International Journal of Computer Integrated

Manufacturing

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The role of digital governance in the integration

of performance measurement systems uses and
Industry 4.0 maturity

Minna Saunila, Juhani Ukko, Mina Nasiri & Patrizia Garengo

To cite this article: Minna Saunila, Juhani Ukko, Mina Nasiri & Patrizia Garengo (13 Sep 2023):
The role of digital governance in the integration of performance measurement systems uses
and Industry 4.0 maturity, International Journal of Computer Integrated Manufacturing, DOI:
10.1080/0951192X.2023.2257918

To link to this article: https://doi.org/10.1080/0951192X.2023.2257918

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INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
https://doi.org/10.1080/0951192X.2023.2257918

The role of digital governance in the integration of performance measurement

systems uses and Industry 4.0 maturity
a a a b
Minna Saunila , Juhani Ukko , Mina Nasiri and Patrizia Garengo
a
Department of Industrial Engineering and Management, LUT University, Lahti, Finland; bDepartment of Industrial Engineering, University of
Padua, Padua, Italy

ABSTRACT ARTICLE HISTORY

This study aims to investigate the effect of different types of performance measurement systems Received 2 March 2023
(PMSs) use (diagnostic use and interactive use) on Industry 4.0 maturity, examining whether there Accepted 8 August 2023
is a need for digital governance to facilitate the relationship between different types of PMS use KEYWORDS
(diagnostic use and interactive use) and Industry 4.0 maturity. Although the use of PMSs has been Industry 4.0; performance
identified as beneficial in the Industry 4.0 context, relatively little research exists on the digital measurement; performance
governance that enables firms to lead and control digital processes. The paper posits that digital measurement system;
governance plays an important role in mediating the relationship between PMS use and Industry interactive use; diagnostic
4.0 maturity. The data were gathered from 280 small- and medium-sized enterprises (SMEs), which use; digital governance
operate in the service and manufacturing industry in Finland. The results demonstrate that
different types of PMSs use cannot provide Industry 4.0 maturity alone, so there is a need for
digital governance to fuel different types of PMS use, hence leading to Industry 4.0 maturity.
However, diagnostic use of PMSs significantly hinders digital governance, while the interactive use
of PMSs significantly drives digital governance. Finally, digital governance facilitates Industry 4.0
maturity.

1. Introduction Tortorella et al. 2020). Thus, Industry 4.0 encompasses

Companies increasingly consider Industry 4.0 as
a potential way of gaining a competitive advantage
(Frank, Dalenogare, and Ayala 2019; Masood and
Sonntag 2020; Tortorella et al. 2020). Industry 4.0 has
transformed companies’ interactions with suppliers,
stakeholders, and other supply chain members
through disruptive technologies and platforms
(Dalenogare et al. 2018; Frank, Dalenogare, and Ayala
2019). Although platforms and technologies are crucial
in Industry 4.0 maturity, management issues should
also be taken into consideration to facilitate business
digitalization (Naeem and Garengo 2022; Nudurupati
et al. 2022). From a managerial standpoint, the perfor­
mance measurement system (PMS) is among the most
important issues (Garengo, Bititci, and Bourne 2022;
Nudurupati, Garengo, and Bititci 2021). Industry 4.0
maturity assists in connecting employees together,
monitoring customer behaviors and requirements,
and collaborating in the supply chain with different
parties (Dalenogare et al. 2018; Nasiri et al. 2020;
Porter and Heppelmann 2014; Tao et al. 2018;
both technology- and people-related aspects
(Beauchemin et al. 2022; Kayikci et al. 2022; Sahi,
Gupta, and Cheng 2020; Tortorella et al. 2020). To
make sure that Industry 4.0 maturity will facilitate the
above-mentioned issues, a PMS plays a vital role in its
management (Kamble et al. 2020).
The purpose of a PMS has changed over time from
rational control toward cultural controls and learning
(Bititci et al. 2012). This has resulted in research on two
types of PMS use: diagnostic and interactive (e.g.
Nudurupati et al., 2021; Simons 1994; Smith and Bititci
2017; Tessier and Otley 2012). As a diagnostic system,
a PMS can be explained as a group of formal processes
that use information to sustain, modify, or optimize
patterns in an organizational activity (Henri 2006a;
Koufteros, Verghese, and Lucianetti 2014). As an inter­
active system, a PMS can be defined as a progressive
activity demonstrated by communication and active
participation of top management, visualizing new ways
to manage organizational resources for competitive
advantages (Koufteros, Verghese, and Lucianetti 2014).

CONTACT Minna Saunila minna.saunila@lut.fi Department of Industrial Engineering and Management, LUT University, Mukkulankatu 19, Lahti 15210,
Finland
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted
Manuscript in a repository by the author(s) or with their consent.
2 M. SAUNILA ET AL.
In addition to PMS use, Industry 4.0 maturity may require
a comprehensive assessment that enables firms to lead
and control the process. This type of digital governance
involves digital leadership and access to top managers
with full support and initiatives about using digital tech­
nology as a new way of working, such as digital solu­
tions, digital networks, and digital platforms (El Sawy
et al. 2016).
Few studies have investigated the connection
between a PMS and Industry 4.0 (Frederico et al. 2020;
Kamble et al. 2020; Naeem and Garengo 2022; Xie et al.
2020). There is some research investigating how
Industry 4.0 transforms PMSs, but there is a lack of
studies incorporating different uses of PMSs in this con­
text. The majority of the previous studies are literature
reviews or case study approaches, which means there is
a need for large empirical studies on the effect of differ­
ent types of PMS use on Industry 4.0. Using empirical
evidence is based on SMEs in Finland, the present study
contributes to this research gap by studying the effect of
digital governance on Industry 4.0 maturity, along with
its mediating role on the relationship between the use
of PMSs and Industry 4.0 maturity.
Thus, the study’s novelty to manufacturing research
streams, especially to Industry 4.0 and smart manufac­
turing, is emphasized when commonly known that
PMSs are the most important management tools of
companies and that the existence of emerging tech­
nologies at the core of Industry 4.0 increases the com­
plexity of this phenomenon, highlighting the need for
a specific approach and method to adopting Industry
4.0. The study also contributes to the literature on
performance measurement systems, especially in
a manufacturing environment.
The rest of the paper proceeds as follows: section
two covers the conceptual framework of the study and
hypotheses development. The third section presents
the research methodology used. The results are pre­
sented in the fourth section. The fifth section discusses
the results in light of the literature. Finally, in the sixth
section, conclusions with future research possibilities
and limitations are discussed.
2. Theoretical background
2.1. Organizational control theory and PMS
The current study builds on organizational control the­
ory, which considers ‘the organization as a dynamic
entity operating in an environment that is constantly
changing, thus necessitating the basic structure of any
control system: measure, compare, analyze, correct,
and prevent’ (Bititci et al. 2018). Even though the devel­
opment of PMS theory has paid attention to, for exam­
ple, understanding how to keep measurement systems
up to date (Melnyk et al. 2014), theorizing the unin­
tended consequences of PMSs (Franco‐Santos and
Otley 2018), and using a decision theory perspective
on complexity in performance measurement
(Alexander, Kumar, and Walker 2018), Bourne et al.
(2018) suggest that there remains a compelling need
for further theoretical development regarding PMSs.
A common feature of prior PMS work is the recognition
of two different types of organizational control – tech­
nical control and social control (Franco‐Santos and
Otley 2018; Okwir et al. 2018; Smith and Bititci 2017) –
that need to be studied together in the context of the
complexity of the environment in which they operate
(Franco‐Santos and Otley 2018). In addition, Ferreira
and Otley (2009) have highlighted the need to alter
PMSs according to the dynamics of an organization
and its environment. Complexity has a significant
impact on both PMSs (Melnyk et al. 2014; Okwir et al.
2018) and the mechanisms at play in an organization
when PMSs are used (Bourne, Melnyk, and Bititci 2018).
It has been reported that organizational control theory
could provide the basis for this investigation (Bititci
et al. 2018; Bourne, Melnyk, and Bititci 2018;
Nudurupati, Garengo, and Bititci 2021). Next, an intro­
duction of PMS and its types of use is presented.
2.2. PMS and its type of use
A PMS is a group of metrics that help quantify the
efficiency and effectiveness of actions (Neely 2005).
A PMS is critical for companies because it enables
managers to have access to a lot of information,
which can help them operate successfully in a time
of transformation (Koufteros, Verghese, and
Lucianetti 2014). PMSs can be used for different pur­
poses, and it has been confirmed that the type of use
can modify the outcome of PMS, which has led to an
increase in the interest in PMS use (Franco‐Santos,
Lucianetti, and Bourne 2012; Guenther and Heinicke
2019). Simons (1994) initially employed both diagnos­
tic and interactive in control systems. After that
Tessier and Otley (2012) have revised this view,
using diagnostic and interactive systems not as
 INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
control systems but as a PMS to know how control
systems are used.
The diagnostic use of PMSs can be explained as
a group of formal processes that use information to
sustain, modify, or optimize patterns in an organiza­
tion’s activity (Henri 2006a; Koufteros, Verghese, and
Lucianetti 2014). These processes include monitoring
systems, reporting tools, and performance outcomes,
which are shared with all staff members at companies.
According to Henri (2006a), the diagnostic use of
PMSs considers tight controls of the strategies and
operations, as well as restricted information flow. The
purpose of the diagnostic use of PMSs is manifold,
including monitoring, focusing attention, and legiti­
mization (Koufteros, Verghese, and Lucianetti 2014).
The monitoring purpose of diagnostic use helps man­
agers track the progress of the company toward goals
and monitor the results (Henri 2006b). The focusing
attention purpose of diagnostic use enables man­
agers and organizations to focus on relevant issues
or set constraints on staff members’ behavior to reach
goals (Simons, Dávila, and Kaplan 2000; Widener
2007), as well as direct staff members on challenges
in making strategic decisions (Koufteros, Verghese,
and Lucianetti 2014). The legitimization purpose of
diagnostic use assists in justifying decisions and sup­
porting actions in a way that compares the achieved
goals with the targeted ones (Henri 2006b).
The interactive use of PMS can be defined as
a progressive activity demonstrated by communication
and active participation of top management, visualiz­
ing new ways to manage organizational resources for
competitive advantages (Koufteros, Verghese, and
Lucianetti 2014). The interactive use of PMS enables
more searching and learning throughout the organiza­
tion (Simons 1994). Furthermore, the interactive use of
the PMS can lead to dialogue, hence generating new
ideas and initiatives (Widener 2007). According to Henri
(2006a), the interactive use of PMS provides an oppor­
tunity for collecting and sharing information while
motivating debate among staff members. The interac­
tive use of PMS is associated with strategy manage­
ment and learning (Franco‐Santos et al. 2007), more
communication and interaction (Guenther and
Heinicke 2019), and priority settings (Spekle and
Verbeeten 2014).
It is clear that a PMS is a complex phenomenon, and
how current business trends are impacting PMSs is not
yet understood (Nudurupati, Garengo, and Bititci
3
2021). Thus, there is a need for research to enhance
our understanding about the connection between
PMSs and digital transformation, which is referred to
in the present study as Industry 4.0 maturity, along
with examining whether changes to PMS use can be
made in a proactive manner; the present study
explores the facilitating role of digital governance.
Next, the literature is reviewed to identify current
knowledge on PMSs and digital transformation, espe­
cially as it is related to Industry 4.0 maturity and digital
governance; the literature review serves as the basis to
develop hypotheses.
2.3. Industry 4.0
The concept of Industry 4.0 originated in Germany in
2011, having the aim of supporting production devel­
opment within cutting-edge technologies
(Kagermann et al. 2013). Since then, this concept has
been presented and developed in different countries
with different terms, such as ‘smart manufacturing’,
‘Made in China 2025’, and ‘Future of manufacturing’
(Kusiak 2018; Liao et al. 2017). All these terminologies
have a consensus that Industry 4.0 is the fourth indus­
trial revolution caused by emerging technologies
(Frank, Dalenogare, and Ayala 2019; Masood and
Sonntag 2020) and by changes in the way of working
(Frank, Dalenogare, and Ayala 2019; Sahi, Gupta, and
Cheng 2020; Tortorella et al. 2020). Industry 4.0 has
changed the interactions among suppliers, stake­
holders, and supply chains both internally and exter­
nally, developing interaction in supply chains through
digital platforms and connectivity (Dalenogare et al.
2018; Frank, Dalenogare, and Ayala 2019).
Furthermore, Industry 4.0 involves smart working,
where smart approaches have been used to get busi­
ness done in value chains (Frank, Dalenogare, and
Ayala 2019). Smart approaches include using emer­
ging technologies to connect with different parties
and innovative business models for different types of
interactions in the value chain (Dalenogare et al. 2018;
Masood and Sonntag 2020). Thus, connectivity
among different parties plays an important role in
Industry 4.0 (Müller, Buliga, and Voigt 2018).
Industry 4.0 can be considered in customer con­
nectivity in the way that it tracks and monitors custo­
mer behaviors and requirements (Porter and
Heppelmann 2014; Tao et al. 2018). Furthermore,
Industry 4.0 provides a superior user experience for
4 M. SAUNILA ET AL.
customers through advanced technologies like virtual
reality and digital twins (Tao et al. 2018). Additionally,
Industry 4.0 can be involved in the new ways of
operating and collaborating in supply chains with
different parties (Dalenogare et al. 2018; Nasiri et al.
2020). Through digital platforms, Industry 4.0 con­
nects employees with each other and facilitates train­
ing, remote working, and operating with customers
(Tortorella et al. 2020). Thus, Industry 4.0 encom­
passes both technology-related and people-related
aspects (Sahi, Gupta, and Cheng 2020; Tortorella
et al. 2020), and the contribution of Industry 4.0 can
be seen in different domains and industries (Tortorella
et al. 2020). It is worth mentioning that the existence
of emerging technologies at the core of Industry 4.0
enhances the complexity of this phenomenon, high­
lighting the need for a specific approach and method
to adopt Industry 4.0 (Frank, Dalenogare, and Ayala
2019; Masood and Sonntag 2020; Tortorella et al.
2020).
As one of the most recent trends and competitive
advantages for companies, Industry 4.0 needs
a specific approach to adopt (Frank, Dalenogare, and
Ayala 2019; Masood and Sonntag 2020; Tortorella
et al. 2020). Frank et al. (2019) concentrated on
Industry 4.0 technologies in manufacturing compa­
nies and proposed two main layers in the Industry
4.0 pattern: front-end technologies and based tech­
nologies. Front-end technologies are the main con­
cern within operational and market requirements,
including smart manufacturing, smart product, smart
supply chain, and smart working, while base technol­
ogies (e.g. IoT, big data, cloud services, analytics)
enable connectivity and smartness for front-end tech­
nologies. These two layers can complete each other;
however, companies still need to enhance their ability
in big data analysis. As mentioned by Tortorella et al.
(2020), companies with organizational learning cap­
abilities can adopt Industry 4.0 quicker because
Industry 4.0 is built on advanced interconnected tech­
nologies and an integrated environment while also
having knowledge sharing. Thus, companies that
want to adopt Industry 4.0 need to update the com­
munication and process of information exchange in
a way that is compatible with emerging technologies.
According to Masood and Sonntag (2020), a lack of
financial resources, shortage of knowledge, and lim­
ited technology consciousness have been listed as the
main challenges for SMEs in Industry 4.0 maturity.
Furthermore, they also mentioned a lack of a clear
method for evaluating Industry 4.0 technologies
against the requirements of SMEs (Culot et al. 2020;
Elibal and Özceylan 2022; Trotta and Garengo 2019).
Based on the previously presented literature, the
implementation of Industry 4.0 necessities
a comprehensive approach meaning not only techno­
logical aspects but also considering strategies, work­
force competencies, cultural change, and the
development of awareness and readiness to imple­
ment the transformation (Rafael et al. 2020; Santos
and Martinho 2020; Wagire et al. 2021). Numerous
maturity models have been presented to support com­
panies in this transformation (e.g. Angreani, Vijaya, and
Wicaksono 2020; Schumacher, Erol, and Sihn 2016;
Akdil et al. 2018). According to the Oxford English
Dictionary, the concept of maturity refers to ‘state of
being complete, perfect, or ready’ (Simpson and
Weiner 1989). Thus, Industry 4.0 maturity refers the
extent to which an implementing entity is capable to
implement Industry 4.0. Thus, the Industry 4.0 maturity
models support the need for a comprehensive
approach by allowing to identify of a target value for
different dimensions covered by the model, and to
define the strategy to proceed from the current situa­
tion to the desired one (Rafael et al. 2020; Schumacher,
Erol, and Sihn 2016; Akdil et al. 2018).
2.4. Digital governance
Governance is defined as the available rights of the
staff members, as well as the practices and decision-
making processes that employ resources to achieve
companies’ goals (O’Mahony and Bechky 2008).
Governance aims to assess an issue, possible knowl­
edge and skill sets, technologies, and networks to
address the issue before then setting the governance
framework that will enhance the potential for success­
ful solutions (Nickerson and Zenger 2004). Because
currently handling digital transformation is complex
and has conflicting results (Sousa-Zomer, Neely, and
Martinez 2020; Vial 2019) and the critical element in
governance is handling possible conflict (O’Mahony
and Bechky 2008), to achieve positive outcomes in
digital transformation, digitality will need to be gov­
erned using new criteria (Sama, Stefanidis, and
Casselman 2021).
Digital governance is a comprehensive assessment
that enables firms to lead and control digital processes.
 INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
Especially the digitalization of manufacturing has
opened several opportunities to monitor, control, opti­
mize and manage different types of knowledge inten­
sive processes to enhance real-time decision-making
supports and problem solving (Cheng and Bateman
2008; Katchasuwanmanee, Bateman, and Cheng
2016). Handling digital processes through digital gov­
ernance involves digital leadership and the access to
top managers with the full support and initiatives
about using digitalization and digital technology as
a new way of working, such as digital solutions, digital
networks, and digital platforms (El Sawy et al. 2016).
Additionally, the governance of digitalization is not
possible without employees’ support and eagerness
to learn digital skills and resources (Chen 2017; Sia,
Soh, and Weill 2016).
3. Hypotheses development and research
model
3.1. Hypothesis development
3.1.1. Type of PMS use and industry 4.0 maturity
Previous studies have shown that PMSs are beneficial
in the Industry 4.0 context (Duman and Akdemir 2021;
Frederico et al. 2020; Xie et al. 2020). Horváth and
Szabó (2019) suggest that increased managerial
emphasis on PMSs drives the maturity of Industry
4.0. In their study, the PMS covers increased control
and permitting real-time performance measurement.
Samaranayake et al. (2017) show a process-related
PMS, covering, for example, flexibility in production
and stability of the process, hence fostering techno­
logical readiness to the maturity of Industry 4.0.
Because the diagnostic use of a PMS can be explained
as a group of formal processes that use information to
sustain, modify, or optimize patterns in an organiza­
tional activity (Henri 2006a; Koufteros, Verghese, and
Lucianetti 2014), this type of a PMS can foster Industry
4.0 maturity by improving process flexibility and sta­
bility (c.f. Samaranayake, Ramanathan, and
Laosirihongthong 2017). Similarly, the study of
Kamble et al. (2020) supports the diagnostic use of
a PMS in Industry 4.0 maturity; they examine smart
manufacturing systems, finding that manufacturing
goals and performance targets may guide the matur­
ity of Industry 4.0. These targets require careful mon­
itoring and related improvement. Frederico et al.
(2020) study the maturity of Industry 4.0 in supply
5
chains and consider a PMS as a crucial managerial
viewpoint. Because the monitoring purpose of diag­
nostic use helps managers track the progress of the
company toward goals and monitor the results (Henri
2006b), it is likely to drive the maturity of Industry 4.0,
which includes expectations for efficiency, integra­
tion, transparency, and customer’s satisfaction,
among others (Frederico et al. 2020).
Regarding the interactive use of a PMS, Klovienė
and Uosytė (2019) state that a PMS can provide
a rapid reactive ability, which is crucial in the maturity
of Industry 4.0; transformations in technology, busi­
ness environment, and organizational processes force
developing a PMS to fit the context of Industry 4.0.
Because the interactive use of a PMS enables more
searching and learning throughout the organization
(Simons 1994), as well as dialogue and generating
new ideas and initiatives (Widener 2007), it is likely
to drive Industry 4.0 maturity. Based on the above
evidence, we believe that both the diagnostic and
interactive use of a PMS contributes to Industry 4.0
maturity. Thus, the following hypotheses are set:
H1. The type of PMS use is positively associated with
Industry 4.0 maturity
H1a. Diagnostic use of a PMS is positively associated
with Industry 4.0 maturity.
H1b. Interactive use of a PMS is positively associated
with Industry 4.0 maturity.
3.1.2. Mediating role of digital governance
Industry 4.0 is at the heart of when companies seek to
gain a competitive advantage. Industry 4.0 covers
new ways of operating and collaborating among sup­
pliers, customers, supply chains, and other stake­
holders both externally and internally (Dalenogare
et al. 2018; Frank, Dalenogare, and Ayala 2019; Nasiri
et al. 2020; Tortorella et al. 2020). Because the changes
are remarkable, companies need to be ready to
develop both technology-related and people-related
abilities to successfully adopt Industry 4.0
(Büyüközkan and Göçer 2018; Sahi, Gupta, and
Cheng 2020; Tortorella et al. 2020). As discussed ear­
lier, PMSs can play a beneficial role in Industry 4.0
maturity (Frederico et al. 2020; Kamble et al. 2020).
6 M. SAUNILA ET AL.
For example, Nudurupati et al. (2016) studied the
resilient features of contemporary PMSs in digital
economies, highlighting the benefits of new techno­
logical advancements and the integration of their
maturity through strategy. They also highlighted the
ability to use technologies such as big data and IoT to
enhance decision making, as well as unlocking inno­
vation through collaboration and cocreations to cre­
ate a competitive advantage. The ability and skills of
both the managers and knowledge workforce have
also been highlighted in many studies that have con­
sidered the use of PMSs in digital transformation
(Nasiri et al. 2020; Nudurupati, Tebboune, and
Hardman 2016). Managers who are operationally
responsible for digital strategy should have sufficient
strategic capabilities and experience from transforma­
tional and technological projects (Matt, Hess, and
Benlian 2015).
The features presented above are also the key ele­
ments of digital governance, which is a comprehensive
assessment that involves digital leadership with the full
support and initiatives about using digitalization and
digital technology as a new way of working in digital
solutions, digital networks, and digital platforms (e.g. El
Sawy et al. 2016). As presented above, the use of PMSs
can be beneficial in the maturity of Industry 4.0, and
the elements of digital governance can facilitate this
maturity. Based on the above evidence, we believe that
digital governance can facilitate the relationship
between both the diagnostic and interactive use of
a PMS and Industry 4.0 maturity. Thus, the following
hypotheses are set:
H2. Digital governance mediates the relationship
between type of PMS use and Industry 4.0 maturity
Diagnostic use
of a PMS
H2a
Digital
governance
H2b
Interactive use
of a PMS
Figure 1. Research model and hypotheses.
H2a. Digital governance mediates the relationship
between the diagnostic use of a PMS and Industry
4.0 maturity.
H2b. Digital governance mediates the relationship
between the interactive use of a PMS and Industry
4.0 maturity.
3.2. Research model
Based on the literature discussed above, the research
model is shown in Figure 1. The first hypothesis covers
the direct effects, whereas the second hypothesis
includes the mediating effects. These two major hypoth­
eses are proposed to check if the type of PMS use can
provide Industry 4.0 maturity or whether there is a need
for a booster-like digital governance to mediate the
relationship between the type of PMS use and Industry
4.0 maturity. Each major hypothesis encompasses two
subhypotheses, which are shown in Figure 1. Regarding
the first hypothesis, the effects of different types of PMS
use (including diagnostic use and interactive use) on
Industry 4.0 maturity will be checked. The second
hypothesis examines the mediating effect of digital
governance between different types of PMS use (includ­
ing diagnostic use and interactive use) and Industry 4.0
maturity.
4. Research method
4.1. Sample and data collection process
The initial sample was randomly selected from all
SMEs in Finland. From the total number of 20,000
SMEs in Finland, 6,816 samples were randomly
H1a
Industry 4.0
maturity
H1b
 INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
selected, representing more than 30% of the entire
population. After removing invalid samples—986—
the survey questionnaire was sent to the CEO of the
5,830 SMEs in Finland. After four reminders and data
screening of invalid responses, 280 valid responses
were achieved. Around 70% of the respondents
were small companies with less than 49 employees
and revenue of 2–10 million euros, while the rest were
medium-sized companies with 50–249 employees
and 10–50 million euros revenue. Approximately
42% of the respondents were operating in manufac­
turing companies, while 57% of the respondents were
in service companies and about 1% without any
responses.
Different statistical and nonstatistical tests were
conducted to minimize the potential bias of the
research. Potential bias was detected beforehand by
defining the target population and sampling frame
carefully and by matching these two. The survey was
made as short and accessible as possible to increase
the possibilities of gaining responses. We also sent
several reminders to nonrespondents to avoid the
possibility of self-selection bias. In terms of statistical
tests, an analysis of variance (ANOVA) test was imple­
mented to check if there were any significant differ­
ences between the respondents who answered the
survey before the first reminder and those who
answered the survey after the last reminder. The
results of the ANOVA tests confirmed that there was
no nonresponse bias because the differences
between two groups were insignificant (Armstrong
and Overton 1977). Furthermore, Harman’s single fac­
tor test was applied to check whether the research
suffered from common method bias (Podsakoff et al.
2003). The results of exploratory factor analysis of all
the utilized items confirmed that there was no issue
regarding common method bias because factor ana­
lysis of all applied measures loaded onto more than
one factor, and the total explained variance of one
single factor was less than 40%. In terms of nonstatis­
tical tests, some solutions, such as creating anon­
ymous surveys within direct and clear questions, can
reduce common method bias (Podsakoff et al. 2003).
Because the conducted survey was anonymous and
different iterative sessions with experienced research­
ers were organized to create direct and understand­
able questions, the issue of common method bias was
not a major issue.
7
4.2. Measurement of construct
The construct of the measures was built through
a combination of literature review in strategic man­
agement, Industry 4.0, and PMS research. All the mea­
sures were assessed on scales ranging from 1 to 7,
where 1 represented strongly agree and 7 strongly
disagree. Four different types of variables (e.g. depen­
dent, mediating, independent, and control variables)
were developed, each of which was measured by
multiple items. Referring to the dependent variable,
‘Industry 4.0 maturity’ was applied as a single depen­
dent variable, which was assessed using four items.
The mediating variable ‘Digital governance’ was
assessed with six items. In terms of independent vari­
ables, ‘Diagnostic use of a PMS’ and ‘Interactive use of
a PMS’ were two independent variables, with the
former assessed by six items and the latter by three
items. Two control variables – company size and
industry – were used to control the confounding out­
comes. Company size was represented by number of
employees and controlled by dummy variables split
up into small- and medium-sized companies.
Likewise, industry was controlled by a dummy vari­
able asking the respondents whether they operated
in the service industry or manufacturing. Table 2 pro­
vides the details of each measurement item and the
references.
5. Results and analysis
5.1. Results of validity and reliability
The validity and reliability of the construct are impor­
tant factors for testing the hypotheses. The combina­
tion of different criteria was used to confirm that the
present study did not suffer from a lack of validity and
reliability. These criteria were Cronbach’s α and com­
posite reliability (CR) for the reliability of the con­
struct, average variance extracted (AVE) and
standardized loadings for convergent validity, and
Fornell – Larcker criterion and Heterotrait – monotrait
ratio (HTMT) for discriminant validity. As asserted by
Fornell and Larcker (1981), if the square root of AVE is
more than the correlation between the respective
construct and the remaining constructs of the
model, discriminant validity is confirmed. Table 1
demonstrates the results of discriminant validity, con­
firming the discriminant validity of the construct
8 M. SAUNILA ET AL.

Table 1. Results of discriminant validity: the Fornell – Larcker criterion.

Industry 4.0 maturity Digital governance Diagnostic use of a PMS Interactive use of a PMS
Industry 4.0 maturity 0.760a
Digital governance 0.479 0.784a
Diagnostic use of a PMS 0.311 0.260 0.825a
Interactive use of a PMS 0.414 0.488 .751 0.837a
a
Notes: Square root of AVE.

Table 2. Results of the validity and reliability tests.

Construct Items St.weight α CR AVE
Industry 4.0 maturity (Dalenogare et al. 2018; Frank, In our company, digitalization is utilized as a new way of 0.588 0.851 0.843 0.577
Dalenogare, and Ayala 2019; Tortorella et al. considering customer connectivity
2020) In our company, digitalization is utilized as a new way of 0.771
considering stakeholder connectivity
In our company, digitalization is utilized as a new way of 0.769
considering employee connectivity
In our company, we utilize digitalization as technologies that 0.883
facilitate a better user experience
Digital governance (El Sawy et al. 2016; O’Mahony In our company we evaluate the managers’ ability to support 0.725 0.906 0.904 0.614
and Bechky 2008; Sama, Stefanidis, and digitalization
Casselman 2021) In our company we evaluate the digital skills/abilities of employees 0.684
In our company we evaluate the ability to utilize new technologies 0.716
In our company we assess the readiness to utilize digitality in 0.749
business
In our company we evaluate the ability to produce new digital 0.858
solutions
In our company we evaluate networking capabilities in 0.939
a digitalizing operating environment
Diagnostic use of a PMS (Henri 2006b) In our company we use performance measures to track the 0.753 0.930 0.926 0.680
progress of the company toward goals
In our company we use performance measures to monitor results 0.630
In our company we use performance measures to enable the 0.871
organization to focus on issues
In our company we use performance measures for making 0.886
strategic decisions
In our company we use performance measures to justify decisions 0.909
In our company we use performance measures to support actions 0.865
Interactive use of a PMS (Koufteros, Verghese, and In our company we use performance measures to make decisions 0.755 0.871 0.874 0.700
Lucianetti 2014) when it is difficult to differentiate among plausible solutions to
a problem
In our company we use performance measures to develop learning 0.908
In our company we use performance measures to enhance 0.840
communication

because each value of the construct correlation is less
than the diagonals. HTMT is another criterion that
checks discriminant validity: here, the discriminant
validity is accepted if the value of HTMT is less than
0.9 (Henseler, Ringle, and Sarstedt 2015). Because the
accounted value of HTMT is less than 0.9, discriminant
validity is confirmed.
Reliability of the construct was checked by
Cronbach’s α and CR. The internal consistency and
reliability of the construct were confirmed because
both the value of Cronbach’s alpha and CR of all
constructs were more than 0.7 (Table 2) (Fornell and
Larcker 1981; Hair et al. 2009). The convergent validity
of the construct was checked by AVE. Because the
value of AVE for all constructs was more than the
threshold of 0.5 (Table 2), the convergent validity of
the construct was confirmed (Fornell and Larcker
1981). Thus, the reliability and validity of the construct
was confirmed based on the satisfied criteria pre­
sented in Tables 1 and 2.
5.2. Results of the structural equation model
Structural equation model was utilized with Smart-
PLS to check the relationship between the constructs
included in the proposed research model. The results
of the structural equation model are presented in
Table 3. The path from company size to Industry 4.0
maturity and industry to Industry 4.0 maturity tested
the effect of the control variables on the dependent
variable. As shown in Table 3, the company size did
not significantly affect Industry 4.0 maturity (β =
0.779, P-value = 0.436, insignificant). Likewise, the
industry did not significantly affect the Industry 4.0
 INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
Table 3. Results of structural equation model.
Company size -> Industry 4.0 maturity
Industry -> Industry 4.0 maturity
Diagnostic use of a PMS-> Industry 4.0 maturity
Interactive use of a PMS-> Industry 4.0 maturity
Diagnostic use of a PMS-> Digital governance
Interactive use of a PMS -> Digital governance
Digital governance -> Industry 4.0 maturity
***Significance level 0.001.
**Significance level 0.01.
*Significance level 0.05.
maturity (β = 1.935, P-value = 0.054, insignificant).
Thus, none of the control variables significantly
affected Industry 4.0 maturity. The path from diagnos­
tic use of a PMS to Industry 4.0 maturity and inter­
active use of a PMS to Industry 4.0 maturity tested the
effects of independent variables on the dependent
variable (H1a and H1b). As shown in Table 3, the
diagnostic use of a PMS did not significantly affect
Industry 4.0 maturity (β = 0.708, P-value = 0.479, insig­
nificant). Thus, H1a was rejected. Likewise, the inter­
active use of a PMS did not significantly affect
Industry 4.0 maturity (β = 1.034, P-value = 0.302, insig­
nificant). Therefore, H1b was also rejected.
Consequently, none of the dependent variables sig­
nificantly affected Industry 4.0 maturity, and both
parts of the first hypothesis (H1a and H1b) were
rejected.
The path from the diagnostic use of PMSs to digital
governance, interactive use of PMSs to digital govern­
ance, and digital governance to Industry 4.0 maturity
tested the effect of the independent variable on the
mediating variable and the effect of the mediating
variable on the dependent variable. According to
Baron and Kenny (1986), the mediating effect was
confirmed if the direct effect of the independent
variable on the dependent variable was not statisti­
cally significant, but both the direct effect of the
mediating variable on the dependent variable and
direct effect of the independent variable on the med­
iating variable were statistically significant. As demon­
strated in Table 3, the effect of diagnostic use of
a PMS on digital governance was negatively signifi­
cant (β = 2.010, P-value = 0.045, significant at the 0.05
level), and the effect of digital governance on Industry
4.0 maturity was significant (β = 3.823, P-value =
0.000, significant at the 0.001 level). Thus, H2a was
accepted, and digital governance negatively
mediated the relationship between the diagnostic
use of a PMS and Industry 4.0 maturity. In addition,
9
Path Coefficients T Statistics P-Values
0.048 0.779 0.436
0.121 1.935 0.054
0.095 0.708 0.479
0.168 1.034 0.302
−0.244 2.010 0.045*
0.671 5.649 0.000***
0.355 3.823 0.000***
the effect of interactive use of a PMS on digital gov­
ernance was positively significant (β = 5.649, P-value
= 0.000, significant at the 0.001 level), and the effect
of digital governance on Industry 4.0 maturity was
significant (β = 3.823, P-value = 0.000, significant at
the 0.001 level). Thus, H2b was accepted, and digital
governance positively mediated the relationship
between the interactive use of a PMS and Industry
4.0 maturity. Consequently, both parts of the second
hypothesis (H2a and H2b) were accepted.
6. Discussion
The aim of the present study was to investigate the
effect of digital governance on Industry 4.0 maturity,
along with its mediating role on the relationship
between the use of PMSs (diagnostic and interactive)
and Industry 4.0 maturity. Regarding the direct effects
of diagnostic and interactive use of a PMS on Industry
4.0 maturity, no significant effects were found. This
result is, to some extent, contradictory with prior
studies, which show that PMSs are beneficial in
Industry 4.0 maturity (Frederico et al. 2020; Horváth
and Szabó 2019; Kamble et al. 2020). However, these
studies have specific features that allow for positive
effects. For example, Horváth and Szabó (2019) high­
light the increased managerial emphasis on PMSs,
increased control, and permitting real-time perfor­
mance measurement as the drivers for the maturity
of Industry 4.0. Frederico et al. (2020) also highlight
the managerial viewpoint of a PMS in the maturity of
Industry 4.0 in supply chains, where the monitoring
purpose of diagnostic use helps managers track the
progress of the company toward goals and monitor
the results (cf. Henri 2006b). Consequently, the con­
trasting results of this study may be because in pre­
vious studies (e.g. Frederico et al. 2020; Horváth and
Szabó 2019), PMSs have already included the ele­
ments of digital governance, such as digital
10 M. SAUNILA ET AL.
leadership, support from managers and employees,
eagerness to learn digital skills and initiatives to use
digital technologies as new ways of working (Chen
2017; El Sawy et al. 2016; Sia, Soh, and Weill 2016).
Regarding the interactive use of a PMS, Klovienė and
Uosytė (2019) present that transformations in tech­
nology, the business environment, and organizational
processes force the development of PMSs in a way so
that a PMS can provide a rapid reactive ability, which
is crucial in the maturity of Industry 4.0. However,
based on the current research, the diagnostic or inter­
active use of PMSs alone does not seem to facilitate
Industry 4.0 maturity. This may indicate that, if the
management engagement and real-time perfor­
mance measurement of PMSs are not at an adequate
level, it will not enable rapid reactions and successful
Industry 4.0 maturity. This may also indicate that both
the diagnostic and interactive use of a PMS are still
based on measures calculated from historical data
and, thus, do not promote the maturity of such
a diverse and extensive entity as Industry 4.0. Thus,
the result highlights the need for digital governance,
where the digitization of manufacturing has opened
several opportunities to monitor, control, optimize
and manage various information-intensive processes
to improve real-time decision-making support and
problem solving, as Cheng and Bateman (2008) and
Katchasuwanmanee et al. (2016) have suggested.
As predicted, digital governance had a direct effect
on Industry 4.0 maturity. The evidence here suggests
that the concept of digital governance has an impor­
tant role to play in managing Industry 4.0. The find­
ings provide evidence that digital governance allows
digital leadership and access to top managers with
the full support and initiatives about using digitaliza­
tion and digital technology as a new way of working,
such as digital solutions, digital networks, and digital
platforms (El Sawy et al. 2016), in turn leading to
enhanced Industry 4.0 maturity. The study also inves­
tigates whether digital governance facilitates the rela­
tionship between the diagnostic and interactive use
of PMSs and Industry 4.0 maturity; the results indicate
that the interactive use of PMSs positively affects
Industry 4.0 maturity via digital governance. When
the interactive use of a PMS encompasses learning,
communication, and interaction to enable the room
to generate new ideas and initiatives (Franco‐Santos
et al. 2007; Guenther and Heinicke 2019; Henri 2006b),
it also seems to allow for room for digital governance,
which drives Industry 4.0 maturity. The maturity of
Industry 4.0 requires agility, various skills, and quick
reactions to changes that can be addressed by digital
governance, such as the ability and engagement of
managers and employees, the ability and readiness to
utilize new technologies, and the ability to collabo­
rate in digital platforms (Chen 2017; El Sawy et al.
2016; Sia, Soh, and Weill 2016). The current study
has also indicated that the diagnostic use of a PMS
negatively affects digital governance. Because the
diagnostic use of a PMS refers to a group of formal
processes, including monitoring systems, reporting
tools, and performance outcomes (Henri 2006a;
Koufteros, Verghese, and Lucianetti 2014), moving
from rigorous metrics to evaluation and assessment
(i.e. digital governance) may lead to resistance to
change. This is also supported by Nudurupati et al.
(2016), who study performance measurement and
management in digital economies, highlighting orga­
nizations’ need to move from measurement to eva­
luation, especially when collaborating on global
networks. Furthermore, the diagnostic use of a PMS
may lack the proactive nature of measurement
needed in digital governance. The updates in
Industry 4.0 are so fast that diagnostic use is not
useful because the updates in the criteria of the diag­
nostic PMS take time and need to be changed
regularly.
7. Conclusion
The present study has explored the impact of differ­
ent types of PMS use (diagnostic use and interactive
use) on Industry 4.0 maturity, investigating whether
digital governance mediates the effect of PMS use on
Industry 4.0 maturity. The results provide new insights
for both academics and practitioners. From the view­
point of academics, the current research has revealed
how different types of PMS use can lead to Industry
4.0 maturity. In addition, different types of PMS use
(diagnostic use and interactive use) are more prone to
significantly impact Industry 4.0 maturity through
digital governance. However, the diagnostic use of
a PMS significantly hinders digital governance, while
the interactive use of a PMS significantly drives digital
governance. Furthermore, digital governance facili­
tates Industry 4.0 maturity. As the greatest novelty,
the study contributes to manufacturing research
streams, especially to Industry 4.0 and smart
 INTERNATIONAL JOURNAL OF COMPUTER INTEGRATED MANUFACTURING
manufacturing, by showing how the appropriate use
of PMSs together with digital governance can achieve
the maturity of industry 4.0. The novelty and impor­
tance of the study are emphasized, especially, when
commonly known that PMSs are the most important
management tools of companies and that the exis­
tence of emerging technologies at the core of
Industry 4.0 increases the complexity of this phenom­
enon, highlighting the need for a specific approach
and method to adopting Industry 4.0. The study also
contributes to the literature on performance mea­
surement systems, especially in a manufacturing
environment.
From the viewpoint of practitioners, solely apply­
ing a PMS within different types of use will not
provide Industry 4.0 maturity; however, there is
a need for digital governance to synchronize the
relationship between the type of PMS use and
Industry 4.0 maturity. Thus, practitioners who want
to utilize PMSs within different types of use should
add digital governance criteria in their business to
enhance Industry 4.0 maturity. Additionally, the
mediating effects of digital governance between
different types of PMS use (diagnostic use and inter­
active use) and Industry 4.0 maturity are different;
therefore, practitioners should be careful when
using digital governance in different types of PMS
use to adopt Industry 4.0. When it comes to using
PMS as a diagnostic purpose, it will affect digital
governance negatively, but when it comes to
using a PMS as an interactive purpose, it will affect
digital governance positively. SMEs should utilize
PMS interactively to facilitate digital governance
and further Industry 4.0 maturity. This means utiliz­
ing performance measures for learning and commu­
nication purposes. Utilizing performance measures
just for tracking the progress toward goals or mon­
itoring and justifying decisions will have negative
influence on digital governance. Thus, SMEs that
want to benefit from digital governance in
Industry 4.0 maturity should consider the role of
PMSs as both a booster and hinderance.
However, like any other research, the present
study has some limitations that can be used as
opportunities for expanding knowledge on this
topic. First, the results of the present study have
been achieved within data collected over a short
time frame. However, this might mitigate a deep
understanding of the processes that occur over
11
time; hence, there is the potential for more research
using longitude data. Second, the data were gath­
ered in a single country (Finland), which might pose
the possibility for a lack of generalizability.
However, this has also provided an opportunity to
implement the present research in different coun­
tries with different cultures and to understand if the
same results will be attained. Third, because the
results of the current study are based on the per­
spectives of the CEO of the SMEs, there is the pos­
sibility for bias, which is not the case in the current
study because of all the conducted statistical and
nonstatistical remedies. This limitation can also
become an opportunity for more research within
different staff members of the company to better
understand their viewpoints about different types
of PMS use in Industry 4.0 maturity.
Disclosure statement
No potential conflict of interest was reported by the author(s).
ORCID
Minna Saunila http://orcid.org/0000-0001-8952-6102
Juhani Ukko http://orcid.org/0000-0002-9256-1555
Mina Nasiri http://orcid.org/0000-0003-2353-7487
Patrizia Garengo http://orcid.org/0000-0002-7581-6149
Availability of data and materials
The authors do not have permission to share data.
Consent for publication
approved
Ethics approval and consent to participate
Accepted principles of ethical and professional conduct have
been followed.
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