Artificial Intelligence and Strategic Management: A Theoretical Analysis of Technological Innovation, Competitive Advantage, and Sustained Organizational Performance in Businesses

Strategic management theory has absorbed successive technological disruptions by asking aconsistent question: does the new technology change the sources from which firms derive sustainedcompetitive advantage, or does it merely change the speed at which firms pursue advantages thefield already understands? This paper argues that artificial intelligence (AI) demands a moredifferentiated answer than either alternative offers on its own. Integrating the resource-based view,dynamic capabilities theory, and behavioral strategy with recent empirical evidence on AI adoption,innovation, and firm performance, the paper develops a theoretical account in which AI's strategicsignificance operates through three related but analytically distinct pathways: a technologicalinnovation pathway, in which AI functions alternately as an originator and a facilitator of novelsolutions; a competitive-advantage pathway, in which AI capability, rather than AI technology assuch, determines whether adoption yields defensible advantage; and a sustainable-performancepathway, in which AI's contribution to environmental, social, and governance outcomes isincreasingly documented but remains mechanistically underexplained. The paper shows that thesethree pathways share a common vulnerability the applied strategy literature has not adequatelyaddressed: none converts automatically into durable organizational performance without agovernance layer capable of allocating decision authority appropriately between algorithmicrecommendation and human strategic judgment. Drawing on evidence that superior algorithmicpredictions frequently fail to improve real decisions once human override authority is exercisedwithout adequate calibration, the paper proposes an integrated model linking AI capability, theexploration-exploitation balance, and sustainable performance, and considers the implications ofthat model for strategic management practice, policy, and future research.