Strategic emphasis, outsourcing intensity, and financial performance in digital servitization

Abstract

The literature on digital servitization calls for more research linking specific organizational choices related to the implementation of digital services to financial outcomes of the providing firm. This study evaluates how two fundamental such organizational choices – i.e., strategic emphasis on value creation activities over value appropriation activities, and outsourcing intensity – affect firm profitability, along with the moderating role of firm size. Analysis of longitudinal archival data, collected for a sample of 176 manufacturing firms engaged in digital servitization, reveals several noteworthy relationships. Greater relative emphasis on value creation activities negatively impacts firm profitability, but to an extent that decreases with firm size. In addition, while outsourcing intensity has a positive direct effect on firm profitability, the relationship is observed to change with the size of the firm; that is, greater outsourcing intensity may lead to lower profitability in the case of large firms. For managers of manufacturing firms, the study provides insights that may help tackle the implementation challenges of digital servitization, enhancing their abilities to determine appropriate resource allocation strategies and configurations of value chain activities to increase financial performance. The appropriate organizational choices vary with the size of the firm.