Artificial Intelligence and Reduced SMEs’ Business Risks. A Dynamic Capabilities Analysis During the COVID-19 Pandemic

Abstract

The study utilises the International Labor Organization's SMEs COVID-19 pandemic business risks scale to determine whether Artificial Intelligence (AI) applications are associated with reduced business risks for SMEs. A new 10-item scale was developed to capture the use of AI applications in core services such as marketing and sales, pricing and cash flow. Data were collected from 317 SMEs between April and June 2020, with follow-up data gathered between October and December 2020 in London, England. AI applications to target consumers online, offer cash flow forecasting and facilitate HR activities are associated with reduced business risks caused by the COVID-19 pandemic for both small and medium enterprises. The study indicates that AI enables SMEs to boost their dynamic capabilities by leveraging technology to meet new types of demand, move at speed to pivot business operations, boost efficiency and thus, reduce their business risks.

Innovative Technologies and Small-Medium Sized Enterprises in Times of Crisis

“…For example, future studies can explore how SMEs, given their limited resources and capabilities, can ensure customers' data security and privacy. This is a major challenge given the sharp increase in the number of cybersecurity attacks targeting SMEs since the beginning of the pandemic (Drydakis, 2022). Furthermore, SMEs are increasingly offering chatbots to interact with their customers at various stages of the customer journey (Selamat & Windasari, 2021).…”

Artificial Intelligence and Firm Performance: Does Machine Intelligence Shield Firms from Risks?

“…Prior studies use multiple ways to measure AI adoption in firms. Some qualitative measurements are the demand for AI-skilled human capital (Rock 2019;Alekseeva et al 2020;Babina et al 2021), the business perceptions towards AI (Jain 2019), the introduction of specific AI-based technology such as machine translation (Brynjolfsson et al 2019), and the integration of AI applications into core businesses (Drydakis 2022;Kinkel et al 2022). Other measurements are quantitative, such as the data of AI product announcements (Xu et al 2021), AI investments or research and development (R&D) expenditure (Biswas 2021;Lui et al 2022), and AI patent applications (Damioli et al 2021).…”

“…In addition, Kumar and Kalse (2021) conclude that adopting AI could be beneficial for small and medium-sized enterprises (SMEs) in all fields in confronting the challenges caused by COVID-19, including marketing, financial performance, employee engagement, and data management. Accordingly, Drydakis (2022) indicates that AI application is associated with mitigating business risks for SMEs; this is because leveraging AI technology enables SMEs to improve their dynamic capabilities and efficiency in predicting market trends.…”

Strategic responses to the pandemic: a case study of the US department store industry

“…They reflect a company's ability to create competitive advantages when dealing with changing environments (Teece et al, 1997). During the COVID-19 pandemic, employing dynamic capabilities enables firms to pivot business operations, improve efficiency and reduce business risks (Drydakis, 2022). Hence, retailers can use a bundle of strategies to achieve superior dynamic resilience and agility, thus enhancing firm performance (Dovbischuk, 2022).…”