Leveraging AI in Production for Product Innovation: Insights from German Manufacturing

Artificial Intelligence (AI) is increasingly embedded in production processes, enhancing efficiency, quality control, predictive maintenance, and internal logistics. While these applications generate valuable operational insights, their role in driving product innovation of manufacturing firms remains underexplored. This study addresses this gap by analyzing data from the 2022 German Manufacturing Survey (GMS), comprising responses from over 1,300 manufacturing firms, to examine the impact of AI implementation in production on different types of product innovation. Recognizing that AI does not operate in isolation, the study incorporates traditional innovation drivers, such as R&D activities and competence management, into the analysis to better understand how AI interacts with established sources of innovation capability. The results show that AI adoption in production has a moderate impact on overall product innovation but plays a more pronounced role in enabling digital and eco-product innovations. While R&D continues to be the primary driver of general product innovation, AI appears to shape the direction and type of innovation introduced. Furthermore, structural factors such as company size and industry affiliation significantly influence firms’ likelihood of engaging in specific innovation pathways. These findings highlight the strategic relevance of AI for advancing digital and sustainable innovation in manufacturing and underscore the importance of aligning AI adoption with broader organizational innovation strategies.