Why do servitized firms fail? A risk-based explanation

Abstract

Purpose – In an effort to further explain why manufacturing firms that move towards service provision often do not achieve the financial benefits they would expect, the purpose of this paper is to examine the impact of service additions on the risks affecting the firm. Design/methodology/approach – Using data drawn from a sample 129 bankrupt manufacturers (75 servitized and 54 non-servitized) and a categorization framework of failure risks, the study explores the impact of the presence of a service business on environmental and internal bankruptcy risks that a manufacturing firm must face. Findings – The study finds that the presence of a service business leads to a greater number of bankruptcy risks for the supplying firm. This is essentially because of greater internal risks. In addition, two types of service offerings are identified – demand chain and product support services. When firms offer demand chain services, they are also exposed to greater environmental risks. Research limitations/implications – The study provides empirical evidence on the relationship between servitization and bankruptcy risks, and on how this is influenced by the type of service offering. The research should be extended by a more comprehensive assessment of organizational risks in order to further validate and develop the conclusions. Practical implications – The study suggests that, as adding services introduces new risks for firms, managers have to seek means of mitigating these risks to ensure successful introduction of services. Originality/value – The paper addressed the gap in the literature for structured analyses of the risk consequences of service strategies.