The Impact of Digital Transformation on Firms’ Financial Performance: The Mediating Role of Business Model Innovation
محورهای موضوعی : Artificial Intelligence Tools in Software and Data Engineering
1 - دانشگاه آزاد اسلامی واحد میانه
کلید واژه: Digital transformation, Business model innovation, Financial performance, Artificial intelligence, Dynamic capabilities,
چکیده مقاله :
Extended Abstract
Article type: Research Article
Article history: Received 20 May 2025, Revised 15 July, 2025, Accepted 25 Sept. 2025 Published 30 Sept.
Introduction and Problem Statement: In the current era of rapid technological advancement, digital transformation (DT) has evolved from a strategic option to a fundamental necessity for survival. While many firms invest heavily in artificial intelligence (AI) and digital infrastructures, there remains a critical gap in understanding how these technologies translate into actual financial gains. The primary challenge lies in the fact that digital tools alone do not guarantee success; rather, they require a fundamental shift in how value is created and captured. Many organizations fail to achieve the desired ROI because they overlook the structural changes needed to integrate AI into their core operations, leading to a disconnect between technological adoption and financial outcomes.
Research Objective and Hypotheses: This study aims to investigate the direct impact of AI-enabled digital transformation on firms' financial performance and to explore the mediating role of Business Model Innovation (BMI). Two central hypotheses guide this research: 1) AI-driven digital transformation significantly enhances financial performance indicators such as profitability and revenue growth. 2) Business model innovation acts as a vital bridge (mediator) that facilitates the conversion of digital capabilities into superior financial results.
Methodology: This research utilizes a quantitative approach, collecting empirical data through a structured survey from 220 senior managers in technology-intensive and industrial firms. The conceptual model is grounded in "dynamic capabilities" and "organizational ambidexterity" theories. To analyze the complex relationships between variables and test the mediation effects, Partial Least Squares Structural Equation Modeling (PLS-SEM) was employed using SmartPLS software.
Findings: The statistical analysis confirms that digital transformation has a positive and significant impact on financial performance (β ≈ 0.41, p < 0.001). Furthermore, the results validate that Business Model Innovation partially mediates this relationship. This indicates that while DT directly boosts performance, its impact is significantly amplified when the firm utilizes AI to rethink its value proposition, delivery mechanisms, and revenue streams.
Conclusion: The study concludes that for AI-enabled transformation to be financially rewarding, firms must go beyond simple digitization and focus on business model reconfiguration. Strategic agility and the ability to innovate the business model are essential to fully harness the economic potential of AI. These findings provide a roadmap for managers to prioritize strategic alignment over mere technological implementation to ensure sustainable competitive advantage.
Keywords: Digital Transformation, Artificial Intelligence, Financial Performance, Business Model Innovation, Dynamic Capabilities, PLS-SEM.
Cite this article: Armin Garmroudi. (2025). The Impact of AI-Enabled Digital Transformation on Firms’ Financial Performance: The Mediating Role of Business Model Innovation. Journal of Artificial Intelligence Tools in Software and Data Engineering (AITSDE), 3(2), pages.
© Armin Garmroudi. Publisher: Yazd Campus (Ya.C.), Islamic Azad University
Extended Abstract
Article type: Research Article
Article history: Received 20 May 2025, Revised 15 July, 2025, Accepted 25 Sept. 2025 Published 30 Sept.
Introduction and Problem Statement: In the current era of rapid technological advancement, digital transformation (DT) has evolved from a strategic option to a fundamental necessity for survival. While many firms invest heavily in artificial intelligence (AI) and digital infrastructures, there remains a critical gap in understanding how these technologies translate into actual financial gains. The primary challenge lies in the fact that digital tools alone do not guarantee success; rather, they require a fundamental shift in how value is created and captured. Many organizations fail to achieve the desired ROI because they overlook the structural changes needed to integrate AI into their core operations, leading to a disconnect between technological adoption and financial outcomes.
Research Objective and Hypotheses: This study aims to investigate the direct impact of AI-enabled digital transformation on firms' financial performance and to explore the mediating role of Business Model Innovation (BMI). Two central hypotheses guide this research: 1) AI-driven digital transformation significantly enhances financial performance indicators such as profitability and revenue growth. 2) Business model innovation acts as a vital bridge (mediator) that facilitates the conversion of digital capabilities into superior financial results.
Methodology: This research utilizes a quantitative approach, collecting empirical data through a structured survey from 220 senior managers in technology-intensive and industrial firms. The conceptual model is grounded in "dynamic capabilities" and "organizational ambidexterity" theories. To analyze the complex relationships between variables and test the mediation effects, Partial Least Squares Structural Equation Modeling (PLS-SEM) was employed using SmartPLS software.
Findings: The statistical analysis confirms that digital transformation has a positive and significant impact on financial performance (β ≈ 0.41, p < 0.001). Furthermore, the results validate that Business Model Innovation partially mediates this relationship. This indicates that while DT directly boosts performance, its impact is significantly amplified when the firm utilizes AI to rethink its value proposition, delivery mechanisms, and revenue streams.
Conclusion: The study concludes that for AI-enabled transformation to be financially rewarding, firms must go beyond simple digitization and focus on business model reconfiguration. Strategic agility and the ability to innovate the business model are essential to fully harness the economic potential of AI. These findings provide a roadmap for managers to prioritize strategic alignment over mere technological implementation to ensure sustainable competitive advantage.
Keywords: Digital Transformation, Artificial Intelligence, Financial Performance, Business Model Innovation, Dynamic Capabilities, PLS-SEM.
Cite this article: Armin Garmroudi. (2025). The Impact of AI-Enabled Digital Transformation on Firms’ Financial Performance: The Mediating Role of Business Model Innovation. Journal of Artificial Intelligence Tools in Software and Data Engineering (AITSDE), 3(2), pages.
© Armin Garmroudi. Publisher: Yazd Campus (Ya.C.), Islamic Azad University
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