The rapid advance of Generative Artificial Intelligence (GenAI) is reshaping the innovation logic of small and medium-sized enterprises (SMEs), driving a profound shift from “human-led and technology-assisted” processes toward “human-AI collaboration and algorithmic co-creation”. Grounded in the knowledge-based view and dynamic capability theory, this study develops and validates a systematic mechanism of GenAI-driven innovation model reconstruction. It identifies how GenAI facilitates knowledge creation, strengthens firms’ innovation capabilities, and ultimately enhances the formation of intelligent decision-making systems. Using a sample of 412 SMEs and Structural Equation Modelling (SEM) for empirical analysis, the results demonstrate that GenAI applications exert a significant positive influence on knowledge creation, which in turn substantially enhances innovation capability. Innovation capability functions as a key mediator between knowledge creation and intelligent decision-making. In addition to its indirect effects through knowledge and innovation mechanisms, GenAI also directly improves managerial strategic judgment through its reasoning, prediction, and solution-evaluation functions. The overall model confirms a robust sequential chain – “GenAI – knowledge creation – innovation capability – intelligent decision-making”. It exhibits strong explanatory power and stable path relationships. The study makes theoretical contributions by introducing the concepts of “algorithm-participatory knowledge creation” and “AI-enhanced dynamic capability”, thereby expanding research frontiers in digital innovation and organisational intelligence. Practically, it offers a structured pathway for SMEs seeking knowledge-driven innovation transformation and decision-making optimisation in the GenAI era, while also providing insights for policymakers aiming to promote AI-enabled SME development.
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Share and Cite
Gan, W., Xiao, M. (2025) Generative AI – Driven Reconstruction of Innovation Models in SMEs: Mechanisms and Pathways from Knowledge Creation to Intelligent Decision-making. Journal of Social Development and History, 1(5), 82-98. https://doi.org/10.71052/jsdh/UNEO9550