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Servitized manufacturers can leverage close relationships with external providers of product-related services to mobilize value creation and improve the responsiveness of their offerings to customer needs. The purpose of this paper is to investigate the economic link between the relational embeddedness of external service providers, as arising from the key dimension of dependence, and firm performance.

The study evaluates financial statement data pertaining to 190 dyadic relationships of servitized manufacturers with service providers operating in downstream channels and accounting for more than 10 per cent of their revenue.

The results indicate that service providers’ dependence has an inverted U-shaped relationship with manufacturers’ return-on-assets (ROA), via non-linear effects on return-on-sales and asset turnover. The results therefore suggest that the observed U-shaped relationship for ROA is driven by diminishing returns of dependence in terms of both differentiation ability and operational efficiency.

Future research could examine other dimensions of embeddedness, as well as contingency factors that may influence the embeddedness–performance relationship.

The study conclusions suggest that managers of servitized firms should foster the embeddedness of external service providers, but they should also be careful to maintain an adequate level of dependence to maximize benefits and minimize liabilities.

The study adds to the limited research delving into inter-firm relationships between servitized manufacturers and external service providers. It empirically demonstrates the economic effects of service providers’ dependence-based embeddedness, challenging the general assumption about a monotonic positive effect of relational embeddedness.

In an effort to further explain why manufacturing firms that move towards service provision often do not achieve the financial benefits they would expect, the purpose of this paper is to examine the impact of service additions on the risks affecting the firm.

Using data drawn from a sample 129 bankrupt manufacturers (75 servitized and 54 non-servitized) and a categorization framework of failure risks, the study explores the impact of the presence of a service business on environmental and internal bankruptcy risks that a manufacturing firm must face.

The study finds that the presence of a service business leads to a greater number of bankruptcy risks for the supplying firm. This is essentially because of greater internal risks. In addition, two types of service offerings are identified – demand chain and product support services. When firms offer demand chain services, they are also exposed to greater environmental risks.

The study provides empirical evidence on the relationship between servitization and bankruptcy risks, and on how this is influenced by the type of service offering. The research should be extended by a more comprehensive assessment of organizational risks in order to further validate and develop the conclusions.

The study suggests that, as adding services introduces new risks for firms, managers have to seek means of mitigating these risks to ensure successful introduction of services.

The paper addressed the gap in the literature for structured analyses of the risk consequences of service strategies.