Another Performance Paradox?: A Refined View on the Performance Impact of Servitization

Manufacturing firms are increasingly adopting ‘servitization’ – a business model innovation whereby existing product offerings are extended through related services. Despite the widespread uptake, questions remain regarding the impact of servitization on firm performance. This study investigates the performance effects of two core dimensions of servitization: service investments and service market approach, characterized by breadth and depth of service offering. Results suggest that service investments – though often underestimated by manufacturers – represent a prerequisite for growth. With respect to profit performance, we identify the negative effect of increasing service breadth, measured in number of services offered, while increasing service depth, measured in completeness of service offering, results in higher margins and an increase in market value. Depth of service offering also has a positive effect on market value. At the same time, the interplay between service depth and product innovation investments turns from positive to negative at the highest extent of service depth, suggesting trade-offs between ‘full-scope’ servitization strategy and innovation strategy.