Navigating competitive advantage through digital leadership and AI adoption: evidence from large business organisations in Indonesia

Abstract

This study examines how digital leadership influences the adoption of artificial intelligence (AI) and how both contribute to a competitive advantage in large business organisations in Indonesia. Drawing upon Dynamic Capabilities Theory and Contingency Theory, the study also examines the moderating effects of environmental uncertainty and internal control system quality on these relationships. This study employs a quantitative research approach and analyses data from 159 senior and middle managers of large businesses across diverse industries operating in Indonesia using Partial Least Squares Structural Equation Modelling (PLS-SEM). The results reveal that digital leadership significantly affects AI adoption, which in turn enhances a company's competitive advantage. A significant indirect effect of digital leadership on competitive advantage through AI adoption confirms the mediating role of AI as a dynamic capability. However, the moderating effects of environmental uncertainty and internal control systems were not statistically supported, suggesting that these contextual factors may operate through different pathways or be mitigated by existing organisational systems in large firms. This study contributes to the literature by clarifying the mechanisms by which digital leadership and AI adoption influence strategic outcomes in emerging markets. It offers practical guidance for firms seeking to enhance competitiveness through digital capability building and leadership development.