AI-DRIVEN DIGITAL TRANSFORMATION AND SUSTAINABLE BUSINESS PERFORMANCE: A COMPREHENSIVE REVIEW OF DYNAMIC CAPABILITIES, INNOVATION, AND ORGANIZATIONAL RESILIENCE
Keywords:
Artificial intelligence, Digital transformation, Dynamic capabilities, Innovation, Organizational resilience, Sustainable business performance
Abstract
The digital transformation is now increasingly defined by the impact of Artificial Intelligence (AI) which makes it possible for organisations to make better decisions, automate processes, create new business models and adapt to market changes with greater efficiency. This is a comprehensive review that investigates the interplay between dynamic capabilities, innovation, and organizational resilience and their role in sustainable business performance with the help of AI-driven digital transformation. The review synthesises the body of knowledge on AI-driven value creation, product and process innovation, strategic capability building, business model adaptation, economic, environmental and social performance and resilience in recent years. The findings show that while investments in AI do not create lasting value per se, capabilities within the organization that enable sensing, resource allocation, routine change and embedding technological knowledge into strategic and operational activities are necessary to make these investments successful. Innovation serves as a key mechanism for AI to contribute to new offerings, improved processes and value creation towards sustainability and organizational resilience, while bolstering continuity and adaptive capacity in the face of uncertainties. The review also emphasizes responsible AI governance, capabilities of the workforce, quality of data, leadership support, and organizational culture to influence outcomes of the transformation. It suggests a framework that links the different components of the digital transformation process that are supported by AI with dynamic capabilities, innovation, organisational resilience and sustainable business performance. Further longitudinal relations, context differences, human-AI collaboration and responsible AI as organizational capabilities are potential avenues for future research.
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References
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42. Reim, W., Åström, J., & Eriksson, O. (2020). Implementation of artificial intelligence (AI): a roadmap for business model innovation. AI, 1(2), 180–191.
43. Saeedikiya, M., Salunke, S., & Kowalkiewicz, M. (2024). Toward a dynamic capability perspective of digital transformation in SMEs: A study of the mobility sector. Journal of Cleaner Production, 439, 140718.
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48. Su, X., Wang, S., & Li, F. (2023). The impact of digital transformation on ESG performance based on the mediating effect of dynamic capabilities. Sustainability, 15(18), 13506.
49. Sun, W., Ren, S., & Tang, G. (2025). In the era of responsible artificial intelligence and digitalization: business group digitalization, operations and subsidiary performance. Annals of Operations Research, 354(1), 223-245.
50. Uren, V., & Edwards, J. S. (2023). Technology readiness and the organizational journey towards AI adoption: An empirical study. International Journal of Information Management, 68, 102588.
51. Wang, C., Liu, X., & Li, Y. (2024). Exploring dynamic capability drivers of green innovation at different digital transformation stages: Evidence from listed companies in China. Sustainability, 16(13), 5666.
52. Xi, K., & Shao, X. (2025). Impact of AI applications on corporate green innovation. International Review of Economics & Finance, 99, 104007.
53. Zhang, C., Chen, P., & Hao, Y. (2022). The impact of digital transformation on corporate sustainability-new evidence from Chinese listed companies. Frontiers in Environmental Science, 10, 1047418.
54. Zhang, J., Long, J., & Von Schaewen, A. M. E. (2021). How does digital transformation improve organizational resilience?—findings from PLS-SEM and fsQCA. Sustainability, 13(20), 11487.
55. Zhu, Q., Huang, S. Z., & Koompai, S. (2024). Digital transformation as a catalyst for green innovation: An Examination of high-tech enterprises in China's Yangtze River Delta. Sustainable Futures, 8, 100277.
2. Åström, J., Reim, W., & Parida, V. (2022). Value creation and value capture for AI business model innovation: a three-phase process framework. Review of Managerial Science, 16(7), 2111-2133.
3. Awad, J. A., & Martín-Rojas, R. (2024). Digital transformation influence on organisational resilience through organisational learning and innovation. Journal of Innovation and Entrepreneurship, 13(1), 69.
4. Balcıoğlu, Y. S., Çelik, A. A., & Altındağ, E. (2024). Artificial intelligence integration in Sustainable Business Practices: A text mining analysis of USA firms. Sustainability, 16(15), 6334.
5. Batool, A., Zowghi, D., & Bano, M. (2025). AI governance: a systematic literature review. AI and Ethics, 5(3), 3265-3279.
6. Bécue, A., Gama, J., & Brito, P. Q. (2024). AI’s effect on innovation capacity in the context of industry 5.0: a scoping review. Artificial Intelligence Review, 57(8), 215.
7. Billi, A., & Bernardo, A. (2025). The effects of digital transformation, IT innovation, and sustainability strategies on firms’ performances: An empirical study. Sustainability, 17(3), 823.
8. Bindeeba, D. S., Tukamushaba, E. K., & Bakashaba, R. (2025). Digital transformation and its multidimensional impact on sustainable business performance: evidence from a meta-analytic review. Future Business Journal, 11(1), 90.
9. Browder, R. E., Dwyer, S. M., & Koch, H. (2024). Upgrading adaptation: How digital transformation promotes organizational resilience. Strategic Entrepreneurship Journal, 18(1), 128-164.
10. Cassânego, V. M., Moralles, H. F., de Mattos Nascimento, D. L., & Tortorella, G. L. (2025). Exploring the role of open innovation and artificial intelligence in green innovation: A dynamic capabilities approach. Journal of Innovation & Knowledge, 10(5), 100774.
11. Chen, A., Li, L., & Shahid, W. (2024). Digital transformation as the driving force for sustainable business performance: A moderated mediation model of market-driven business model innovation and digital leadership capabilities. Heliyon, 10(8), e29509.
12. Chen, C., Zhang, Y., & Wang, S. (2023). Digital transformation and firm performance: A case study on China’s listed companies in 2009–2020. Digital Economy and Sustainable Development, 1(1), 18.
13. Dong, C., Shen, Y., & Geng, G. (2024). Green innovation driven by digital transformation: An innovation chain perspective. Systems, 12(9), 349.
14. Duchek, S. (2020). Organizational resilience: a capability-based conceptualization. Business Research, 13(1), 215-246.
15. Ellström, D., Holtström, J., Berg, E., & Josefsson, C. (2022). Dynamic capabilities for digital transformation. Journal of Strategy and Management, 15(2), 272-286.
16. Enholm, I. M., Papagiannidis, E., Mikalef, P., & Krogstie, J. (2022). Artificial intelligence and business value: A literature review. Information Systems Frontiers, 24(5), 1709-1734.
17. Feroz, A. K., Zo, H., & Chiravuri, A. (2021). Digital transformation and environmental sustainability: A review and research agenda. Sustainability, 13(3), 1530.
18. Guandalini, I. (2022). Sustainability through digital transformation: A systematic literature review for research guidance. Journal of Business Research, 148, 456-471.
19. Hafeez, S., Shahzad, K., & De Silva, M. (2025). Enhancing digital transformation in SMEs: The dynamic capabilities of innovation intermediaries within ecosystems. Long Range Planning, 58(3), 102525.
20. Hillmann, J., & Guenther, E. (2021). Organizational resilience: a valuable construct for management research? International Journal of Management Reviews, 23(1), 7-44.
21. Horbach, J. (2024). Digitalisation and sustainability measures at the firm level. Digital Economy and Sustainable Development, 2(1), 19.
22. Ji, Z., Zhou, T., & Zhang, Q. (2023). The impact of digital transformation on corporate sustainability: Evidence from listed companies in China. Sustainability, 15(3), 2117.
23. Jorzik, P., Klein, S. P., Kanbach, D. K., & Kraus, S. (2024). AI-driven business model innovation: A systematic review and research agenda. Journal of Business Research, 182, 114764.
24. Joseph, R. P. (2018). Digital transformation, business model innovation and efficiency in content industries: A review. The International Technology Management Review, 7(1), 59-70.
25. Katsamakas, E. (2022). Digital transformation and sustainable business models. Sustainability, 14(11), 6414.
26. Kong, L., & Chen, J. (2025). Impact of digital transformation on green and sustainable innovation in business: a quasi-natural experiment based on smart city pilot policies in China. Environment, Development and Sustainability, 27(10), 24629-24657.
27. Kopka, A., & Fornahl, D. (2024). Artificial intelligence and firm growth—catch-up processes of SMEs through integrating AI into their knowledge bases. Small Business Economics, 62(1), 63-85.
28. Ma, F., Fahad, S., Yan, S., & Zhang, Y. (2023). Digital transformation and corporate environmental green innovation nexus: an approach towards green innovation improvement. Sustainability, 15(7), 6258.
29. Mariani, M. M., Machado, I., Magrelli, V., & Dwivedi, Y. K. (2023). Artificial intelligence in innovation research: A systematic review, conceptual framework, and future research directions. Technovation, 122, 102623.
30. Mishra, S., & Tripathi, A. R. (2021). AI business model: an integrative business approach. Journal of Innovation and Entrepreneurship, 10(1), 18.
31. Mishra, S., Ewing, M. T., & Cooper, H. B. (2022). Artificial intelligence focus and firm performance. Journal of the Academy of Marketing Science, 50(6), 1176-1197.
32. Mohaghegh, M., Blasi, S., Russo, I., & Baldi, B. (2025). Digital transformation and sustainable performance: the mediating role of triple-A supply chain capabilities. Journal of Business & Industrial Marketing, 40(4), 896-910.
33. Muhic, M., & Bengtsson, L. (2021). Dynamic capabilities triggered by cloud sourcing: a stage-based model of business model innovation. Review of Managerial Science, 15(1), 33-54.
34. Naeem, R., Kohtamäki, M., & Parida, V. (2025). Artificial intelligence enabled product–service innovation: past achievements and future directions. Review of Managerial Science, 19(7), 2149-2192.
35. Nafizah, U. Y., Roper, S., & Mole, K. (2024). Estimating the innovation benefits of first-mover and second-mover strategies when micro-businesses adopt artificial intelligence and machine learning. Small Business Economics, 62(1), 411-434.
36. Ortiz‐Avram, D., Ovcharova, N., & Engelmann, A. (2024). Dynamic capabilities for sustainability: Toward a typology based on dimensions of sustainability‐oriented innovation and stakeholder integration. Business Strategy and the Environment, 33(4), 2969-3004.
37. Papagiannidis, E., Mikalef, P., & Conboy, K. (2025). Responsible artificial intelligence governance: A review and research framework. The Journal of Strategic Information Systems, 34(2), 101885.
38. Parviainen, P., Tihinen, M., Kääriäinen, J., & Teppola, S. (2017). Tackling the digitalization challenge: how to benefit from digitalization in practice. International Journal of Information Systems and Project Management, 5(1), 63-77.
39. Pisoni, G., & Moloney, M. (2024). Responsible AI-based business process management and improvement. Digital Society, 3(2), 23.
40. Poti, S. P., & Stanton, C. J. (2024). Enabling affordances for AI Governance. Journal of Responsible Technology, 18, 100086.
41. Rachinger, M., Rauter, R., Müller, C., Vorraber, W., & Schirgi, E. (2019). Digitalization and its influence on business model innovation. Journal of Manufacturing Technology Management, 30(8), 1143-1160.
42. Reim, W., Åström, J., & Eriksson, O. (2020). Implementation of artificial intelligence (AI): a roadmap for business model innovation. AI, 1(2), 180–191.
43. Saeedikiya, M., Salunke, S., & Kowalkiewicz, M. (2024). Toward a dynamic capability perspective of digital transformation in SMEs: A study of the mobility sector. Journal of Cleaner Production, 439, 140718.
44. Sagala, G. H., & Őri, D. (2025). Exploring digital transformation strategy to achieve SMEs resilience and antifragility: a systematic literature review. Journal of Small Business & Entrepreneurship, 37(3), 495-524.
45. Schallmo, D., Williams, C. A., & Boardman, L. (2017). Digital transformation of business models—best practice, enablers, and roadmap. International Journal of Innovation Management, 21(08), 1740014.
46. Sjödin, D., Parida, V., Palmié, M., & Wincent, J. (2021). How AI capabilities enable business model innovation: Scaling AI through co-evolutionary processes and feedback loops. Journal of Business Research, 134, 574-587.
47. Soluk, J., Decker-Lange, C., & Hack, A. (2023). Small steps for the big hit: A dynamic capabilities perspective on business networks and non-disruptive digital technologies in SMEs. Technological Forecasting and Social Change, 191, 122490.
48. Su, X., Wang, S., & Li, F. (2023). The impact of digital transformation on ESG performance based on the mediating effect of dynamic capabilities. Sustainability, 15(18), 13506.
49. Sun, W., Ren, S., & Tang, G. (2025). In the era of responsible artificial intelligence and digitalization: business group digitalization, operations and subsidiary performance. Annals of Operations Research, 354(1), 223-245.
50. Uren, V., & Edwards, J. S. (2023). Technology readiness and the organizational journey towards AI adoption: An empirical study. International Journal of Information Management, 68, 102588.
51. Wang, C., Liu, X., & Li, Y. (2024). Exploring dynamic capability drivers of green innovation at different digital transformation stages: Evidence from listed companies in China. Sustainability, 16(13), 5666.
52. Xi, K., & Shao, X. (2025). Impact of AI applications on corporate green innovation. International Review of Economics & Finance, 99, 104007.
53. Zhang, C., Chen, P., & Hao, Y. (2022). The impact of digital transformation on corporate sustainability-new evidence from Chinese listed companies. Frontiers in Environmental Science, 10, 1047418.
54. Zhang, J., Long, J., & Von Schaewen, A. M. E. (2021). How does digital transformation improve organizational resilience?—findings from PLS-SEM and fsQCA. Sustainability, 13(20), 11487.
55. Zhu, Q., Huang, S. Z., & Koompai, S. (2024). Digital transformation as a catalyst for green innovation: An Examination of high-tech enterprises in China's Yangtze River Delta. Sustainable Futures, 8, 100277.
Published
2025-10-28
How to Cite
Dr. Suman Adhikari, Dr. Prakash Shrestha, & Dr. Anisha Koirala. (2025). AI-DRIVEN DIGITAL TRANSFORMATION AND SUSTAINABLE BUSINESS PERFORMANCE: A COMPREHENSIVE REVIEW OF DYNAMIC CAPABILITIES, INNOVATION, AND ORGANIZATIONAL RESILIENCE. IJRDO - Journal of Business Management, 11(3), 68-79. https://doi.org/10.69980/bm.v11i4.6801
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Articles
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