Artificial intelligence (AI) advances and the rapid adoption of generative AI tools like ChatGPT present new opportunities and challenges for higher education. While substantial literature discusses AI in higher education, there is a lack of a systemic approach that captures a holistic view of the AI transformation of higher education institutions (HEIs). To fill this gap, this article, taking a complex systems approach, develops a causal loop diagram (CLD) to map the causal feedback mechanisms of AI transformation in a typical HEI. Our model accounts for the forces that drive the AI transformation and the consequences of the AI transformation on value creation in a typical HEI. The article identifies and analyzes several reinforcing and balancing feedback loops, showing how, motivated by AI technology advances, the HEI invests in AI to improve student learning, research, and administration. The HEI must take measures to deal with academic integrity problems and adapt to changes in available jobs due to AI, emphasizing AI-complementary skills for its students. However, HEIs face a competitive threat and several policy traps that may lead to decline. HEI leaders need to become systems thinkers to manage the complexity of the AI transformation and benefit from the AI feedback loops while avoiding the associated pitfalls. We also discuss long-term scenarios, the notion of HEIs influencing the direction of AI, and directions for future research on AI transformation.

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