Business Innovation, Entrepreneurship, and Sustainable Economy
Vocational higher education institutions (VHEIs) in Indonesia sit at the intersection of a persistent skills mismatch and a rapidly accelerating wave of digital and artificial intelligence (AI)-driven disruption. This paper, prepared as a national seminar contribution, examines how innovation, AI, and industry collaboration can be combined to make VHEI transformation genuinely impactful, rather than a symbolic digitalisation exercise. The paper draws on two evidentiary strands. First, empirical findings from the author's own doctoral dissertation, which tested the effects of transformational leadership, quality management practice, organisational culture, and digital innovation on competitiveness strategy and organisational performance among vocational higher education institutions in Central Java, with industry collaboration as a moderator. Second, a systematic literature review (SLR) of peer-reviewed studies published between 2021 and 2026 on AI in vocational/higher education, industry-academia collaboration, and digital leadership. Following a PRISMA-inspired protocol, an initial pool of records was screened for relevance, recency, and source quality, yielding a final synthesis corpus of fifteen studies. The synthesis shows that AI and digital innovation become significant only when embedded under competent digital leadership and a coherent competitiveness strategy, and that industry collaboration functions as a multiplier that converts strategy into measurable performance. An integrated, five-layer framework is proposed to guide VHEI leaders, industry partners, and policymakers in designing transformation efforts that are evidence-based and genuinely impactful.