Introduction

Economic growth and increased productivity are achieved through SMEs. They have the ability to develop new products or services because they can adapt to changes in the national market more quickly than other organizations. SMEs can be considered attractive and sizeable innovative systems because of their social and economic benefits and are an important strategic sector for economic growth (Harash et al., 2014a; Martin et al., 2022). In this context, the development of SME strategy must be highlighted, and addressing issues and main factors to develop the firms’ performances is necessary. Previous research indicates that using accounting information systems (AIS) is essential to increasing SME performance and motivates the ability to adopt new strategies (Kareem et al., 2021a, 2021b). Therefore, this work seeks to highlight the weaknesses and AIS implementation issues related to the willingness of managers and owners of SMEs to use AIS to improve their organization’s performance. However, some SMEs are worried about transferring to a new accounting system due to the availability of legacy systems or low employee experience.

Some Iraqi SMEs have witnessed decreased performance and encounter challenges because of limited financial resources and not using new technology and databases. They have paid little attention to administrative innovations and technologies like administrative systems or new technological knowledge (Kareem et al., 2021a). Managers must enhance their qualifications through training, acquiring new skills, and expanding their knowledge to develop a business successfully. By doing so, they can improve the organizational capabilities of SMEs. The study proposed the applicability of moving to a successful AIS strategy due to the high AIS functionality.

Sharing experiences with employees and promoting teamwork and knowledge exchange are essential for organizational growth (Kim and Ha, 2023; Daradkeh, 2023). Sharing information includes equipment, materials, components, software, and adapting to new technology that can improve the quality of information (Kdeear and Abdel Halim, 2021). Applying effective strategies and exploring how businesses can improve their innovation by utilizing advanced AIS technology when expanding into new markets is essential (Ismail, 2007; Kareem et al., 2019b; Dandago and Rufai, 2014; Bachmid, 2017; Adebayo et al., 2013; Nurhayati et al., 2023). Therefore, SMEs must consider various factors that can help eliminate regulatory and practical obstacles to facilitate business or expand within the market. Other factors affecting strategy implementation include administrative inefficiency, limited resources, and cognitive awareness (Eze et al., 2018; Latifah et al., 2020; Martínez-Román et al., 2019; Motta and Sharma, 2020). Furthermore, implementing SMEs’ strategies using paper-based methods is challenging, resulting in poor financial transactions, generation reports, and regulatory management.

However, limited attention has been given to the SMEs’ strategies or effective use of AIS to improve performance in the relevant literature. For example, few studies have considered AIS as a mediator between SMEs’ strategy and organizational performance. Therefore, this study examines the use of AIS as a mediator between SMEs’ strategy and organizational performance to improve SMEs’ performance. SMEs must stand out in the marketplace to succeed, and they must employ effective strategies to do so. Therefore, the current research explores how SMEs can use these strategies to gain a competitive edge by using AIS as a mediator.

Background of study

Difficulties of SMEs

It is not easy for some SMEs to adopt the rapid development of information technology, as the modest use of AIS has become insufficient to meet the information needs necessary for the decision-making process. Therefore, SMEs face many problems in their growth performance (Kareem et al., 2019a). These problems contribute to a lack of understanding of AIS effectiveness through adopting new technology and the key strategy factors to enhance performance (Al-Okaily, 2024). SMEs continue to face global challenges, and SMEs’ decline rate is relatively high (Gamage et al., 2020). Historical data reveals that three of every five SME businesses faced the risk of failure in the first few months of operation (Al Baghlani, 2018). In Basra city, the managers and owners of SMEs often hesitate to adopt new technology, and one factor may be fear of the unknown (Kareem et al., 2021a, 2021b, 2022). Religion, social status, education, personality, and experience that influence human behavior and culture are other reasons (Smolka, 2000).

The availability of reliable data on SMEs is generally lacking (Harash et al., 2014a, 2014b; Kareem et al., 2021a, 2021b). In 2021, a United Nations Development Program (UNDP) report regarding Iraq stated that SMEs that lack a clear vision and strategic direction are more likely to face challenges that could ultimately result in closure. The report found that the highest closure rate was in Nineveh Governorate at 62%, followed by Basra at 35%, and then Baghdad at 34%. Nearly one-third (29%) of the causes behind the shutdown of SMEs could be attributed to financial losses. Most SMEs lack bank accounts, with just around 1.5% of Basra-based SMEs maintaining accounts, often because they perceive no necessity to open accounts (UNDP, 2021).

Based on the UNDP Report, SMEs in Iraq face several challenges, such as not comprehending financing systems and conducting transactions with banks and financial institutions. Insufficient financial resources make it difficult for SMEs to purchase sophisticated AIS software or employ specialized accounting staff. Challenges exist in meeting basic requirements for technical, managerial, and accounting expertise. For SMEs with limited experience affecting business efficiency, additional training or consulting services are necessary to understand and use an AIS system effectively. Insufficiency in specialized support services in administration, accounting, and technical consulting and fear of integrating AIS with existing systems or processes that may require new employees, especially if SMEs have old software or manual accounting, are issues. Strong security measures, such as encryption, access controls, and regular data backups to protect financial information, require technical support. Furthermore, the absence of mobile cash payment services necessitates visiting a bank to complete their financial transactions (Flayyih et al., 2019; Harash, 2015, 2017; Harash et al., 2014a, 2014b; Kareem et al., 2019a, 2019b, 2021a, 2021b, 2022; Martin et al., 2022). Studies like those of Martin et al., (2022), Kareem et al. (2021a, 2021b), and the International Organization for Migration (2020, 2023) show that many businesses failed and financial resources are not flowing at the desired capacity due to poor strategy and use of technology such as AIS in business transactions with banks and customers. Martin et al., (2022) and the International Organization for Migration (2020) examined 310 SMEs in depth to see and break them down by sector using each firm based on its specialization registered with the Ministry of Commerce. See Fig. 1.

Fig. 1
figure 1

Breakdown of SMEs by sector in different provinces.

The strategic context of SME investment

The strategic investment context for SMEs is crucial for their growth and success. SMEs often face resource constraints and must carefully allocate funds to achieve their business goals. This strategic context involves evaluating various aspects (Kim and Ha, 2023; Julien and Ramangalahy, 2003; Levy and Powell, 2005; Giovanni et al., 2012), such as finance source, administrative innovation, organizational culture development, capabilities levels of SMEs, information source, development of business managers, and technological innovation. SMEs can harness strategic advantages by effectively fostering interactions within their strategic approach to sustain the quality of work and achieve a competitive advantage (Sherani et al., 2022; Muna et al., 2022). Thus, SMEs must make the necessary investments to ensure they have the necessary tools and resources to align external and internal perspectives, leading to accomplishing strategic objectives. Many SMEs nowadays consider investing in various strategic directions that include information technology and the ability to add value. The restricted adoption of strategies by SME owners and managers may not yield favorable returns, often due to the lack of time available for adequately evaluating strategic opportunities (Kumar et al., 2023). The market position plays a central role in steering changes within SMEs. The key factor determining success or hindrance is executing strategies primarily guided by customer needs (Monroy-Gomez et al., 2022).

The number of SMEs in Iraq has significantly declined due to the problematic circumstances Iraq has gone through. In addition, a clear strategy for developing the small and medium enterprises sector is absent. Therefore, SMEs’ strategy must focus on essential factors inside and outside their enterprises (Andersen et al., 2018; National Development Plan 2018–2022, 2018; International Organization for Migration, 2023). See Fig. 2.

Fig. 2
figure 2

SME strategy focuses on different factors.

Literature review

Undoubtedly, weak strategies hinder the expansion of SME activity in Iraq. The issues that SMEs face are interconnected in nature. Strategies should address internal and external factors and unique proficiencies, abilities, and resources that produce advantages that rivals find difficult to mimic or replicate (Al Baghlani, 2018; Flayyih et al., 2019; Kareem et al., 2021a, 2021b). However, adopting a new strategy that includes transfer to new AIS software is not easy for managers and owners of SMEs, as this transfer generates fear and hesitation due to the lack of experience of managers and owners. Indeed, several studies related to SMEs in Basra have noted that SME strategies and the use of AIS were not implemented well (Al Baghlani, 2018; Harash et al., 2014a; Kareem et al., 2019a, 2021a, 2021b, 2022). Ismail (2009), Ismail and King (2005), Kareem et al. (2019b, 2021a, 2021b), and Soudani (2012) found that firms often develop poor strategies related to the use of an AIS. Therefore, attention to factors such as finance, production, human resource management, and research and development could help managers and owners of SMEs to attain long-term marketplace survival.

Applying strategy and using an AIS needs more attention to drive these firms to higher performance. Several scholars have investigated this issue in various contexts. For example, Pratono (2016) investigated strategic orientation and information technology in Indonesia and found that initiatives encouraging SMEs to adopt information technology should consider an SME’s capability to utilize that technology. Abudaqa et al. (2022), Eiriz and Barbosa (2022), and Purbawati et al. (2023) found a positive and significant relationship between strategy and firm performance in the United Arab Emirates, Portugal, and Indonesia, respectively. Rodríguez-Espíndola et al. (2022) stated that external factors impacted technology implementation for improving sustainable performance using 165 SMEs in Mexico and that sustainable-oriented innovation positively influenced performance. Hutahayan (2020) found that a management accounting information system mediated the relationship between innovation strategy and financial performance in East Java, Indonesia. Jungho Yang (2017) showed that successfully implementing strategic information systems planning positively impacted organizational performance in Korea. Yunis et al. (2018) investigated the role of information and communication technologies in enhancing organizational performance and found that the successful use of information and communication technologies was positively related to organizational performance in Lebanon. Chang and Chuang (2011) demonstrated that business strategy was positively associated with firm performance. Park and Byun (2022) found that the effects depended on the type of strategy applied in Korea. Terziovski (2010) found that SME strategy was negatively associated with firm performance in terms of innovation and culture in Australia. Agbejule (2005) found with low environmental uncertainty levels the management accounting systems will have a negative effect on performance. Also, Hao and Song (2016) found that information technology was a mediator between technology-driven strategy and performance.

Because of limited management vision, the absence of political and economic stability, and the lack of support from government agencies, SMEs often do not successfully implement AIS (Kareem et al., 2021a, 2021b; Kdeear and Abdel Halim, 2021). Many managers and owners believe they can manage their businesses and achieve better profits even with intense competition, so they often do not apply suitable strategies that could lead to long-term survival. Consequently, some SMEs perform poorly and often fail (Kareem et al., 2019a). However, as Pushpakumari and Watanabe (2009) have noted, there is no unanimity on an appropriate strategy. Therefore, SMEs might have one or multiple strategies, such as business unit level and functional level business strategies. Along these lines, the current study focuses on a strategy combining production, financing, and functional work in terms of human resources and research and development to enhance organizational performance through AIS. The lack of studies conducted in this area has led to the need to examine organizational performance in an SME environment by applying strategy because outcomes could differ from country to country. Table 1 shows a summary of the articles used in the current study.

Table 1 Main articles used in this study.

Conceptual theoretical framework

The resource-based view (RBV) framework can open up more than one approach in adopting multiple perspectives for strategies and any technology such as AIS. Brush and Artz (1999) and Lockett and Thompson (2001) examined the contingent value of certain resources and capabilities by focusing on a firm’s overall performance. Unfortunately, these studies did not consider contingencies related to the value of these resources within the context of a specific strategy. As Lutfi et al. (2020) noted, firms using AIS effectively exhibit better performance than firms limited in using AIS. Therefore, the impact of technology depends on the extent of use of the AIS in SME activities. Consequently, SMEs must use the AIS to adopt and use this system unlimitedly to achieve success over competing companies.

Accordingly, this research will benefit from RBV theory and use AIS as a technology resource that can be exploited to enhance performance. The research was conducted using the RBV framework. RBV refers to a firm’s resources as “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc., controlled by a firm that enable it to conceive of and implement strategies that improve its efficiency and effectiveness” (Barney, 1991). RBV can be widely interpreted as covering any firm’s physical resources. As such, an AIS is a resource and can clarify internal resources and capacities, influencing performance. RBV supports SME strategy development because their resource package sets firms apart, which is a step toward solving present and future problems. Some conditions could allow a firm to achieve and sustain a favorable competitive position over time. However, the role of internal and external resources is an essential vision for SMEs (Porter, 1991).

SMEs’ strategy

Several scholars have studied business strategy and SME performance. Pushpakumari and Watanabe (2009) found a significant positive correlation between business strategy and SME performance regarding profits and sales. Pratono (2016) found that greater strategic orientation positively impacts and brings greater firm performance. Accordingly, the following hypothesis is posited:

Hypothesis (H1). SMEs’ strategy will have a positive and significant relationship with organizational performance.

In this study, SME strategy refers to the application of diverse strategies in accordance with the use of AIS to drive a business to achieve its assigned objectives. For example, Latifah et al. (2020) found that firm strategy has a significant positive relationship with AIS. Hutahayan (2020) found that innovation strategy positively affects the accounting information system. Accordingly, the following hypothesis is posited:

Hypothesis (H2). SMEs’ strategy will have a positive and significant relationship with the use of AIS.

The use of an AIS

AIS is a resource to manage all daily financial and nonfinancial transactions. Previous studies examined the relationship of an AIS with performance. For example, Kareem et al. (2021a, 2021b) found that AIS positively impacted organizational performance. Others found the same (Mim, 2016). Ismail and King (2005) and Ismail (2009) found that high AIS alignment of requirements with AIS capacity achieved better organizational performance than low AIS alignment.

Following these studies, the following hypothesis is posited:

Hypothesis (H3). The use of AIS will positively and significantly affect organizational performance.

AIS has been assessed for mediation in many aspects, but limited studies showed its relationship with the organizational performance perspective. For example, Latifah et al. (2020) and Hutahayan (2020) found that AIS positively mediated the association between business strategy and MSMEs’ performance. In addition, Nassani et al. (2023) also found AIS to be a mediator between digital technology and strategic performance.

Following these studies, the following hypothesis is posited,

Hypothesis (H4). AIS mediates the relationship between SME strategy and organizational performance.

Figure 3 shows the proposed relationship between SME strategy, AIS, and organizational performance based on the above discussion. Table 1 shows the main articles used in this study and includes the factors, the country studied, the methodology, the results, and the limitations.

Fig. 3
figure 3

Conceptual theoretical model.

Materials and methods

Sample and data collection

Economic activities were taken as the base to estimate the sampling framework after excluding those sectors that do not belong to SME types, such as the public sector, electricity production, etc. The sectors included in the study scope are defined as technical, professional, agriculture, artisanal work, construction, trade, transportation and storage, automotive repair and maintenance, and others. The target population was managers and owners of SMEs in Basra governorate in the south of Iraq. This city was selected because it is the economic capital of Iraq, and managers and owners were chosen because they are responsible for making short- and long-term decisions and can provide rich information concerning what strategies these firms apply.

A structured questionnaire with closed-ended questions was used. This type of questionnaire is ideal for collecting quantitative data, making analysis more straightforward, reducing measurement error and respondent bias, and making answering and quantification faster. In addition, it provides consistency in answering to ensure that all participants take the same set of these questions (Sekaran, 2003). A non-probability approach was used through purposive sampling (Kareem et al., 2021a; Sekaran, 2003). The purposive sampling method was used to ensure that the selected sampling used AIS because many Iraqi SMEs do not use AIS. Therefore, the selected sampling method only considered those with AIS in their firms. The study sample was from owners and managers because they understood SMEs’ challenges and needs and were responsible for AIS reports, usage, and decisions. Therefore, the structured questionnaire was used to specify and include SME owners and managers.

Small enterprises were defined as those with 4–10 employees, and those having 11–50 were defined as medium enterprises (Kareem et al., 2021a, 2019b). Two experts assessed the questions using forms created by the author to understand the questions, gather information, and assess if the information aligned with the objectives of the questions. The initial questionnaire was in English and translated into Arabic by an expert (see Appendix A) (Olson, 2010). The questionnaire was tested through a pilot study using 37 participants to enhance the response rate and understanding (Johanson and Brooks, 2010). The Cronbach’s alpha values were 0.70 in the pilot test, which is acceptable (Sekaran, 2003). After the pilot study, 450 questionnaires were distributed via researchers and assistant researchers, 397 were returned, and 34 questionnaires were excluded due to incompleteness. Thus, 363 questionnaires were valid for analyses. Data were collected between March 2023 and August 2023.

Measures

The questionnaire had 64 items. Measurement items regarding constructs for using AIS and technological innovation had five questions adapted from Kareem et al. (2021a). The sub-factors of finance were adapted from Wasiuzzaman (2019) with eight items, and administrative innovation had three items (Jiménez-Jiménez and Sanz-Valle, 2011). Develop business managers had four items, and develop capabilities levels for SMEs had seven items (UNDP, 2021). Organizational culture had four items (Valdez-Juárez et al., 2016). The Information source context had seven items (Martínez-Román et al. 2019). Six items measured organizational performance (King et al., 2010). Items measuring SMEs’ strategy were adapted from Li et al. (2006) and Gibcus and Zoetermeer (2003). The evaluation instrument for fifteen questions was developed for this specific factor, drawing on existing assessment tools. A 5-point Likert scale was used in all constructs, with responses ranging from “1 = strongly disagree to 5 = strongly agree.”

Data analysis

First, SPSS was used to screen the coding of the data for accuracy, check for transcription errors, and create descriptive statistics (Sekaran, 2003). Then, using the structural equation modeling (SEM) method via SmartPLS3 Software tested the inter-relationship between multiple independent and dependent variables and the mediator (De Carvalho and Chima, 2014). The SEM method was used because of the complexity of the model and to establish the reliability and validity of the proposed hypotheses analysis and relationships between the factors and the indicators. The SEM technique includes two steps: the first step is the measurement model, and the second step is fitting the structural model (Schumacker and Lomax, 2004; Hair et al., 2017; Ramayah et al., 2018).

The demographic information for the respondents’ positions was 38% managers, 62% owners, and the highest educational levels of bachelor’s qualification, at 57.5%. The firms had been in operation for more than 8 years. Furthermore, experience with AIS was more than 4 years.

The measurement model analysis showed that the average variance extracted had an acceptable level of higher than 0.50, 0.80 for composite reliability, and 0.77 for Cronbach’s alpha, which were both acceptable. Fornell–Larcker criterion results showed that the constructs aligned with their indicators (see Table 2).

Table 2 Fornell–Larcker criterion.

The Heterotrait–Monotrait (HTMT) is a new technique to evaluate discriminant validity in variance-based SEM, and it estimates what would be the exact correlation between two constructs if they were perfectly measured (i.e., if they are perfectly reliable with no error) (Ramayah et al., 2018). HTMT assesses discriminant validity. Table 3 reveals that the HTMT values for all constructs ranged from 0.85 to 0.90. Thus, the constructs showed sufficient discriminant validity (Hair et al., 2017).

Table 3 Heterotrait–monotrait ratio (HTMT).

Table 4 shows the results of the bootstrapping method, demonstrating the p values for each path. According to the results, the effect of strategy of SMEs on the use of AIS was statistically significant (β = 0.0.578, p < 0.001). AIS were positively and significantly related to organizational performance (β = 0.184, p < 0.001). Similarly, the strategy of SMEs was positively and significantly related to organizational performance (β = 0.651, p < 0.001).

Table 4 Hypotheses and relative paths.

The adjusted R2 for organizational performance in this model was 0.594, which indicated that 59.4% of organizational performance could be explained by SMEs’ strategy and AIS as mediators. The adjusted R2 for AIS in this model was 0.334, which indicates that 33.4% could be explained by the one exogenous latent variable (Fig. 4).

Fig. 4
figure 4

Path model 1 (PLS algorithm).

Discussion

With the rise of information technology solutions and intense competition, this study is relevant because it examines the value of SMEs in developing capabilities based on applying a good strategy and developing AIS that is used in companies. This study used RBV theory to analyze how SME strategy and AIS use affect firm performance and how strategy factors affect this relationship. By doing this, this study was better equipped to handle the methodological issues with endogeneity and value creation common to previous studies on SMEs and strategic management research on the value of using AIS. Moreover, it examined the use of AIS as a mediator between SME strategies and organizational performance.

Table 4 shows the results of the hypotheses sequentially. For H1, the result shows that the SME strategy positively and significantly affects organizational performance. Among the reasons for this result is that different strategies can affect various enterprise performances, and strategy adoption is vital in increasing an enterprise’s competitiveness. The competitive challenges that SMEs in Basra, the economic capital of Iraq, face require examining essential strategic factors, frameworks, and concepts as mechanisms for improving organizational performance, as high levels of variation in sociocultural and environmental volatility cause the need for SMEs’ contextual strategy development.

This result aligns with previous studies. Abudaqa et al. (2022), Eiriz and Barbosa (2022), and Purbawati et al. (2023) found that a firm’s strategy can positively affect performance. Conversely, this result contrasts with Terziovski (2010), who found a negative correlation between SME strategy and SME performance regarding innovation and culture. The reason is that such powerful explanatory variables in innovation strategy lack guidance about using resources to achieve business goals and build competitive advantages in an SME’s strategy. Thus, effective strategies must consider different contexts, such as analyzing a firm’s competitive and technological environment and external challenges and opportunities. However, strategies in Iraq for SMEs are not subject to a unified system and depend on the individual level of the company manager or owner, which may lead to weak organizational performance and the inability of employees to understand a fixed and regular context. Furthermore, the Iraqi people may be different than other regional people in sharing knowledge and experiences. Therefore, organizing strategies and determining work mechanisms play an important role in building and developing organizational performance among Iraqi SMEs.

H2 demonstrated that the strategy of SMEs had a positive and significant relationship with AIS; this was due to AIS’s role in assisting in timely internal decision-making, particularly in dynamic environmental conditions and uncertain circumstances that managers must consider when selecting several alternatives. Latifah et al. (2020) study supports this result. They found that innovation and AIS positively mediated the relationship between business strategy, and alignment between strategy and innovation played a vital role in improving the performance of small and medium enterprises. Moreover, the strategy for Iraqi SMEs is directly proportional to using an accounting information system. Managers and owners can consider AIS important by providing transactions and financial reports that help them make appropriate decisions. The current study’s findings do not align with those of other research. For example, Peltier et al. (2012) found that when a firm adopts a new technology, the switching costs associated with the new technology have negative consequences and reduce the perceived comparative advantage of the innovation and the drive to change. Also, Terziovski (2010) found that technological capabilities had an insignificant and negative relationship with the performance of SMEs. One possible reason could be that SMEs see technological capacity as a facilitator rather than a primary influencer of their performance. Pratono (2016) showed that the strategic direction of SMEs was negatively affected by dynamic technological disruptions, and SMEs faced a lack of ability to deal with high technological disruptions due to the size of their absorptive capacity to use technology.

H3 results show that AIS positively and significantly affected organizational performance. One logical reason is that AIS’s nature, features, and applications in SMEs provide several benefits, such as improving the firm’s accounting departments’ efficiency by increasing the accounting information’s timeliness. SMEs can analyze business transactions and prepare reports for management with an accurate picture of current transactions and improve the number of financial reports. A firm can access the cash flow statements, departmental profits, and losses. This result aligns with previous studies (Ismail, 2007; Ismail and King, 2005; Kareem et al., 2021a, 2021b). Additionally, Hao and Song (2016) found that information technology capabilities mediate the relationship between technology-driven strategy and enterprise performance.

The result of H4 demonstrated that AIS partially mediated between SME strategy and organizational performance. The results highlighted that the AIS can reflect Iraqi SME strategy by including all information needs, workflow process, and the way to development. These results push a firm to understand how to improve knowledge, sales, productivity, and work environments to increase performance and efficiency. These results are consistent with Latifah et al. (2020), who found that AIS positively mediated the association between business strategy and MSMEs’ performance. However, the current study’s results are consistent with those of others. For example, Nassani et al. (2023) found that AIS mediates between digital technology and attaining strategic performance. Because AIS is critical for SMEs that can provide good services such as electronic financial systems, cash, and debts that require proper balance management, rather than traditional methods, this can assist SMEs in maintaining transparent records, improving their strategic performance.

Conclusions, implications, limitations, and future research

Only a few studies have focused on the AIS as a mediator between SMEs’ strategy and organizational performance. As a result, this study investigated the role of AIS in mediating the relationship between organizational performance and SME strategy. The findings indicate that AIS is important in the relationship between organizational performance and SMEs’ strategies. The current study looked into the possibility of fully implementing the SME strategy using AIS systems, thereby improving firm performance and competitive advantages. The study found that AIS can assist managers and owners in implementing SME strategy elements such as ensuring the availability of accounting information when needed and desired and overcoming human resource issues related to financial service quality. Most previous studies have focused on large firms’ information technology research and strategy, while most economies come from SMEs. Therefore, this study contributes to the literature by examining SMEs’ strategies, using AIS, and enhancing organizational performance.

This study highlighted that SMEs’ strategy concepts could help the growth of organizational performance and explore the mediation role of AIS in aligning with the applicability of different elements to the strategy. This research considered the suitable applications and practices of RBV theory for SMEs that adopt elements of critical strategies to lead these firms to obtain a competitive advantage. The study provides new findings for further research, such as identifying SME strategy sub-factors and how AIS usage can mediate between strategy and organizational performance in SMEs. This finding can guide the literature to focus more on integrating AIS with SMEs’ growth, productivity, and business development. Practically, this study guides the managers and owners of SMEs to consider the AIS as essential to increasing the firm’s performance and developing a strategy in which focusing on the strategy itself can be limited in improving the organization’s performance without considering AIS.

The SmartPLS results analysis supported the four research hypotheses. These results mean that correctly applying a strategy can help a firm become more innovative and competitive and respond efficiently to market needs. Despite the significant results obtained, the strategy that SMEs used reflects the relative importance of that strategy. This does not mean that SMEs must only apply the factors examined in this study. At best, we can reasonably assume that a respective strategy is potentially beneficial in addition to using AIS. This study implies that managers and owners should consider different financial, administrative, technological, and individual contexts when applying a strategy. Therefore, significant results can only emerge when there is alignment between the utilization and advancement of AIS, driven by the encouragement and support of the firm’s management because using AIS helps make decisions quickly and as part of administrative control.

This study has several limitations. First, SME performance affected by online marketing is not covered, while online marketing is one competitive advantage of SMEs. The SME’s performance and the integration of AIS can be included in future research. Second, since Artificial intelligence (AI) is already integrated into all businesses, SMEs should consider using AIS to redesign the process and ensure the employees have the skills to collaborate with intelligent machines. Third, this study does not reflect SMEs’ performance and sustainability, in which the sustainability of SMEs plays an essential role in firms’ performance and environmental and social to stay productive. Fourth, the results are based on the managers’ owners’ perceptions. This limitation means the results might not reflect the situation in different geographic regions. Finally, the study was conducted in the second largest province in Iraq, Basra, because it is the economic capital of Iraq. Future studies may expand the scope and area of study by increasing the samples to cover all geographical regions and could discover new impact factors that help improve performance.