Unpacking the Relationship between Digital Capabilities, Services Capabilities, and Firm Financial Performance: A Moderated Mediation Model

Extant research exploring the relationship between servitization, digitalization, and firm financial and market performance provides valuable insights, but yields inconsistent and inconclusive results. This study argues that these inconsistencies arise from the ambiguous nature of servitization. Prior research have operationalized servitization as a business model (service type) or a set of service capabilities, treating these distinct constructs interchangeably. This study, therefore, advanced the proposition that both service capabilities and service type need to be incorporated into an integrated framework. To test this, the research develops and empirically validates a moderated-mediation model for the relationship between digitalization, service type (moderator), service capabilities (mediator) and firm financial and market performance using data from 204 manufacturing firms. The results indicate that service capabilities positively mediate the relationship between digitalization and firm financial and market performance. The moderating effect of the service type on service capabilities and firm financial and market performance are more pronounced for services supporting customers than services supporting products. The findings underline the imperative for manufacturers to develop their digital capabilities to enhance their service capabilities, irrespective of the type of services they offered. The findings contribute by enriching our understanding of the relationship between servitization, digitalization and firm performance.