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

Purpose – 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. Design/methodology/approach – 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. Findings – 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. Practical implications – 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. Originality/value – 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.