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Exploring the adoption of service logic: the impact of negative performance feedback, firm status and institutional logics

Yang Li,Lipeng Pan,Yongqing Li,P. Humphreys,Shuchun Liu

Published 2025 in Management Decision

ABSTRACT

Given the significant differences between a service logic and a manufacturing logic, this research explores why traditional manufacturing firms adopt a service logic in their strategy, which has historically been a peripheral institutional logic within their field. The driving forces behind manufacturing firms' boldly divergence from traditional practices and conventions remain largely unexplored. To address this gap, we employ a discrete time event history analysis approach to investigate two driving forces for adopting service logic: negative performance feedback and a firm's status among peers. We empirically test our hypotheses using a panel dataset spanning 10 years from listed Chinese machinery and equipment manufacturing firms, which are on the brink of transformation and upgrade. Our analysis reveals that firms facing negative historical performance feedback are significantly more inclined to incorporate service logic into their strategies. Additionally, we find that a firm's industry status plays a U-shaped moderating role in the relationship between negative performance feedback and the inclination to adopt service logic. Our findings provide actionable insights for managers facing performance decline. For manufacturing firms, adopting a service logic can be an effective strategic response to address underperformance and competitive disadvantage. However, managers should also recognize that a firm's status may constrain its willingness to deviate from prevailing institutional logics and engage in strategic risk-taking. Moreover, for industrial policymakers, the key to promoting broader industrial transformation and upgrading lies in effectively incentivizing and protecting the willingness of middle-status enterprises to take risks. Though the benefits of service transformation have been well researched, this study integrates the behavioral theory of the firm and middle-status conformity theory, offering a novel framework that explains the trend of service logic adoption from a backward-looking perspective. By considering both negative performance feedback and firms' status, it empirically demonstrates the differential effects of structural forces and strategic agency on service transformation decisions.

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