Introduction

The rapid evolution of digital technologies has fundamentally altered the economic and social landscape of the member states within the European Union. The digital revolution is a critical driver in the global evolution of society and the economy. As digital technologies rapidly flourish, they generate significant challenges and opportunities at individual and organizational levels. Digital technologies are essential for achieving economic and sustainability goals (Nambisan et al., 2019; Guandalini, 2022). The acceleration of the digital transformation process to increase economic performance and ensure sustainability has garnered the attention of large management consulting companies (Accenture Strategy and GeSI, 2021; Deloitte GeSI, 2019) and intergovernmental bodies (European Commission, 2020; United Nations, 2021; World Bank, 2020). The evolution and increasing implementation of new digital technologies are apparent (Di Vaio et al., 2020), with organizations and governments recognizing the competitive advantage that innovation and digital transformation offer (George et al., 2020; Laitsou et al., 2020; Merrill and Schillebeeckx, 2022). Digital technology can enhance economic growth (Alakeson and Wilsdon, 2002) while being environmentally friendly. Moreover, digital technologies have potential in many relevant fields, such as knowledge exchange, communication, management, information transfer, and employee coordination (Di Vaio et al., 2021), which is helpful in private and public sector organizations (George et al., 2020). Digital transformation drives economic and societal innovation (Guandalini, 2022).

Within the European Union (EU), this digital transformation process profoundly impacts its member states’ economic performance and sustainability orientation. Although sustainability is the main topic of political and scientific debates today, the role of digital transformation in ensuring sustainability has not received particular attention (George et al., 2020). Nevertheless, multinational organizations use new digital technologies to transform business models to address sustainability challenges (Ferreira et al., 2019; Di Vaio et al., 2020; Merrill and Schillebeeckx, 2022).

This paper aims to address the gap in the literature concerning the reconciliation between the challenges generated by economic growth, the orientation towards sustainability, and innovation through digital transformation (Guandalini, 2022; Cillo et al., 2019; Orlando et al., 2020; Shahzad et al., 2020) to understand and measure the contribution of digital transformation to economic performance and achieving sustainability objectives (Del Rio Castro et al., 2021). Clarifying the effects of digital transformation on sustainability and economic performance through an empirical study carried out at the European Union countries level is the paper’s central axis, guided by the following research question: “What is the impact of digital transformation on sustainability and economic performance?” The paper aims to demonstrate that due to rapid access to growing data sources, improved data processing and interpretation capabilities, and the integration and automation of information systems resulting from implementing new digital technologies, the degree of achievement of sustainability and economic performance goals is increasing. The novelty of our study lies in the approach to the interplay between digital transformation, economic performance, and sustainability. As the digital revolution becomes a defining force on a global scale, understanding how digital transformation influences economic performance and sustainability orientation is paramount as many researchers point out (Bai et al., 2020; Beier et al., 2020; Brenner and Hartl, 2021; Del Rio Castro et al., 2021; Esses et al., 2021; Lichtenthaler, 2021; Costa et al., 2022; Guandalini, 2022).

Our study addresses an existing gap in the literature, as it has not explicitly focused on the role of digital transformation in ensuring sustainability (Di Vaio et al., 2020; George et al., 2020; Polak, 2021; Brenner and Hartl, 2021; Guandalini, 2022). While sustainability has been the subject of extensive political and scientific debates, the impact of digital transformation on it has not been adequately investigated (Del Rio Castro et al., 2021), mainly on a European level. This paper aims to significantly contribute to the existing literature by tackling a pressing issue and offering a clear perspective, supported by empirical analyses, on the impact of digital transformation on economic performance and sustainability goals (Fig. 1).

Fig. 1: Investigated issues.
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Source: authors’ design.

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The paper is structured as follows. Section “Literature review and hypotheses development” provides a theoretical background on the relationship between digital transformation, economic performance, and sustainability. The section “Methods” includes the design and methodology. Section “Results” presents the research results, while section “Discussion” discusses the results, theoretical and practical implications, limitations, and future research. Finally, the section “Conclusions” concludes the study.

Literature review and hypotheses development

Digital technologies

In the last decades, the world has witnessed a radical transformation due to technological progress in the digital field. Regarding the economy, digital technologies have ushered in a new era of business (Ghobakhloo, 2020). E-commerce has become a significant force, disrupting traditional business models. Companies use data analysis to understand consumer behavior better and adapt their products and services. Innovation is accelerated, and start-ups can become market leaders in record time. However, this transformation also brings challenges like data security and privacy concerns (Bai et al., 2020).

Digital technologies have become an essential driver of change and progress in the economy. Cloud computing, Big Data, the Internet of Things (IoT), and artificial intelligence (AI) are several new digital technologies that have joined existing information and communication technologies (ICT) and e-commerce, revolutionizing the conduct of economic processes. Information and communication technologies (ICT) and e-commerce have contributed to the digitalization of society, facilitating online communication and transactions (Banerjee et al., 2020). This fact has significantly impacted the business environment and changed how we consume goods and services (Cheng et al., 2021).

Cloud computing (CC) has changed how data and applications are stored, managed, and accessed. Through cloud services, data can be stored in virtual data centers, easily accessible from anywhere and on any device connected to the Internet (Dilberoglu et al., 2017). Clouds have transformed work patterns, allowing access to information and resources regardless of location. Moreover, it has reduced IT infrastructure costs, facilitating development and innovation in both business and the public sector (Beier et al., 2020). Big data (BD) has enabled the management of vast amounts of data generated by internet users, IoT devices, and other digital sources (Flyverbom et al., 2019). The analysis of this data provides valuable information for businesses, research, and governance. BD has transformed the decision-making process by revealing hidden patterns and trends, contributing to improving products, services, and operational efficiency in various industries (Mosterman and Zander, 2016).

The Internet of Things (IoT) has created a global network of connected objects, from cars to household appliances and industrial sensors. These devices communicate and collect data, allowing remote monitoring and control (Meneghello et al., 2019). IoT brings significant benefits, such as more efficient resource management and increased comfort and security in homes and businesses. Artificial intelligence (AI) is a rapidly evolving technology that involves teaching machines to solve complex tasks, allowing for autonomous activity in various fields (Rufimann et al., 2015). However, this development also raises ethical and security challenges that require careful consideration (Rakowski et al., 2021; Polak, 2021).

Digital information plays an essential role in digital technology and serves as the foundation upon which it is built (Koh et al., 2019). In the digital era, all aspects of technology are closely tied to how information is collected, stored, processed, and transmitted in digital format. Digital technology enables the collection (through IoT and Big Data), storage (via Cloud Computing and Big Data), and processing (through Big Data and Artificial Intelligence) of vast quantities of data, which is crucial in the economic domain (Polak, 2021). Digital technology facilitates global communication. Email, instant messaging, social networks, and video conferences, among others, rely on transmitting and processing digital information. The speed and capacity of these communications would be impossible without digital technology. Digital information underpins discoveries and technological advancements (Lichtenthaler, 2021). However, it is also essential to mention the blindside of digital technologies (Rachinger et al., 2019; Rakowski et al., 2021). With increasing digital information, security and privacy become vulnerable to cyber threats. Unequal access to digital technologies leads to economic inequalities. Individuals can become overly dependent on their digital devices within economic processes and personal lives, resulting in mental health issues and social isolation.

Digital technologies have brought about a revolution in contemporary society (Yoo and Yi, 2022). They have improved efficiency, connectivity, and the quality of life but have also brought challenges, such as data security and their impact on employment. It is essential to approach these technologies wisely and manage the transformations they bring to ensure sustainable growth. Understanding and adapting to changes in digital transformation are crucial parts of the evolution of our society (Hanelt et al., 2020).

Digital transformation

The term “digital transformation” refers to a fundamental change in activities, processes, competencies, and organizational models to fully leverage the opportunities and impacts of various digital technologies in a strategic and prioritized manner (Scoop.eu, 2021). Emerging digital technologies, such as cloud computing (CC), big data (BD), the Internet of Things (IoT), and artificial intelligence (AI), along with existing information and communication technologies (ICT), are resha** how individuals and businesses operate (Meneghello et al., 2019; Rakowski et al., 2021; Polak, 2021). In addition, Industry 4.0 has ignited a digital transformation, allowing for the collection and processing of large amounts of data and facilitating access to information and services (Rufimann et al., 2015). Digital technologies, combined with a change in mindset, can provide new opportunities for planning, management, and sustainable development (Schieferdecker and Mattauch, 2014).

Industry 4.0 represents the integration of advanced information technologies based on integrated and increasingly intelligent software systems, enabling the interconnection of all production process units (Mosterman and Zander, 2016; Dilberoglu et al., 2017; Guo** et al., 2017; Polak, 2021). IoT, with its sensor-embedded assets, provides vast datasets. Information technologies supply increasingly enhanced IT solutions for efficient real-time data collection and analysis, supported by BD and analytics based on artificial intelligence systems (Brodny and Tutak, 2022). In addition, CC technologies enable remote solutions for those without access to advanced hardware or specialized IT solutions.

Although EU enterprises are gradually adopting new digital technologies, such as BD, CC, and IoT, the acceptance of advanced digital technologies remains low. Implementing AI-based technologies, in particular, is limited due to their complexity, which smaller enterprises may find challenging to manage (Hansen and Bogh, 2021). However, AI’s potential for transformation is considerable, with a wide range of applications in various economic and social fields, and is expected to play an increasingly significant role in finance (Polak et al., 2020; Guo and Polak, 2023) and the global economy (Conde and Twinn, 2019; Rakowski et al., 2021; Polak, 2021).

Digital transformation significantly impacts business models, enhancing the effectiveness of business operations (Ritter and Pedersen, 2020). The digital revolution also has an extraordinary effect on society, revolutionizing access to information, the way of interaction, and access to services (Zhao et al., 2015; Olczyk and Kuc-Czarnecka, 2022). It is also worth emphasizing the positive impact of computer and internet use in enterprises, such as the increase in the volume of e-commerce, on the digital transformation process of enterprises (Guandalini, 2022; Brodny and Tutak, 2022; Olczyk and Kuc-Czarnecka, 2022).

Relationships between digital transformation, sustainability, and economic growth

Del Rio Castro et al. (2021) and Brenner and Hartl (2021) state that two significant trends in society have become topics of debate at the political, social, and academic levels: sustainability and digital transformation. These concepts represent paradigmatic economic, social, and ecological changes (Caputo et al., 2021) and alter the game and strategic objectives of organizations, states, and supra-state institutions.

The holistic nature of the two concepts often leads to confusion regarding their definition (Guandalini, 2022). Sustainability is a transdisciplinary term that is difficult to define and influences organizations at all levels (individual, group, organizational, and in relations with the external environment) through actions, decisions, and behaviors (Del Rio Castro et al., 2021; Caputo et al., 2021). Furthermore, sustainability can be viewed differently from a multi-stakeholder perspective, with cultural biases and contrasting approaches (Cegarra-Navarro et al., 2019; Chaurasia et al., 2020). The different perspectives concerning the approach to sustainability can lead to an expansion of the debate (Ramsey, 2015; Ruggerio, 2021), tailoring it for different fields of activity or categories of stakeholders. However, the differing perspectives of stakeholders pose a significant disadvantage in implementing sustainability (Souza et al., 2015), and attempts to unify the theories regarding sustainability cause controversial debates (Del Rio Castro et al., 2021). Theories and perspectives on sustainability have approached the concept differently, emphasizing specific aspects (Kantabutra, 2022). Sustainable development theory, ecological theory, social sustainable development theory, economic sustainability theory, human development theory, and resilience theory are only a few of the sustainability theories that can be reconciled through the complex tools employed by digital transformation.

Sustainable development has become a central theme in the consciousness of humanity in the modern era, as humanity faces significant challenges related to natural resources and environmental protection, primarily concerning carbon emissions (Caglar and Mert, 2022; Caglar AE, 2023), environmental protection expenditures (Caglar and Yavuz, 2023), and the promotion of the green revolution (Caglar and Askin, 2023).

The challenge of natural resources has become a significant concern in the context of sustainable development (Caglar et al., 2022a). Natural resources are limited, and their excessive and unprotected use can severely affect the environment (Caglar et al., 2022b). European countries have committed to efficiently managing natural resources and reducing excessive consumption (Guloglu et al., 2023). Through legislation and regulations, stricter standards for natural resource utilization have been imposed, and more sustainable production practices have been promoted (Ruggerio, 2021).

In the EU, there is a transition towards cleaner sources of energy to reduce dependence on fossil fuels and contribute to a reduction in carbon emissions (Caglar and Askin, 2023) in line with the sustainable development goals (SDG) established by the UN. Renewable energy consumption has significantly increased in recent years and continues to grow, demonstrating nations’ commitment to sustainable development. Nations are making critical efforts to ensure a better future for future generations and protect the environment (Del Rio Castro et al., 2021; Biloslavo et al., 2020).

The recognition of the close relationship between the two concepts (sustainability and digital transformation) also emerges from the concept that combines the two: digital sustainability. Many studies explicitly focused on the pivotal role of digital transformation in ensuring sustainability (PWC, 2018; Di Vaio et al., 2020; George et al., 2020; Polak, 2021; Brenner and Hartl, 2021; Mondejar et al., 2021; Guandalini, 2022). Other studies have drawn attention to the fact that the profound impact of digital transformation on sustainability has not been comprehensively examined (Esses et al., 2021; Del Rio Castro et al., 2021). George et al. (2020) assert that digital sustainability represents an organization’s actions that promote sustainability objectives through the implementation of digital technology. The literature recognizes the potential of information and new digital technologies in sustainable development (Guandalini, 2022; Di Vaio et al., 2020; Mondejar et al., 2021). Del Rio Castro et al. (2021) and Paiola et al. (2021) demonstrate that information and communication technologies, Big Data, and the Internet of Things play a crucial role in implementing a sustainable perspective and economic growth (Gebhardt, 2017; Del Rio Castro et al., 2021; Paiola et al., 2021).

The potential of digital technologies facilitates the building of sustainable business models that rely on social, environmental, and economic performance (Benites and Polo, 2013; Hsu et al., 2018; Biloslavo et al., 2020; Imran et al., 2022). Implementing digital technologies provides one of the main benefits of sustainability (Costa et al., 2022), as information and communication technologies and new digital technologies enable economic, social, and environmental performance (Ordieres-Mere et al., 2020). Beier et al. (2020) conducted a literature review on aligning digital technologies with sustainable development, concluding that researchers must study technologies in an integrated manner. Systemic studies are necessary to assess digital transformation’s real implications on sustainability reliably. The first research hypothesis based on the literature review is:

Hypothesis H1. Digital transformation exerts significant positive direct influences on economic sustainability and performance.

Implementing digital technologies creates new opportunities for value creation and facilitates transitioning from a traditional organization to a digital business model (Mergel et al., 2019), the most significant driver of entrepreneurship and innovation (Berger et al., 2021). Hanelt et al. (2020) view digital transformation as the organizational change triggered and shaped by the extensive diffusion of digital technologies. Bai et al. (2020) argue that enterprises need to consider the contribution of digital technologies to sustainability, and there is a need to rank the influences of various digital technologies on sustainability.

Digital transformation supports economic growth, and its influence depends on the research context (Molinari and Torres, 2018; Solomon and van Klyton, 2020). Another effect of digital transformation is the structural change of the labor market, reducing the demand for low-skilled employees and increasing the demand for employees with IT skills, which complement the skills specific to the field in which they operate. Digital resources are limited only by internet access. Therefore, access to a computer connected to the Internet is the fundamental dimension of the digitization process. An internet connection that provides broadband and high data transmission speed is again the fundamental element of digital transformation, requiring ever-faster data transfer rates. As a result of the expansion of ICT technologies and driven by the COVID-19 pandemic, the evolution of e-commerce experienced an unprecedented expansion. This commerce model based on digital technologies tends to be increasingly present in the contemporary economy. The second research hypothesis based on the literature review is:

Hypothesis H2. Among information and digital technologies, access to a computer with the Internet and the volume of e-commerce in European countries exert the most critical influences on sustainability and economic performance.

The literature provides compelling evidence of the impact of digital transformation on economic growth (Olczyk and Kuc-Czarnecka, 2022; Minges, 2016; McKinsey, 2018; Park and Choi, 2019; Yoo and Yi, 2022). However, the positive effects of digital transformation on economic performance may not immediately diffuse throughout the economy. Despite this, the impact of digital transformation on economic performance remains a current and relevant aspect, constituting a research topic for many scholars. Due to the complexity of the digital transformation phenomenon, researchers have approached this theme differently, proposing research methodologies based on one, several, or composite indicators. Studies that identified a positive relationship between digital transformation and economic performance use different indicators to measure the level of digitization (Banerjee et al., 2020; Myovella et al., 2020; Deloitte, 2022) or a composite index, such as DESI—Digital Economy and Society Index (Olczyk and Kuc-Czarnecka, 2022; Stavytskyy et al., 2019; European Commission, 2020, 2022; Latisou et al., 2020). Digital technologies change the economic structure by increasing the ability to adapt quickly (Brodny and Tutak, 2022; Yoo and Yi, 2022).

Digital transformation is one of the most important vectors affecting economic development, as it enhances capital and labor productivity, reduces costs, and facilitates access to global markets (Dahlman et al., 2016). Numerous studies have shown a positive relationship between digital transformation and economic growth. For example, Billon et al. (2010) identified a significant impact of information and communication technologies on economic development in a study of 142 countries. Other authors (Myovella et al., 2020; Habibi and Zabardast, 2020) showed that digitization positively impacted economic growth in develo** and developed countries. However, Niebel (2014) analyzed the impact of ITC on economic growth in emerging and developed countries, showing that emerging countries do not benefit more from ITC investments than developed economies.

Nevertheless, in the sustainability literature, a positive correlation between the concepts at the country level is not universally recognized. Smith et al. (2010) argue that innovation primarily aims at economic performance and addresses societal challenges. According to Cheng et al. (2021), digital transformation could have a positive or insignificant impact on economic growth, depending on a country’s level of development. In developed countries, the impact of digital transformation is high, while in low-income countries, this impact is small, even insignificant. The findings of Cheng et al. (2021) are supported by Kurniawati (2020), who concludes that countries registering a high level of digital transformation have a positive and significant economic development rate. Pradhan et al. (2020) showed that the development of digital transformation positively affects economic performance in their investigation of middle-income countries. As an essential vector of economic growth, digital transformation has become increasingly crucial for innovation-based sustainable development (Pavlovich et al., 2020; Aleksandrovna et al., 2020; Ardito et al., 2021). However, Ardito et al. (2021) found no evidence that integrating digital transformation and sustainability leads to increased economic performance. Although most researchers see a positive relationship between digital transformation, sustainability, and economic performance, there is a risk that digital transformation is a disruptive force that, if not optimally managed, can negatively affect sustainability (Brenner and Hartl, 2021; Flyverbom et al., 2019; Ghobakhloo, 2020).

At the macroeconomic level, digital transformation positively impacts economic growth, primarily by increasing labor productivity (Aly, 2020). Digital technologies have become the fourth factor of production, alongside capital, labor, and natural resources. Adopting digital transformation contributes to higher work productivity and increased capital efficiency by reducing the costs of organizational processes. Nevertheless, the impact of digital transformation varies across countries due to structural differences in their economies. Developed economies experience higher economic growth while emerging economies benefit from job creation resulting from investments in technology and reduced technological levels (Olczyk and Kuc-Czarnecka, 2022; Micic, 2017). The digital transformation process is closely linked to the macroeconomic concept of digital competitiveness, which refers to a country’s ability to implement and explore digital technology (Roszko-Wojtowicz and Grzelak, 2020; Malkowska et al., 2021). Digital competitiveness is a source of competitive advantage and a crucial element of national strategies to achieve economic growth and sustainable development (Latisou et al., 2020). Based on the literature review, the third research hypothesis is as follows:

Hypothesis H3. European countries with a high level of digitization exhibit robust economic performance and a solid commitment to sustainability.

Methods

Research design

The research process entailed an exploratory literature review (Fig. 2). Then, drawing on our findings, we constructed a theoretical model and advanced three hypotheses to be validated by collecting data about digital transformation, sustainability, and economic performance at the national level across European Union countries. Ultimately, we analyzed the statistical data to test our hypotheses and exposed the results, discussion, and conclusions.

Fig. 2: Research process stages.
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Source: authors’ design.

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Selected variables

After reviewing the literature, we selected the research variables. Digital transformation comprises five variables, namely: the use of computers and the Internet by employees (ICTu), the proportion of enterprises’ turnover generated through e-commerce, cloud computing (CC), Big Data (BD), and the Internet of Things (IoT). For digital transformation, the paper used digital technologies with compatible statistical data in Eurostat in the E-business and E-commerce sections of the Digital economy and society database. To measure sustainability, we chose a composite indicator (SDG Index Score), while we used GDP per capita for economic performance. We acquired data for all variables from the Eurostat database (Eurostat, 2022a, 2022b, 2022c, 2022d, 2022e, 2022f) and the Sustainable Development Report 2022 (Sachs et al., 2022). Even though the Sustainable Development Report 2023 is available, it cannot be used for research purposes because data about digital technology variables will only be available until 2022. To ensure data compatibility, we conducted the research using data up to 2022. We have added Norway to the EU countries in the cross-sectional analysis of digital transformation, economic performance, and sustainability due to its involvement in European efforts regarding sustainability and digital transformation and to enrich the understanding of regional dynamics within Europe. Table 1 presents the variables, the data series employed, the measures used, and the references where the collected data can be accessed.

Table 1 Research variables.
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Table 2 presents the descriptive statistics of the research variables.

Table 2 Descriptive statistics.
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Table 2 reveals an extensive and skewed distribution of values characterizing digital transformation, sustainability, and economic growth. By promoting investments in ICT, the EU’s macroeconomic policy has accelerated innovation, economic growth, and competitiveness. The values in Table 2 indicate that the EU has shaped an infrastructure that enables excellent connectivity and high efficiency. Big Data and IoT provide vast sources of information that assist in making informed decisions and identifying patterns and trends in the economy. The data analysis in Table 2 demonstrates that the EU has made significant progress in the efficiency of economic processes. High investments in Cloud Computing enable companies in the EU to access storage and computing solutions efficiently without massive investments in physical infrastructure. With the help of ICT, e-commerce records significant value in some countries, leading to new economic opportunities and innovations in trade and fiscal policies. The SDGi values in Table 2 reflect the EU’s commitment to sustainability. The mean recorded across the European countries shows its determination to achieve the United Nations’ Sustainable Development Goals. The European countries strive to balance economic growth with sustainable development, addressing climate change, poverty, and inequalities.

Research methods

The study employs structural equation modeling, artificial neural network analysis, and cluster analysis to test the hypotheses. Specifically, to test Hypothesis H1, the paper will employ a partial least squares variant of structural equation modeling (SEM)(1) (Hair et al., 2017; Garson, 2016)

$$\eta _i = \alpha _\eta + B\eta _i + \Gamma \xi _i + \zeta _i$$
(1)

η, ξ—endogenous and exogenous variables vectors, B—effects of the latent endogenous variables on each other, Γ—effects of the latent exogenous variables on the latent endogenous variables, ζ—disturbances, i—cases.

The study employed an artificial neural network (ANN) analysis using a multilayer perceptron (MLP) to test Hypothesis H2. The MLP can identify relationships between variables arranged in the input and output layers (IBM.SPSS, 2012). In this investigation, a model utilizing back-propagation (IBM.SPSS, 2012) was selected to determine these influences (2):

$$y = \left( {\mathop {\sum}\nolimits_{i = 1}^n {w_ix_i + b} } \right) = \varphi \left( {W^TX + b} \right)$$
(2)

w, x—vectors of weights and inputs, b—bias, φ—activation functions.

As activation functions, we used a hyperbolic tangent function (IBM.SPSS, 2012) (3):

$$f\left( n \right) = \frac{{e^n - e^{ - n}}}{{e^n + e^{ - n}}} = \frac{{e^{2n} - 1}}{{e^{2n} + 1}}$$
(3)

n—input variables, f(n)—output variables.

For hypothesis H3, the investigation uses cluster analysis (4). The optimal approach was the average linkage method (between groups) (4):

$$d_{ij} = \frac{1}{{kl}}\mathop {\sum}\limits_{i = 1}^k {\mathop {\sum}\limits_{j = 1}^l {d( {{{{\mathbf{X}}}}_i,{{{\mathbf{Y}}}}_j})} }$$
(4)

X1, X2, …, Xk—observations from cluster 1, Y1, Y2, …, Yl—observations from cluster 2, d(X, Y)—the distance between a subject with observation vector x and a subject with observation vector, k,l—cases.

This method involves observing the distances between all pairs and calculating the average of these distances (Penn State, Eberly College of Science, 2022).

Results

Initially, we calculated the correlations using the Pearson coefficient to determine the links between the variables. Table 3 presents the bivariate correlations among the variables, emphasizing their solid correlations.

Table 3 Bivariate correlations between the variables.
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Table 3 highlights the existence of strong correlations between ICTu and eC, on the one hand, and GDPpc and SDGi, on the other. Specifically, the digital transformation achieved through the internet access of enterprise employees and a higher volume of e-commerce correlates with economic performance and sustainability. Other significant correlations are observable between CC and SDGi, as well as between BD and GDPpc.

The proposed theoretical model underscores the impact of digital transformation on economic performance and sustainability. Digital transformation incorporates the variables describing information and digital technologies into a common construct. The other two latent variables, economic performance and sustainability, each have a single exogenous variable. The model was tested using the PLS algorithm, which is well-suited for formative and composite models. In formative models, each indicator represents an aspect of the latent variable (Garson, 2016).

Figure 3 illustrates the theoretical model proposed to highlight the impact of digital transformation on economic performance and sustainability.

Fig. 3: Theoretical model.
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Source: authors’ design based on literature review.

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The software used to conduct the structural equation modeling in the partial least squares variant was SmartPLS v3.0, which evaluated the relationships among the latent variables. As depicted in Fig. 4, the primary indicators of the digital transformation latent variable are ICTu (weight 0.659) and eC (weight 0.416), while the other technologies (BD, CC, IoT) have a lower weight in constructing the digital transformation latent variable.

Fig. 4: Applied model.
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Source: own design using SmartPLS v3.0.

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According to Hair et al. (2017) and Garson (2016), for a formative model, an important indicator is the SRMR (standardized root mean residual), which measures the approximate fit of the model. A lower SRMR indicates a better fit. For the proposed model, the SRMR value is 0.055. The NFI (normed fit index) also has an excellent value of 0.949, above the recommended threshold of 0.9. The R-squared value of 0.678 for sustainability indicates a substantial effect, while 0.454 for economic performance indicates a moderate effect. The formative model should not display excessive multicollinearity among indicator variables, as stated by Hair et al. (2017). Multicollinearity can be problematic if the variance inflation factor (VIF) exceeds 5 (Table 4).

Table 4 Multicollinearity of indicator variables.
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By running a basic bootstrap** procedure with a bias-corrected, two-tailed, and 0.05 significance level, SmartPLS 3.0 computed the path coefficients and specific and total effects (Table 5). All path coefficient values above 0.3 or below –0.3 indicate solid causal relationships. Furthermore, the T-statistic values (above 1.6) and P-values (below 0.050) demonstrate the model’s robustness, according to Garson (2016).

Table 5 Path coefficients.
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Hypothesis H1 is valid based on the causal relationships presented in Table 5. Digital transformation has significant direct positive impacts on both sustainability and economic performance. However, the negative impact of implementing a sustainable approach on economic performance reduces the total effects of digital transformation on economic performance.

To test Hypothesis H2, we used a multilayer perceptron (MLP) analysis in the Artificial Neural Network (ANN) analysis. The MLP analysis unveils the individual influences of information and digital technologies on sustainability and economic performance through a hidden layer. The usefulness of information and digital technologies in the economy and society represents the hidden layer. The activation functions for the input and hidden layers in MLP are hyperbolic tangent. The rescaling method for the input layer variables was standardization. The overall average relative error is 0.553. Figure 5 illustrates the relationships among the variables.

Fig. 5: MLP model illustrating the influences of digital technologies on economic performance and sustainability.
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Source: authors’ design using SPSS v.20.

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Table 6 encloses the predictors for the input and hidden layer variables and their relationships.

Table 6 MLP model predictors.
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Figure 5 and Table 6 demonstrate that information and digital technologies significantly positively affect sustainability and economic performance through a hidden layer. Among these technologies, ICTu and eC have the most substantial positive impact on the hidden layer, which significantly affects the output layer. Predictive values, absolute importance, and normalized importance indicate that using computers and the Internet by employees and e-commerce are the most important antecedents of sustainability and economic performance among information and digital technologies. The MLP model confirms the validity of the SEM-PLS model by emphasizing the importance of computer and Internet access and e-commerce for sustainability and economic performance. The biases are lower than the influences of the main variables in the model.

Ranking countries according to their information and digital technologies, economic performance, and sustainability developments can facilitate benchmarking among countries. Cluster analysis can group European Union countries into homogeneous clusters (Penn State, Eberly College of Science, 2022). Figure 6 shows the dendrogram with three homogeneous clusters.

Fig. 6: Dendrogram.
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Source: authors’ design using SPSS v.20.

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Cluster 1 comprises countries with low levels of digitization, economic performance, and sustainability (Table 7). It consists of Eastern European countries, except Estonia and Czechia, and a few countries from Southern Europe (Greece, Portugal, Spain, and Cyprus). Cluster 2 includes EU member states with high digitization rates, GDP per capita close to the EU average, and an SDG index score above the EU average, with two exceptions: Malta and Italy. Finally, Cluster 3 comprises Nordic countries: the three Scandinavian countries (Norway, Sweden, Finland), Denmark, and the Netherlands. These countries display high levels of digitization, economic performance, and sustainability (Table 7).

Table 7 The variables’ values within the clusters.
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Two European countries, Ireland and Luxembourg, do not fit into any of the three clusters due to their medium levels of digitization and sustainability and very high GDP per capita. This data excludes them from the homogeneous clusters established. Nevertheless, the cluster analysis confirms Hypothesis H3, indicating that European countries can be grouped into homogeneous clusters based on their digitization rates, sustainability levels, and economic performance. Furthermore, within these clusters, countries that have embraced digital transformation adopted sustainability principles and ensured high levels of economic growth for their citizens could be identified.

Discussion

In the 21st century, innovation, digital transformation, sustainability, and globalization dominate the economy and society. Furthermore, the importance of these phenomena has increased with various problems facing humanity, such as climate change, environmental pollution, global population growth, population aging, migration, pandemics, and inter-state military conflicts (Ordieres-Mere et al., 2020). Additionally, digital transformation provides new solutions for individuals, companies, economic sectors, countries, and regions to address these challenges and capitalize on various opportunities (Esses et al., 2021).

As revealed by the results of this study, the digital transformation process does not progress at the same pace in all European countries. Therefore, the main aim of this study was to evaluate the level of digitization and the effects of digital transformation on a country’s economic performance and sustainability. We analyzed five indicators characterizing the digitization process, economic performance, and sustainability in European countries to achieve this research objective. The paper formulated three hypotheses to achieve the intended purpose.

The results of the first hypothesis investigation confirm the positive impact of digital transformation on both sustainability and economic performance. This finding aligns with previous research conducted by Ordieres-Mere et al. (2020), Esses et al. (2021), and Jovanovic et al. (2018), which suggests that there is a correlation between digital transformation and sustainable development. The more intense the digital transformation, the more significant the competitiveness, innovation, and entrepreneurship increase, leading to more significant economic development. In addition to economic development, digital transformation also affects other drivers of sustainable development, including social and environmental drivers. For example, integrating digital technology can contribute to more efficient communication, improve public governance and private companies, and enhance service provision. It can also play a role in reducing carbon emissions (Caglar, 2023), conserving resources (Caglar and Yavuz, 2023), and promoting sustainable development (Caglar and Ulug, 2022; Caglar and Askin, 2023; Guloglu et al., 2023).

Digital transformation enables increased economic efficiency through automation, data analysis, and innovation (Bai et al., 2020). It helps reduce costs, enhance productivity, and stimulate economic growth, which is crucial for achieving SDGs related to poverty eradication and promoting sustainable economic development (Beier et al., 2020; Brenner and Hartl, 2021; Esses et al., 2021). Digital technologies facilitate the monitoring and reporting of progress towards SDGs. The data collected and analyzed can provide a clear picture of the situation and assist in identifying areas that require further interventions (Lichtenthaler, 2021; Costa et al., 2022). Digital transformation can contribute to promoting a cleaner and more sustainable environment (Guandalini, 2022).

Moreover, the research shows that more digitized countries have a higher GDP, which is consistent with the findings of previous studies conducted by Ordieres-Mere et al. (2020), Esses et al. (2021), and Jovanovic et al. (2018). However, it is essential to note that digital transformation is not solely responsible for economic growth. Other factors, such as political stability, human capital, and natural resources, also play a crucial role in economic development. The results of this study suggest that digital transformation is a critical component in achieving sustainable development and economic growth. It highlights the importance of policymakers and business leaders investing in digital infrastructure and technologies to drive innovation and entrepreneurship while considering digital transformation’s social and environmental implications.

Regarding Hypothesis H2, the findings highlight the critical role of appropriate ICT infrastructure in digitization. The availability and accessibility of advanced technologies such as 5G and 6G networks are vital for successfully implementing and develo** digital technologies. As noted by Castelo-Branco et al. (2019), Peres et al. (2020), and Raj et al. (2020), employees’ access to computers and high-speed Internet is essential for enabling the effective use of digital technologies. Moreover, the research results of Hypothesis H2 support Olczyk and Kuc-Czarnecka (2022) findings, which emphasize the importance of using access to digital and Internet technologies as well as the percentage of enterprises selling products and services online as critical indicators of digital transformation development. These indicators provide a more comprehensive and accurate assessment of the level of digital transformation, mainly when using country-level digital transformation datasets, as Deloitte (2022) suggested. Hypothesis H2 underscores the importance of appropriate ICT infrastructure, access to advanced technologies, and accurate indicators for measuring digital transformation. These factors are critical for ensuring successful digital transformation, which can significantly improve productivity, competitiveness, and economic growth.

The findings of Hypothesis H3 suggest that countries with a high level of digital transformation are also more likely to have embraced sustainability principles and recorded high economic growth rates per capita. This observation aligns with the research of Cheng et al. (2021) and Kurniawati (2020), demonstrating the positive correlation between digital transformation and economic development. However, our study also revealed that even in develo** countries, the impact of digital transformation is significant, which contradicts the findings of Cheng et al. (2021) and Kurniawati (2020). This finding suggests that digital transformation can be an essential driver of economic growth for less developed countries, consistent with the findings of other studies such as Banjeree et al. (2020) and Arendt (2015). The study’s results also demonstrate that digital transformation positively affects different aspects of the economy, such as public governance and private companies, service provision, and competitiveness. In addition, using digital technology can improve communication efficiency and enhance economic growth and competitiveness (Olczyk and Kuc-Czarnecka, 2022; Al-Refai, 2020). These findings suggest that digital transformation can significantly improve countries’ economic performance, regardless of their development status.

The cluster analysis approach used in this study can provide valuable insights into country-level data analysis by identifying clusters of countries with similar characteristics. In addition, this approach can facilitate comparisons between countries and identify best practices for policy-making in digital transformation, sustainability, and economic development.

Theoretical implications

This study investigates the contribution of digital transformation to sustainability and high economic performance. A deductive approach is employed to identify the relationships between digital transformation, economic performance, and sustainability based on exploratory investigations of the literature (Guandalini, 2022; Merrill & Schillebeeckx, 2022; George et al., 2020; Di Vaio et al., 2021; Ferreira et al., 2019; Del Rio Castro et al., 2021) and validate research hypotheses.

The uniqueness of our study lies in our innovative approach to examining the intricate interplay between digital transformation, economic performance, and sustainability within the European Union. This empirical study investigates a highly pertinent and contemporary subject: digital technologies’ swift and profound influence on EU member states. In an era where the digital revolution has become a defining global force, comprehending how it shapes economic performance and sustainability orientation is of paramount importance, as highlighted by several researchers (Bai et al., 2020; Beier et al., 2020; Brenner and Hartl, 2021; Del Rio Castro et al., 2021; Esses et al., 2021; Lichtenthaler, 2021; Costa et al., 2022; Guandalini, 2022).

The central objective of this study is to assess and investigate the real impact of one phenomenon on others in European countries. The findings contribute significantly to constructing a methodological framework for digital transformation and its effects on economic performance and sustainability. The results provide a clear picture of sustainable economic development models based on digital transformation, which can help build an innovative knowledge-based economy. Among the many interesting findings, it is worth underlining the positive impact of enterprises’ computer and internet use and the increase in the volume of e-commerce on the digital transformation process. The results can be helpful to regulators in develo** digitization strategies that underpin sustainable economic performance. European countries increasingly recognize that investments in the digital economy are profitable and contribute to sustainable development. The size of digital investments is now a measure of each country’s civilization development (Brodny and Tutak, 2022).

Empirical implications

After analyzing academic literature, we found that managers, authorities, and intergovernmental regulatory institutions are keenly interested in the subject. However, few empirical studies examine macro-level relationships between the three concepts. Research on the relationship between digital transformation, sustainability, and economic performance is fragmented, with variable methodologies used across different economic sectors. Therefore, adopting a macro-level perspective that provides a theoretical framework for future developments in these areas is crucial. This paper addresses this gap by presenting theoretical considerations based on an empirical study of the relationship between digital transformation, sustainability, and economic performance in the European Union countries.

The empirical study has several critical implications for the economic environment. First, it provides evidence to support a better understanding of the relationship between digital transformation, economic performance, and sustainability, which is essential for policymakers. Second, this study’s findings enrich practitioners’ knowledge on the topic and inform them about the potential of digital technologies to achieve sustainability goals and economic performance. Third, a comparative approach allows policymakers to benchmark policies adopted by national authorities or regional institutions and adopt the best practices for digital transformation and sustainability perspective implementation.

Limitations and further research

The results of this research have certain limitations. The empirical analysis of the datasets characterizes the economies of the 28 European countries. However, the geographical territory and cultural specificity of European countries limit the generalization of the results. Furthermore, cross-sectional analysis offers the advantage of in-depth investigation but the disadvantage of a static view. Future research may undergo longitudinal analysis to establish country-level trends within the EU.

The existing data within Eurostat concerning the extent of digital technologies have limited the digital technologies considered in the empirical study. Also, a limitation consists of selecting only one indicator for economic performance and sustainability.

Therefore, future research should consider a multidimensional assessment of these two phenomena, significantly influencing the modern economy and society. Future research can extend the analysis to track the evolution of digital transformation, economic performance, and sustainability in European countries over several years. This approach would provide a more comprehensive perspective on how these aspects develop over time. A promising research theme could explore how individual digital technologies (e.g., IoT, BD, Cloud Computing) influence sustainability indicators (the 17 SDGs). This approach could help identify technologies with the most significant positive impact on critical areas. Future research can thoroughly compare the evolution of digital transformation, economic performance, and sustainability between different European countries, highlighting differences and similarities.

Conclusions

Integrating new digital technologies into traditional organizational models brought about by digital transformation has induced significant changes in their structural and technical production processes. When integrated with existing information and communication technologies, these technological advancements provide a competitive edge, differentiating countries in terms of economic performance and sustainability orientation. Digital transformation involves an integrative process that aligns current information and communication technologies with new digital technologies to achieve a country’s economic, social, and environmental performance objectives.

Our study empirically examines the relationship between digital transformation, sustainability, and economic performance and answers the following research question: “What is the impact of digital transformation on sustainability and economic performance?”. The findings of this research provide a theoretical and practical contribution to develo** a new literature stream called digital sustainability. The recommendations in this paper aim to advance and complement the existing body of knowledge, bringing management scholarship closer to broader societal needs.

European countries have come to appreciate the significance of digital transformation in driving economic and sustainable growth, with an understanding of the competitive advantage of a robust digitized economy. Nevertheless, the economic development, sustainability, and digitalization levels differ across European countries due to significant variations. Therefore, less developed countries with weaker digital economies must follow the model of more developed and highly digitized countries.