Dynamic Capabilities for AI-Enabled Exploration: Antecedents, Mechanisms, and Innovation Outcomes

While the operational benefits of Artificial Intelligence (AI) are well-documented, the mechanisms through which firms leverage AI for strategic exploration and radical innovation remain under-theorized.

This study addresses the black box of AI value creation by integrating the Technology-Organization-Environment (TOE) framework with the Dynamic Capabilities View (DCV).

We propose that AI adoption is not a direct antecedent to performance but a multi-stage process wherein technological, organizational, and environmental factors enable the development of sensing capability, which in turn fosters a novel capability we term AI-Enabled Exploration.

Analyzing survey data from 245 senior executives in Saudi Arabia, a high-growth economy undergoing state-led digital transformation, we employed Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the model.

The results confirm a serial mediation chain: organizational readiness and technology compatibility drive sensing capability, which subsequently powers AI-enabled exploration to enhance innovation performance.

Contrary to expectations, government support was not a significant predictor of sensing capability, suggesting that in resource-rich environments, external incentives are necessary but insufficient for capability building.

Furthermore, competitive pressure was found to positively moderate the relationship between organizational readiness and exploration, acting as a critical catalyst that converts latent resources into active experimentation.

These findings offer a theoretical roadmap for firms attempting to transition from AI-driven efficiency to AI-driven ambidexterity.