skip to primary navigationskip to content

Cambridge Service Alliance

At the forefront of service transformation in the digital era

Studying at Cambridge

 

Why Do Servitized Firms Fail - A Risk-Based Expanation

last modified Dec 16, 2015 11:11 AM
The December paper 'Why Do Servitized Firms Fail - A Risk-Based Explanation' by Ornella Benedettini, Andy Neely and Morgan Swink
Why Do Servitized Firms Fail - A Risk-Based Expanation

December 2015 Paper

'Why Do Servitized Firms Fail? A Risk-Based Explanation’

Ornella Benedettini, Andy Neely, Morgan Swink

A major challenge for product manufacturers that move towards service provision is to understand  the attendant risk consequences in order to manage them appropriately. In this paper, we build on the distinction between ‘environmental’ and ‘internal’ risks (i.e. risks that arise from the business landscape or from decisions made by the company’s management) to investigate how these categories affect the impact of service provision on companies’ risk profiles.

In particular, we concentrate on the risks that may cause product firms to fail in the most extreme sense, those that may lead to bankruptcy. Using data from a sample of 75 servitized and 54 non-servitized bankrupted manufacturers, we find that the presence of a service business increases overall bankruptcy risks for the supplying firm. This is essentially because of greater internal risks, indicating that management abilities have a significant potential for controlling the risk consequences of service transitions. At the same time, environmental bankruptcy risks do not decrease under servitization.

We propose that, although servitization may help firms to secure their market position and achieve customer-centric value, the concomitant exposure to greater demand volatilities, to different customer needs, and to the uncertainties of more operating theatres tends to cancel the potential reduction of environmental risks. Nevertheless, we find that the type of services offered has an influence on the relationship between servitization and bankruptcy risks. Because they require limited technological knowhow, ‘demand chain’ services (i.e. retail and distribution, financial services) are attractive for manufacturing firms in search of new revenue opportunities. However, our findings suggest that firms focusing these services are also exposed to greater environmental bankruptcy risks than other servitized and non-servitized firms. Managers should therefore carefully consider focusing on these services because they also amplify uncertainties and risks associated with the product business.

[paper]

RSS Feed Latest news

2020 Annual Review

Oct 23, 2020

Read about our latest research in our tenth anniversary Annual Review.

Managing customer experience through a systematic approach to data analytics

Jul 24, 2020

We all know what a positive – or negative – customer experience feels like: a rush of pleasure or teeth-grinding frustration. Firms are acutely aware of the importance of how we feel – and how that translates into long-term loyalty – but feelings are a difficult and complicated thing to measure at scale.

Blog | Has COVID-19 Invented the 10X Supply Chain?

Jul 06, 2020

Surendra Kancherla, Principal Architect - Digital Technologies, at CSA partner, HCL, says that COVID-19 is forcing firms to look afresh at their supply chain capabilities.

Insight | Business model innovation for digital twins in the construction sector

May 19, 2020

At the Cambridge Service Alliance's most recent Community of Interest, Dr Erika Pärn considered the development of digital twins in the construction sector: the challenges it faces and whether android operating systems could provide a useful roadmap for business model innovation.

Generate revenue from digital platforms

May 12, 2020

According to Shep Hyken: "Customers are smarter than ever because they're experiencing great service from certain brands, and those rock-star brands are setting the bar higher for everyone else." In this white paper we explore the 'customer experience paradox' and how firms can use digital platforms to overcome it.

View all news