Choice versus necessity: understanding service diversification and firm performance in manufacturing

Abstract

This study examines the effect of service-oriented manufacturing business models on firm performance and the drivers of the performance disparities across adopters. Drawing on the resource-based view of the firm, we identify necessary conditions for diversification into services, and also for translating this into performance. Using data from 15,732 UK manufacturing companies in the period 2010–2021, we demonstrate that service offering increases the productivity, profits, and turnover of manufacturing firms. The increase intensifies with the extent of the offering and is contingent on firm specific resources related to implementing the business model innovation. The diversification strategy is more common in firms with large human capital resources, with financial difficulties, and those facing high levels of competition. It is less likely among firms with alternative options for diversification, such as internationalization.