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Corporate transformation toward Industry 4.0 and financial performance:

The influence of environmental, social, and governance (ESG)

Fadi Alkaraan; Khaldoon Albitar; Khaled Hussainey and V.G. Venkatesh

Highlights

▪ A unique measure for corporate transformation toward Industry 4.0.

▪ Corporate transformation toward I4.0 in the UK is increasing over time.
▪ CTTI4.0 can be viewed as enablers of the circular economy.
▪ Corporate transformation toward I4.0 positively affects financial performance.
▪ ESG strengthen this relationship.

Abstract

Despite the importance of corporate transformation toward Industry 4.0 (CTTI4.0), almost no

research exists on how companies communicate CTTI4.0 information in their annual reports and

how this affects financial performance. To fill this gap, this paper uses computer-aided textual

analysis to explore the current practices of CTTI4.0 in the UK context. It also uses quantitative

analysis to examine the impact of CTTI4.0 information on financial performance. The analysis

shows that strategic investment decision-making (SIDM) practices for CTTI4.0 have accelerated

over the period, and these practices vary in industry sectors. Furthermore, it finds that CTTI4.0

disclosure has a positive impact on financial performance. In addition, it finds that environmental,

social, and governance (ESG) practices moderate the relationship between CTTI4.0 disclosure and

financial performance. This indicates that firms with better ESG performance tend to be more

engaged in CTTI4.0 disclosure and better financial performance simultaneously. Our findings

offer insights to decision-makers and regulatory bodies regarding the current practices of CTTI4.0

and its potential economic impact.

Paper type: Research paper.

Keywords: Business model, transformation, Industry 4.0, financial performance, ESG, strategic

investment, decision-making, circular economy, UK, companies

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1. Introduction

Over the last decade, companies have witnessed the transformation of their core manufacturing

activities, including product planning and development, supply chain management procurement,

and marketing. These transformations have been underpinned by investing in Industry 4.0 (I4.0)

mechanisms (Jabbour et al., 2019; Chen et al., 2020). Recent research (e.g., de Sousa Jabbour et al.,

2018) developed a conceptual framework incorporating I4.0 mechanisms and a circular economy.

These two paradigms gained the interest of wider stakeholders, including communities, scholars,

governments, decision-makers, practitioners, regulatory bodies, and standard setters worldwide.

Although conceptual frameworks highlighting the links between the two perspectives continue to

evolve, these two paradigms have remained topical in driving academia and industry in recent years

(Rosa et al., 2020; Awan et al., 2021).

While there is much evidence that the concept of I4.0 has had a wide-ranging impact at the

discursive level, the currently available research is less clear about what impact the concept has had

thus far on industries (Madsen, 2019). Buer et al. (2018) proposed a research agenda that guides

future I4.0 research and encourages researchers to examine many companies aiming to transform

their operations using emerging I4.0 mechanisms. They also raised a call for empirical research to

explore the influence of I4.0 mechanisms on organizational performance. Furthermore,

researchers highlighted the sustainable vision of I4.0 and called for further research to fuse and

explore these two paradigms comprehensively (Okorie et al., 2018; Machado et al., 2019). Based

on a systematic review, Machado et al. (2019) attempted to identify how sustainable manufacturing

research contributes to developing the I4.0 agenda by a broader understanding of the links between

sustainable manufacturing and I4.0. A key objective of I4.0 is to improve the profitability of the

manufacturing sector (Fuchs, 2018). However, there has been almost no research on I4.0-related

information in annual reports and its impact on financial performance. Our paper aims to fill this

research gap.

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The UK provides a unique context for this study for many reasons. First, in 2013, a long-term

action plan for the manufacturing industry in the UK called the ‘Future of Manufacturing’ was

implemented (Foresight, 2013). The global market for energy efficiency has been estimated at

US$1.2 trillion by 2020 (Foresight, 2013), with the UK placed to capture value in the efficient

production, transport, and building efficiency sectors as well as alternative fuels and water

treatment technologies. The strategic development of intellectual property to support this, in the

form of a business model and technological innovation, will improve companies’ financial

performance and create economic value. Second, the UK employs almost three million people in

its various guises and contributes approximately half of UK exports. There is little evidence to

suggest that UK companies are engaging with the essential circular economy agenda at the scale

necessary to proactively or productively capture value from the future value given the more

profound sustainability challenges that are projected to arise. Third, UK companies combine the

comprehensive integration of manufacturing systems, production processes, digital

communication technologies, automated machines, and other I4.0 mechanisms to make supply

chains and production processes more interconnected, efficient, and flexible, allowing mass

customization virtual production (Alkaraan, 2021). Fourth, government strategies predominantly

drive guidelines for I4.0 implementation. Examples of sustainability guidelines for I4.0 within the

UK context include minimizing material inputs, waste management, reduced water usage, energy

efficiency, low-carbon technologies, supply chains with spare capacity, material that is not land-

filled but kept in productive loops, and products that use a smaller amount of materials and are

close to consumers (see Foresight, 2013).

Narrative disclosure has become increasingly sophisticated over the last decade. It allows

companies to overcome information asymmetries by presenting more information. Management

is assumed to strategically ‘select... the information [in corporate narrative documents] to display

and present... that information in a manner intended to distort readers’ perceptions of corporate

achievements’ (Godfrey, Mather, and Ramsay, 2003, p. 96). The predominant perspective on

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impression management in a corporate reporting context is informed by economics-based

theories, particularly agency theory (Merkl-Davies and Brennan, 2007). This means that companies

reporting on strategic choices, such as CTTI4.0, are taken based on cost-benefit analysis. The paper

aims to answer three research questions:

- RQ1: What is the current trend of CTTI4.0?

- RQ2: What is the influence of CTTI4.0 on financial performance?

- RQ3: Does ESG moderate the relationship between CTTI4.0 and financial

performance?

To answer RQ1, we use textual analysis to identify CTTI4.0 disclosure in narrative sections of UK

annual reports from 2013 to 2018. We use descriptive analysis to show the trends of this type of

disclosure over time and among industries. We have supported our research using extracts from

companies’ annual reports. The study uses regression models to answer RQ2 and RQ3.

The study offers notable contributions to the existing literature. First, we provide a new measure

for CTTI4.0 disclosure. Second, we are the first to explore CTTI4.0 disclosure in the UK context

and show that CTTI4.0 disclosure practice accelerated over the sample period, which varies among

industry sectors. Third, we provide new empirical evidence that CTTI4.0 disclosure positively

impacts financial performance. Finally, we find that ESG practices moderate the relationship

between CTTI4.0 disclosure and finance performance. Our findings offer insights to decision-

makers and regulatory bodies regarding the current practices of technology road mapping toward

I4.0 and its potential economic consequences.

The remainder of the paper is structured as follows. Section 2 reviews the literature and highlights

the underlying study rationale. Section 3 outlines the research methodology. Section 4 presents

the findings. Section 5 concludes the paper.

2. Literature and theoretical background

I4.0 and circular economy

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The concept of I4.0 is relatively new and represents the current production paradigm, which

combines information and communication technologies with digital manufacturing technologies.

The I4.0 conception was introduced at the 2011 Hannover Fair event in Germany by the working

group on a mandate from the Research Union Economy-Science of Germany’s Federal Ministry

of Education and Research. This indicates the beginning of I4.0, which enjoyed a meteoric rise in

popularity and is currently topical with researchers, companies, and governments (de Sousa

Jabbour et al., 2018). The key objective of I4.0 is to improve the profitability of the manufacturing

sector (Fuchs 2018). Interchangeable concepts of I4.0 are widely used, such as smart

manufacturing, digital transformation, and the fourth industrial revolution. The ongoing confusion

regarding the concept of I4.0 remains a key barrier for the scope and theoretical foundation of

academic investigations (see Osterrieder, Budde, Friedli, 2019; Culot, Nassimbeni, Orzes, and

Sartor, 2020).

Since the introduction of I4.0, a growing research mainstream has been published on this concept

in different settings using different research paradigms (Culot, Nassimbeni, Orzes, and Sartor,

2021). The underpinning feature of I4.0 is connectivity among machines, orders, employees,

suppliers, and customers. I4.0 enables smart manufacturing processes, providing high performance

associated with product design, production, and logistic systems through communication between

machines and digital devices. The digital transformation processes of industries have been

supported by the implementation of four key I4.0 mechanisms: the Internet of Things, cloud

computing, big data, and artificial intelligence (see Frank et al., 2019; Benitez et al., 2020; Meindl

et al., 2021). Digital transformation has been defined as using new digital technologies, such as

cyber-physical systems, mobile, artificial intelligence, cloud, blockchain, and the Internet of Things

technologies (a computational approach that collects and exchanges data acquired from electronic

devices). These I4.0 mechanisms enable significant business improvements to augment customer

experiences and streamline operations or create new business models. Zhong, Xu, Klotz, and

Newman (2017) viewed cyber-physical systems, the Internet of Things, big data, and cloud

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manufacturing as fundamental I4.0 mechanisms. Additive manufacturing, such as 3D

manufacturing, represents agile and connected prototyping of parts and products on a large scale,

enabling customization (Holmström, Holweg, Khajavi, and Partanen, 2016). Cyber-physical

systems enable automation, monitoring, and control processes and objects in real time (Wang,

Törngren, and Onori, 2015). The critical characteristics of I4.0 include integrated, adapted,

optimized, and interoperable manufacturing processes. I4.0 applications enable real-time

monitoring and controlling processes such as production status, energy consumption, the flow of

materials, customer orders, and supplier information.

Rosa et al. (2020) highlighted the business model’s usefulness for value creation, generating

revenue, and reducing costs. I4.0 mechanisms have great potential to reduce impacts on the

environment and the opportunity to reduce risk and improve productivity. I4.0 mechanisms enable

the transition to a circular economy. For example, the Internet of Things is helpful even in reusing,

recycling, and repairing items in many companies. Maintaining synergies between I4.0 mechanisms

and the circular economy is the key characteristic of current CTTI4.0 practices.

Socially sustainable issues are inherent in the United Nations Sustainable Development Goals (Awan et

al. 2018). In 2015, world leaders set out a declaration of commitment to sustainable development goals

(SDGs) intending to balance the planet's economic, social, and environmental needs by 2030. This

includes supporting the international community’s vision of increasing sustainability through

cleaner technology processes and manufacturing strategies (Kerin and Pham, 2019). Creative

thinking has become an important mechanism driving green innovation within organizations and

plays a critical role in enhancing sustainability performance (Awan et al., 2019). The circular

economy is an economic system that helps accomplish long-term sustainable development goals

(Awan, 2019; Awan et al., 2020; Kanwal and Awan, 2020; Awan et al., 2020; Awan et al., 2021a,

b). The circular economy is a regenerative system in which resource input and leakage are

minimized by slowing, closing, and narrowing material and energy loops (Geissdoerfer et al., 2018).

The circular economy is an industrial system that enables renewable energy usage and aims to

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eliminate waste through superior materials, products, systems, and business models. This allows

decoupling economic growth from finite resource constraints and provides boardrooms with a

new strategy for creating value, generating revenue, reducing costs, being resilient, and creating

legitimacy (Manninen et al., 2018). This could enhance corporate financial performance.

2.2. CTTI4.0 and SIDM practices and performance

Successful companies are led by effective boards, whose roles are to promote the company's long-

term sustainable success, generate value for shareholders, and contribute to society. Conventional

business models are based mainly on a linear conception of the value chain. By associating a cost

with the end and waste products, a linear value chain can be joined up either with other value

chains, as in the industrial integration and collaboration networks, or with itself, as conceived in a

“closed-loop,” “cradle-to-cradle” or circular economy strategy. These all articulate “3R”, the

reduce-reuse-recycle waste hierarchy, and apply a different stage, from product to industrial

processes. For manufacturing companies to successfully address sustainability issues, a set of

different challenges must be managed. Industry reports and examples from company case studies

have indicated that it is likely that out to 2020-2030, manufacturing will predominantly emphasize

processes and material efficiency instead of completely sustainable solutions.

Furthermore, to sustain, the manufacturing industry will need to develop novel processes,

innovations, and methods to meet demanding sustainability targets and create new economic

growth (Foresight, 2013). Through the remanufacturing of products, there are opportunities to

increase the efficiencies of resources, reduce waste, and support cleaner, more sustainable

production. Remanufacturing is a crucial stage of a circular economy. Greater automation and I4.0

mechanism implementation toward I4.0 and a circular economy require significant strategic

investment in equipment and infrastructure (Kerin and Pham, 2019).

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The revised UK corporate governance code (2018) has reinforced and expanded on the long-

standing requirements of the UK Companies Act for directors to remain mindful of their duties

to consider the interests of key stakeholders. The objective is to create a shift in focus from meeting

short-term financial goals toward a long-term, future-oriented business model and value-based

approach to running a company, with CTTI4.0 practices amended in strategic boardroom choices.

Such strategic transition requires investment in I4.0 mechanisms such as the industrial Internet of

Things, smart manufacturing, digitalization, cloud computing, artificial intelligence, big data,

simulation, augmented reality, horizontal and vertical systems integration, autonomous robots,

cyber-physical systems, and cybersecurity (Li, 2018; Alcácer and Cruz-Machado, 2019).

SIDM reflects the art and science of steering and controlling organizational resources to achieve

the desired strategy. Alkaraan and Northcott (2013) reveal the complex nature of SIDM practices.

Contextual factors shape SIDM practices; a comprehensive overview of these factors is necessary

to direct SIDM outcomes. Strategic investment projects are substantial investments that involve

high levels of risk and produce intangible outcomes with a significant long-term impact on

corporate performance. Typical examples include company acquisitions and mergers, the

introduction of significant new product lines, installing new manufacturing processes, advanced

manufacturing, and business technologies, and substantial shifts in production capability

(Northcott and Alkaraan, 2007; Alkaraan and Northcott, 2007; Adel and Alkaraan, 2019). SIDM

processes are extensive, multifaceted, and competitively oriented. Successful SIDM practices

require reliable, accessible, accurate, consistent, timely, and contextual information (Alkaraan and

Northcott, 2006; Alkaraan, 2020). Successful CTTI4.0 practices increase profit, decrease costs,

enhance customer experience, optimize, and innovate.

Prior research shows that disclosure correlates with financial performance based on signaling and

agency theories (Hassanien and Hussainey, 2015; Hassanein et al., 2019; Albitar et al., 2020). These

theories suggest that managers of profitable firms are more likely to voluntarily provide important

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information in their annual reports to signal their firms' profitability, increase investors’

confidence, and increase their compensation. Therefore, the present study posits the following

hypothesis to answer Question 2:

H1: There is a positive relationship between CTTI4.0 and corporate performance.

Based on agency theory, prior research also shows that governance affects corporate disclosure

(Alnabsha et al., 2018; Alshbili et al., 2019; Elamer et al., 2019; Grassa et al., 2019). Elmagrhi et al.

(2019) also provide evidence that governance affects corporate environmental performance.

Fatemi et al. (2018) provide evidence that ESG performance positively affects firm performance.

Eliwa et al. (2019) find that firms with high ESG performance disclose more ESG-related

information. These findings suggest that ESG affects both disclosure and firm performance and,

therefore, could strengthen the CTTI4.0-financial performance relationship. We, therefore,

hypothesize that:

H2: ESG could strengthen the relationship between CTTI4.0 and financial performance.

3. Research method

3.1 Conceptual framework

The conceptual framework underpinning this study draws on theoretical triangulation insights,

predominantly corporate social responsibility (CSR) theories: Carroll theory, triple bottom line

theory, and stakeholder theory. Carroll’s pyramid includes four parts of CSR responsibilities:

economic responsibilities (be profitable), legal responsibilities (obey laws and regulations), ethical

responsibilities (do what is just and fair, avoid harm), and discretionary (philanthropic)

responsibilities (be a good corporate citizen), representing the expectations that society has of

organizations at a given point in time (Carroll, 1991). Boardrooms will attest to the importance of

profitability and return on investment, including financial effectiveness, cost-effectiveness,

investments, operations, and marketing strategies, toward long-term success. In today’s global

business environment, economic performance and sustainability have become urgent topics.

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Companies are required to comply with laws and regulations as a condition of operation. This

includes performing in a manner consistent with expectations of government and law, complying

with regulatory bodies, and fulfilling all their obligations to societal stakeholders.

Triple bottom line theory (TBL), proposed by Elkington (1998), focuses on sustainability as the

primary objective and incorporates three performance dimensions: economic, social, and

environmental, enabling sustainable results. Based on TBL, the most critical objective of firms is

to sustain profitability for the long term. The social sustainability dimension includes the social

affairs of the relevant societies, human rights, and health services, whereas environmental

sustainability includes paying attention to environmental changes and obeying environmental

regulations. Stakeholder theory (Freeman, 1984) is described broadly by Freeman in his article

“Strategic Management, A Stakeholder Approach” (Freeman, 2010). Stakeholder theory has been

used to describe the nature of the company and how boardrooms think about the interests of

business constituencies. I4.0 organizational stakeholders can affect organizations or are affected

by them and can comprise international institutional regulations, suppliers, and customers (Awan

et al., 2021). Stakeholder theory and reasoned action theory help rationalize the institutional logic

underpinning the interactions among antecedents and highlight the rationale for organizational

transitions to adopt universal social compliance codes (Venkatesh et al., 2021).

An I4.0 paradigm will include SIDM practices regarding business model transformation, a step

toward more sustainable manufacturing processes through stakeholder-oriented value creation

restructuration. Therefore, the current boardroom practices at UK companies can be viewed as

the new era of SIDM practices. The new era is predominantly characterized as direct and indirect

environmental, social, and economic contributions. Meanwhile, de Sousa Jabbour et al. (2018)

argue that productive synergies between I4.0 mechanisms and environmentally sustainable

manufacturing processes rely on understanding the roles played by critical success factors, which

organizations should consider carefully when simultaneously implementing I4.0 and

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environmentally sustainable manufacturing. Their study articulates top management

responsibilities regarding foreseeing organizational opportunities for integrating I4.0 mechanisms

and environmentally sustainable manufacturing into existing production systems. The principal

proposition underpinning their framework is that I4.0 can unlock the full potential of

environmentally sustainable manufacturing processes. They have suggested secondary

propositions, including the level of management commitment and national culture. They stated

that management leadership and national culture play critical roles in integrating these two

domains. The mentioned propositions are employed in our conceptual framework, as depicted in

Figure 1. SIDM practices at boardrooms should consider stakeholders' interests, such as

employees, customers, suppliers, and the community.

Social,
Environmental, Governance
and Synergies (CSR)
Technological
Determinants
SIDM
Boardrooms

Feedback
Practices
Commitment

CTTI4.0
National
Culture

Company Performance
(Long-Term Value Creation)

Direct and Indirect Effects on

Feedback Economic, Environmental,
Stakeholders
and Social Dimensions

Figure 1: Conceptual stakeholder-oriented model of the influence of social, environmental, and

technological determinants on SIDM and CTTI4.0

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Corporate governance mechanisms include a set of relationships among a company’s management,

board, shareholders, and stakeholders. Governance mechanisms support economic efficiency and

sustainability. Investment in I4.0 mechanisms enables companies to realize sustainable industrial

value creation on sustainability, economic, social, and environmental dimensions. Value creation

networks in I4.0 help to realize closed-loop product life cycles. Retrofitting enables an easy and

cost-efficient way of upgrading existing manufacturing equipment. Corporate governance also

provides the structure through which the objectives of the company are set. Corporate governance

mechanisms recognize the interests of stakeholders and their role in contributing to the company's

long-term success. Corporate governance builds an environment of trust, transparency, and

accountability necessary for fostering long-term investment, financial stability, and business

integrity, thereby supporting more robust growth and more inclusive societies.

3.2. Research design and empirical setting

Sample and data collection

The initial sample of this study includes all UK FTSE All-Share nonfinancial firms that published

their annual reports from 2013 to 2018. Following prior research (Hassanein et al., 2019), we

excluded financial firms due to the differences in disclosure regulations. We also have excluded

firms with zero scores based on our developed disclosure measurement. We excluded firms with

missing data. Annual reports have been downloaded from firms’ websites. We use computerized

textual analysis to score the total disclosure on CTTI4.0 practice, benefits associated with business

model transformation disclosure, challenges with business model transformation, I4.0

components disclosure, and business model transformation mechanisms disclosure. We use CFIE-

FRSE, a program that explores accounting and financial market text using natural language

processing and corpus linguistics methods (El-Haj et al., 2019), to score the annual reports based

on our constructed wordlist to capture CTTI4.0 disclosure.

Selection of disclosure items

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To measure CTTI4.0 disclosure, we followed previous literature for constructing a word pool

(Loughran and McDonald, 2011; Andreou et al., 2020; Karim et al., 2021). The selection of

disclosure topics is carried out in three stages. First, we create I4.0 components through a

comprehensive review of I4.0 frameworks adopted by top professional organizations, i.e., Boston

Consulting Group, McKinsey & Company, Deloitte, KPMG, and i-SCOOP. This process

produces a preliminary list of CTTI4.0 component keywords (List 1). The findings of this review

reveal inconsistencies regarding I4.0 terminologies underpinning each framework proposed by

these professional organizations.

Furthermore, to validate the preliminary index, we examined the critical components of I4.0

against five self-selected annual reports (2018) for UK companies.1 Third, we added synonyms

and amended the preliminary CTTI4.0 index. In this stage, synonyms were identified and added

to the preliminary index (Appendix 1). Additionally, we uploaded a sample of 20 annual reports to

LancBox software to identify words used in the annual reports when addressing CTTI4.0 to ensure

that the words were used frequently (Karim et al., 2021). We discussed the keywords to ensure

that our scores were reliable and that discrepancies were analyzed and resolved. Finally, this stage

resulted in another version of the preliminary index, classified into four proxies: CTTI4.0 practices

through business model transformation mechanisms, I4.0 components, benefits, and challenges

associated with business model transformation mechanisms.

Content analysis

This stage focuses on content analysis to measure CTTI4.0. The disclosure level is measured

simply by counting CTTI4.0 components related to (i) sentences or (ii) words before transforming

- 1Rolls Royce Company, Industry: designs, manufactures, and distributes power systems for aviation, Number
of employees: 45,500.
- Rio Tinto Company, Industry: metals and mining corporations, Number of employees: 47,000.
- AstraZeneca Company, Industry: pharmaceutical and biopharmaceutical company, Number of employees:
61,000.
- Company, Industry: multinational oil and gas company, Number of employees: 73,000.
- CRH Company, Industry: construction, Number of employees: 89,831.

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this number into a natural logarithm. The coding (measurement) unit underlying our study will be

based on sentences or paragraphs to overcome the limitation of counting the disclosures using the

word as a measurement unit. The word meaning relies on its syntactical role within the sentence,

and the word by itself does not convey a meaning (Linsley and Shrives, 2006).

Then, the method applied computer-aided textual analysis by using CFIE-FRSE, software

developed by Lancaster University (El-Haj et al., 2019). This is helpful to score the annual reports

based on a constructed wordlist to capture the narrative disclosures of CTTI4.0. Then, the

procedure double-checked the score for a random sample of 10 annual reports manually to ensure

the CFIE measurement's reliability and consistent outcomes. Furthermore, following previous

literature (Karim et al., 2021; Albitar, 2021), the study also used NVivo 12 Pro to score a random

sample of another 10 annual reports using the same wordlist to validate the CFIE measurement,

and the outcomes remained consistent as well.

Research model

We use the ordinary least squares (OLS) model to test our research hypotheses. We also run

random-effects, fixed-effects, Tobit, and generalized method of moments (GMMs) models to

address any concerns regarding the potential existence of endogeneities. The primary model can

be shown as follows.

CFP = 0 + 1 CTTI4.0 score + 2 ESG_practice+3 Firm_size + 4 Liquidity + 5 Beta +

Industry Fixed Effects+ Year Fixed Effects + Equation (1)

where CFP: corporate financial performance measured by return on assets (ROA) and return on equity (ROE);

CTTI4.0 score: authors’ self-constructed disclosure index for measuring CTTI4.0; ESG_practice: ESG practice

reflects the companies' performance over the environmental, social, and governance factors; Firm_size: the natural

log of total assets; Liquidity: measured by current ratio; Beta: best risk ratio.

4. Findings

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Objective 1: The UK current CTTI4.0 practice

The results of this study reveal that boardrooms of UK companies are aware of the value that I4.0

could deliver to their long-term business performance, as illustrated in Figures 1 and 2.

Furthermore, the findings portrayed in Figures 1 and 2 provide an important signal that UK

companies have entered a dynamic new phase since 2013, which accelerated over 2013-2018. The

findings show that SIDM practices regarding CTTI4.0 practices accelerated approximately twofold

in 2018 compared to 2013. As portrayed in companies’ annual reports;

“Underpinning our business model and is our transformation agenda. We have around 1,000 projects

across the Upstream aimed at sustainably improving both performance and how it feels to work in the

Upstream. We believe in the potential of this agenda to transform the efficiency of our business, and we are

delivering real value today to the bottom line” (BP Company, Annual Report, p.23).

Such strategic choices embedded in SIDM practices will provide substantial opportunities

for UK manufacturing companies ahead, as depicted in companies’ annual reports;

“We entered the year with a determination to improve our efficiency and operating performance and a refined

vision and strategy. We are embarked on an ambitious restructuring programme” (Chairman’s statement

of Rolls Royce Company, Annual Report, 2018, p.4).

“We continue to implement various productivity initiatives and restructuring programmes to enhance the

long-term efficiency of the business” (AstraZeneca Company, Annual Report, 2018, p.227).

“I have seen how digital technology is transforming the way we work and has the potential to help us develop

better medicines, faster and with clearer benefits for patients and value for society” (Chairman’s statement

of AstraZeneca Company, Annual Report, 2018, P.4).

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Figure 2
SIDM regarding CTTI4.0

5000.00
4500.00
4000.00
3500.00
3000.00
2500.00
2000.00
1500.00
1000.00
500.00
0.00
I4.0 Strategy - I4.0 Strategy-
CBMT Mechanisms I4.0 - Strategy Benefits
Components Challenges
2018 413.29 434.56 959.77 203.32
2017 338.28 364.49 862.23 170.19
2016 306.14 308.55 825.86 162.99
2015 264.10 270.99 786.68 143.78
2014 257.34 227.83 693.88 133.89
2013 234.31 254.77 632.37 114.30

Furthermore, it is more likely that boardrooms are aware of the contributions of optimization and

customization in smart manufacturing processes embedded in their CTTI4.0 practices. This is

consistent with earlier studies (e.g., Alcácer and Cruz-Machado, 2019). CTTI4.0 practices can be

viewed as a strategic transition in boardroom practices at UK companies. This will enable

boardrooms to effectively, quickly, and flexibly respond to market trends through dynamic

capabilities framework, as portrayed in companies’ annual reports;

“Strategically, we have sustained our investments in the technologies that will ensure our long-term

competitiveness and innovation ambitions” (Chairman’s statement, Rolls Royce Company, Annual

Report, p.4).

“New technologies are helping us build intelligent operations throughout our business” (AR, p.41).

“Inspection robots are helping us deliver against our strategic priority of modernizing and transforming BP”

(BP Company, Annual Report, p.41).

“New technologies are helping us increase the amount and quality of data we gather from our operations

and speed up our analysis, allowing us to act more quickly” (BP Company, Annual Report, p.44).

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“We also invested $94 million on the implementation of our R&D restructuring (2017: $201 million;

2016: $178 million)” (AstraZeneca Company, Annual Report, 2018, p.26).

“BP continues to play an active role in relation to the energy transition. We are carefully considering our

mix of natural gas and oil while investing in new technology and businesses that have the potential to

contribute to a lower carbon world through our ‘reduce, improve, create’ framework” (BP Company,

Annual Report, p.87).

“Restructuring charges are classified as non-operating items where they relate to an announced major group

restructuring. A major group restructuring is a restructuring programme affecting more than one of the

group’s operating segments that is expected to result in charges of more than $1 billion over a defined period.

Following the Gulf of Mexico oil spill in 2010 and since the fall in oil prices in late 2014, major group

restructuring programmes were initiated. The group's restructuring programme, originally announced in

2014, has now been completed” (BP Company, Annual Report, p.276).

“Advanced materials and electric and hybrid technologies will be as crucial to our success as artificial

intelligence and digitalisation” (Chairman’s statement, Rolls Royce Company, p.4).

“As competition for world-class assets increases, the effective use of technology will be a differentiating factor

among competitors for those assets. This will push the industry to treat data as a valuable asset and will

shift traditional supplier relationships towards more dynamic and richer partner ecosystems rates” (Rio

Tinto Company, Annual Report, p.12).

“We continue to implement various productivity initiatives and restructuring programmes with the aim of

enhancing the long-term efficiency of the business. However, anticipated cost savings and other benefits from

these programmes are based on estimates, and the actual savings may vary significantly or may not be

achieved at all. In particular, these cost-reduction measures are often based on current conditions and cannot

always take into account any future changes to the pharmaceutical industry or our operations, including

new business developments or wage or price increases” (AstraZeneca Company, Annual Report, 2018,

p.227).

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The above citations regarding SIDM practices provide evidence that dynamic capabilities have

become an important strategic choice embedded in boardroom practices to achieve successful

long-term performance through the implementation of I4. The findings of this study support the

view of Helfat and Raubitschek (2018) and Warner and Wäger (2019). Nevertheless, the results of

this study reveal that there are no collective unified processes regarding technology road mapping

associated with CTTI4.0 practices. Accordingly, UK companies adopt various strategic choices

regarding CTTI4.0 practices. This result confirms Warner and Wäger's (2019) view that

incumbents build different dynamic capabilities for the strategic renewal of business models.

FIGURE 3: CTTI4.0 SECTOR/ YEA R P RACTICE S

70

60

50
SECTOR SCORE

40

30

20

10

0
Informatio
Communic Consumer
Consumer Health n
ation Discretion Energy Industrials Materials Real Estate Utilities
Staples Care Technolog
Services ary
y

2018 36.93 30.74 49.41 31.46 65.15 45.58 41.00 41.78 25.44 45.80

2017 32.21 24.00 38.05 35.33 48.36 36.84 39.31 33.55 19.45 31.17

2016 27.57 21.61 31.61 41.60 39.08 30.24 32.56 36.12 17.08 28.67

2015 20.33 17.22 29.26 31.38 34.67 28.57 30.50 38.96 14.71 18.50

2014 22.00 14.79 31.33 17.67 45.82 25.97 25.15 32.57 12.85 29.20

2013 21.91 13.83 26.60 21.11 45.00 22.35 21.00 22.91 15.81 23.80

This study confirms the findings of Frank, Dalenogare, and Ayala (2019), who argue that

organizations differ significantly in terms of what types and the number of technologies they adopt

and how advanced their level of I4.0 implementation is. This finding is not surprising, as CTTI4.0

practices vary according to strategic choices embedded in SIDM practices, companies’ strategies,

and industry type, as illustrated in companies’ annual reports;

18
 19

“We are also exploring emerging technologies to accelerate the design and testing of tomorrow’s medicines.

For example, artificial intelligence (AI) is being used increasingly in the pharmaceutical sector, building on

the emergence of novel computing technologies, the exponential increase in data and deep learning

algorithms” (AstraZeneca Company, Annual Report, p.25).

“This is underpinned by the strength of our retail convenience partnerships, technology such as our advanced

fuels and use of digital technology, as well as our customer relationships” (BP Company, Annual Report,

p.33).

“Our technology remains a significant source of competitive advantage. Our strategy is to focus on our

premium lubricants and growth markets while leveraging our strong brands, technology, and customer

relationships” (BP Company, Annual Report, p.35).

FIGURE 4
CTTI4.0-MECHANISMS

400.00

350.00

300.00
SECTOR SCORE

250.00

200.00

150.00

100.00

50.00

0.00
Communicati Consumer Consumer Information
Energy Health Care Industrials Materials Real Estate Utilities
on Services Discretionary Staples Technology

2018 64.86 30.43 37.47 23.00 51.85 48.16 75.00 52.19 10.42 41.20

2017 60.29 25.97 30.16 21.22 44.29 35.82 80.00 32.24 8.68 25.83

2016 55.93 22.04 27.17 16.80 37.31 28.37 63.94 27.60 7.24 22.17

2015 60.58 18.50 26.58 11.38 38.00 23.82 48.57 22.69 7.54 13.33

2014 56.33 16.00 19.80 8.56 32.00 18.84 32.00 18.26 8.64 17.40

2013 71.64 15.17 28.80 8.67 33.44 18.57 33.46 17.50 8.92 18.60

With such a strategic transition, strategic investment decision-makers at UK companies are

beginning to use data to drive decision-making and improve efficiency in previously

unimaginable ways. Integrating new methods of data collection and analysis, for example,

through the expansion of existing products or creation of new digitized products, helps

companies generate data on product use and, thus, refine products to best meet customers’

19
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needs, as illustrated in companies’ annual reports. In the manufacturing industry, production

lines must be adapted to current demand quickly and flexibly, and product ideas must be

brought to the market as promptly as possible. Advanced digital technology is already used in

manufacturing, but with the transition toward I4.0, boardroom practices at UK manufacturing

companies will be achieving greater efficiencies and changing traditional production

relationships among suppliers, customers, and between humans and machines. This is

consistent with the study of Cagle (2020), that improved storage capacity and processing power

allow for collecting and tracking more information, while interconnected systems enable cross-

departmental communication and planning. Figures 5 and 6 show how benefits and challenges

associated with CTTI4.0 vary among companies;

“In 2018, we divested three wind energy operations in Texas, as part of a broader restructuring programme

designed to optimize our US wind portfolio for long-term growth” (BP Company, Annual Report, p.39).

“We’ve invested in Fulcrum BioEnergy, which is constructing the first commercial scale waste-to-fuels plant

in the US. The facility aims to use technology developed by BP and Johnson Matthey, to help convert

household rubbish that would otherwise be sent to landfill, into fuel for transport. Fulcrum, in which BP

owns an 8% interest, estimates that when it begins commercial operations, the plant will be able to convert

around 175,000 tons of waste into about 11 million gallons of fuel each year” (BP Company, Annual

Report, p.45).

“Our future technological world is complex with many exciting new challenges across everything we do. We

respond to this with broader and deeper collaboration with others and with a more dynamic approach to

ensure that our technology brings the most value to our customers and our business. Strategic transformation,

competitive environment, cyber threat" (Rolls Royce Company, Annual Report, 2018, p.13).

“We have teamed up with robotics partners, including Harvard University and University of Nottingham,

to explore how robots could evolutionise the future of engine maintenance. ‘Inspect’ robots could be embedded

within an engine to improve monitoring” (Rolls Royce Company, Annual Report, 2018, p.29).

20
 21

“The Board recognises that, to be successful in this, requires not just organisational restructuring but a

cultural shift in inspiring our people to take accountability, be innovative and continuously seek out

improved and more efficient ways of working” (Rolls Royce Company, Annual Report, 2018, p.57).

FIGUR E 5
CTTI4.0 - BE N E FIT S
800.00

700.00
SECTOR SCORE

600.00

500.00

400.00

300.00

200.00

100.00

0.00
Communica Consumer
Consumer Information
tion Discretiona Energy Health Care Industrials Materials Real Estate Utilities
Staples Technology
Services ry

2018 62.57 76.96 120.94 81.55 155.39 99.03 70.71 104.26 64.37 124.00

2017 63.86 60.67 107.42 83.89 129.71 79.02 91.88 94.62 64.00 87.17

2016 61.00 56.80 95.94 94.30 120.54 75.96 80.88 98.56 50.90 91.00

2015 55.08 48.60 99.05 111.63 117.33 76.43 73.64 94.69 44.71 65.50

2014 49.33 48.48 70.60 77.22 108.27 68.77 59.92 90.17 47.30 73.80

2013 52.64 43.71 65.20 66.44 86.11 66.48 67.18 67.91 42.69 74.00

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 22

F IG UR E 6
CHALLEN G E S ASSO CIAT E D WIT H CTTI4.0
140
SECTOR SCORE

120

100

80

60

40

20

0
Consumer
Communicati Consumer Information
Discretionar Energy Health Care Industrials Materials Real Estate Utilities
on Services Staples Technology
y

2018 19.286 14.222 21.647 25.727 24.154 21.734 20.235 22.37 11.744 22.2

2017 18.071 12.767 16.368 19.222 21.714 18.779 20.563 19.379 9.825 13.5

2016 15 10.963 15.056 24.1 18.077 17.955 16.313 20.92 9.105 15.5

2015 11.333 8.3 15.895 21.625 20.167 16.154 15 16.577 7.229 11.5

2014 9.667 8.071 14.933 16.556 20.545 12.79 12.692 17.522 5.515 15.6

2013 12 6.629 10.733 15.889 17.222 10.534 12.091 13.136 6.269 9.8

Objective 2: The impact of CTTI4.0 practices on financial performance

Descriptive statistics:

Table 1 shows the mean CTTI4.0 over time and across industries. Overall, UK nonfinancial

companies are aware of the value that I4.0 could deliver to their long-term business performance.

The total score for CTTI4.0 varies across industries. Some industries have been more willing to

provide information about I4.0, while others show less response. We found that industries such

as information technology and health care are more likely to provide more disclosure about

transformation toward I4.0 in the annual reports. This shows evidence that these sectors have

taken the initiative and advantage toward I4.0.

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 23

Table 1. CTTI4.0 score by industry year

Industry Year

2013 2014 2015 2016 2017 2018 Total

Communication Services 158.182 137.333 147.333 159.5 174.429 183.643 161.065
Consumer Discretionary 79.343 87.333 92.62 111.407 123.4 152.352 110.925
Consumer Staples 131.333 136.667 170.789 169.778 192 229.471 173.495
Energy 112.111 120 176 176.8 159.667 161.727 151.446
Health Care 181.778 206.636 210.167 215 244.071 296.538 229.139
Industrials 117.931 126.371 144.969 152.522 170.456 214.5 155.302
Information Technology 133.727 129.769 167.714 193.688 231.75 206.941 181.966
Materials 121.455 158.522 172.923 183.2 179.793 220.593 174.763
Real Estate 73.692 74.303 74.2 84.316 101.95 111.977 88.66
Utilities 126.2 136 108.833 157.333 157.667 233.2 152.121
Total 1235.752 1312.935 1465.549 1603.544 1735.182 2010.942 1578.883

Table 2 shows the descriptive statistics. The mean value of CFP is 6.311, with a minimum value

of -1.606 and a maximum value of 15.071. The mean value of CTTI4.0 is 145.91, representing the

average frequency of words on corporate transformation toward Industry 4.0 disclosed in the

annual reports, where the minimum number of words is one, and the maximum is 635 words,

indicating that many companies provide information on CTTI4.0. The mean value of ESG practice

is 48.814, indicating that most of our sample has good performance in terms of ESG practices.

Regarding other control variables, we find that the mean firm size measured by the natural log of

total assets is 20.312, liquidity is 1.886, and the beta ratio is 0.61.

Table 2: Descriptive statistics

Variable Obs Mean Std. Dev. Min Max
ROA 1426 6.311 5.021 -1.606 15.071
CTTI4.0 score 1535 145.91 95.55 1 635
ESG_practice 1076 48.814 17.70 3.27 94.71
Firm_size 1520 20.312 1.824 12.205 26.661
Liquidity 1535 1.886 1.99 .05 31.536
Beta 1535 .61 .535 -2.551 3.979

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 24

Table 3 shows the correlation matrix. The correlation coefficient between CTTI4.0 and CFP is

significantly positive at a significance level of 1%. Additionally, the correlation coefficient between

ESG practices and CFP is significantly positive at the 1% significance level. The correlation

coefficients of all control variables are less than 0.8, reflecting no serious multicollinearity issue

among variables. Furthermore, it can be decided that multicollinearity does not appear to be a

concern in explaining the regression results from variance inflation factor (VIF) results tested

separately (VIF ranges from 1.17 to 1.46 with a mean value of 1.17).

Table 3: Correlations analysis

Variable (1) (2) (3) (4) (5) (6)
(1) ROA 1.000
(2) CTTI4.0 0.051* 1.000
score
(3) 0.103* 0.121* 1.000
ESG_practice
(4) Firm_size 0.144* 0.199* 0.158* 1.000
(5) Liquidity 0.078* -0.121* 0.046* -0.201* 1.000
(6) Beta -0.153* -0.061* -0.015* 0.249* -0.016* 1.000
*shows significance at the 0.05 level

Multivariate analysis

The relationship between CTTI4.0 score and corporate financial performance

Tables 4 and 5 report our findings using different regression models, namely, OLS, fixed-effect

model (FE), random-effect model (RE) and Tobit model. We use two different proxies for CFP,

namely, return on assets (ROA) in Table 4 and return on equity (ROE) in Table 5. The tables show

a positive relationship between CTTI4.0 and CFP at the 5 percent level, suggesting that firms that

provide more information on CTTI4.0 have better CFP. Our findings align with agency and

signaling theories and the disclosure literature (e.g., Hassanein and Hussainey, 2015 and Hassanein

et al., 2019). Thus, our first hypothesis is accepted.

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 25

Regarding the effects of ESG practices on CFP, the results show a significant positive relationship

between ESG practice and corporate financial performance, suggesting that firms with better

performance in terms of ESG have better corporate financial performance. This result is consistent

with agency theory and prior research (e.g., Fatemi et al., 2018; Elmagrhi et al., 2019). Among other

control variables, firm size and liquidity show a positive and significant association with CFP at

the 5% level. Beta is negative and significant with CFP at the 1% level, suggesting that companies

with higher risk ratios are more likely to have lower financial performance, regardless of whether

it is measured by ROA or ROE.

Table 4: The relationship between CTTI4.0 score and financial performance proxied by ROA
(1) (2) (3) (4)
VAR OLS FE RE Tobit
CTTI4.0 score 0.0117** 0.00811** 0.00917** 0.0117**
(0.00459) (0.00223) (0.00149) (0.00458)
ESG_practice 0.0233*** 0.0185*** 0.0198*** 0.0233***
(0.00810) (0.00824) (0.00810) (0.00807)
Firm_size 0.240** 0.221** 0.230** 0.240**
(0.108) (0.110) (0.108) (0.108)
Liquidity 0.198** 0.182** 0.191** 0.198**
(0.0914) (0.0917) (0.0914) (0.0911)
Beta -0.968*** -1.008*** -0.977*** -0.968***
(0.298) (0.301) (0.298) (0.297)
Year effect Included Included Included Included

Industry effect Included Included Included Included

Constant 12.63*** 14.16*** 13.13*** 12.63***

(2.314) (2.126) (2.182) (2.300)

Observations 1,043 1,043 1,043 1,043

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

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 26

Table 5: The relationship between CTTI4.0 score and financial performance proxied by ROE
(1) (2) (3) (4)
VAR OLS FE RE Tobit
CTTI4.0 score 0.109*** 0.091*** 0.102*** 0.106***
(0.0290) (0.0180) (0.0230) (0.0259)
ESG_practice 0.0166*** 0.009*** 0.0134*** 0.0165***
(0.0516) (0.0315) (0.0482) (0.0513)
Firm_size 2.489*** 2.601*** 2.489*** 2.489***
(0.691) (0.701) (0.691) (0.689)
Liquidity -0.620 -0.581 -0.620 -0.620
(0.583) (0.585) (0.583) (0.582)
Beta -8.492*** -7.923*** -8.212*** -8.492***
(1.885) (1.213) (1.615) (1.880)
Year Included Included Included Included

Industry Included Included Included Included

Constant 30.54** 28.16** 29.11** 30.54**

(13.42) (13.58) (13.42) (13.38)

Observations 1,054 1,054 1,054 1,054

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1
The moderating effect of ESG performance on the CTTI4.0 score-CFP nexus

To test the second hypothesis of our study, in table 6, we use the interaction of the CTTI4.0 score

with ESG practice. More specifically, to determine the potential moderating effect of ESG

performance on the CTTI4.0 score-CFP nexus, we regressed Equation (1), including the CTTI4.0

score*ESG_practice and using the two proxies of CFP. Noticeably, based on the interaction

model, Table 7 shows a significant effect of ESG performance on the CTTI4.0 score-CFP nexus,

and the coefficients of I4score*ESG_practice are significantly positive at the 1% level. This

suggests that ESG performance moderates the relationship between CTTI4.0 and score-CFP;

therefore, firms with better ESG performance tend to be more engaged in reporting CTTI4.0

along with better financial performance simultaneously. In other words, ESG practices can

26
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enhance the ability of the CTTI4.0 score to explain variations in CFP compared with examining

the CTTI4.0 score-CFP nexus directly. This is the first empirical evidence that explains the role of

ESG performance on the CTTI4.0 score-CFP nexus.

Table 6: The moderating effect of ESG performance on the CTTI4.0 score-CFP nexus
(1) (2)
Variable ROA ROE

CTTI4.0 score 0.00463 0.161*

(0.00741) (0.0754)
ESG_practice 0.00826** 0.0631***
(0.00547) (0.0275)
CTTI4.0 score#c. ESG_practice 0.000146** 0.00141**
(0.0000615) (0.000512)
Firm_size 0.157** 1.922***
(0.0835) (0.671)
Liquidity 0.213** -0.362
(0.0775) (0.626)
Beta -0.705*** -8.176***
(0.257) (2.142)

Constant 10.30*** 12.61

(1.653) (13.42)

Observations 1,043 1,054

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1
Robustness check and additional analysis

The study employs a generalized method of moment (GMM) regression model as a robustness

check to address the potential endogeneity issue arising from reverse causality association between

CTTI4.0 and score-CFP; this also is to ensure that our main findings were not severely affected

by the potential concerns of endogeneity problems (Blundell and Bond 1998). Following previous

literature (Gerged et al., 2021), we incorporate the lagged versions of past CFP to differentiate

27
 28

between a “static” and ‘dynamic’ panel data model. Including lags of the dependent variable (CFP

in our study), the GMM estimation controls endogeneity by transforming the data internally, as a

dependent variable's previous value is subtracted from its current value (Roodman, 2009). Table 8

shows the results from running the GMM model. The findings suggest that CTTI4.0 disclosure

positively affects financial performance. This means that our main findings remain robust.

Table 7: Generalized method of moment (GMM) results – robustness analysis

(1) (2)
VAR ROA ROE
CTTI4.0 score 0.0141* 0.0623*
(0.00468) (0.0189)
ESG_practice 0.426** 0.331
(0.243) (0.214)
Firm_size 0.081* 5.076*
(0.531) (2.606)
Liquidity 0.164 0.549
(0.192) (0.919)
Beta -0.718* -5.852***
(0.361) (1.648)
L.ROA 0.551*** 0.314***
(0.0653) (0.0481)
Year effect Included Included

Industry effect Included Included

Constant 8.256 17.8*

(10.52) (4.22)

Observations 792 832

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1
Following disclosure studies (e.g., Hussainey et al., 2003), we also run the regressions for each

component of our CTTI4.0 disclosure score separately to explore each component's effect on

financial performance. As seen from Table 8, we find that the results are in line with our main

28
 29

findings when considering the CTTI4.0 mechanisms, I4 components strategy, and I4 strategy

benefits, suggesting that firms that provide more information related to the CTTI4.0 mechanisms,

I4 components strategy, and I4.0 strategy benefits have better CFP. However, we find a negative

but not significant relationship between the challenge score of the I4 strategy and CFP.

Table 8: The relationship between each component of CTTI4.0 and CFP

(1) (2) (3) (4)
Variable ROA ROA ROA ROA

CTTI4.0 0.0130***
_stratgey_comp
(0.00458)

CTTI4.0 _CBMT 0.0136*

(0.00621)
CTTI4.0 _Chal -0.00422
(0.00308)
CTTI4.0 _Benfit 0.0995**
(0.00147)
ESG_practice 0.0205** 0.0209** 0.0150* 0.0502***
(0.00811) (0.00820) (0.00814) (0.00918)
Firm_size 0.376*** 0.384*** 0.193** 0.370***
(0.115) (0.118) (0.119) (0.114)
Liquidity 0.217** 0.190** 0.175** 0.163*
(0.0892) (0.0888) (0.0885) (0.0872)
Beta -0.887*** -0.954*** -0.941*** -0.929***
(0.300) (0.299) (0.298) (0.295)
Constant 14.84*** 15.28*** 12.32*** 16.97***
(2.111) (2.178) (2.169) (2.127)

Observations 1,048 1,048 1,048 1,048

R-squared 0.157 0.143 0.161 0.191
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

29
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5. Conclusion

This study aims to examine the relationship between CTTI4.0 practices and corporate financial

performance and the role of ESG in this relationship. The findings of this study reveal that the

current trend of CTTI4.0 can be viewed as an enabler of the circular economy. Such strategic

transition in SIDM practice is positively associated with corporate financial performance.

Furthermore, the findings reveal that ESG strengthens the relationship between CTTI4.0 and

financial performance. Furthermore, CTTI4.0 cannot be viewed merely as a technology roadmap,

but SIDM practices influence strategic choices to achieve successful long-term performance.

Successful CTTI4.0 practices require a proper understanding of stakeholders’ interests and

expectations (Awan et al., 2021; Cheng et al., 2021).

Theoretical contributions

The findings offer insightful contributions regarding the knowledge around the influence of

CTTI4.0 practices on financial performance. This contributes to the current debate regarding the

extension of stakeholder theory to include sustainability governance (Awan et al., 2021; Venkatesh

et al., 2021). The extracts are rooted in a reasoned action behavior perspective to offer insights

that account for internal and external stakeholders. The study recognizes that collective dynamics

are potent drivers of the current trends of SIDM and CTTI4.0 practices, thereby setting an

imperative for the convergence of social sustainability and corporate governance by recognizing

stakeholders’ views and standards-setting attributes (Venkatesh et al., 2021). The results provide

theoretical evidence of the influence of national culture and boardroom commitment on achieving

synergy between I4.0 and the circular economy, in line with the view of de Sousa Jabbour et al.

(2018b).

Practical (managerial and policy) implications

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 31

The findings have practical implications for boardrooms regarding the strength of the relationship

between CTTI4.0 disclosure and performance and the role of ESG. First, ESG disclosures are

generally associated with CTTI4.0 and corporate performance. Our analysis reveals that ESG

appears to be related to CTTI4.0 practices. Second, synergies between I4.0 and the circular

economy can be viewed as predecision strategic control mechanisms associated with CTTI4.0

practices toward value creation and sustainable business modules with a comprehensive

performance measurement system of direct and indirect effects on environmental, social, and

economic dimensions. CTTI4.0 practices enable companies to achieve potential objectives such

as increasing production efficiency, productivity, and quality, supplementing operational flexibility,

contributing to safety issues and operational sustainability, and amalgamating the production

system with critical stakeholders (Meindl et., 2021). Third, the findings offer insights to decision-

makers and regulatory bodies regarding the current practices of SIDM and their potential

economic consequences. However, maintaining a high level of synergies between I4.0 and the

circular economy requires a high level of synergies among stakeholders to consolidate governance

mechanisms associated with CTTI4.0 practices. Such integration and recognition would

considerably reduce stakeholders' need to cope with the complexity of a portfolio of standards and

performance measurement and help identify gaps relevant to noncompliance gestures (Venkatesh

et al., 2021).

Social implications

The study deliberations are relevant to key SDGs and offer insights to decision-makers, regulatory

bodies, and other stakeholders regarding the current practices of CTTI4.0 and potential

environmental, social, and economic impacts. The findings of this study forecast the future

usefulness of adopting I4.0 mechanisms toward the circular economy. Successful implementation

of these initiatives requires a better understanding and analysis of stakeholders’ interests and

expectations to achieve the potential benefits of incorporating I4.0 mechanisms into

manufacturing processes. Such understanding enables organizations to achieve effective planning

31
 32

and control organizational and policy resources and successful value creation. These steps would

provide an impetus to integrate I4.0 mechanisms with circular economy business models driven

by stakeholders’ interests, and expectations would allow for better environmental innovation

solutions that support sustainable development goals (Awan et al., 2021). In addition, extracts from

boardroom practices show value creation, generating revenue, and reducing costs embedded in

collaboration and I4.0 applications. In the process, the system aims to build synergy among both

internal and external partners to achieve the best results in SIDM practices. In addition, it offers

the scope for customizing awareness programs to launch as industry best practices. Implications

underpinning this study inform and influence human life better and offer guidance to other

companies in different settings and contexts regarding the influence of technological, social, and

environmental determinants on SIDM practices. Governance mechanisms enable suitable

corporate culture heavily influenced by national culture and institutional factors, including

technology and innovation.

Limitations and future scope

The study has limitations that need to be addressed in future research due to its time, location,

sample selection, size, the selected companies' sector, and questions addressed. To move this

agenda forward, we suggest that future research adopt our conceptual framework to provide new

insights into the long-term organizational effects of such strategic transformation. The findings of

our study remain within the UK context; future research may examine theatrical and practical

insights regarding the synergies between I4.0 and the circular economy in different settings. Future

research may adopt longitudinal studies toward a better understanding of the influence of ESG on

SIDM and CTTI4.0 practices and the influence of moderating and mediation variables on the

transition processes. Future studies may explore the challenges of stakeholders’ involvement in

such SIDM practices. Future research may examine the disclosure of CTTI4.0 in different settings

to explore the relative impact of other contextual factors, such as national culture and political,

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legal, and social factors. Finally, qualitative research paradigms may examine how decision-makers’

attributes shape such strategic choices.

Acknowledgment

The authors would like to thank Professor Charbel Jose Chiappetta Jabbour, Global Chair

Professor at Lincoln International Business School, University of Lincoln, UK, for his valuable

comments on earlier versions of this paper. Furthermore, the authors are grateful to anonymous

referees and the editors for their constructive comments.

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Appendix 1- CTTI4.0

Boston Big data and analytics, artificial intelligence (AI), simulation, robotic
Consulting process automation, advanced robotics, additive manufacturing,
Group (BCG) augmented reality, horizontal/vertical integration, 3D printing, the
industrial IoT, cloud, cybersecurity. Security is also an inherent part of
the I4.0 strategy and vision.
McKinsey & Augmented reality, human-robot collaboration, remote monitoring and
Company control, digital performance management, 3D printing, real-time
(2015) supply-chain optimization, advanced process control, digital quality
management, data-driven demand prediction, data-driven design to
value, simulation, predictive maintenance, smart energy consumption,
remote maintenance, virtually guided self-services, remote monitoring
and control, real-time yield optimization.
Deloitte (2020) Internet of things (IoT), artificial intelligence (AI), cloud infrastructure,
extensive data analysis, nano-technology, advanced robotics, sensors,
blockchain, 3D printing, augmented reality, quantum computing, edge
computing.
KPMG (2017) Big data, cloud, cybersecurity, additive manufacturing, robotics,
machine to machine comm, internet of things (IoT), augmented
decision support, digital twin, demand-driven supply chain.
i-SCOOP I4.0 strategy components include; digital transformation; digital
Organisation transformation strategy; industrial IoT; internet of things (IoT); big
data; edge computing; cloud computing; IoT platforms; cybersecurity;
additive manufacturing; artificial intelligence; digitization; smart
factory.

CTTI4.0: Strategy Component

digital economy; i4.0 initiatives; i4.0 technology; implementing i4.0 transformation; industry 4.0;
long term decision; long-term business; long-term future; long-term goals; long-term growth;
long-term importance; long-term profit growth; long-term projects; long-term returns; long-
term strategic decision; long-term strategic growth; long-term strategic vision; long-term
strategy; long-term sustainability; long-term sustainable value for shareholders; long-term
sustainable value for stakeholders long-term targets; long-term value; long-term value for

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shareholders; long-term value for stakeholders; long-term strategic investments; new business
model; new organisational structure; new perspectives; new perspectives for business; new
strategic portfolio; restructuring programme; revolutionary change; revolutionary process;
roadmap#; shift our focus to; smart factory; smart manufacturing; strategic acquisition; strategic
alliance; strategic changes; strategic control; strategic decision; strategic focus; strategic
investment; strategic objectives; strategic performance; strategic plan; strategic portfolio;
strategic priorities; strategic programs; strategic transformation; strategy review; technology
leadership; technology roadmap; technology strategy; the fourth industrial revolution; transform
the efficiency of our business; transformation journey; transformation of our business;
transformation of our company; transformation of our operating model; transformation of our
strategy; UK to leave the EU; uncertainty created by brexit; upgraded infrastructure; upgraded
infrastructure
CTTI4.0: Company Business Model Transformation (CBMT)
3d printing; advanced technolog#; artificial intelligence; automation; cloud-based technologies;
cutting-edge technologies; data analytics; data as an asset; digital applications; digital capabilities;
digital communication interfaces; digital modelling digital technologies and analytics; digital
transformation; digitalization strategies; disruptive technology; driverless vehicles; drones;
emerging technolog#; greater automation; hybrid technology; innovation processes; integrated
data platform integrated data platform; intelligent algorithms; internet of things; iot; machine
learning; new technologies; next generation technolog#; next technolog#; novel computing
technologies; process automation; robotic#; robots; smart analytics; technological advancement;
technological innovation; the next generation of tools
CTTI4.0: Challenges
cyber risk; cyberattack; cybercrime; disruptive technolog#; long-term challenges#; new threat#;
operational challenge#; real threat#; security exposure#; strategic challenge#; strategic risk
CTTI4.0: Benefits
accelerate product development; additive manufacturing; agile decision making; attractiveness
with respect to tax; augmented decision support; automating activit#; better connected;
blockchain transaction; communicating data; confidentiality and integrity; cost efficiency;
demand-driven supply chain; digital capabilit#; digital solutions digitalisation of trade; enhance
communication; enhance decision making; enhance our productivity; enhance product safety
evaluation; enhance risk mitigation capabilities; enhance scientific innovation; enhance the long-
term efficiency; enhanced service level#; enhancing long-term efficiency; flexible product#;
flexible resource allocation; greater leadership accountability; high levels of efficiency improve

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data analytics capability; improve data governance; improve decision making; improve overall
customer experience; improved transport flows and costs; improvement of the business;
increase collaboration; increasing customer satisfaction; intelligent operation#; keep people safe;
long-term competitiveness; long-term growth; make operations safer; more efficient; more
flexible resource allocation; more productive through digital solutions; more transformative and
digital capabilities; most value to our customers; new digital service model; new opportunities;
operational decision#; optimise business processes; optimise working capital; product
improvement; product improvement and innovation; product innovation; provide greater
automation reduce documentation; reduce operating costs; reduce turnaround times; reduction
in inventories; revenue growth; revenue growth and profitability; revenue profitability; rising
customer loyalty; rising customer satisfaction; risk mitigation capabilities; safeguarding and
communicating data; safeguarding data; save business money; serve our customers better;
simplify and improve processes; simplify processes; simplifying systems; stay competitive;
support decision making; support manufacturing process; support operational process; support
sales capabilities; support supply chain; support the evolving needs of the business; tax
incentives; to keep people safe; trade incentives; transformative and digital capabilit#

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