Does The Adoption of AI-Based Decision-Making Help or Hurt Achieving Competitive Advantage Over Time

The impact of Artificial intelligence (AI) on strategic convergence, firm performance, and competitive advantage remains contested. Drawing on organizational learning theory and strategic decision making, we theorize that AI-based decision-making evolves firms’ exploitative and explorative adaptations by introducing countervailing forces of strategic convergence and divergence. These dynamics affect the knowledge diffusion of high performing strategies, and subsequent firm performance and competitive advantage in decoupled ways and depend further on the prediction power of the AI. Through a hybrid machine learning (ML) simulation model using data from S&P500 firms between 2000 and 2022, we contrast outcomes of human-based decisions to the performance implications of AI-based decision-making on divergence of firm strategies, firm performance, and competitive advantage.