GREEN DIGITAL TRANSFORMATION AND SUSTAINABLE PERFORMANCE IN MANUFACTURING SMES: GREEN INNOVATION CAPABILITY AND REGULATORY PRESSURE

Abstract

Despite the assumption that digital transformation and environmental sustainability reinforce each other, digital transformation does not necessarily lead to greener, more sustainable companies. This conceptual review explores the impact of digital transformation on the economic, environmental, and social performance of small and medium-sized enterprises (SMEs) in manufacturing. The resource-based view of the firm and the dynamic capabilities literature are leveraged to develop the conceptualisation of green innovation capability as a major capability through which the positive impact of digital transformation takes place. The credibility and supportive nature of regulatory pressure are identified as a boundary condition that can encourage capability development. Still, they may drive SMEs to comply symbolically with regulations if the former is not credible or compliance costs exceed SMEs' ability to pay. Digital transformation is distinguished from digital adoption, and four capability foundations are identified: data visibility, process integration, intelligent optimisation, and digitally enabled collaboration. Furthermore, potential countereffects of digital transformation are explored, including energy consumption, electronic waste, cybersecurity risks, supplier exclusion, and rebound effects. Five propositions outline the relationship between digital transformation, green innovation capability, top-management environmental commitment, regulatory pressure, and multidimensional sustainable performance. An implementation path and a research design that employ structural equation modellling and configurational analysis are provided. The contribution of the paper lies in exploring the reason for the variation in the sustainability performance of SMEs that invest in the same digital technologies.