Although artificial intelligence (AI) capability drives smart product innovation, the mechanism converting generic technological potential into distinctive advantages remains under theorised. Grounded in an embedded case study of Baidu’s intelligent driving and smart home units, this study unveils how tiered AI capabilities propel smart product innovation through knowledge flow coupling. We find that the firm cultivates sequential capabilities, including data insight capability, architectural reconfiguration capability, algorithmic iteration capability, and generative creation capability, to drive product evolution along a continuum of concept, architecture, function, and value. Crucially, knowledge flow coupling serves as the critical transmission belt through specific pathways: cross-domain knowledge linking, vertical knowledge deepening, endogenous knowledge extension, and complex scenario knowledge alignment. This constructs a cohesive framework clarifying the micro-level transformation from technology to value, enriching digital innovation and knowledge management literatures.
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Kangqi et al. (2026) studied this question.
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