This study advances understanding of Artificial Intelligence transformation (AIT) barriers that hinder value realization in public organizations. We conducted a 1.5-year case study with a medium-sized Swedish municipality, involving active participation in daily work, development of an AI strategy, interviews, and analysis of four AIT cases. Using the Process, People, Technology (PPT) framework as inspiration, we developed a new AIT framework tailored to public sector transformation. Findings show that AI creates barriers but also offers opportunities, particularly as a driver of innovation and organizational effectiveness. Overcoming knowledge gaps, resource constraints, and integration challenges is critical for sustainable AIT. Furthermore, the results demonstrate that different forms of AI-related value manifest through observable outcomes, including resource gains, organizational adaptations, and the development of new citizen services. The study provides practical examples of AI implementation and illustrates the complex balance between barriers and opportunities in organizational change. The proposed AIT framework contributes both theoretically and practically, offering insights into how municipalities can navigate AI-driven transformation successfully.