Serbian SMEs face mounting pressure to stay competitive, agile, and aligned with sustainability goals amid rapid digital change. This mixed-method study—12 qualitative case studies and a survey of 200 firms—examines how AI adoption supports flexible and adaptive strategic transformation. We examine how organizational context and AI readiness translate into the strategic application of AI and, in turn, sustainable development and strategic performance outcomes among Serbian SMEs. Through the AI-Driven Strategic Transformation Framework (AISTF-SME), three adoption types were identified —Traditionalists, Experimenters, and Strategic Adopters—distinguished by digital maturity, strategic integration, and sustainability orientation. While AI is primarily deployed for operational efficiency, firms with higher AI maturity and tighter strategic alignment report stronger gains in agility, innovation, and customer experience; sustainability-oriented use cases remain limited. Key barriers include shortages of technical talent, financial constraints, and insufficient institutional support. We recommend a multi-stakeholder policy approach emphasizing sector-specific AI readiness programs, better access to funding, and stronger university–industry collaboration. The findings enrich digital transformation and sustainability research and offer practical guidance for accelerating AI adoption in transitional economies.

In the digital age, human resource management (HRM) increasingly relies on artificial intelligence (AI) and data analytics to enhance key processes and enable strategic decision-making. This dissertation explores how the integration of AI technologies, including machine learning and big data analytics, can improve essential HR functions such as recruitment and selection, talent retention, employee performance evaluation, and professional development. Special emphasis is placed on identifying patterns in employee data that facilitate proactive decision-making in HR. The empirical part of the research utilizes predictive analytics to model factors influencing employee performance and organizational efficiency. By analyzing real-world business data, this study examines how AI can assist managers in making better decisions and optimizing workforce management. The findings provide insights into the practical benefits of AI applications in HRM, demonstrating how companies can refine their human capital management strategies to strengthen their competitive position. This dissertation contributes to existing literature in HRM, data analytics, and AI by offering an innovative approach to data-driven strategic HR management. The proposed model serves as a guide for organizations seeking to leverage AI to improve business performance and achieve sustainable competitive advantage. The methodological framework is based on the integration of quantitative research methods, with a particular focus on applying data analytics and AI in HRM to develop and validate a model that enhances HR processes.