one of the reasons for the lack of adaptation of AI
ported or rejected. The statistically significant positive relationship in­ among SMEs.
dicates that changes or interventions related to TMC and OR can Top Management Commitment (TMC) plays a crucial role in influ­
potentially have a meaningful impact on Al. This suggests that SME encing AI technology adoption among SMEs (Daoud et al., 2021). Top
organizations may benefit from focusing on and enhancing TMC and OR management, including executives and senior leaders, have the au­
practices to improve Al outcomes. Overall, these findings can guide thority and responsibility to set the vision and strategic direction of the

Fig. 2. Path coefficient.

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S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

Table 4
Hypothesis Testing (Path Coefficient).
Hypothesis Original sample (O) Sample mean (M) Standard deviation (STDEV) T statistics P values Result
(O/STDEV)

H1 CP -> Al -0.103 -0.093 0.067 1.539 0.125 Rejected

H2 TMC -> AI 0.333 0.329 0.080 4.164 0.000 Supported
H3 EA -> Al 0.101 0.104 0.069 1.458 0.146 Rejected
H4 ES -> Al 0.036 0.048 0.075 0.474 0.636 Rejected
H5 OR -> Al 0.444 0.445 0.070 6.324 0.000 Supported
Estimate Threshold
Goodness R2 0.441 (More than 0.1) Acceptable
of the Q2 0.339 (Greater than 0) Acceptable
Model SRMR 0.059 (Less than 0.1) Acceptable

organization. When there is a strong commitment from top management guidelines can be proposed to aid organizations in efficiently managing
to embrace AI technology, it signals to the rest of the organization that their readiness to implement artificial intelligence. A thorough evalua­
AI is a strategic priority (Jayashree et al., 2021; Mikalef et al., 2023). tion of the organization’s existing technological infrastructure, data
This commitment helps align the efforts and resources of the organiza­ quality, and IT capabilities would be the base to identify the company’s
tion towards AI adoption. Top management commitment is essential for position and capacity in adopting new technology. This inquiry seeks to
allocating resources, including financial, technological, and human re­ identify the strengths and shortcomings that may impact the application
sources, towards AI initiatives (Dubey et al., 2018; Soltani, 2005). of artificial intelligence. In addition, it is imperative to ensure that senior
Without the support and commitment of top management, it can be staff and top management align with the aims and advantages of the AI
challenging to secure the necessary resources to invest in AI technology, effort. The dedication of top management establishes the foundation for
infrastructure, and talent acquisition (Deepu and Ravi, 2021; Lemos the level of preparedness inside a business. To enhance effectiveness, it
et al., 2022). TMC ensures that the SME organization allocates adequate is advisable to commence by formulating a well-defined artificial in­
resources to support the successful adoption and implementation of AI. telligence strategy that delineates the goals, objectives, and anticipated
Undoubtedly, the cultivation of unwavering commitment from top consequences of AI adoption. To progress, it is imperative to recognize
management is essential in efficiently carrying out any important deficiencies in abilities and allocate resources towards training initia­
commitment, such as implementing artificial intelligence (AI) technol­ tives to enhance employees’ proficiencies in AI-related domains. This
ogy. The very first phase involves educating senior executives and encompasses technological proficiencies such as programming, machine
providing them with comprehensive and concise information regarding learning and data analysis.
the potential advantages of artificial intelligence (AI) and its pertinence The influence of CP, EA, and ES on AI adoption, on the other hand,
to the firm’s strategic objectives. The efficacy of AI in fostering growth, was shown to be insignificant, with no support or rejection of hypotheses
efficiency, and innovation can be substantiated through the utilization H1, H3, and H4. The lack of statistically significant relationships sug­
of success stories and case studies derived from comparable industries. gests that changes in these variables (i.e. CP, EA, ES) may not have a
Furthermore, it is imperative to ensure that adopting artificial intelli­ significant impact on the variable Al (or its manifestation). Practically,
gence (AI) aligns with the organization’s strategic goals. Companies can this implies that efforts targeting changes in CP, EA, or ES may not yield
be convinced or motivated by emphasizing the potential of AI to substantial or noticeable effects on Al, and other factors should be
contribute to competitive advantage, revenue expansion, cost reduction, considered or explored. The findings of this research are extremely re­
and improved customer experiences, which are their key focus areas. flected in the actual state of SME activities in Sabah (Jaganathan et al.,
Ultimately, AI vendors must provide support to organizations in 2018). This absence may disproportionately impact SMEs, whose
formulating a comprehensive and attainable strategy for integrating AI limited financial, technical, and human resources may impede the
technology. This encompasses delineating the various stages, time­ establishment of a successful digital technology adoption path (Battis­
frames, milestones, and anticipated results of each respective phase. toni et al., 2023; Wu et al., 2023). A possible rationale for the insignif­
This framework offers an organized approach that senior executives can icant effect of CP on the Adoption of Artificial Intelligence is the
adopt and monitor. presence of specific industry-specific or organizational attributes that
Organization Readiness (OR) plays a significant role in influencing pose challenges to the successful integration of AI. These challenges may
AI technology adoption among SMEs. AI adoption requires a robust arise from the inherent characteristics of their operational procedures or
technological infrastructure that can support the implementation and the specific nature of the data they handle. In instances of this nature,
integration of AI systems and applications (Jöhnk et al., 2021). Orga­ the impact of competitive pressure may be diminished as the potential
nization Readiness involves evaluating and improving the technological benefits derived from artificial intelligence may not be as significant.
infrastructure to ensure it can accommodate AI requirements, such as Moreover, the implementation of artificial intelligence (AI) frequently
processing power, data storage capacity, and network bandwidth. AI necessitates substantial investments in several aspects, such as techno­
adoption often entails changes in work processes, roles, and re­ logical infrastructure, the gathering and administration of data, the
sponsibilities (Hashim et al., 2021; Hradecky et al., 2022). OR involves recruitment of skilled personnel, and the continuous upkeep of the
effectively managing these changes by providing clear communication, system. In situations where an organization is confronted with financial
training, and support to employees. It is important to engage employees or resource limitations, the prioritization of investing in artificial intel­
throughout the AI adoption process, addressing any concerns or resis­ ligence (AI) may be overshadowed by more pressing and urgent con­
tance they may have. Organization Readiness ensures that employees siderations.(Oz and Sosik, 2000; Wei and Pardo, 2022).
understand the benefits of AI technology, are equipped with the neces­ The significance of employee adaptation in effectively integrating
sary skills, and are prepared to adapt to new ways of working emerging technologies like artificial intelligence (AI) is widely
(Aboelmaged, 2014; Jalagat, 2016). By addressing these aspects of Or­ acknowledged. However, there may be certain situations where EA may
ganization Readiness, SMEs can enhance their readiness to adopt AI not exert a substantial influence, like the finding in this study. When
technologies, overcome potential barriers, and maximize the benefits of integrating artificial intelligence entails utilizing extensively automated
AI adoption. Establishing a level of organizational readiness holds a vital procedures that necessitate limited human involvement, the level of
role in the successful adoption of artificial intelligence. Several practical concern over employee adaptability may be insignificant (Oz and Sosik,

7
S. Lada et al. Journal of Open Innovation: Technology, Market, and Complexity 9 (2023) 100144

2000; Wei and Pardo, 2022). For example, in cases where artificial in­ comprehensive understanding of the factors influencing AI adoption and
telligence (AI) is predominantly employed for data analysis and their implications. This would help to provide a broader perspective on
decision-making tasks, with no requirement for considerable employee the challenges and opportunities faced by SMEs in different contexts and
interaction, the need for employees to adapt to the technology may be facilitate the development of more robust and applicable strategies for
constrained. Furthermore, specific AI applications require the acquisi­ AI adoption. Lastly, given that this study is quantitative in nature and
tion of specialized technical skills, which may only be viable or practical relies on the perspectives of respondents rather than direct observations
for some personnel. For example, it may not be feasible for individuals in of AI implementation and adoption within companies, it is recom­
non-technical positions within an organization to acquire expertize in mended that future research endeavors employ a qualitative research
developing intricate machine-learning algorithms. As for the insignifi­ design or conduct case studies. This will enable greater comprehension
cant effect of ES is possible due to some organizations might already of the determining factors and obstacles that influence companies’ de­
have a strong internal team with the necessary expertize in AI devel­ cisions to adopt AI in their organizational contexts.
opment, implementation, and management when they decided to adopt
AI in their process. In such cases, they might not rely heavily on external Ethical Statement/Approval
support because they can leverage their own resources to adopt and
integrate AI technologies effectively. Furthermore, companies that are This research project does not involve the use of animal or human
not IT or AI-based and leverage AI to make their process and decisions subjects and is therefore exempt from review under the Bioethics Act.
more efficient would face straightforward AI implementations that The data collected and analyzed in this research were obtained solely
involve off-the-shelf solutions or basic applications, organizations might from questionnaire sources, with explicit consent obtained from the
not need extensive external support. Many AI tools and platforms are participants and did not contain sensitive information. Therefore, the
designed to be user-friendly and require minimal technical expertize to execution of this research did not necessitate any specific ethical
get started (Haleem et al., 2022). approval.

Conclusion and future research Funding

In conclusion, this study examined the determining factors associ­ The author received funding for article publishing charge from the
ated with artificial intelligence (AI) adoption among SMEs in Sabah. The Universiti Kebangsaan Malaysia.
data was examined using Smart PLS 4 software based on 196 re­
spondents who were gathered using a judgemental sampling technique. CRediT authorship contribution statement
All research instruments and survey data acquired from the measure­
ment model and structural model utilizing the "bootstrapping" analysis Suddin Lada: Conceptualization, Methodology, Writing- Original
and the "PLS-SEM” method are legitimate and trustworthy. Based on the draft preparation, Writing- Reviewing and Editing. Brahim Chekima:
overall findings, organizations are advised to prioritize investments in Conceptualization, Methodology, Writing- Original draft preparation,
TMC and OR to enhance AI outcomes. While CP, EA, and ES may still be Writing- Reviewing and Editing. Mohd. Rahimie Abdul Karim:
important considerations, their impact on AI adoption may not be as Methodology, Software, Validation, Formal analysis. Noor Fzlinda
significant. By strategically allocating resources and addressing the Fabeil: Methodology, Software, Validation, Formal analysis. Mat Salleh
specific challenges faced by SMEs, organizations can increase their Ayub: Methodology, Software, Validation, Formal analysis. Sharifah
chances of successful AI adoption and utilization. Addressing these is­ Milda Amirul: Methodology, Software, Validation. Rudy Ansar:
sues will contribute to a better understanding of the opportunities and Writing- Reviewing and Editing, Methodology, Software, Validation,
challenges associated with AI adoption in SMEs, leading to the devel­ Formal analysis. Mohamed Bouteraa: Writing- Reviewing and Editing,
opment of effective strategies, frameworks, and tools to support SMEs in Methodology, Software, Validation, Formal analysis. Lim Ming Fook:
harnessing the benefits of AI technologies. Overall, there is still a need Writing- Reviewing and Editing, Methodology, Software, Validation,
for sustainable development in Sabah, and the adoption of AI technology Formal analysis. Hafizah Omar Zaki:, Methodology, Software, Valida­
may aid in this endeavor. Using AI technologies as supporting tools will tion, Formal analysis.
be difficult if they are not adequately embraced, and these issues must be
overcome for AI to obtain universal acceptance. Declaration of Competing Interest
Because SMEs in Sabah are still in the early stages of adoption, this
research solely focuses on the general use of AI technology. As a result, The authors declare that they have no known competing financial
future research should examine the acceptability of AI technology from interests or personal relationships that could have appeared to influence
a more specialized standpoint, such as AI in product development, the work reported in this paper.
customer support, sales and advertising. Another limitation of the study
is the small sample size (i.e. 196). The findings and conclusions drawn References
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