From Awareness to Ecosystemic Transformation: How Artificial Intelligence Enables Firms' Transition to a Circular Economy

ABSTRACT

Artificial intelligence (AI) has the potential to aid firms' transition toward a circular economy (

). However, empirical research on how small and medium‐sized enterprises use AI to support this transition is limited. Using the Gioia methodology, we analyze 25 in‐depth, semi‐structured interviews with top managers of companies within a local ecosystem. The findings reveal a five‐stage pathway through which companies use AI in transitioning to a : circular awareness and reflection, lean optimization, partial circularity, organizational strategic embeddedness, and (eco)systemic shift. These stages represent an evolutionary process, with the first stage indicating limited use of AI and the final stage full AI integration. Companies in our sample were unable to reach the fourth and fifth stages (representing the highest integration levels). Our research extends and digital transformation literature by revealing how AI adoption shapes firms' strategic, operational, and ecosystemic shifts toward circularity and ecosystem collaboration.