<![CDATA[Purpose: This study examines the relationships between Digital Human Resource Management (DHRM), AI Readiness (AIR), Employee Engagement (EE), and Employee Performance (EP), focusing on the mediating role of employee engagement in an Indonesian small and medium-sized enterprise (SME).Research Methodology: A quantitative cross-sectional survey was conducted at UKM Raja Tenun Palembang, Indonesia, involving 55 employees selected through census sampling. Data were collected using a structured questionnaire measured on a five-point Likert scale (1 = strongly disagree to 5 = strongly agree) and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS software.Results: Both relationships demonstrate full mediation, as employee engagement significantly mediates the effects of Digital HRM (β = 0.353; t = 4.064; p < 0.001) and AI Readiness (β = 0.470; t = 5.835; p < 0.001) on employee performance, while both direct effects are statistically nonsignificant.Conclusions: Employee engagement represents an important pathway linking digital HR practices and AI readiness with employee performance. Digital transformation initiatives should therefore be accompanied by strategies that strengthen employee engagement.Limitations: The study was limited to one SME and a relatively small sample, while its cross-sectional design restricts causal interpretation and generalizability.Contributions: This study contributes to human resource management and digital transformation research by highlighting employee engagement as a mediating mechanism. The findings offer practical insights for SME managers seeking to align digital HR practices and AI readiness with workforce performance.]]>
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