From perception to feasibility: Explaining AI adoption in SMEs through the TOE framework

Abstract

This study aims to examine the determinants of artificial intelligence (AI) adoption among small and medium-sized enterprises (SMEs) in Central Java, Indonesia, by applying the Technology–Organization–Environment (TOE) framework with a focus on organizational readiness, financial capability, and perceived usefulness. Despite the growing availability of affordable AI-based applications, AI adoption among SMEs remains relatively limited, particularly in developing regions where resource constraints and uneven levels of digital readiness continue to hinder digital transformation. This study employs a quantitative approach using survey data collected from 117 SME owners and managers in Central Java. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the proposed relationships among the constructs. The findings reveal that financial capability, organizational readiness, and perceived usefulness all exert positive and significant effects on AI adoption. Among these determinants, perceived usefulness demonstrates the strongest influence, followed by organizational readiness and financial capability. These results indicate that both technological perceptions and organizational capabilities are important drivers of AI adoption decisions among SMEs, with perceived usefulness emerging as the most influential determinant. The study contributes to the literature by extending the application of the TOE framework to the context of AI adoption among SMEs in a developing economy and by providing empirical evidence from SMEs in Central Java, a regional context that remains underexplored in prior AI adoption research. The findings also offer practical implications for policymakers and SME owners in designing strategies that simultaneously strengthen organizational capabilities and enhance awareness of the benefits of AI technologies to accelerate digital transformation among SMEs.