Sustainable servitization in product manufacturing companies : The relationship between firm's sustainability emphasis and profitability and the moderating role of servitization

Abstract

The literature on servitization and product-service systems calls for more robust evidence and theory regarding the concept of “sustainable servitization”, and how it balances sustainability, profits, and servitization. This study interprets sustainable servitization as an interaction of sustainability and servitization, investigating how servitization moderates the complex relationship between strategic emphasis on sustainability and company profitability. Using Computer-aided Text Analysis (CATA) augmented by machine learning, this study analyzes the annual reports of U.S. manufacturing companies from 1993 to 2019. The study uses objective profitability measures and longitudinal panel data. As the first contribution, the results show a negative direct relationship between manufacturing firms’ sustainability emphasis and firm profitability. As the second and primary contribution, the results demonstrate a positive moderating effect of servitization, with two inflection points, on the relationship between manufacturing firms’ sustainability emphasis and company profitability. This paper contributes to the literature by introducing the concept of sustainable servitization, discussing the interplay between sustainability emphasis and servitization and its effect on firm profitability in manufacturing firms’ transition toward sustainable business models. The present study is one of the first demonstrating the direct negative impact of sustainability emphasis on company profitability and the positive moderating role of servitization, highlighting the concept of sustainable servitization while cautioning about the sustainable servitization paradox in the context of manufacturing companies. For managers, the study demonstrates the importance of servitization in creating profits from sustainability initiatives. Value creation from sustainability strategies requires capability development from manufacturing firms.