Artificial Intelligence Adoption and Its Effect on Small and Medium Enterprises' Performance: A Lens of Technology-Organisation-Environment Framework and Ethical Principles

In the digital era, small and medium enterprises (SMEs) adopt AI for business operations to enhance firm performance. The adoption of AI is driven by multiple factors influencing the business landscape, while ethical principles may also impact adoption. The aim of this study is to develop a model that explains factors influencing AI adoption by SMEs to enhance business performance, by integrating the technology-organization-environment (TOE) framework with the diffusion of innovation (DOI) theory and ethical principles. The study employed a quantitative method, using a self-administered questionnaire disseminated among 150 respondents from South African SMEs and analysed using structural equation modelling (SEM). The results showed that compatibility, top management support, organisational readiness, employee capability, customer pressure, vendor support, fairness, accountability, and transparency significantly influence AI adoption, while relative advantage, complexity, high costs, and competitive pressure were less significant. The study concludes that AI adoption is key to enhancing the performance of South African SMEs.