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Industry 4.0, innovation, and sustainable development: A systematic review

and a roadmap to sustainable innovation

Article in Business Strategy and the Environment · August 2021

DOI: 10.1002/bse.2867

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Received: 4 May 2021 Revised: 30 June 2021 Accepted: 15 July 2021
DOI: 10.1002/bse.2867

RESEARCH ARTICLE

Industry 4.0, innovation, and sustainable development: A

systematic review and a roadmap to sustainable innovation

Morteza Ghobakhloo1 | Mohammad Iranmanesh2 | Andrius Grybauskas1 |

1 1
Mantas Vilkas | Monika Petraitė

1
School of Economics and Business, Kaunas
University of Technology, Kaunas, Lithuania Abstract
2
School of Business and Law, Edith Cowan Despite the recent interest in the Industry 4.0 applications for sustainability, little is
University, Joondalup, Western Australia,
known on the processes through which digital transformation and Industry 4.0 tech-
Australia
nologies enable sustainable innovation in manufacturing. The present study
Correspondence
addresses this knowledge gap by developing a strategic roadmap that explains how
Morteza Ghobakhloo, School of Economics
and Business, Kaunas University of businesses can leverage Industry 4.0 technologies to introduce sustainability into
Technology, Gedimino g. 50, Kaunas 44029,
innovative practices. For this purpose, the study conducts a systematic review of
Lithuania.
Email: [email protected]; extant literature to identify Industry 4.0 functions for sustainable innovation and
[email protected]
applies interpretive structural modeling to devise the promised roadmap. The results
Funding information offer interesting insights into Industry 4.0 applications for sustainable innovation.
Horizon 2020 Research and Innovation
The strategic roadmap developed reveals that Industry 4.0 enables sustainable inno-
Program, Grant/Award Number: 810318
vation through 11 functions. Industry 4.0 and the underlying digital technologies and
principles allow businesses to improve interfunctional collaboration and better inte-
grate with internal and external stakeholders. Industry 4.0 further improves the
knowledge base and advanced manufacturing competency and promotes organiza-
tional capabilities valuable to sustainable innovation such as green absorptive capac-
ity, sustainable partnership, and sustainable innovation orientation. Through these
functions, Industry 4.0 subsequently enhances green process innovation capacity and
the ability to develop or reintroduce eco-friendly products economically and compet-
itively. Overall, the roadmap explains the complex precedence relationships among
the 11 sustainable innovation functions of Industry 4.0, offering important implica-
tions for businesses that seek to leverage Industry 4.0 sustainability implications and
manage sustainable development.

KEYWORDS
digitalization, green product, Industry 4.0 technologies, stakeholder engagement,
sustainability, sustainable development, sustainable innovation, systematic literature review

1 | I N T RO DU CT I O N of the organization in the economic reality, accounting for economic,

environmental, and societal opportunities and threats (Longoni &
The modern business mindset has massively shifted toward sustain- Cagliano, 2018). Introducing sustainable approaches into business
ability. Corporate sustainability is no longer just a strategic option, as management provides notable benefits, such as identifying
it is a business imperative critical to future survival (Cillo et al., 2019). business areas for long-term value, constructive relationships with
Sustainable business transformation involves the strategic placement internal and external stakeholders, mitigating socioenvironmental

Bus Strat Env. 2021;1–21. wileyonlinelibrary.com/journal/bse © 2021 ERP Environment and John Wiley & Sons Ltd. 1
2 GHOBAKHLOO ET AL.

risks, attracting investment, and building brand reputation (Govindan overall cleaner production (Nascimento et al., 2019; Stock
et al., 2021; Xie, Huo, & Zou, 2019). Nowadays, businesses employ et al., 2018). The advocates of Industry 4.0 also believe that the ongo-
sustainable thinking reactively to address customer demands, stake- ing digital transformation promotes social sustainability through
holders' concerns, and regulatory requirements or proactively secure improved working conditions, job creation, and enhanced customer
and sustain a competitive place in the future economy (Provasnek experience (Kadir & Broberg, 2020).
et al., 2017; Xie, Zhu, & Wang, 2019). Given the ever-increasing The implication of Industry 4.0 technologies for business inno-
importance of sustainability in business management, researchers and vation has received sporadic and piecemeal attention. For example,
industrialists strive to understand how sustainability can be intro- Liu and De Giovanni (2019) developed an economic model
duced into business practices (Awan et al., 2020). In line with this explaining how Industry 4.0 technologies such as robotics or addi-
trend, sustainable innovation has recently gained significant attention. tive manufacturing can streamline green process innovation. From
Scholars and practitioners argue that introducing innovation into busi- the performance point of view, De Giovanni and Cariola (2020)
ness practices and products should not be merely profit-driven and showed that Industry 4.0 technologies transfer the value of process
should address the environmental priorities and securing social well- innovation strategy into operational performance. Industry 4.0 tech-
being (Bag et al., 2021). Despite the continuous effort to promote sus- nologies such as big data analytics have also been reported to drive
tainable industrial operations, businesses are still struggling with supply chain innovation under the COVID-19 crisis (Hopkins, 2021).
meeting stakeholders' growing sustainability expectations (Awan Scholars have also explained how Industry 4.0 technologies can cat-
et al., 2021; Imbrogiano & Nichols, 2020). Nowadays, sustainable alyze business model innovation for servitization (Frank et al., 2019)
innovation is required more than ever to promote energy-aware pro- and circular economy (Awan et al., 2021; Ranta et al., 2021).
duction, cleaner technologies, eco-friendly yet customized products, Despite these efforts, the implications of Industry 4.0 for sustain-
and an overall sustainable industry (Chiarini, 2021). Yet, the ever- able innovation are largely understudied. Given the heterogeneity of
increasing industry clock speed, shorter product life cycles, and grow- topics, perspectives, and functions associated with sustainability
ing demand for more complex products complicate the process of implications of Industry 4.0 technologies, systematization of the pro-
introducing sustainable innovation (Di Vaio et al., 2020; Ren cess through which Industry 4.0 introduces sustainable innovation
et al., 2019). into business functions deems necessary. The present study fills this
The digital industrial transformation, known as the fourth indus- research gap by modeling this process, which involves identifying
trial revolution or Industry 4.0, is believed to offer exciting opportuni- the sustainable innovation functions of Industry 4.0 through a
ties for addressing sustainability concerns of industrial operations content-centric review of the literature and identifying the causal
(Luthra et al., 2020). Industry 4.0 involves a digital technological revo- relationships among functions identified via interpretive structural
lution, a paradigm shift from the centralized to decentralized hyp- modelling (ISM). Consistently, the study applies ISM to draw on the
erconnected manufacturing ecosystem (Li et al., 2019). Under experts' knowledge-based and structure the sustainable innovation
Industry 4.0, intelligent physical objects, decentralized subsystems, functions into a meaningful hierarchical model that describes how
and even human components are seamlessly integrated into an inter- Industry 4.0 technologies and principles can be leveraged to ensure
operable and decentralized hyperconnected production system capa- the success of sustainable innovation initiatives.
ble of real-time and autonomous adaptation to the environmental
stimulants (Ardito et al., 2019; Sanchez et al., 2020). The scope of digi-
tal transformation under Industry 4.0 expands well beyond individual 2 | I N D U S T R Y 4 . 0 A N D S U S TA I N A B L E
firms, involving vertical integration of production systems and hori- INNOVATION
zontal integration of value chain partners (Tiwari, 2020). Thanks to
the unparalleled commercial exploitation of social media, the digital Industry 4.0 concept is elusive, and the literature lacks consensus
industrial revolution also involves customer integration while defining this phenomenon (Ghobakhloo, 2018). Industry 4.0
(Ghobakhloo, 2020). Despite its infancy, the Industry originates from the “Industrie 4.0” vision, Germany's digitalization ini-
4.0-sustainability interaction has received considerable attention tiative to increase the competitiveness of the manufacturing industry.
within academia (Massaro et al., 2021). Scholars have generally been The scope of Industry 4.0 was first limited to implementing advanced
optimistic while applying the triple bottom line framework for inter- digital and operations technologies within the four walls of the factory
preting the implications of Industry 4.0 for various aspects of sustain- and shifting toward decentralized production systems where decisions
ability (Beier et al., 2020). Industrial reports reveal that digitalization are made autonomously based on self-organization mechanisms (Lasi
under Industry 4.0 offers numerous manufacturing-economic benefits et al., 2014). Nowadays, Industry 4.0 is closely tied to the hyp-
such as improved manufacturing agility, product quality, operational erconnected manufacturing chain concept, involving the horizontal
cost savings, and overall profitability (Dalenogare et al., 2018). integration of manufacturing processes and industrial operations
Although the technological push under Industry 4.0 does not neces- along the value chain (Hopkins, 2021; Tiwari, 2020). The ripple effect
sarily prioritize environmental sustainability, the interconnectedness of Industry 4.0 reaches beyond the manufacturing industry, as the
and productivity introduced to the industrial operations by Industry traces of automation and digitalization is visible across many industrial
4.0 inadvertently lead to waste reduction, energy efficiency, and sectors, given birth to controversial concepts such as Healthcare 4.0
GHOBAKHLOO ET AL. 3

(Tortorella, Fogliatto, et al., 2020) and Construction 4.0 (García de and natural environmental competency, impact the sustainable inno-
Soto et al., 2019). vativeness of the firm (Dibrell et al., 2015; Longoni & Cagliano, 2018).
The literature generally agrees that Industry 4.0, at the firm level of Ambidextrous capabilities are central to sustainable innovation to
analysis, refers to a paradigm shift involving the implementation of spe- address the challenge of balancing corporate objectives with soci-
cific digital, information, and operations technologies and the develop- oenvironmental deliverables (Soto-Acosta et al., 2018). Micro-
ment of functional design principles that, collectively, shape the digital foundations of sensing, seizing, and reconfiguring capabilities are also
industrial transformation (Lu, 2017; Nascimento et al., 2019). According fundamental to sustainable innovation capability development, espe-
to Ghobakhloo et al.'s (2021) classification, Industry 4.0 technologies cially in high-tech industries (Mousavi et al., 2019). At the external-
consist of core and facilitating technologies. The core technologies of relational level, sustainable innovation entails engagement, integra-
Industry 4.0 are the most advanced technological innovations that have tion, and collaboration with internal and external stakeholders (Cillo
recently become commercially available and economically adaptable, et al., 2019; Goodman et al., 2017). Desorptive, networking, compe-
including additive manufacturing, blockchain technology, and mixed tence mapping, and relational capabilities (Behnam et al., 2018) and
reality, to name a few. Facilitating technologies refer to more mature stakeholder integration strategy development (Juntunen et al., 2019)
and principal information and operations technologies, such as network- are essential enablers of sustainable innovation at the external-
ing infrastructure, industrial embedded systems, sensors, and enterprise relational level.
systems that enable core technologies to operate and function properly. The contribution of the literature to understanding the impact of
Alternatively, design principles of Industry 4.0 are necessary conditions Industry 4.0 on the underlying mechanism and enabling capabilities
integral to the digitalization of business processes and functionality of of sustainable innovation is limited and sporadic. Dev et al. (2020)
digital technologies (Indri et al., 2018). Without design principles, the developed a classic model of innovation diffusion to explain how
digital transformation under Industry 4.0 cannot conceivably deliver the Industry 4.0 may streamline the reverse supply chain under a sustain-
intended functions (Masood & Egger, 2019). The literature recognizes a able product diffusion environment. Liu and De Giovanni's (2019)
wide variety of Industry 4.0 principles, yet real-time capability, decen- mathematical model demonstrated the contribution of Industry 4.0
tralization, interoperability, modularity, and virtualization are the most technologies to sustainability performance via introducing green pro-
widely acknowledged principles (Murugaiyan & Ramasamy, 2021). cess innovation. Chen et al. (2021), in their study of Middle East and
Since its publicization in 2011, Industry 4.0 has received North African countries, showed that technological innovations under
unmatched attention within academia, and the countless scholarly Industry 4.0 paradigm improve energy efficiency. Interestingly,
contributions have significantly advanced the understanding of the Ghobakhloo and Fathi (2021) offered similar insights into the contri-
Industry 4.0 phenomenon and its capabilities. Assessing the opportu- butions of Industry 4.0 technological innovations to energy sustain-
nities that Industry 4.0 may offer for sustainable development has ability. Another stream of research drew on the “profiting from an
considerably popular among scholars (Khan et al., 2021). For example, innovation” perspective to explain the effect of technological innova-
the literature offers deep empirical and theoretical insights into Indus- tion, such as cellular networks (5G) or artificial intelligence, on the tri-
try 4.0 implications for sustainable manufacturing (Bag et al., 2021; ple bottom line (Gambardella et al., 2021; Rathje & Katila, 2021). For
Chiarini, 2021; Leng et al., 2020), energy sustainability (Ghobakhloo & instance, Nylund et al. (2021) described how enabling environmental
Fathi, 2021), sustainable supply chain (Luthra et al., 2020), and socio- technologies and their status as dominant design, complex, or comple-
ecological sustainability (Stock et al., 2018). Moreover, the implication mentary may have varying impacts on environmental sustainability.
of Industry 4.0 and digital technologies for the circular economy has Nonetheless, this research discipline in its embryonic stage, and the
received considerable attention (Gupta et al., 2021; Nascimento mechanism through which sustainable innovation is enabled by Indus-
et al., 2019). For example, Ciliberto et al. (2021) identified and try 4.0 is yet to be identified systematically.
explained the correlations among various features of circular economy
and Industry 4.0. Alternatively, Awan et al. (2021) offered a deep
understanding of business and sociopolitical interests and expecta- 3 | INDUSTRY 4.0 FUNCTION FOR
tions regarding circular economy transition under the Industry 4.0 SUSTAINABLE INNOVATION
context. Despite these valuable contributions, Industry 4.0 implica-
tions for sustainable innovation is significantly understudied. The study followed the standard procedure for conducting the
Sustainable innovation generally refers to renewing or improving content-centric review of the literature (Tranfield et al., 2003;
products (including physical goods and services), processes, and tech- Webster & Watson, 2002) to identify Industry 4.0 functions for sus-
nologies to deliver sustainable economic productivity and contribute tainable innovation. The content-centric review of the literature was
to environmental preservation and societal development (Cillo conducted during February 2021, while applying no specific time limit
et al., 2019). The literature has addressed the sustainable innovation to the document identification processes. As explained in Figure 1,
development process from diverse perspectives, and a one-size-fits- the first step (Step A1) involved identifying related documents within
all model to explain this process appears to be lacking within the the literature. This step involved the full-text search of Scopus and
extant literature. At the internal-managerial level, many competencies Web of Science databases using various combinations of Industry
and capabilities, such as uncertainty tolerance, social consciousness, 4.0-related keywords, including “Industry 4.0”, “Industrie 4.0,” and
4 GHOBAKHLOO ET AL.

FIGURE 1 The process of conducting the content-centric review of the literature

“fourth industrial revolution,” and the “innovation” and “innovative” identified 104 additional documents for further screening. Across the
keywords. The initial search conducted across step A1 identified secondary screening attempt (Step B2), the 104 additional documents
346 documents. Step A2 of the content-centric review involved defin- identified in Step B1 were subjected to the exclusion criteria, which
ing the exclusion criteria as the items (EXC1 to EXC4) listed in yielded 7 extra eligible articles for content analysis. Step C1 involved
Figure 1. The initial screening as Step A3 involved subjecting the the forward review of the literature using Web of Science and Google
346 documents identified in Step A1 to the exclusion criteria identi- Scholar to identify unchecked related documents citing the eligible
fied in Step A2, which led to the initial pool of 54 eligible articles. The articles identified across Steps A3 and B2, which led to identifying
backward review of literature in step B1, as explained in Figure 1, 143 related documents for further screening. In the tertiary screening
GHOBAKHLOO ET AL. 5

attempt (Step C2), the 143 articles identified across Step C1 were boundaries, assimilate it, and commercially apply it to gain a competi-
subjected to the exclusion criteria. As a result, 9 extra eligible articles tive advantage (Cohen & Levinthal, 1990). Having the complexity of
were identified, leading to the final pool of 70 (54 + 7 + 9) eligible the sustainability phenomenon in mind, green absorptive capacity
articles. (GAC) refers to a firm's ability to identify, understand, communicate,
Step D of the review process involved the manual content analy- and integrate environmental knowledge to support sustainable inno-
sis of the 70 eligible articles. Two assessors conducted the content vation (Pacheco et al., 2018). Zhang et al. (2020) explain that firms
analysis of eligible articles independently and followed the review pro- with higher GAC are more likely to realize the environmental pressure
tocol designed by the research team to minimize the threat of asses- and sustainability initiatives within the market, thus turning environ-
sor bias. Following Ghobakhloo et al. (2021), the study executed the mental opportunities into capitalizable sustainable innovation. GACD
following steps to ensure the validity and reliability of the content- is a highly information and knowledge-intensive process (Cooper &
centric review: Molla, 2017; Pacheco et al., 2018), and the information sharing and
processing capabilities of Industry 4.0 offer businesses unique oppor-
• Constructing an initial “content-centric review execution frame- tunities for developing the competencies vital to GAC, such as scan-
work” to structure all review procedures; ning, coordination, and socialization capabilities (Müller et al., 2020).
• Ensuring knowledgeability of the independent assessors regarding Industry 4.0 mainly delivers this function via its key underlying tech-
the concepts of interest; nologies such as Artificial Intelligence (AI) and design principles such
• Preventing data loss and ensuring record traceability and reliability as real-time capability (Mahmood & Mubarik, 2020).
via using a dependable data management platform;
• Collaborative reexamination of each article content by the two
assessors for disagreement tracking; 3.3 | Green process innovation capacity (GPSIC)
• Developing and implementing an inclusive contextual text den-
oising procedure. GPSIC denotes a firm's ability to modify its business processes to pro-
duce more eco-friendly products or upgrade its business processes to
By the end of the content-centric review of eligible articles and operate in a more environmental-friendly way to meet eco-targets
through cross-checking of review outputs, the research team identi- (Xie, Huo, & Zou, 2019). Scholars such as Xie, Zhu, and Wang (2019)
fied 11 functions through which Industry 4.0 facilitates sustainable and Zhang et al. (2020) have empirically demonstrated that GPSIC is
innovation. The following sections introduce and explain these func- an essential contributor to sustainable innovation. Industry 4.0 and
tions concisely. the underlying technologies promote GPSIC in various ways. First,
technologies such as additive manufacturing, intelligent robots, auto-
mated guided vehicles, and (AGVs) significantly reduced the amount
3.1 | Advanced manufacturing competency (AMC) of waste associated with industrial operations (Chiarini, 2021; Liu &
De Giovanni, 2019). Second, various smart factory components such
AMC, at the corporate level of analysis, entails dynamic abilities, skills, as sensor-equipped machinery, Industrial Internet of Things (IIoT), and
and knowledge indispensable to the success of industrial operations Cyber-Physical Production Systems (CPPS) allow the integration of
(Chung & Swink, 2009). It involves many workplace competencies, innovative real-time energy monitoring systems that massively opti-
such as creative thinking, advanced equipment utilization, and sustain- mize energy consumption (Ghobakhloo & Fathi, 2021). Third, Industry
able practices (Bag et al., 2021). The literature proposes that AMC 4.0 technologies (such as AI and digital twin) and design principles
fosters sustainable innovation knowledge-based sources and provides (e.g., real-time capability, integrability, interoperability, and decentrali-
the necessary technological infrastructure to translate the knowledge- zation) streamline the eco-reconfiguration of equipment, production
based sources into product and process innovation (Kong et al., 2016; technologies, supply chain interactions, and customer service delivery
Reynolds & Uygun, 2018). Promoting AMC is at the heart of Industry (Benitez et al., 2020; Reischauer, 2018).
4.0 (Szalavetz, 2019). Industry 4.0 and the underlying digitalization
deliver this function by better human-machine interaction, inter-
departmental connectivity, clarity of communication, improving pro- 3.4 | Green product innovation capacity (GPTIC)
duction planning and control, and streamlining production operations
(Benitez et al., 2020; Dalenogare et al., 2018). Product innovation capability denotes a firm's ability to develop and
introduce a new product that satisfies the unmet market demand
(Najafi-Tavani et al., 2018). Product innovation capability has been
3.2 | Green absorptive capacity development generally considered as the approximation of a firm's overall innova-
(GACD) tiveness (Arslanagic-Kalajdzic et al., 2017). By definition, GPTIC refers
to a firm's competencies in the environmental-aware development of
The absorptive capacity denotes a firm's capability to recognize the new products or the eco-friendly redesigning of the existing products
value of new information within and outside organizational (Awan et al., 2020). The literature widely acknowledges the role of
6 GHOBAKHLOO ET AL.

GPTIC as a crucial enabler of sustainable innovation (Cillo et al., 2019; et al., 2018b; Salim et al., 2019). Industry 4.0 contributes to NPDC by
Dangelico, 2016). The contribution of Industry 4.0 to GPTIC is multi- first improving the performance of the NPD team. Industry 4.0
faceted. First, customer-integration features of Industry 4.0, thanks to delivers this function by increasing the efficiency of project and
the Internet of People (IoP), Internet of Services (IoS), and Cloud data resource management operations and streamlining real-time interfirm
technology allow businesses to sense the ongoing and future sustain- and intrafirm NPD collaboration and information sharing
ability trends and preferences within the market (Ardito et al., 2019). (Wijewardhana et al., 2020). Secondly, additive manufacturing, aug-
Second, disruptive technologies such as digital twin can massively mented and virtual reality, and HPC-CAD increase the productivity of
increase the green product ideation capacities, mainly via dynamic NPD efforts and allow the prototyping of the most complex eco-
simulation of a new product's entire life cycle (Tao, Cheng, friendly products in a timely and economical manner (Ahmed
et al., 2018). Thirdly, additive manufacturing, augmented reality, and et al., 2020). In particular, the digital twinning of design concepts
High-performance Computing Computer-aided Design (HPC-CAD) allows designers to virtually identify new product shortfalls and per-
increase the efficiency of new green product design processes and formance flaws, which enables more radical yet cheaper and faster
complex prototyping (Chiarini, 2021; Dev et al., 2020). product innovation (Tao, Zhang, et al., 2018).

3.5 | Interfunctional collaboration and learning 3.7 | Product life-cycle management capability
(ICL) (PLMC)

The literature shows that interdepartmental synergies and collabora- Product Life-cycle Management (PLM) is an information-driven inte-
tion promote organizational learning capability (Peris-Ortiz grated approach with the ultimate goal of creating competitive prod-
et al., 2018) and incorporate sustainable innovation vision into the ucts outperforming in various aspects such as profitability, customer
various functional areas (Reficco et al., 2018). This level of inter- satisfaction, time-to-market, and eco-friendliness (Gmelin &
functional collaboration and learning capacity, in turn, increases the Seuring, 2014). PLMC thrives on accessing data from all stages of
sustainable innovation capacity and performance (Albort-Morant, product life, from concept development to recycling. Thus, PLMC
Leal-Millán, et al., 2018; Albort-Morant, Leal-Rodríguez, & De involves product, process, and engineering project data management
Marchi, 2018). Consistently, the organization can develop green inno- at the manufacturing, supply chain, and marketing level (Zhang
vation competencies and creativity in sustainable innovation, thus, et al., 2017). Thus, PLMC promotes sustainable innovation through
enhancing the sustainable innovation performance of the organization product and process design optimization, improving forecasting capa-
(De Medeiros et al., 2014). Industry 4.0 offers the ICL function by bility, enhanced market sensing, prototyping productivity, and, more
facilitating interpersonal and interdepartmental communication, importantly, monitoring emission, waste, resource consumption, and
breaking down information silos, and promoting adaptive learning recycling monitoring (Gmelin & Seuring, 2014; Ren et al., 2019). PLMC
(Tortorella, Cawley Vergara et al., 2020). Seamless communication is is a direct function of Industry 4.0 transformation, given that more
the backbone of Industry 4.0, allowing employees to work in closer complex products with a shorter life-cycle have significantly increased
proximity to each other and the machinery (e.g., robots) in a signifi- the information intensity of PLM practices (Liu et al., 2020). Industry
cantly smarter and more integrated way (Longo et al., 2017). Industry 4.0 delivers the PLM capability function by using AI, blockchain, IIoT,
4.0 technologies such as IoP and smart wearables allow employees and big data to offer an integrated and secure information exchange
and managers to transparently and interactively communicate verti- platform to all product stakeholders (Leng et al., 2020). In particular,
cally and horizontally across various departments, thus, eliminating the interoperability principle of Industry 4.0 allows manufacturing
the communication gaps (Ghobakhloo, 2020). Besides, visualization partners and their equipment and systems to share information accu-
and simulation technologies such as augmented and virtual reality rately and reliably in real-time (Fraga et al., 2020).
offer innovative industrial training and learning methods, boosting ide-
ation, creativity, and critical thinking among employees (Egger &
Masood, 2020). 3.8 | Sustainable innovation orientation
development (SIOD)

3.6 | New product development competency Sustainable innovation orientation refers to a firm's attitude toward
(NPDC) innovativeness (developing new green ideas) and innovative capacity
to transform the new green ideas into a product or process innovation
NPDC refers to a firm's ability to develop a new product or introduce (Aboelmaged & Hashem, 2019; Ayuso et al., 2011). Sustainable inno-
major innovation into existing products in a timely and economically vation orientation concerns the strategic alignment of stakeholders,
productive manner in support of product competitiveness (Tang & products, processes, and organizational values with sustainability pri-
Ghobakhloo, 2013). The contribution of NPDC to sustainable innova- orities such as pollution reduction and eco-design (Wang et al., 2020).
tion performance has been long acknowledged (e.g., Albort-Morant Due to its broad scope, SIOD depends on various prerequisites,
GHOBAKHLOO ET AL. 7

especially stakeholder engagement and knowledge management The so-called Human Resource Management 4.0 under Industry 4.0
(Ayuso et al., 2011), conditions that are widely facilitated by Industry allows top management to implement individualized sustainability
4.0. IIoT, cloud data, and big data analytics are among the emerging training and carrier development plans (Rana & Sharma, 2019).
Industry 4.0 technologies that significantly facilitate information shar- Besides, digitally enabled STM offers analytical and real-time insights
ing and support knowledge management (Li et al., 2019). More impor- into employee productivity and management, thus, building aware-
tantly, vertical and horizontal integration is arguably the most ness of employee contribution to sustainable innovation (Di Vaio
prominent design principles of Industry 4.0 (Ghobakhloo & et al., 2020; Song et al., 2019).
Iranmanesh, 2021), which plays an essential role in integrating a focal
firm with suppliers and sale partners, delivery channels, shareholders,
and even customers (Ghobakhloo & Fathi, 2021). 3.11 | Value chain integration (VCI)

The literature shows that sustainable innovation significantly depends

3.9 | Sustainable partnership and collaboration on integrating all value chain partners and creating synergy between
(SPC) all the stakeholders involved in the innovation development processes
(Todeschini et al., 2020). VCI contributes to sustainable innovation by
In many cases, sustainable innovation necessitates fundamental reducing innovation costs, eliminating cultural barriers, and facilitating
changes well beyond the capabilities of individual firms (Reficco cocreation practices (Provasnek et al., 2017; Reficco et al., 2018). VCI
et al., 2018). SPC and the resulting sustainable innovation have is an integral part of Industry 4.0, mainly delivered through the two
become a significant source of competitiveness for modern indus- design principles of vertical integration and horizontal integration
trial value chains (Aboelmaged & Hashem, 2019). SPC may come in (Tiwari, 2020). Vertical integration involves the firm-level networking
many forms, involving business, public entities, small manufacturing of intelligent production systems and processes, facilitated by CPPS
chains, and micro-financiers (Govindan et al., 2021). SPC involves and IIoT (Sanchez et al., 2020). Vertical integration allows the net-
many aspects of sustainable innovation, from sustainable product working of equipment, machinery, material, and human components
design, green processes, sustainable business models, and collabora- to support resource efficiency, improved communication, and flexibil-
tive life-cycle management to sustainable value co-creation ity across production processes (Dalenogare et al., 2018). Horizontal
(Melander, 2017). Industry 4.0 offers many opportunities to stream- integration involves developing a hyper-connected industrial ecosys-
line these underlying activities. Industry 4.0 transition involves tem via real-time networking of value chain partners at the regional or
developing a hyperconnected business ecosystem that draws on global scale via the Internet of Data (IoD), IIoT, IoS, and IoP
cloud data technology, IoP, and IoS to create real-time and secure (Tiwari, 2020). Horizontal integration creates transparency, productiv-
communication among value chain partners (Ghobakhloo, 2020). ity, and flexibility across the entire value chain and promotes cus-
The resulting information integration and transparency facilitate tomer orientation, innovation capability, resource efficiency, and
stakeholder involvement in proactively addressing sustainability overall sustainability of operations across supply chains (Luthra
issues (Awan et al., 2021; Stock et al., 2018). Besides, the advanced et al., 2020).
manufacturing technologies of Industry 4.0, such as additive
manufacturing, intelligent robotics, augmented and virtual reality,
and digital twin technology, increase the effectiveness of proactive 4 | I N T E R P R E T I V E S T R U C T U RA L
green product development and process design under the SCP M O D E LI N G
agenda (Liu & De Giovanni, 2019).
ISM is a paired comparison analytical tool that can reliably, meaning-
fully, and visually explain the complex relationships among a system's
3.10 | Sustainable talent management (STM) components (Guan et al., 2020). ISM offers a unique theory-building
opportunity for exploratory research by translating subjective
The literature widely acknowledges that developing and managing resources such as expert judgment and experience into a graph-
sustainability knowledge and expertise is crucial to the businesses theoretic causal model (Shankar et al., 2018). ISM has been a popular
seeking sustainable innovation success (Dangelico, 2016). STM may technique for theory building and causal modeling within the techno-
entail recruiting talents with environmental skills, providing the neces- logical innovation literature, examples of which include modeling the
sary sustainability education and training, identifying new sources of implementation of green innovation (Yang & Lin, 2020), big open
sustainable talent, developing sustainable talent potential, and effi- linked data innovation opportunity (Dwivedi et al., 2017), customer
ciently allocating sustainable talent resources (Gardas et al., 2019; cocreation innovation (Sarmah & Rahman, 2018), and success of food
Glen et al., 2009). Industry 4.0 delivers the STM function by enabling logistics system traceability (Shankar et al., 2018). Following the well-
businesses to use AI, predictive analytics, and e-hiring platforms to established guides available within the literature (e.g., Guan
pinpoint the suitable candidates having the necessary sustainability et al., 2020; Warfield, 1982), ISM in the present study includes seven
competencies within the existing pool of talents (Ghobakhloo, 2020). stages visualized in Figure 2.
8 GHOBAKHLOO ET AL.

FIGURE 2 The seven stages of conducting ISM [Colour figure can be viewed at wileyonlinelibrary.com]

4.1 | Collecting expert view and opinion 4.2 | Establishing the contextual relationships

As explained in Figure 2, the first step in executing ISM involves col- ISM uses the following coding scheme to establish the contextual
lecting experts' opinions on Industry 4.0 implications for sustainable relationships and construct the Structural Self-Interaction Matrix
innovation. Following the existing guideline for expert identification (SSIM). The SSIM for the present study is constructed and presented
and selection (Hertzum, 2014), the research team identified eight aca- in Table 1. For instance, the GACD-SPC entry in Table 1 is
demicians willing and knowledgeable to participate in the study. The presented as x, meaning green absorptive capacity development and
expert identification and selection procedure ensured that the expert sustainable partnership and collaboration determine (cause) each
group had been knowledgeable about the industrial application of other mutually.
Industry 4.0 technologies for product innovation, process innovation,
and manufacturing innovation and sustainability. The research team V: Sustainable innovation function i causes sustainable innovation
employed the Nominal Group Technique (NGT) to organize multiple function j
expert panel meetings and capture the experts' opinions. Following A: Sustainable innovation function i is caused by sustainable innova-
NGT, the experts' opinions were collected in a series of five expert tion function j
panel meetings. Within the first two expert panel meetings, Industry X: Sustainable innovation functions i and j cause each other
4.0 functions for sustainable innovation, identified across the content- O: Sustainable innovation functions i and j are independent
centric review of literature, were refined and validated by the experts.
Experts further identified and collaboratively decided on the relation-
ships among each pair of Industry 4.0 sustainable innovation functions
across expert panel meetings 3, 4, and 5. Overall, executing NTG in 4.3 | Constructing the initial reachability matrix
the present study involved applying (1) preparation step clarifying the
objectives of each meeting, (2) silent idea generation of the experts, The Initial Reachability Matrix (IRM) within ISM is constructed based
(3) round-robin recording of experts' opinion, (4) serial discussion of on the widely-acknowledged conversion rules listed in the following
opinions, (5) preliminary voting on the relationship among each pair (Dwivedi et al., 2017):
of functions, (6) discussion on the preliminary voting, (7) final voting If the (i, j) entry in the SSIM symbolizes as V, entry (i, j) in the IRM
on the relationship among each pair of functions, and (8) establishing is set to 1, and entry (j, i) is set to 0.
the interpretive logic-knowledge base using experts' opinion. Across If the (i, j) entry in the SSIM symbolizes as A, entry (i, j) in the IRM
the NGT-based expert panel meetings, the facilitator (moderator) is set to 0, and entry (j, i) is set to 1.
strived to eliminate any sources of potential bias, such as opinion If the (i, j) entry in the SSIM symbolizes as X, both (i, j) and (j, i)
invisibility or discussion imbalance among experts. entries in the IRM are set to 1.
GHOBAKHLOO ET AL. 9

TABLE 1 Structural self-interaction matrix for Industry 4.0 sustainable innovation functions

Functions VCI STM SPC SIOD PLMC NPDC ICL GPTIC GPSIC GACD AMC
Advanced manufacturing competency (AMC) O O O O V V A V V O -
Green absorptive capacity development (GACD) A A X V A O A V V -
Green process innovation capacity (GPSIC) O A A A A O A V -
Green product innovation capacity (GPTIC) O A A A A A A -
Interfunctional collaboration and learning (ICL) O O O V V V -
New product development competency (NPDC) A O O O A -
Product life-cycle management capability (PLMC) A A A V -
Sustainable innovation orientation development O A V -
(SIOD)
Sustainable partnership and collaboration (SPC) A X -
Sustainable talent management (STM) O -
Value chain integration (VCI) -

TABLE 2 Initial reachability matrix for Industry 4.0 sustainable innovation functions

Functions AMC GACD GPSIC GPTIC ICL NPDC PLMC SIOD SPC STM VCI
AMC 1 0 1 1 0 1 1 0 0 0 0
GACD 0 1 1 1 0 0 0 1 1 0 0
GPSIC 0 0 1 1 0 0 0 0 0 0 0
GPTIC 0 0 0 1 0 0 0 0 0 0 0
ICL 1 1 1 1 1 1 1 1 0 0 0
NPDC 0 0 0 1 0 1 0 0 0 0 0
PLMC 0 1 1 1 0 1 1 1 0 0 0
SIOD 0 0 1 1 0 0 0 1 1 0 0
SPC 0 1 1 1 0 0 1 0 1 1 0
STM 0 1 1 1 0 0 1 1 1 1 0
VCI 0 1 0 0 0 1 1 0 1 0 1

If the (i, j) entry in the SSIM symbolizes as O, both (i, j) and (j, i) sustainable innovation function. Driving power implies the number of
entries in the IRM are set to 0. functions caused by a particular function, whereas dependence power
Table 2 offers the IRM of the study, which has been developed denotes the total number of functions that cause a particular
by applying the conversion rules explained above to the SSIM pres- function.
ented in Table 1.

4.5 | Establishing hierarchy level of sustainable

4.4 | Constructing the final reachability matrix innovation functions

Final Reachability Matrix (FRM) is developed by applying the Transitiv- The process of establishing the necessary hierarchy levels involves
ity rule to the relationships identified within the IRM (Guan constructing the reachability, antecedent, and intersection sets for
et al., 2020). The FRM of the study is presented in Table 3. To better each sustainable innovation function using the values within the FRM
explain the transitivity rule, the AMC- GACD entry in Table 3, which (Yang & Lin, 2020). For a given sustainable innovation function, the
is shown as 1*, can be exemplified. AMC-GACD value in IRM reachability set includes the function itself and other sustainable inno-
(Table 2) is 0, which means AMC does not directly cause GACD. How- vation functions that it causes. Alternatively, the antecedent set con-
ever, AMC directly causes PLMC (AMC-PLMC value in Table 2 is 1), sists of the function itself and other sustainable innovation functions
and PLMC directly causes GACD (PLMC-GACD value in Table 2 is 1). that it is caused by. The intersection set for a given sustainable innova-
Thus, the transitivity rule implies that AMC should be regarded as a tion function consists of the intersection among its reachability and
direct cause of GACD within the FRM. Table 3 also calculates and antecedent sets (Sarmah & Rahman, 2018). After establishing the
presents the driving power and dependence power of each reachability, antecedent, and intersection sets for all functions,
10 GHOBAKHLOO ET AL.

TABLE 3 Final reachability matrix, driving power, and dependence power for sustainable innovation functions

Functions AMC GACD GPSIC GPTIC ICL NPDC PLMC SIOD SPC STM VCI Driving Power Ranking

AMC 1 1* 1 1 0 1 1 1* 0 0 0 7 3
GACD 0 1 1 1 0 0 1* 1 1 1* 0 7 3
GPSIC 0 0 1 1 0 0 0 0 0 0 0 2 4
GPTIC 0 0 0 1 0 0 0 0 0 0 0 1 5
ICL 1 1 1 1 1 1 1 1 1* 0 0 9 1
NPDC 0 0 0 1 0 1 0 0 0 0 0 2 4
PLMC 0 1 1 1 0 1 1 1 1* 0 0 7 3
SIOD 0 1* 1 1 0 0 1* 1 1 1* 0 7 3
SPC 0 1 1 1 0 1* 1 1* 1 1 0 8 2
STM 0 1 1 1 0 1* 1 1 1 1 0 8 2
VCI 0 1 1* 1* 0 1 1 1* 1 1* 1 9 1
Dependence Power 2 8 9 11 1 7 8 8 7 5 1
Ranking 6 3 2 1 7 4 3 3 4 5 7

Note: The AMC-GACD entry is shown as 1*.

FIGURE 3 ISM model of Industry 4.0-enabled sustainable innovation [Colour figure can be viewed at wileyonlinelibrary.com]

the extraction process can commence by establishing the hierarchy 4.6 | Constructing the interpretive
levels iteratively. In each iteration, functions with identical reachability structural model
and intersection sets are identified and extracted, which involves
removing them from the reachability, antecedent, and intersection sets The final structural model within the ISM method is constructed by
of remaining functions (Dwivedi et al., 2017). The process of positioning each of the Industry 4.0 sustainable innovation functions
extracting functions continues iteratively to identify the hierarchy according to their specific extraction (hierarchy) level into a visual
level of all sustainable innovation functions. Table A1 explains the model and showing the causal relationships among each pair of func-
extraction pattern and hierarchy level of Industry 4.0 functions for tions with vector arrows. Figure 3 presents the ISM model of Industry
sustainable innovation. 4.0-enabled sustainable innovation. The sustainable innovation
GHOBAKHLOO ET AL. 11

functions within this model have been positioned within five place- and learning, value chain integration, advanced manufacturing compe-
ment levels, which corresponds with the number of iterations within tency, and sustainable talent management are the four functions that
Table A1. Consistent with the ISM methodology, the placement level fall within the driver quadrant. The linkage quadrant consists of sus-
in the interpretive structural model must be the opposite of the itera- tainable innovation functions with strong driving and strong depen-
tion levels identified within the hierarchy level establishment process. dence powers. Sustainable partnership and collaboration, green
Consistently, functions extracted in the 5th iteration within Table A1 absorptive capacity development, product life-cycle management
have been positioned at the 1st placement level in Figure 2. More capability, and sustainable innovation orientation development are
importantly, the transitivity rule is ignored while developing the inter- the four linkage functions shown in Figure 4. The dependent quadrant
pretive structural model, which means the structural model merely includes sustainable innovation functions with weak driving yet strong
shows the direct causal relationships among successive placement dependence powers. New product development competency, green
levels graphically using vector arrows. process innovation capacity, and green product innovation capacity,
placed at the bottom-right quadrant of Figure 4, are categorized as
dependent functions.
4.7 | MICMAC analysis

The final step in ISM involves conducting MICMAC analysis and 5 | DI SCU SSION
assessing the driving power and dependence power of Industry 4.0
sustainable innovation functions. Figure 4 illustrates the MICMAC The ISM results, Industry 4.0-enabled sustainable innovation model
analysis matrix of the present study. As an indirect and comparative in Figure 3, and the MICMAC matrix in Figure 4, collectively,
evaluation classification technique, MIMMAC involves categorizing explain that Industry 4.0 and the underlying digitalization facilitate
variables of interest (functions in the present study) into four quad- sustainable innovation by first developing interfunctional collabora-
rants: autonomous, driver, linkage, and dependent (Shankar tion and learning (ICL function) and enabling value chain-wide inte-
et al., 2018). The autonomous quadrant consists of Industry 4.0 sus- gration of stakeholders (VCI function). Industry 4.0 further
tainable innovation functions with weak driving and dependence promotes sustainable innovation by enabling businesses to develop
power. Figure 4 shows that none of the functions within the present and implement sustainable talent management strategies and prac-
study fall within the autonomous quadrant, signifying the complexity tices (STM function). Through ICL and VCI function and by verti-
of relationships among the 11 sustainable innovation functions. The cally integrating intelligent production systems and processes at the
driver quadrant includes sustainable innovation functions with strong business level and horizontally integrating value partners, Industry
driving yet weak dependence powers. Interfunctional collaboration 4.0 creates a hyper-connected industrial ecosystem that improves

F I G U R E 4 Driving and
dependence power MICMAC
matrix for Industry 4.0
sustainable innovation functions
[Colour figure can be viewed at
wileyonlinelibrary.com]
12 GHOBAKHLOO ET AL.

the entire value chain's advanced manufacturing competency (AMC 5.1 | The roadmap to sustainable innovation
function). ICL, VCI, STM, and AMC functions are categorized as the capability development
driver functions (Figure 4), which means they are the stepping stone
in transforming the values offered by Industry 4.0 into sustainable The industry 4.0-enabled sustainable innovation model in Figure 3
innovation. shows the optimized sequence of developing sustainable innovation
Through driver functions, Industry 4.0 supports sustainable inno- functions to leverage the sustainable innovation values offered by
vation by facilitating partnership and collaboration on various aspects Industry 4.0 transformation. To serve this purpose and following the
of sustainable innovation (SPC function), developing the absorptive ISM rules, Figure 3 merely recognizes and visualizes the direct causal
capacity to support green innovation (GACD function), streamlining relationships between sustainable innovation functions positioned at
PLM by retrieving data from all stages of product life (PLMC function), the successive placement levels. To create a deeper understanding of
and improving firm's capacity to develop and further commercialize the processes through which Industry 4.0 enables sustainable innova-
green ideas (SIOD function). The four linkage functions of SPC, GACD, tion, the study constructs the Interpretive Logic-knowledge Base (ILB)
PLMC, and SIOD, positioned at placement level 3 within Figure 3, according to the experts' opinion captured with the NGT expert panel
have high driving power and dependence power. It means they are meetings. Developing ILB for the pair-wise comparison of the ele-
vital in transferring the value of the driver sustainable innovation func- ments is a common practice within the Total ISM technique. Table A2
tions into the dependent sustainable innovation functions of NPDC, presents the ILB of the study, which describes all the direct causal
GPSIC, and GPTIC. relationships, explaining how each function influences or enhances
Finally, the contribution of Industry 4.0 to sustainable innovation other functions. For example, Table A2 reveals that the advanced
involves using disruptive technologies such as additive manufacturing manufacturing competency function of Industry 4.0 enables the green
and digital twin for introducing radical product innovations economi- product innovation capacity function by enabling (1) the rapid
cally (NPDC function), modifying business processes for more eco- prototyping of new green products, (2) mass production of highly dif-
friendly products and business operations (GPSIC function), and ferentiated green products, (3) virtual optimization of the environmen-
developing new green products or improving the eco-friendliness of tal performance of existing products, and (4) virtual conceptualization
existing ones (GPTIC function). NPDC, GPSIC, and GPTIC are the of green products. Figure 5 presents the roadmap to sustainable inno-
most challenging and sustainable innovation functions of Industry 4.0, vation capability development, which builds on the hierarchy levels
given that their development directly relies on the favorable presence identified in Table A1 and direct causal relationships listed in
of driver and linkage functions. Table A2. The sustainable innovation roadmap presented in Figure 5

F I G U R E 5 The roadmap to sustainable innovation capability development under Industry 4.0 [Colour figure can be viewed at
wileyonlinelibrary.com]
GHOBAKHLOO ET AL. 13

maps all the precedence relationships among the eleven sustainable innovation capacity, green product innovation capacity, inter-
innovation functions and visualizes each function's driving role and functional collaboration and learning, new product development com-
dependence power. petency, product life-cycle management capability, sustainable
The ISM model in Figure 3, the roadmap presented in Figure 5, innovation orientation development, sustainable partnership and col-
and the description of each relationship in Table A2 clearly explain laboration, sustainable talent management, and value chain integra-
how Industry 4.0 and the underlying digital transformation of indus- tion. These efforts led to the development of the ISM model of
trial value chains enable sustainable innovation. Overall, results show Industry 4.0-enabled sustainable innovation, explaining the sequence
that Industry 4.0 enables sustainable innovation via a complicated of functions through which Industry 4.0 contributes to sustainable
procedure involving various highly intertwined functions. Inter- innovation. Further, the roadmap to sustainable innovation capability
functional collaboration and learning (ICL) is the most fundamental development under Industry 4.0 clearly explained how each function
sustainable innovation function of Industry 4.0. ICL directly enables interacts with other functions while contributing to sustainable inno-
seven sustainable innovation functions of AMC, GACD, GPSIC, vation. The results are expected to provide important implications for
GPTIC, NPDC, PLMC, and SIOD, mainly through facilitating advanced the theory and practice.
manufacturing technology adoption, interfirm communication of
green management, sharing of green materials information, and align-
ment of organizational values with sustainability, to name a few. VCI 6.1 | Implications
is arguably the second most fundamental sustainable innovation func-
tion of Industry 4.0, given its strong driving and weak dependence The need for introducing sustainability into innovation activities is
powers. The essential role of VCI roots in the sustainable innovation relentlessly growing in importance, and scholars and practitioners are
scope that integrates economics, environmental, and social objectives striving to understand how sustainability issues and innovation prac-
and the way hyper-connectivity features of Industry 4.0 support these tices can be reconciled. Researchers believe that sustainable innova-
objectives. Sustainable innovation functions placed at the left side of tion necessitates a strategic shift in business dynamics, yet how this
Figure 5 are rarely interdependent. Thus, the development of these strategic shift can occur has remained mostly unanswered. The pre-
functions and their delivery via Industry 4.0 transformation can be sent study addressed this knowledge gap by explaining the Industry
planned and materialized relatively independently. The inter- 4.0 mechanism for enabling such strategic shift in business dynamics
dependency of functions massively increases by moving toward the that facilitates sustainable innovation processes. Results show that
right side of Figure 5. The four linkage functions of SCP, GACD, Industry 4.0 delivers this enabling mechanism at intraorganizational
PLMC, and SIOD are highly interdependent. The relational loops such and intrafirm levels and through 11 sustainable innovation functions.
as GACD ! SIOD ! SPC ! PLMC ! GACD within Figure 5 show Industry 4.0 primarily supports sustainable innovation by facilitating
that developing these functions should methodically be planned as the necessary cultural and structural openness. Industry 4.0 delivers
successive yet interdependent organizational projects to execute this role by first promoting interfunctional collaboration and learning.
simultaneously. Sustainable process and product innovation (GPSIC By doing so, Industry 4.0 develops an organizational norm and strate-
and GPTIC functions) are the least accessible opportunities that gic direction that facilitates sustainable innovation through promoting
Industry 4.0 offers for sustainable innovation, mainly because their constructive communication of sustainability values, information shar-
development depends on the factual presents of the nine preceding ing, and data governance and traceability. Secondly, Industry 4.0 pro-
functions, as mapped in Figure 5. Nevertheless, GPSIC and GPTIC are motes openness via value chain integration, thus streamlining
the essential pillars of sustainable innovation (e.g., Zhang et al., 2020), interfirm communication of sustainability preferences and external
and leveraging Industry 4.0 opportunities in support of GPSIC and stakeholders' green demands. The openness feature of Industry 4.0
GPTIC functions has become an integral part of sustainable further streamlines collaborative product development, product life-
competitiveness. cycle data transparency, and sustainable partnership activities.
Results show that Industry 4.0 facilitates sustainable innovation
transition at the internal competence level by enabling sustainability
6 | CONCLUDING REMARKS training and improving employees' contribution to sustainable innova-
tion. Consistently, Industry 4.0 provides a knowledge-based source
The present study strived to explain the opportunities that Industry functional to product and process innovation. These competencies led
4.0 and the underlying digitalization might offer for sustainable inno- to developing sustainable talent management and advanced
vation. The study first reviewed the concepts of Industry 4.0 and sus- manufacturing competency functions, which promote eco-ideation
tainable innovation and further conducted a content-centric review of and innovation, prioritize sustainable management practices, integrate
the literature to identify sustainable innovation functions of Industry sustainable thinking into business functions, and improve the sustain-
4.0. By reviewing the literature and applying the ISM technique, the ability performance of manufacturing operations and products.
study showed that Industry 4.0 enables sustainable innovation By facilitating value chain partnerships, Industry 4.0 promotes the
through 11 intertwined functions of advanced manufacturing compe- value chain-wide inclination toward sustainable innovativeness and
tency, green absorptive capacity development, green process strategically aligns internal and external stakeholders with
14 GHOBAKHLOO ET AL.

sustainability priorities. The hyperconnected business ecosystem principles such as real-time capability and horizontal integration. Digi-
under Industry 4.0 allows value chain partners to exchange informa- tal transformation under Industry 4.0 is reportedly multifaceted,
tion on various product life stages securely and further engage in col- requiring resource readiness, operations and digital maturity, strategic
laborative green knowledge management. Consistently, the digitalization management competency, change management compe-
sustainable partnership and collaboration, PLM capability, and sustain- tencies, and business partner digital maturity, to name a few require-
able innovation orientation development functions of Industry 4.0 ments. Not all industrial value partners have the capacity to embark
facilitate sustainable innovation by allowing value chain partners to on digital transformation under Industry 4.0 thoroughly. Indeed, digi-
develop actionable green partnership objectives, monitor products talization under Industry 4.0 progresses gradually as discrete technol-
sustainability performance, and collaboratively develop and commer- ogy (e.g., additive manufacturing) implementation projects. The
cially use cleaner processes, technologies, and materials. present study could not conceivably measure the impact of discrete
Industry 4.0 contribution to sustainable innovation also involves Industry 4.0 technologies on sustainable innovation. The future study
improving the technological capabilities of companies to introduce can address this research gap by methodically measuring how Industry
sustainability into innovation practices. The disruptive technologies 4.0 technological implementation levels and the quality of developing
introduced under Industry 4.0 improve the eco-efficiency of business functional principles of Industry 4.0 can contribute to sustainable
processes, production technologies, and supply chain interactions. innovation capacity development.
Industry 4.0 technologies further enhance the productivity and effi- In addition, the present study hypothetically describes the appli-
ciency of product design and prototyping activities, enabling the cations of Industry 4.0 and underlying digitalization for sustainable
development of more complex and modular eco-friendly products. innovation. Indeed, the literature supplies necessary support for
The resulting new product development competency and green pro- linking Industry 4.0 functions to various aspects of sustainable innova-
cess and product innovation capacity functions of Industry 4.0 enable tion. Nonetheless, the existing literary evidence does not necessarily
sustainable innovation through increasing the technical competency mean that Industry 4.0 and its technologies would autonomously pro-
of industrial value chains in optimizing product design for cleaner pro- gress sustainable development. The sustainability implications of
duction, eco-friendliness, and end-of-life-recovery while maintaining Industry 4.0 functions should not be taken for granted as they depend
economic productivity and internal and external stakeholders' on the context and circumstances under which businesses operate.
satisfaction. Many favorable conditions or necessary circumstances should be in
Overall, the study identified 11 functions through which Industry place for Industry 4.0 to promote sustainable innovation through the
4.0 contributes to sustainable innovation. Results imply that the 11 functions identified. Companies would not necessarily draw on
11 sustainable innovation functions are intertwined, and complex pre- Industry 4.0 to develop sustainable innovation unless it is pushed or
cedence relationships exist among them. Companies seeking to intro- pulled by public opinion, regulations, or the need for profitability and
duce sustainability into innovation activities should recognize the competitiveness. The present study could not conceivably measure
sequence and functionality of each sustainable innovation function the impact of facilitating conditions, barriers, business strategies, and
while devising their digitalization and innovation governance strate- sociopolitical characteristics that might drive or hinder the sustainable
gies. The ISM-based roadmap reveals that leveraging Industry 4.0 innovation applications of Industry 4.0. Consistently, future research
value for sustainable innovation relies on the sequential yet complete is invited to address this knowledge gap by studying how technologi-
development of all sustainable innovation functions. Thus, firms cal, organizational, and environmental circumstances, both at the
should develop the necessary organizational and relational capabilities micro (corporate) and macro (socioregional) contexts, moderate
that allow them to leverage Industry 4.0 functionality to support sus- the sustainability applications of Industry 4.0.
tainable innovation. In particular, it is imperative to note that sustain- More importantly, the study holds an optimistic perspective while
able innovation roots in collaborative efforts, stakeholder integration, introducing the implications of Industry 4.0 for sustainable innovation.
and incorporating external stakeholders' preferences while shaping Industry 4.0 might also associate with many adverse side effects,
innovation practices. Consistently, the underlying technologies and given that the literature has recently shown concerns about the nega-
design principles of Industry 4.0 can enable value chain partners to tive sustainability impacts of Industry 4.0 at the macro level of analy-
cultivate and exploit their core competencies to define innovation sis. In particular, scholars argue that Industry 4.0 is merely a
sustainability goals better, internalize stakeholders' needs within sus- technology-push and productivity-driven phenomenon that inherently
tainable innovation activities, and reshape green innovation practices. ignores many aspects of socioenvironmental sustainability. Over-con-
sumption, labor polarization, socioeconomic inequality, and rebound
effect are among the sustainability concerns associated with Industry
6.2 | Limitations and future research directions 4.0 and technological innovations. In reality, Industry 4.0 technologies
and components such as cognitive artificial intelligence, adaptive
The present study explained the opportunities that Industry 4.0 might robots, or smart products are a double-edged sword when touching
offer for sustainable innovation. Industry 4.0 denotes the digital trans- upon the sustainable development concept. If regulated improperly,
formation of industrial entities, which entails implementing specific the technological advancements and underlying business model, prod-
digital technologies such as IIoT and developing functional design uct, and process innovation can seriously disrupt the labor market,
GHOBAKHLOO ET AL. 15

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APPENDIX

TABLE A1 Hierarchy level of Industry 4.0 functions for sustainability innovation

Functions Reachability set Antecedent set Intersection set Level

Iteration I
AMC, GACD, GPSIC, GPTIC, NPDC, PLMC, AMC, ICL AMC
SIOD
GACD GACD, GPSIC, GPTIC, PLMC, SIOD, SPC, AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
STM SPC, STM
GPSIC GPSIC, GPTIC AMC, GACD, GPSIC, ICL, PLMC, SIOD, SPC, GPSIC
STM, VCI
GPTIC GPTIC AMC, GACD, GPSIC, GPTIC, ICL, NPDC, PLMC, GPTIC I
SIOD, SPC, STM, VCI
ICL AMC, GACD, GPSIC, GPTIC, ICL, NPDC, ICL ICL
PLMC, SIOD, SPC
NPDC GPTIC, NPDC AMC, ICL, NPDC, PLMC, SPC, STM, VCI NPDC
PLMC GACD, GPSIC, GPTIC, NPDC, PLMC, SIOD, AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
SPC SPC
SIOD GACD, GPSIC, GPTIC, PLMC, SIOD, SPC, AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
STM SPC, STM
SPC GACD, GPSIC, GPTIC, NPDC, PLMC, SIOD, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
SPC, STM SPC, STM
STM GACD, GPSIC, GPTIC, NPDC, PLMC, SIOD, GACD, SIOD, SPC, STM, VCI GACD, SIOD, SPC, STM
SPC, STM
VCI GACD, GPSIC, GPTIC, NPDC, PLMC, SIOD, VCI VCI
SPC, STM, VCI
Iteration II
AMC, GACD, GPSIC, NPDC, PLMC, SIOD AMC, ICL AMC
GACD GACD, GPSIC, PLMC, SIOD, SPC, STM AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
SPC, STM
GPSIC GPSIC AMC, GACD, GPSIC, ICL, PLMC, SIOD, SPC, STM, GPSIC II
VCI
ICL AMC, GACD, GPSIC, ICL, NPDC, PLMC, ICL ICL
SIOD, SPC
NPDC NPDC AMC, ICL, NPDC, PLMC, SPC, STM, VCI NPDC II
PLMC GACD, GPSIC, NPDC, PLMC, SIOD, SPC AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
SPC
SIOD GACD, GPSIC, PLMC, SIOD, SPC, STM AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
SPC, STM
SPC GACD, GPSIC, NPDC, PLMC, SIOD, SPC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD,
STM SPC, STM
STM GACD, GPSIC, NPDC, PLMC, SIOD, SPC, GACD, SIOD, SPC, STM, VCI GACD, SIOD, SPC, STM
STM
VCI GACD, GPSIC, NPDC, PLMC, SIOD, SPC, VCI VCI
STM, VCI
Iteration III
AMC, GACD, PLMC, SIOD AMC, ICL AMC
GACD GACD, PLMC, SIOD, SPC, STM AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD, SPC, III
STM
ICL AMC, GACD, ICL, PLMC, SIOD, SPC ICL ICL
PLMC GACD, PLMC, SIOD, SPC AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD, SPC III
SIOD GACD, PLMC, SIOD, SPC, STM AMC, GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD, SPC, III
STM

(Continues)
20 GHOBAKHLOO ET AL.

TABLE A1 (Continued)

Functions Reachability set Antecedent set Intersection set Level

SPC GACD, PLMC, SIOD, SPC, STM GACD, ICL, PLMC, SIOD, SPC, STM, VCI GACD, PLMC, SIOD, SPC, III
STM
STM GACD, PLMC, SIOD, SPC, STM GACD, SIOD, SPC, STM, VCI GACD, SIOD, SPC, STM
VCI GACD, PLMC, SIOD, SPC, STM, VCI VCI VCI
Iteration IV
AMC AMC, ICL AMC IV
ICL AMC, ICL ICL ICL
STM STM STM, VCI STM IV
VCI STM, VCI VCI VCI
Iteration V
ICL ICL ICL ICL V
VCI VCI VCI VCI V

TABLE A2 Interpretive logic-knowledge base matrix for sustainable innovation functions

Causal relationship Enabling role

Interfunctional collaboration and learning (ICL)
ICL ! AMC AMT adoption success; AMT expertise development; Advanced manufacturing strategy development
ICL ! GACD Interfirm communication of green management, design, product, and process knowledge
ICL ! GPSIC Sharing information on recycling, energy-aware production, development of cleaner technologies
ICL ! GPTIC Sharing information on green materials, product recyclability, eco-friendly packaging, and product eco-labeling
ICL ! NPDC Faster NPD schedules; Improving NPD monitoring; effective NPD resource management; Sharing NPD project information and
best practices
ICL ! PLMC Sharing information and knowledge on product and process characteristics; Improved intrafirm product and process data
governance and traceability
ICL ! SIOD Aligning organizational values with sustainability; Developing sustainability organizational behavior and strategic direction
Value chain integration (VCI)
VCI ! GACD Interorganizational communication of green preferences, design, procurement, marketing, distribution, and customer service
knowledge
VCI ! NPDC Collaborative product definition management; Customer-oriented product development; Real-time collaborative product
design; Collaborative product visualization
VCI ! PLMC Early visibility to supplier-side product and customer-side consumption data; Transparency of a product life cycle data; Real-
time product data management
VCI ! SPC Identifying sustainable partnership incentives; Establishing anchoring sustainability goals acceptable to partners; Streamlining
and facilitating green collaboration activities
Advanced manufacturing competency (AMC)
AMC ! GPSIC Development of high-performance green materials; Green production scheduling and process planning; Autonomous energy
and resource-efficient manufacturing processes; More sustainable packaging and transportation operations
AMC ! GPTIC Rapid prototyping of new green products; Mass production of highly differentiated green products; Virtual optimization of the
environmental performance of existing products; Virtual conceptualization of green products
AMC ! NPDC Improved project monitoring, resource management, and timeliness of NPD projects; Improved time-to-market, quality, and
functionality of new products
AMC ! PLMC Streamlined data profiling, data mapping, data acquisition, data management, and prescriptive and predictive analytics
Sustainable talent management (STM)
STM ! GACD Sensing, identifying, and understanding valuable sustainability information; Sustainability knowledge communication; Eco-
ideation and innovation
STM ! GPSIC Knowledge of non-hazardous materials, process audits, green logistics planning, cleaner production technologies, and material
remanufacturing and recycling
STM ! GPTIC Knowledge of product design for lower material consumption, energy efficiency, minimized toxicity, eco-friendly packaging, and
end-of life-recovery
GHOBAKHLOO ET AL. 21

TABLE A2 (Continued)

Causal relationship Enabling role

STM ! PLMC PLM analytical skills; Prioritizing PLM investments; Linking PLM to the strategic sustainability priorities; reevaluation and
prioritization of PLM capabilities
STM ! SIOD Sustainability knowledge management; integrating sustainable thinking into business functions; Promoting internal and external
stakeholder engagement in sustainable development;
STM ! SPC Prioritizing sustainability initiatives across the upstream and downstream supply chain; Communicating corporate green values
to suppliers and customers; Communicating sustainability goals to partners
Green absorptive capacity development (GACD)
GACD ! GPSIC Knowledge of using recycling/remanufacturing materials, developing green manufacturing operations, and implementation of
cleaner operations technology
GACD ! GPTIC Knowledge of using eco-friendly materials, green packaging, eco-labeling, and end-of-life product recovery
GACD ! SIOD Identifying, mapping, and prioritizing critical internal and external stakeholders to engage in sustainable product or process
innovation
GACD ! SPC Developing and communicating valuable sustainability ideas to business partners; Creating a shared vision for green change,
and aligning diverse sustainability perspectives
Product life-cycle management capability (PLMC)
PLMC ! GACD Accessing sustainability performance of products at the design, production, usage, and disposal stages
PLMC ! GPSIC Managing and accessing the sustainability performance of manufacturing processes in real-time
PLMC ! GPTIC Real-time management of product structure records; Material toxicity and emission measures; End-of-life products and
recycling performance metrics
PLMC ! NPDC Centralized access to product-related data and performance metrics and identifying areas of improvements; Improved
communication between NPD team and product stakeholders
PLMC ! SIOD Offering an information repository for product sustainability performance and facilitating strategic alignment of manufacturers
and stakeholders with sustainability
Sustainable innovation orientation development (SIOD)
SIOD ! GPSIC Capacity to commercially use cleaner and energy-aware operations technology, remanufacture material, and remove toxicity in
manufacturing operations
SIOD ! GPTIC Capacity to commercially use less/non-polluting raw material, recover end-of-life products, and design and implement green
packaging
SIOD ! SPC Capacity to develop actionable objectives for green partnership, communicate core green competencies to business partners,
and create a green partnership vision that meets all partners' interests.
Sustainable partnership and collaboration (SPC)
SPC ! GACD Collaborative identification of the environmental opportunities and sustainability initiatives; Collaborative green R&D
investments; Collaborative assimilation capability development
SPC ! GPSIC Supply chain-wide audit of waste, energy, and emission performance of operations; Collaborative development of cleaner
operations technologies; Collective green material transportation innovative; supply chain-wide removal/reduction of toxic
materials
SPC ! GPTIC Collaborative eco-friendly product design; Collaborative market sensing for green products; Collaborative environmental
benchmarking of products
SPC ! PLMC Supply chain-wide trust and information transparency; Interoperability and data exchange between focal manufacturer, design
suppliers, original equipment manufacturers, and contract manufacturers.
SPC ! STM Collective identification of sustainability skill gaps; Collaborative green talent management strategy and succession strategy;
Interorganizational sustainability skill development and training;
New product development competency (NPDC)
NPDC ! GPTIC Technical competency to optimize product design for material efficiency, energy efficiency, waste minimization, reusability,
recyclability, and material eco-friendliness.
Green process innovation capacity (GPSIC)
GPSIC ! GPTIC Technological and operational capability to manufacture energy-aware, eco-friendly, non-polluting, non-toxic, recyclable, and
sustainably packaged products.

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