The Double-Edged Sword of Servitization in Radical Product Innovation

Abstract

Although servitization literature has identified the difficulties in combining products with services to improve firm performance, it has offered limited insight into the effects of servitization on radical product innovation performance. To address this gap, in this study we investigate how servitization affects radical product innovation performance through latent needs identification. Based on organizational knowledge creation theory and social structural embeddedness theory, we proposed four hypotheses and tested them with data from 208 Chinese manufacturing firms. The results show that servitization enables a firm to identify latent customer needs, and thus helps the firm to exploit more radical product innovation opportunities. However, a high degree of servitization can lead to an overembedded customer relationship, which reduces the firm’s willingness to capture such opportunities. Furthermore, we find that the overall effect of servitization on radical product innovation performance is inverted U-shaped. Our findings enrich the servitization literature by identifying two roles of servitization in radical product innovation performance.