Unpacking digital servitization and firm performance in B2B manufacturing: Evidence from U.S. firms

Digital servitization (DS) is a radical process of business model (BM) development by adopting digital technologies for servitization, particularly through offerings in B2B contexts that leverage a platformization strategy. This strategy–enabling value co-creation among manufacturers, customers, and partners–creates a competitive advantage for B2B firms. However, previous research has identified paradoxes in which these firms do not achieve the expected financial performance from investments in DS, referred to as the DS paradox. These paradoxes raise uncertainty about the short-term return on DS investments. In addition, little research has examined the various types of digital service offerings (DSOs) and their impact on firm performance. To address these gaps, we developed a measure of DS and constructed a typology of DSOs based on the level of DS orientation, using textual analysis of firm annual reports. We found an inverted U-shaped relationship between DS and firm profitability. We also observed heterogeneity in profitability across six DSOs. In doing so, we contribute to the studies of digital transformation in B2B sectors by clarifying the relationship between DS and firm profitability and by examining the variation in profitability across different types of DSOs, informed by intra- and interorganizational paradoxes inherent in DS.