Digitalization for circular economy and operational excellence practices: A paradox theory perspective on performance improvement in manufacturing firms

Abstract The present study evaluates how the joint implementation of circular economy (CE) and operational excellence (OE) practices supported by the adoption of industry 4.0 technologies (Internet of Things and Big Data Analytics) influence manufacturing firms' operational performance and environmental sustainability. Drawing from the paradox theory, it also investigates the moderating role of managing paradoxical tensions arising from these implementations. To test the hypothesized relationships, survey data are collected from 147 Indian manufacturing firms implementing CE, OE practices, and internet of things (IoT) and big data analytics (BDA)‐enabled digital systems. The data are analyzed using structural equation modeling and moderated mediation analysis. Results indicate a direct significant effect of adoption of IoT and BDA‐enabled digital systems on operational performance and environmental sustainability, and partial mediation by CE and OE implementations, respectively. There is a strong moderation of managing paradoxical tensions on the impact of CE and OE implementations on performance. Additionally, the conditional indirect effect of CE implementations on the environmental sustainability outcomes of the IoT and BDA adoption increases with greater effort in managing paradoxical tensions. The study answers the call for empirical research on the organizational tensions that surface due to conflicting demands of initiatives related to operational efficiency and environmental sustainability.