Strategic orientation of servitization in manufacturing firms and its impacts on firm performance

DOIhttps://doi.org/10.1108/IMDS-10-2017-0485
Date11 March 2019
Published date11 March 2019
Pages292-316
AuthorYong Lin,Jing Luo,Petros Ieromonachou,Ke Rong,Lin Huang
Subject MatterInformation & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems
Strategic orientation
of servitization in
manufacturing firms and its
impacts on firm performance
Yong Lin, Jing Luo and Petros Ieromonachou
Business School, University of Greenwich, London, UK
Ke Rong
School of Social Science, Tsinghua University, Beijing, China, and
Lin Huang
Faculty of Business, University of Nottingham Ningbo China, Ningbo, China
Abstract
Purpose The purpose of this paper is to provide implementation insights and implications regarding the
strategic orientations of servitization by testing its impacts on firm performance, including financial
performance and customer service performance.
Design/methodology/approach Empirical research is conducted using an online survey disseminated to
manufacturing firms in Southeast China. This research develops and verifies a strategic fit framework to
understand the relationship between the strategic orientation of servitization and service innovation (SI), and
its resulting impacts on firm performance.
Findings The results show that service orientation (SO) has direct positive impacts on firm performance in
the manufacturing sector. Customer orientation (CO) and learning orientation (LO) have no direct impact on
firm performance, although they have indirect impacts on it via the mediating role of SI capability. Moreover,
SO has a similar indirect impact on firm performance via SI capability.
Research limitations/implications The survey focuses only on China; future studies should verify
whether different cultural backgrounds impact the research results.
Practical implications The results suggest that firms should build up three strategic orientations (SO,
CO and LO) for implementing servitization to facilitate SI capability and, thus, to improve firm performance.
Originality/value This research contributes to enhancing the theory of servitization by developing a strategic
fit model of servitization and revealing the impact mechanism of servitization in the manufacturing sector.
Keywords Service-dominant logic, Firm performance, Service innovation, Servitization, Strategic orientation,
Manufacturing system
Paper type Research paper
1. Introduction
An increasing number of manufacturers have realized that competitive advantage may be
gained from servitization (Bustinza et al., 2017), which is the innovation of a manufacturers
capabilitiesand processes to move from sellingproducts to selling integratedproductservice
offerings that deliver value in use (Baines et al., 2011). Since this strategy has been proven
to bring benefits to manufacturing firms, they are increasingly attempting to create
greater value and competitive advantage through services rather than physical products
(Settanni et al., 2014).
However, implementation of a servitization strategy in manufacturing firms is still
under-explored. One research gap within current studies is that there are very limited
insights and guidance on how those promised benefits can be achieved. For example, many
manufacturing firms are still struggling to earn the promised benefits and performance
Industrial Management & Data
Systems
Vol. 119 No. 2, 2019
pp. 292-316
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-10-2017-0485
Received 15 October 2017
Revised 12 March 2018
20 May 2018
Accepted 21 June 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
This research is supported by the National Natural Science Foundation of China (Grant No. 71472069,
71402051) and Research Grant of the Tsinghua University (No. 52100100216).
292
IMDS
119,2
from innovating their service provision (Hancock et al., 2005). It has been found that
transferring from being a manufacturer to being a service provider is not easy (Parry et al.,
2012), and services in manufacturing are actually slowly becoming commoditized to achieve
the expected competitive advantage (Opresnik and Taisch, 2015).
Another gap in the extant literature is that the way in which servitization influences firm
performance, especially financial performance (FIP), is unclear (Fliess and Lexutt, 2018).
Some empirical studies have claimed that additional services will have a positive marginal
effect on the firms overall profits; however, results have also indicated that this will only
happen when the sales of services equate to the majority of overall sales in product-centric
firms (Suarez et al., 2012). Moreover, research has argued that servitized firms sometimes
generate lower net profit as a percentage of revenue, compared to manufacturing firms
(Neely, 2008). This lack of clarity and context-limited financial benefits may delay the
adoption of servitization in manufacturing firms, or even disengage them from innovating
their service business models (Kowalkowski et al., 2015).
In light of the above research gaps, there is a growing need to understand the impacts of
servitization strategy on firm performance in the manufacturing sector. This leads to two
research questions, which will be addressed in this paper:
RQ1. What strategic orientations should manufacturing firms focus on when
implementing a servitization strategy?
RQ2. How does servitization strategy impact firm performance, including FIP and
customer service performance (CSP)?
Unlike previous research, this paper adopts a strategic fit model to reflect the relationships
between strategic orientation of servitization and strategic capability, and the resulting
impacts on firm performance. Meanwhile, this research adopts service-dominant (S-D) logic
(Lusch and Vargo, 2014), the strategic innovation paradigm (Sundbo, 1997), and the social
capital theory of innovation (Leenders and Gabbay, 2013) to develop dimensions of the
strategic orientation of servitization. The research results are expected to contribute to the
knowledge of servitization, particularly in the manufacturingsector, by empirically testingits
impacts on both FIPand CSP, and by investigating its impact pathwayson firm performance.
Meanwhile,the results have implicationsfor both researchers and practitionerswith respect to
effective means of implementing a servitization strategy in manufacturing firms.
The remainder of the paper is structured as follows. The next section outlines the
theoretical background against which the conceptual framework for the research is
developed. In the third section, hypotheses are developed based on the conceptual
framework. The fourth section presents the research methods. The fifth section illustrates
the results of the structural equation modeling (SEM) analysis with the collected data. Some
concluding remarks are made, and future research directions discussed, in the last section.
2. Theoretical background and research framework
Servitization is usually considered from a strategic perspective (Kastalli and Van Looy,
2013). Therefore, the proposed framework of this research is mainly based on theories
pertaining to strategy. The conceptual framework (see Figure 1) is grounded in several
theories, including the strategic fit model, the strategic innovation paradigm and the social
capital theory of innovation.
2.1 Strategic fit model
The strategic fit perspective emphasizes the alignment between manufacturing strategy and
strategic capabilities that drive firm performance, which indicates that consistency between
the resources and capabilities possessed by companies, and their strategic orientation,
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Servitization in
manufacturing
firms

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