When Combining Automation and Augmentation Strategies Benefits Firm Performance

How to effectively develop an AI organizational strategy to gain competitive advantages has assumed strategic importance for many firms. Drawing on new resource based-view and new paradox theory perspective on AI, we crafted a novel framework that explains why firms perform better when they have a dual-focus AI strategy, which means they need to use AI technology to not only for automation, but also for augmentation. We propose that firms adopting a dual-focus AI strategy achieve superior performance by leveraging AI’s scalability to create a virtuous cycle of complementary benefits. In addition, we propose that firms developing AI abilities, such as autonomy, learning and interaction, that integrate the paradoxical tension between automation and augmentation can gain more returns from the dual-focus AI strategy. Using a dataset drawn from the annual reports and patents of 799 publicly listed technology firms in China, and applying text analysis and topic modeling methods, we find empirical support for most of our hypotheses. Our study creates a rich empirical foundation for future research seeking to understand the nuances of AI and its strategic directions for firms.