The rapid diffusion of generative artificial intelligence (AI) has intensified scholarly and managerial interest in understanding how small and medium-sized enterprises (SMEs) can leverage emerging AI capabilities to enhance organisational performance. While existing research has examined AI adoption drivers and outcomes across manufacturing, services, finance, and IT sectors, the specific mechanisms through which generative AI contributes to sustainable competitive advantage in SMEs remain theoretically fragmented. This study develops a comprehensive, publication-ready conceptual framework integrating the Technology Acceptance Model (TAM), the Technology–Organisation–Environment (TOE) framework, the Resource-Based View (RBV), and digital transformation capability theory. Drawing exclusively from contemporary peer-reviewed scholarship and institutional research, the article synthesises cross-national evidence from European, Middle Eastern, and Asian SME contexts.

The analysis demonstrates that generative AI adoption is a multidimensional process shaped by technological readiness, digital maturity, leadership orientation, organisational culture, cybersecurity preparedness, and ethical governance mechanisms. Performance outcomes are conceptualised broadly, including operational efficiency, labour productivity, innovation capability, customer engagement, revenue growth, and strategic agility. Ethical governance and trust-building architectures are identified as critical moderators that significantly influence the magnitude and sustainability of AI-driven performance gains. SMEs with higher digital maturity and knowledge management capacity are more likely to convert AI investments into measurable competitive advantage.

The study contributes to theory by proposing an integrated generative AI performance architecture that reconciles behavioural acceptance, organisational readiness, environmental pressures, and capability orchestration into a unified explanatory model. It further advances understanding of generative AI as a structural transformation mechanism rather than a standalone technological tool. Practical implications are offered for SME managers, policymakers, and digital ecosystem stakeholders seeking to foster responsible and performance-oriented AI integration.

Generative Artificial Intelligence, SME Digital Transformation, Organisational Performance, Technology Adoption, Ethical Governance, TOE Framework, Resource-Based View

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