Leveraging digitalization and servitization to improve financial performance

This paper provides empirical evidence for leveraging digitalization to improve firms' financial performance by implementing servitization as a mediating mechanism, as well as clarifying boundary conditions for the mechanism to work. For that purpose, this paper develops the moderated mediation model using a dataset including 370 manufacturing companies in the central China. The findings indicate that servitization partially mediates the relationship between digitalization and firms' financial performance, and the mediating effects are moderated by the transformation context. A higher level of organizational risk taking tolerance (ORTT) enhances the indirect effect of digitalization on performance in general. For advanced services, stronger network capabilities lead to greater indirect effects of digitalization on performance. However, such a moderating effect has not been observed for basic services. This paper sheds light on the dual paradoxical view of digitalization and servitization on firms' financial performance. Albeit challenges around the dual paradox, firms can still derive financial benefits with an appropriate transformation context focussing on ORTT and network capability (NC).