Theoretical Background and Hypothesis Development

The Technology-Organization-Environment (TOE) framework, developed by Tornatzky and

Fleischer (1990), is widely used to analyze the factors influencing an organization’s adoption of
technology. The TOE framework divides these factors into three categories: Technology
(characteristics of the technology itself), Organization (internal characteristics of the
organization), and Environment (external factors impacting adoption). This study uses the TOE
framework to explore the adoption of AI in asset management firms, focusing on how each factor
influences the decision to implement AI solutions for enhanced performance, risk management,
and client engagement (Oliveira & Martins, 2011; Baker, 2012).

3.1 Technological Context

The technological context considers the characteristics of AI, specifically its relative advantage
and compatibility with existing systems, as crucial factors affecting its adoption in asset
management firms.

3.1.1 Relative Advantage of AI in Asset Management

Relative advantage refers to the extent to which a new technology is perceived as offering
significant benefits over traditional methods (Rogers, 2003). In asset management, AI presents
clear advantages in terms of efficiency, accuracy, and depth of insight. AI-driven solutions allow
asset managers to analyze massive datasets, uncover patterns, and make predictions with a level
of speed and precision that traditional statistical models cannot match (Davenport & Ronanki,
2018). Studies indicate that AI-enhanced predictive analytics can provide more accurate market
forecasts, allowing firms to optimize portfolios, enhance returns, and better manage risk
(BlackRock, 2020; Amenc, 2021). For example, machine learning algorithms continuously learn
from new data, thus improving their accuracy over time and making them particularly valuable
for asset managers who need timely, data-driven insights.
Additionally, the cost efficiency of AI technologies contributes to their perceived advantage.
Through automation, AI can handle repetitive and time-consuming tasks, such as data entry,
compliance checks, and portfolio rebalancing, freeing up human resources for more complex
decision-making processes. This cost efficiency is especially beneficial in the highly competitive
asset management industry, where firms constantly seek ways to reduce operational costs while
maintaining high-quality services (Schwab, 2020). These advantages highlight AI’s potential to
transform asset management practices, making relative advantage a critical driver of adoption.
• Hypothesis 1 (H1): The relative advantage of AI positively influences its adoption in
asset management firms.

3.1.2 Compatibility with Existing Systems

Compatibility refers to how well AI technologies align with an organization’s existing
infrastructure, data architecture, and workflows (Oliveira & Martins, 2011). Asset management
firms often operate with legacy systems that can present challenges for integrating AI solutions.
For instance, many firms use proprietary data management platforms that require careful
calibration to work seamlessly with AI technologies. However, when AI solutions are compatible
with these existing systems, integration is smoother and the technology is more likely to be
adopted (Baker, 2012).
Compatibility is essential for operationalizing AI solutions across various functions, including
portfolio management, compliance, and customer relationship management (CRM). In firms
where AI tools can integrate smoothly with legacy systems, the deployment process is less
disruptive, and the technology is more readily embraced. Research shows that organizations are
more inclined to adopt technologies that align with current operations, minimizing the need for
extensive infrastructure modifications (Froot, 2021). For example, in portfolio optimization, AI can
be used alongside existing investment analysis platforms to provide real-time insights without
necessitating a complete overhaul of legacy systems (Lo, 2019).
• Hypothesis 2 (H2): Compatibility with existing systems positively influences the
adoption of AI in asset management firms.

3.2 Organizational Context

The organizational context considers internal factors within the asset management firm, focusing
on top management support and organizational readiness. These elements significantly influence
a firm’s readiness and capability to adopt AI solutions.

3.2.1 Top Management Support for AI Adoption

Top management support is often cited as one of the most critical factors influencing technology
adoption (Jeyaraj, Rottman, & Lacity, 2006). In the asset management industry, top management
support is crucial due to the significant financial investment and cultural shift required for AI
integration. Leaders who support AI adoption are more likely to allocate necessary resources,
foster an innovation-friendly culture, and provide strategic guidance on how AI can align with the
firm’s goals (Baker, 2012). Research demonstrates that firms with strong executive advocacy for
AI and digital transformation experience faster and more effective adoption rates (Scharfstein &
Jones, 2020).
Support from top management also helps to overcome internal resistance to change, which is
often encountered in traditional industries like asset management. When executives demonstrate
a commitment to AI, it encourages employees to embrace technological changes and drives a
culture of digital innovation. In firms where top management actively promotes AI adoption,
initiatives such as algorithmic trading, risk management, and client insights are more likely to be
implemented successfully (Davenport & Ronanki, 2018).
• Hypothesis 3 (H3): Top management support positively impacts the adoption of AI in
asset management firms.

3.2.2 Organizational Readiness for AI Implementation

Organizational readiness refers to the availability of the necessary infrastructure, resources, and
expertise to implement AI technologies (Oliveira & Martins, 2011). In asset management, firms
with advanced data infrastructure, skilled personnel, and a budget for technology investments
are better equipped to adopt AI-driven solutions. Readiness also includes the firm’s ability to
support employees through training and development, which is essential for ensuring that the
workforce can work effectively with AI technologies (Froot, 2021).
Firms with a high level of organizational readiness often have data management platforms and
analytics tools that allow them to implement AI with minimal disruption. Additionally, firms that
prioritize employee training in AI and data analytics are more likely to see successful AI
integration, as employees are better prepared to operate AI-driven tools and systems. Research
shows that employee preparedness and technical support play a key role in adoption, as firms
with well-prepared staff are more agile and responsive to technological advancements (Lo, 2019).
Thus, we propose the following hypothesis:
• Hypothesis 4 (H4): Organizational readiness, including resources and expertise,
positively influences AI adoption in asset management firms.

3.3 Environmental Context

The environmental context includes external factors such as regulatory compliance and
competitive pressures that drive AI adoption in asset management.

3.3.1 Regulatory Compliance and Risk Management

Regulatory pressures are significant in the asset management industry, where firms are required
to adhere to legal standards to protect investors and maintain transparency. AI-driven risk
management tools can help firms meet these regulatory requirements by enhancing oversight
and reducing the likelihood of human error in compliance tasks (Securities and Exchange
Commission, 2021). For instance, AI models that analyze and monitor real-time data can alert
firms to potential regulatory breaches or risky transactions, allowing for quicker corrective
actions.
Firms such as JPMorgan Chase have implemented AI-based tools like COiN (Contract Intelligence)
to automate legal contract analysis and ensure compliance with regulatory standards. By using
natural language processing (NLP), COiN can review complex legal documents in seconds,
highlighting potential compliance risks and streamlining review processes (JPMorgan Chase,
2021). This example illustrates how regulatory compliance pressures encourage firms to adopt AI
solutions that mitigate compliance risks, leading to the following hypothesis:
• Hypothesis 5 (H5): Regulatory pressures positively influence the adoption of AI for risk
management in asset management firms.

3.3.2 Competitive Pressure and Client Demand for Innovation

Competitive pressures drive asset management firms to adopt AI as a way to differentiate their
services and meet evolving client demands. In a competitive market, firms that leverage AI for
data-driven insights, personalized recommendations, and operational efficiency are better
positioned to attract clients who value technology-enhanced financial services (BlackRock, 2021).
Studies show that competitive advantage is a significant driver of AI adoption, particularly in
industries where innovation is critical for retaining and expanding client bases (Oliveira &
Martins, 2011).
Asset management clients increasingly expect customized services and real-time insights, which
can be achieved through AI-driven CRM and portfolio management tools. Firms such as Vanguard
have implemented AI-based CRM solutions that analyze client behavior, enabling the firm to
provide tailored investment strategies that improve client satisfaction and loyalty (Vanguard
Group, 2021). Competitive pressures thus compel asset managers to adopt AI tools to stay ahead
of industry trends and offer enhanced client experiences.
• Hypothesis 6 (H6): Competitive pressure and client demand for innovation positively
influence AI adoption in asset management firms.

Conclusion

This section applies the TOE framework to identify and hypothesize critical factors driving AI
adoption in asset management. By examining the technological, organizational, and
environmental factors influencing AI adoption, this study aims to provide a structured
understanding of how asset management firms can effectively integrate AI technologies. The
proposed hypotheses offer a basis for empirical testing, which could further clarify the conditions
under which AI adoption is most successful in achieving operational improvements, but
enhanced decision-making, and stronger client engagement.

References

• Amenc, N. (2021). Artificial intelligence and the future of asset management. Journal of
Investment Management, 19(1), 5-16.
• Baker, J. (2012). The technology–organization–environment framework. In Information
systems theory (pp. 231-245). Springer.
• BlackRock. (2020). Aladdin: The operating system for investment managers. Retrieved
from https://www.blackrock.com
• BlackRock. (2021). The power of machine learning in asset management. Retrieved
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