Artificial Intelligence Adoption: AI-readiness at Firm-Level

Artificial Intelligence Adoption: AI-readiness at

Firm-Level
Research-in-Progress

Sulaiman AlSheibani Yen Cheung

Faculty of Information Technology, Faculty of Information Technology,
Monash University, Australia Monash University, Australia
[email protected] [email protected]

Chris Messom
Faculty of Information Technology,
Monash University, Australia
[email protected]

Abstract
The emergence and growing interest in Artificial Intelligence (AI) will have increasing societal
implications influencing, the responsibilities of decision-makers and policy analysts. Although
an extensive body of literature relating to AI techniques already exists, this is not the case for
AI adoption in organisations. This research-in-progress seeks to propose a research framework
for AI adoption at firm level. To do so, two popular theories are considered: The Technology-
Organisations-Environment (TOE) framework, and Diffusion of Innovation theory (DOI). This
paper presents an in-depth interpretation of these theories for the adoption of AI technologies
and proposes an AI adoption framework at firm level. A mixed methods research approach is
proposed to test and validate the framework. Further work in this project will involve
developing the research instrument for data collection via a survey targeted at firms.
Keywords: Artificial Intelligence, AI readiness, TOE, DOI, adoption

Introduction
Artificial intelligence (AI) is a broad subject where a range of terms such as ‘machine intelligence,’
‘intelligence agents,’ ‘intelligent behaviour,’ ‘intelligent systems’ and ‘algorithms’ have been used in its
definition. Previously, AI was considered as machines that can think like humans, reason and make
decisions, and this perspective has advanced to also consider general human-level AI such as: acts like
a human or acts and interprets the world like a human (Russell et al. 2003).
According to Purdy and Daugherty (2016), recent developments in machine learning, expert systems,
natural language processing, speech recognition, deep learning and robotics have the most significant
impact on AI and business. In this regard, AI has emerged to improve decision making, ecosystems, and
re-creation of the customer experience (Gartner, 2017a). The field of AI has become an active area of
research in numerous fields and industries including engineering (Pham et al.1999), science (Cartwright,
1997), education (Lajoie & Vivet, 2002), medicine (Ramesh et al. 2004), business, accounting, finance,
marketing, economics, and law (Rauch-Hindin, 1986). It is already being applied to such endeavours as
the self-driving car, healthcare, and new media (Bollier, 2017). However, while there have been
significant reports of AI in the literature (eg Aghion et al. 2017; Fernald & Jones, 2014; Purdy &

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 Artificial Intelligence Adoption: AI-readiness at Firm-Level

Daugherty, 2016) this has not been the case for AI readiness factors for preparing organisations to adopt
AI. In particular, AI will play a significant role in the economic growth of countries such as the US
(Makridakis, 2017), China (Li, 2017) and India (Vempati, 2016). A recent report by PwC, estimated that
the potential contribution of AI to the global economy will increase by 14% (15.7 trillion USD) by 2030.
Another PwC report expects China and the US to have the most significant gains from AI, enhancing
their GDPs by 26.1% and 14.5%, respectively (Rao, 2016). It has already had substantial economic
impacts, especially within the financial services, healthcare and ICT industries (Purdy & Daugherty,
2016). Major competitors in the AI industry such as Google, Amazon, IBM, Facebook, and Apple (Jang,
2017) are thus competing to gain competitive advantage and market share by leading the advancement
of AI (Infosys, 2016).

Global Enterprise (Evans & Gawer, 2016) reported that the number of articles on AI and business
strategy grew six-fold between 2013 and 2016. In addition, AI is expected to be pervasive in almost
every new software product and related services by 2020 (Gartner, 2017b). While various aspects of AI
technology have been around for decades, increased network and data processing speeds and advances
in hardware have brought AI to the commercial level. Although the demand for innovation and the link
between technology and business is developing rapidly (Whinston & Geng, 2004), most AI technology
today is still considered to be fairly weak (Lu et al. 2017).

To date, a considerable amount of empirical IS research has focused on IT adoption at the organisational
level (Aboelmaged, 2014; Gopalakrishnan & Damanpour, 2006; Yang et al.2015). Over the last three
decades or so, we have seen IT being studied firstly for creating competitive advantage then for
maintaining and sustaining that advantage. Various theories such as DOI (Rogers, 1995) were applied
to understand this phenomenon (Oliveira & Martins, 2011). Knight (2015) claimed that bringing AI
into an organisation or workplace can increase productivity and help people make better, faster
decisions. However, getting everyone to buy into the idea is a challenge. According to a report by
Gartner (2017a), 59% of organisations are still gathering information about whether to adopt AI, and
only 6% have deployed AI technology. Another study by the Garter group (2017a) states that how to
adopt AI into a business strategy is unclear in terms of enterprise adoption, even though the risk of
ignoring AI altogether is much higher. Thus, both the lack of IS research addressing AI adoption and the
growing interest in AI are the motivations for investigating the challenges to businesses when deploying
AI to create competitive advantage. This research aims to investigate the challenges of AI adoption from
an IS perspective. In particular, this research-in-progress paper addresses the following research
question:
What factors impact an organisation’s readiness for AI adoption?

The next section presents the literature review containing the theoretical foundation of IS to provide a
theoretical framework for AI adoption and discussion of e-readiness factors which influence businesses’
readiness to adopt AI. The third section presents the hypotheses and a proposed AI adoption framework
at firm level. The last section includes the proposed methodology and the future work of this project.

Theoretical Foundation
Adoption of innovation and e-readiness have been studied at either an individual level (Oliveira &
Martins, 2011) or at firm level (Aboelmaged, 2014). Several electronic readiness (e-readiness) or
readiness models have been proposed and applied to improve competitiveness and maintain resources
efficiently (Alshawi,2007; Ruikar et al. 2006). Numerous domains have been studied and e-readiness
models have been developed at firm level to allow firms to benefit from e-innovation. For example, e-
maintenance (Aboelmaged, 2014), cloud computing (Yang et al. 2015), e-marketing (Duan, 2010; Yan
et al.2009; Zhai, 2010), and e-business (Ifinedo, 2005; Molloa et al. 2010). The term “e-readiness” has
been defined as willingness of individuals or organisations to participate in organisational development
(Alshawi,2007). Findings from the literature on e-readiness have shown different factors that need to be
considered when carrying out new innovation adoption. Technology factors, including relative
advantage, and compatibility have the ability to positively influence new technology adoption
(Aboelmaged, 2014; Hung, 2014; Idris, 2015; Ifinedo, 2005; Yang et al. 2015). For the organisation

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 Artificial Intelligence Adoption: AI-readiness at Firm-Level

factors top management support (Ifinedo, 2005;Yan et al. 2009), and firm size (Aboelmaged, 2014;
Duan, 2010; Molla et al.2010;) are the three characteristics that can significantly influence the e-
readiness of IS. Competitive pressure and government regulatory issues are the main environmental
factors that can affect new innovation adoption (Aboelmaged, 2014; Hung, 2014; Idris, 2015; Ifinedo,
2005; Yang et al. 2015).
In the discipline of IS/IT, readiness or e-readiness refers to the ability and capability of an organization
to adopt and benefit from IT/IS technology (Choucri et al. 2003). AI, in the broadest sense, is about the
skills, data, processes, structures, and strategies of an organisation (Salleh et al. 2011). AI-readiness
therefore involves more than just AI technology. However, due to many factors such as unclear relative
advantage for AI and lack of AI skills (Curran & Purcell, 2017), many organisations still challenge the
adopters of AI. In response to this, AI-readiness refers to the preparedness of organisations to implement
change involving applications and technology related to AI. To analyse the perspective of a firm’s
adoption of AI, we consider two theoretical frameworks: TOE and DOI. The Technology-Organization-
Environment (TOE) framework (Tornatzky and Fleischer, 1990) is a multi-perception theory developed
to provide a framework for investigating the adoption of IS at the firm level. On the other hand, the
Diffusion of Innovation theory (DOI) seeks to explain ‘how, why and at what rate new ideas and
technology spread’ (Rogers, 1995). Both theories are similarly applied to adopting new innovation at
firm level (Oliveira & Martins, 2011).
Rogers (1995) studied how new ideas are communicated through a culture and found a basic pattern that
was almost universally present as innovation ideas diffuse through a culture. DOI adoption of innovation
at firm level depends on individual characteristics (such as the leader), internal characteristics and
external characteristics of the organization (Rogers, 1995). DOI theory determines five characteristics
of a new innovation that may be essential for adoption of new innovation: relative advantage,
compatibility, complexity, trialability, and observability. Relative advantage refers to the degree of
additional benefits in comparison with current innovation. Compatibility is about how well an
innovation fits with the organisation’s values and needs. Complexity refers to the difficulty of
understanding and adopting the innovation. Trialability refers to the ease of use and testing of the
innovation. Observability is the extent to which the potential innovation is perceptible (Rogers, 1995).
Several IS studies have investigated DOI at firm level in different areas, such as adoption of e-business
(Zhu et al.2006), enterprise resource planning (Bradford and Florin 2003) and cloud computing (Yang
et al. 2015).
The TOE framework is used at the organisational level to explain factors that influence adoption
decisions. Tornatzky and Fleischer (1990) found that the decision to adopt an innovation at the firm level
is not only built on technological factors but is also influenced by organisational and environmental
contexts. As its name suggests, the TOE framework analyses a firm from three different dimensions:
technology, organisation and environment. The technological dimension includes all the relevant
technologies available within and outside the firm. The organisational dimension describes business
characteristics and resources that might influence the adoption process such as firm size, managerial
structure, decision-making and communication. The environmental dimension refers to the structure of
the industry including the firm’s competitors, suppliers, customers and regulatory environment
(Tornatzky & Fleischer 1990). To date, the TOE theory has been widely examined in ICT and other
disciplines such as e-commerce (Oliveira & Martins, 2011) and enterprise resource planning (Bradford
and Florin 2003). Other fields where it has been tested include e-maintenance (Aboelmaged, 2014),
cloud computing (Yang et al. 2015), e-marketing (Duan, 2010; Yan et al. 2009; Zhai, 2010), e-business
(Ifinedo, 2005; Molloa et al.2010) and e-commerce (Idris, 2015). The TOE framework has also been
tested in various fields including e-maintenance (Aboelmaged, 2014), cloud computing (Yang et al.
2015), e-marketing (Yan et al.2009), e-business (Ifinedo, 2005) and e-commerce (Idris, 2015). However,
to the best of our knowledge, TOE has not previously been used to study the adoption of AI at firm level.
Results from existing research show that the TOE framework is suitable for investigating innovation
adoption at an organisation level (Aboelmaged, 2014). As a result, for AI adoption, we can apply the e-
readiness factors as AI-readiness with some modifications. For instance, in AI adoption people issues
and IT infrastructure resources must also be considered because this correlates significantly with AI
technology and concepts (Oxborough et al. 2016). Therefore, we suggest that human, enterprise and

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 Artificial Intelligence Adoption: AI-readiness at Firm-Level

technology resources are critical factors for AI-readiness.

Framework and Hypotheses Development

The fundamental concept of the proposed framework is that aspects of technological, organizational
and environmental factors are essential for AI adoption. It presents the research hypotheses from the
perspectives of technological readiness, organisational readiness and environmental readiness.
According to Webster & Watson, (2002) research framework and hypotheses need to be justified based
on a theoretical explanation, practice from past empirical findings and empirical findings from related
research areas. Unlike other adoption theories, the TOE framework does not specify a set of factors that
affect innovation adoption (Aboelmaged, 2014). Therefore, the factors we have chosen are assumptions
based on past experience and practice from related research area as discussed in the section above.

Figure 1: Research framework for AI adoption at firm level (Adapted from the TOE framework)

Technological readiness

Technological readiness refers to the ability of a firm to adopt new technology (Richey et al. 2007).
This includes both internal (technology infrastructure) and external (existing in the market) technologies
that are relevant to the firm. The firm must carefully consider the complexities and challenges of
adopting new technology. Therefore, technological readiness offers a better way to foretell the benefits
gained from technological implementation (Richey et al. 2007). Technological readiness in Figure 1
refers to how firms are prepared to adopt AI technology.

Relative advantage

Relative advantage refers to the perceived benefit of adopting AI at the firm level. In the context of this
research, perceived AI benefits refers to the degree to which AI is better than other competing
technologies (Zahi, 2010). Rogers (2003) outlined that the perceived benefit of an innovation has a
significant effect on an organisation’s intention to adopt an innovative technology. Prior research
(Aboelmaged, 2014; Kumar et al. 2016; Hung, 2016; Ifinedo, 2005; Zhai, 2015; Yang, 2015) also found
a positive relationship between the relative advantage of new technology and the acceptance of an
innovation. AI allows an organisation to obtain a competitive advantage, reduce costs (Press, 2016) and
opportunities to transfer into new businesses (Ransbotham et al. 2017), raise top-line profits, increase
efficiency and amplify human intelligence (Curran & Purcel, 2017). Technology such as deep learning
(DL), natural language generation (NLG) and machine learning (ML) allow firms to have a competitive
advantage (Curran & Purcel, 2017) when adopting AI, which leads to the following hypothesis:
H1: The relative advantage of AI technology positively influences AI-readiness.

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 Artificial Intelligence Adoption: AI-readiness at Firm-Level

Compatibility

A significant number of studies have shown a positive relationship between compatibility and intention
to adopt an innovation (Ifinedo, 2005; Yang, 2015; Yan, 2009; Zahi, 2010). Compatibility refers to the
extent of the innovation and its ability to provide value and experience while addressing the needs of
the expected adopters (Rogers, 1995). Chui (2017) stated that successful AI transformations require a
solid AI business case and should align with existing strategies. Ifinedo (2005) found that a greater
match between the adoption process and the diffusion of technology innovation leads to an easier
adoption. Thus, this research posits the following hypothesis:
H2: Compatibility between the AI business case and an organisation’s existing strategies positively
influences AI readiness.

Organisational Readiness

Adoption of new innovation is influenced by organisational characteristics such as firm size, top
management etc. (Wade & Hulland, 2004). Iacovou et al. (1995) define organisation readiness ‘as the
availability of the needed organizational resources for adoption.’ Based on previous studies of new
innovation (Duan,2010; Hung,2014; Idris,2015; Zahi,2010; Yan et al.2009; Yang et al.2015), this study
uses top management support, firm size and resources as factors of organisational readiness.

Top management support

Top management support refers to the engagement of a top-level leader for IS/IT implementations
(Ifinedo, 2005). Resource-based theory identifies top management support as a moderating factor and
claims that a lack of support not only fails to improve a firm’s competitive position but also increases
its failure to adopt an innovation (Wade & Hulland, 2004). Top management commitment can also have
a significant positive influence on new technology adoption (Hung et al. 2014; Zahi, 2010; Yang et al.
2015) in terms of articulating a vision (Yang et al. 2015), providing capital funds (Hung, 2016) and
allocating resources. For example, for research into IS/IT adoption, top management support was shown
to promote the acceptance of cloud computing (Yang et al. 2015) and e-business (Ifinedo, 2005). In
general, applying AI to drive the business transformation is a strategic decision (Gartner, 2017b). The
following hypothesis is therefore proposed:
H3: Top management support positively influences AI readiness.

Organization size

Rogers (2003) stated that the size of the organisation directly affects the adoption of innovation. Several
studies found that firm size has a positive effect on adopting new innovations (Aboelmaged, 2014;
Duan, 2010; Zahi 2010). Duan (2010) found that large organisations have a greater ability to adopt
technology. Likewise, Zahi (2010) pointed out that large firms face greater competitive pressure and
Aboelmaged (2014) reported that the positive impact of firm size is because larger organisations have
more financial and technical resources. This research thus posits the following hypothesis:
H4: Firm size positively influences AI readiness.

Resources

Besides organisational readiness factors, human, enterprise and information technology resources are
also critical to adopting a new innovation at the firm level (Iacovou et al. 1995). Technology resources
refer to computer hardware, data, and networking that are essential to adopt new innovation
(Aboelmaged, 2014). In the context of AI, many current AI technologies begin with standard machine
learning algorithms and then become intelligent after being trained (Ransbotham et al. 2017). A new
report from Narrative Science, (2016) indicates that 59% of organisations that are skilled in big data are
also using AI Technology. Hung et al.2014 classified resources into employees and technologies.
According to a recent survey, most organisations struggle to adopt AI and smart machines because they
focus on technology rather than adequate skills and methodologies for implementation (Gartner, 2017a).
A significant amount of empirical IS research has shown that firms with human, enterprise and

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 Artificial Intelligence Adoption: AI-readiness at Firm-Level

technology resources increase their readiness to adopt innovation such as websites (Hung et al.2016),
e-maintenance (Aboelmaged, 2014) and e-business (Wang and Cheung, 2008). Accordingly, this
research hypothesizes that resources positively influence AI readiness.
H5: Human, enterprise and technology resources positively influence AI readiness.

Environmental readiness

Generally, organisations conduct their activities in response to their environmental conditions. This
includes the area in which a firm conducts its business with its competitors in the same space (Tornatzky
and Fleischer1990). Environmental readiness refers to how the organisation perceives external factors
to adopt AI. Research has shown that external factors such as competitive pressure and regulatory issues
are driving factors for adopting new innovation (Ifinedo, 2005). For the adoption of AI, this study
includes two relevant environmental factors; competitive pressure and government regulations.
Competitive pressure

Competitive pressure refers to the threat of losing competitive advantage, which motivates an
organisation to adopt a new innovation (Aboelmaged, 2014). Considerable empirical research has
recognised competitor pressure as a factor for the diffusion of a new innovation (Yang, 2015). Hung et
al. (2016) pointed out those business activities that are affected by external circumstances such as socio-
economic factors. According to a recent report by Gartner (2017a), developing an AI strategy is the top
strategy for technology progression in 2018. AI has the capability to spur innovation and create new
opportunities for both individuals and organisations (Fast & Horvitz, 2017). The ability to use AI to
improve decision-making and customer experience influences the adoption of AI (Garten, 2017a).
Hence, this study proposes the hypothesis:
H6: Competitive pressure has a positive influence on AI readiness.

Government regulatory issues

In addition to competitive pressure, government policy has been recognized as one of the factors that
firms need to consider (Hung, 2014). In this study, regulatory issues refer to the assistance provided by
the government authority to encourage the adoption of AI innovations at organisation level. In the
context of AI, different governments have different policies. For example, in the United States,
preparations are being made to adapt regulatory challenges to those ‘AI-enabled’ products such as self-
driving cars to encourage AI innovation (Hill, 2016). Hence, this study proposes the hypothesis:
H7: Government regulations can have a positive influence on AI readiness

Proposed Methodology and Future Work

The focus of this in-progress-research is to develop an AI-readiness framework like a capability
maturity model at firm level. The next steps include validation of the framework over a set of
organisations to identify factors which impact AI adoption. The target population of this study is C-
level and intermediate executive in charge of information system of SMEs in both private and public
service organizations in Australia. A quantitative approach using an online survey instrument will be
the preferred method for data collection to test the theoretical framework. A 5-point Likert scale will be
used to measure the items which are acceptable for large sample sizes. The proposed research question
aims to determine factors that influences an organisation’s readiness for AI adoption.

Expected Contribution
Recent emergence of AI in society has presented a number of challenges, particularly at firm level.
From the theoretical side, this study will contribute to the IS body of knowledge through exploration of
the innovation of technology adoption theory and by identifying factors affecting an organisation’s
readiness for AI. On the practical side, this study provides insight into AI adoption by helping
organisations to be prepared and successful in implementing this ‘old’ but emerging technology.

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