Revenue and Profit Implications of Industrial Service Strategies

Abstract

In many business markets, manufacturers seek service-led growth to secure their existing positions and continue to grow in increasingly competitive environments. Using longitudinal data from 513 German mechanical engineering companies and latent growth curve modeling, this study offers a fine-grained view of the financial performance implications of industrial service strategies. By disentangling the revenue and profit implications of industrial service strategies, findings reveal that such strategies increase both the level and the growth of manufacturing firms’ revenue streams. In contrast, they reduce the level but improve the growth of manufacturers’ profits. Results further suggest that services supporting the clients’ actions (SSC) and services supporting the supplier’s product (SSP) affect performance outcomes in different ways. SSCs directly affect revenue and profit streams. In turn, SSPs display only indirect effects on financial performance mediated through SSCs. A moderator analysis identifies two organizational contingencies that facilitate service business success: Only companies with decentralized decision-making processes and a high share of loyal customers can expect favorable financial results from industrial service strategies. In summary, this research provides significant insights and managerial guidance for turning service strategies into financial successes.

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