Causal or effectual? Dynamics of decision making logics in servitization

Industrial Marketing Management 82 (2019) 15–26

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Causal or effectual? Dynamics of decision making logics in servitization a

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c,⁎

Lianguang Cui , Shong-Iee Ivan Su , Yongchun Feng , Susanne Hertz

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Business School, Nankai University, Tianjin, China Business School, Soochow University, Taipei, China Business School, Tianjin University of Finance and Economics, Tianjin, China d Jönköping International Business School, Jönköping Universiy, Jönköping, Sweden b c

A R T I C LE I N FO

A B S T R A C T

Keywords: Servitization Risk pattern Risk control Decision making logic Effectuation theory

This study explores servitization as an innovative market strategy for manufacturers and investigates how the decision making logics change over time in the servitization transformation process. Effectuation theory is applied to examine servitization as a new theoretical exploration. A longitudinal case study of a global heavy vehicle manufacturer's servitization process in China reveals that the decision makers adjust their decision making logics depending on the stage of the servitization process and associated risk patterns. As the servitization process evolves into a more sophisticated stage, decision makers will change their decision making logics from a causation dominant logic to an effectuation dominant logic in order to cope with the increased risks. Effectuation theory originally developed from entrepreneurship research is found to be a valid theory for the explanation of the risk and uncertainty control behaviors in the servitization transformation process of manufacturing firms.

1. Introduction Extant research has shed the light on manufacturing firms' increasing investment in services, developing customized solutions, and transforming to solution provider (Baines, Bigdeli, Bustinza, Baldwin, & Ridgway, 2017; Baines, Lightfoot, Benedettini, & Kay, 2009; Kowalkowski, Gebauer, Kamp, & Parry, 2017; Kowalkowski, Gebauer, & Oliva, 2017; Nordin & Kowalkowski, 2010). Many manufacturing firms keep exploring the opportunities of servitization in order to improve profit margin and enhance market competitiveness (Artto, Valtakoski, & Kärki, 2015; Eggert, Thiesbrummel, & Deutscher, 2015; Fang, Palmatier, & Steenkamp, 2008). However, during the servitization process, many manufacturers cannot make profits or outperform their competitors (Eggert et al., 2015; Eloranta & Turunen, 2015; Macdonald, Kleinaltenkamp, & Wilson, 2016; Windler, Jüttner, Michel, Maklan, & Macdonald, 2017). Further, it may deteriorate financial performance (Benedettini, Neely, & Swink, 2015; Böhm, Eggert, & Thiesbrummel, 2017; Ulaga & Reinartz, 2011), leads to the failure of servitization transformation (Valtakoski, 2017), even bankruptcy (Benedettini, Swink, & Neely, 2017). This has prompted some manufacturers to implement deservitization strategy (Kowalkowski, Gebauer, Kamp, & Parry, 2017; Kowalkowski, Gebauer, & Oliva, 2017; Valtakoski, 2017). A number of articles have addressed the issue of risks in servitization and acknowledged the importance of risk management ⁎

and control (Hypko, Tilebein, & Gleich, 2010; Lightfoot, Baines, & Smart, 2013; Nordin, Kindström, Kowalkowski, & Rehme, 2011; Selviaridis & Norrman, 2015). Despite the growing number of studies researching servitization risk, the dynamics of risk patterns and their impacts are largely understudied. Servitization is a critical market strategy for manufacturing firms to implement transformation (Bustinza, Vendrell-Herrero, & Baines, 2017). With the increasing level of servitization, manufacturing firms need to develop and change their business models from being product providers to solution and even performance providers in order to achieve a better match with customer needs (Forkmann, Ramos, Henneberg, & Naudé, 2017; Visnjic, Neely, & Jovanovic, 2018). However, with the change of market strategy and business model, manufacturing firms often encounter increasing uncertainties as well as changing patterns of risks (Bigdeli, Bustinza, Vendrell-Herrero, & Baines, 2018), and growing difficulties to manage and control risks on strategic, organizational and operational levels (Nordin et al., 2011). How do the changes of market strategy, business model and associated risks as well as uncertainties affect manager's decision making logics? Extant research often approaches servitization risks in a static way and suggests that decision makers should carefully examine internal as well as external environment and plan organizational activities based on prediction. This study argues that this approach is incomplete. When manufacturing firms constantly servitize towards providing solutions

Corresponding author. E-mail addresses: [email protected] (L. Cui), [email protected] (S.-I.I. Su), [email protected] (Y. Feng), [email protected] (S. Hertz).

https://doi.org/10.1016/j.indmarman.2019.03.013 Received 17 May 2018; Received in revised form 18 March 2019; Accepted 25 March 2019 Available online 30 March 2019 0019-8501/ © 2019 Elsevier Inc. All rights reserved.

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solutions (Araujo & Spring, 2006; Davies, 2004; Oliva & Kallenberg, 2003; Tukker & Tischner, 2004). Martinez, Neely, Velu, Leinster-Evans, and Bisessar (2017)’s recent study supports the idea that servitization conforms to the continuous change model. Baines and Lightfoot (2013) build on early studies and include service capabilities. Baines et al. (2017)’s recent development of a conceptual framework highlights the context, process and outcomes of the servitization change. However, the extant literature often conceptualizes servitization as the outcome of a change process, not as the change process itself. Thus, servitization is considered as the end-result in a static manner, while the dynamic aspect of the process and mechanism of how it is achieved remains largely under researched (Rabetino, Harmsen, Kohtamäki, & Sihvonen, 2018). Recent studies have recognized the dynamic, emergent and nonlinear nature of servitization process. They propose to represent servitization process as a long and complex process and to investigate its evolution character (Biggemann, Kowalkowski, Maley, & Brege, 2013; Kowalkowski, Kindström, Alejandro, Brege, & Biggemann, 2012; Kowalkowski, Windahl, Kindstrom, & Gebauer, 2015). We are inspired by recent literature (Bankvall, Dubois, & Lind, 2017; Forkmann et al., 2017; Kindstrom & Kowalkowski, 2014) and use business model as theoretical lens to conceptualize the transformation process underlying sertvitization. We intend to inform the recent studies on servitization transformation process characteristics. Business model research emerges with the development of Internet and e-business. As a new research area, business model is closely related to strategy and management research. Existing studies of business model have shed the light on content, structure, design and innovation (Zott, Amit, & Massa, 2011). Although scholars have different opinions on the definition of business model, they tend to agree on the structure and components of a business model. The value proposition specifies how to realize, visualize and create value (Chesbrough & Rosenbloom, 2002; Doganova & Eyquem-Renault, 2009; Magretta, 2002; Morris, Schindehutte, & Allen, 2005). The structure outlines customer interface and relationship (Mason & Spring, 2011; Storbacka & Nenonen, 2009). The governance focuses on transaction activities and transaction governance mechanism (Amit & Zott, 2001; Zott & Amit, 2010). The revenue and profit model describe cost structure, income source and profit making model (Baden-Fuller & Mangematin, 2013; Itami & Nishino, 2010; Osterwalder, Pigneur, & Tucci, 2005). In recent years, scholars have started to apply business model as a theoretical framework to analyze servitization and solution related problems (Barquet, Oliveira, Amigo, Cunha, & Rozenfeld, 2013; Ferreira et al., 2013; Kindström, 2010; Storbacka, Windahl, Nenonen, & Salonen, 2013). Based on existing studies, this research synthesizes business model and servitization literature in order to differentiate different kinds of product and services integration in the servitization process. In line with Helander and Moller (2007), Windahl and Lakemond (2010) and Kindstrom and Kowalkowski (2014), the servitization of a business model can be represented through four stages: product plus basic after-sales services, product plus extended services, product and services integrated solution, and performance based solution.

and performance, they have to face a high level of complexity, uncertainty and unpredictability (Ng & Nudurupati, 2010). Since prediction is hard or even impossible and planning is not feasible, the servitization process will probably unfold as emergent rather than being planned with a pre-determined goal (Luoto, Brax, & Kohtamäki, 2017). In turn, decision makers may adjust their decision making logics and take different actions depending on stages of the servitization process and associated risk patterns. According to what we have argued, this study applies a theoretical framework from the research field of entrepreneurship to servitization research and incorporates the emerging effectuation theory originated from the entrepreneurship study (Sarasvathy, 2001) to analyze how the dynamics of decision making logics relate to the change of business model and associated risk patterns in servitization. Our motivation to apply effectuation theory lies in the fact that servitization entails entrepreneurial endeavor and decision makers in the servitization process face very similar situations to entrepreneurs in their stat-up. Dew and Sarasvathy (2002) highlight that effectuation is not only for small and start-up firms but also for established firms. Given the fast changing environment that manufacturing firms operate in, coupled with the high level of uncertainty faced by decision makers, the effectual logics may be highly relevant for servitization transformation and have critical implications for research and practice. Thus, this research intends to explore servitization as an entrepreneurial process and to investigate how the dynamics in decision making logics relate to the change of business model and risk patterns in servitization over time. This study applies a longitudinal case research approach to examine a heavy vehicle manufacturer's servitization process in its China sales channel and explore its resemblance with the effectuation theory. By integrating servitization and effectuation theory, this study makes several major contributions. First, this study contributes to servitization research by introducing effectuation theory as a new theoretical perspective. Our research findings add to servitization research by supporting the value of effectuation theory for successful service transformation under condition of growing risks and uncertainties. Second, this study not only contributes to servitization research by extending the effectuation theory to the empirical setting of servitization but also contributes to effectuation theory by broadening its boundary from the field of entrepreneurship into servitization field and achieving new theoretical insights. Third, this study responds to the call for researching servitization in emerging economies and enriching extant research with western origins (Gebauer, Ren, Valtakoski, & Reynoso, 2012; Luoto et al., 2017). We provide empirical findings and expand knowledge on a global manufacture originated from developed economies developing its servitization process in emerging markets. Fourth, we offer practical implications and insights to support managers in their decision making process during servitization transformation. 2. Literature review 2.1. Servitization as organizational transformation through the lens of business model

2.2. Decision making logics in servitization: effectuation vs causation

As a way to describe servitization, scholars have linked it to the extension of product life-cycles by including services (Cusumano, Kahl, & Suarez, 2015; Rabetino, Marko Kohtamäki, Lehtonen, & Kostama, 2015). In order to provide services, manufacturing firms need to conduct holistic organizational transformation (Baines et al., 2017; Bustinza et al., 2017). Studies have investigated servitization process stages and analyzed how manufacturing firms change from providing basic products to providing solutions and performance through different frameworks (Coreynen, Matthyssens, & Van Bockhaven, 2017; Ferreira, Proenca, Spencer, & Cova, 2013; Kindström & Kowalkowski, 2009; Sjödin, Parida, & Wincent, 2016; Tuli, Kohli, & Bharadwaj, 2007; Ulaga & Reinartz, 2011). Early studies suggest that servitization is a continuum ranging from product with service as add-on to integrated

Extant literature focuses on a set of planned approaches to manage the servitization process (Baines et al., 2017; Rabetino et al., 2018). This type of prediction-based approaches, which Sarasvathy (2001) classifies as causation, is inadequate in the context of high level of servitization since ambiguous information makes prediction difficult or even impossible. As an alternative, effectuation research offers a set of principles and highlights heuristics that focus on action and control. Effectuation research was first developed in entrepreneurship domain and it has been introduced to finance (Wiltbank, Read, Dew, & Sarasvathy, 2009), marketing (Read, Dew, Sarasvathy, Song, & Wiltbank, 2009; Yang & Gabrielsson, 2017), internationalization 16

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for manufacturing firms to initiate the servitization process (Baines et al., 2009; Kowalkowski, Gebauer, Kamp, & Parry, 2017; Kowalkowski, Gebauer, & Oliva, 2017). However, manufacturing firms may encounter uncertainties, challenges and risks during the servitization process (Selviaridis & Norrman, 2015). Traditionally, manufacturing firms often regard products as their core offer. As a result, they develop corporate strategy, organizational structure and hire staffs based on a goods-dominant logic (Martin & Horne, 1992). In order to carry out servitization transformation, manufacturing firms need to change their mindset and business logics into a service-dominant logic, redesign strategic, organizational and operational systems, and reorganize resources and capabilities in order to adjust to a new business model (Jacob, Kleipaß, & Pohl, 2014; Kindström, 2010; Raddats & Burton, 2014; Visnjic et al., 2018). However, servitization could also generate great challenges and risks (Bigdeli et al., 2018; Windahl & Lakemond, 2006). Specifically, it may cause strategic risks, organizational risks, and operational risks (Benedettini et al., 2015; Nordin & Kowalkowski, 2010). Besides, the degree of servitization can be different resulting in the need to apply different business models (Barquet et al., 2013; Ferreira et al., 2013; Frankenberger, Weiblen, & Gassmann, 2013). Results of a recent UK's road transport industry case study suggest that implementing advanced services is perceived as a high-risk strategy, especially when firms lack in-house technological knowledge. However, collaborative strategic partnerships within supply chain networks can mitigate this risk (Bigdeli et al., 2018). As manufacturing firms continuously embrace servitization and develop more advanced services, they need to change or even abolish the existing organizational structure, operational processes, capabilities and resource composition to build new ones (Storbacka, 2011; Ulaga & Reinartz, 2011). With the change of servitization degree and business model, the associated risk patterns and levels will be different and require differentiated approaches to deal with them. Existing studies have addressed the issue of uncertainty and risk on strategic, organizational, and operational levels as manufacturers attempt to adopt servitization strategy into their business eco-systems. It is argued that manufacturing firms need to take appropriate actions to systemically manage and control these risks. However, extant research often takes a static approach while the change of risk patterns over time in the servitization process is not well addressed. Few studies have analyzed how to manage and control the risks over time. The relation between the dynamics of decision making logics and the change of risk patterns in the servitization process is not well understood. Manufacturing firms often start with risk pattern identification and take appropriate actions based on decision making logics. With the increasing degree of servitization, the risk patterns that manufacturing firms can identify will become more obscure, the difficulty of risk management will be increased, the risk control actions will be more situational, and the decision making logic behind actions taken will be more adaptive. Thus, this study has based on the foregoing literature synthesis and explored further what kind of decision logics and actions would a manufacturer take under different risk patterns during the servitization transformation process. Following the literature review, we describe our research design and methodology; present the case analysis results; summarize key findings; discuss their theoretical contributions and practical implications; and conclude with the research limitations and future research directions.

(Andersson, 2011), R&D (Brettel, Mauer, Engelen, & Kupper, 2012), and coopetition (Galkinaa & Lundgren-Henriksson, 2017). As Sarasvathy (2008) proposes, effectuation can be a general theory of decision making in uncertain environment. This research suggests that effectual logics may be highly relevant for servitization research since servitization process can be considered as a set of decision making problems. Similar to entrepreneurs, decision makers in the servitization process face high level of uncertainties and risks. Thus, servitization can be approached by two fundamental types of decision making logic: effectuation and causation. Effectuation attaches a great importance to human action as the key determinant shaping the future. Effectuation focuses on action-oriented and control-oriented thinking and it operates on the following principles:

• Start with a given set of means and emphasize generating a new • •

• •

outcome by relying on existing means. Effectuation is based on selecting among the multitude of effects that could be created with the given set of means (Sarasvathy, 2001; Wiltbank, Dew, Read, & Sarasvathy, 2006) Stake no more than one can afford to lose and minimize the potential risks as well as possible downside and is guided by how much loss could be afforded in a worst-case scenario (Brettel et al., 2012; Sarasvathy, 2001) Form partnerships and alliances with preselected stakeholder to obtain pre-commitment and to expand means (Dew & Sarasvathy, 2007). In order to reduce uncertainty, effectuation encourages forming partnerships to interact and connect with people and firms who are interested in the servitization project. The commitment can be showing interests, sharing knowledge, forming alliances, supporting the projects with financial resources, and linking to critical networks. Leverage contingencies and deal with unexpected events as a critical source of opportunity (Sarasvathy, 2008). Instead of avoiding contingencies, effectuation advocates embracing unexpected events as opportunities to be leveraged and generating novelty. Rely on experiments to explore and exploit opportunities in uncertain conditions. Experimentation enables decision makers to observe the results of their decisions quickly and to abolish unsuccessful experimental actions. Successful and unsuccessful experiments are both meaningful and useful for decision makers since those experiments can generate insightful information about what can and cannot work (Thomke, 2002) and lead to learning by doing (Huber, 1991)

In contrast, causation focuses on analyzing and predicting what the future will look like and plans goal-driven behavior based on prediction (Wiltbank et al., 2006). Causation builds on the following principles:

• Begin with pre-defined goals and derive the required means accordingly in order to achieve those goals. • Conduct forecasts on expected return on investment. • Reduce uncertainty through a thorough market analysis. • Avoid contingencies and prevent deviations as well as surprises. • Make improved prediction of uncertain future and define the final target up front.

3. Research design

Overall, the core of causation lies on prediction and planning. Instead, according to Sarasvathy (2001: 25), the underlying logic of effectuation is “to the extent we can control the future, we do not need to predict”. Table 1 summarizes and compares the abovementioned dimensions for the servitization analysis to be followed.

This research adopts an exploratory, longitudinal, and single case study design. This study seeks to provide in-depth insights into the dynamics of decision making logics in servitization over time. It is suitable to carry out an exploratory case study design. Besides, a longitudinal case study research is justified for a process related research (Eisenhardt, 1989; Stake, 2000; Yin, 1994). In addition, a case study can show the influence of a great number of critical contingent

2.3. Uncertainties and risks in the servitization process Existing studies have reported a number of motivations and benefits 17

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Table 1 Decision making logics in a servitization context: effectuation vs causation. Dimension

Effectuation

Causation

Means vs goal Affordable loss vs expected return

Servitization is driven by existing means on hand. Servitization is guided by how much loss could be afforded in a worst-case scenario.

Partnerships vs market analysis

Uncertainty is reduced through forming partnership to interact and connect with people and firms who are interested in the servitization project. Embracing contingencies as opportunities to be leveraged. Focuses on control and relies on experiments to explore and exploit servitization opportunities.

Servitization is driven by pre-defined goals. Servitization is guided by expected return on investment. Uncertainty is reduced through a thorough market analysis. Contingencies are avoided. Makes prediction of uncertain future and defines the final target up front.

Leverage vs avoid contingencies Control vs predict

market in China was dominated by middle and low-end trucks. The demand of high end heavy vehicle was small. Due to the limited market share, the competition among international manufacturers of high end trucks became particularly fierce. During this time period, the market environment was unstable. Many competitors did not abide industry regulations while some customers cannot perform the contract as required. GHVM fell behind in the competition with other players. In the past 15 years, the Chinese economy has been developing and improving constantly. The needs for road transport have also grown in a dramatic speed as the economy. Meanwhile, the market environment became more stabilized and market oriented. To catch up with the market needs and increase its market share, GHVM constantly made changes to its strategy and organizational structure and maintained direct dialogues with regulators to request up-to-date and fair trucking industry regulations. In order to reverse the unfavorable situation, GHVM decided to build its own China subsidiary to gain direct control on the product sales and service operation. GHVM has adopted servitization strategy to continuously transform its China sales and service network through business model innovation. Almost every three years since the establishment of GHVM's China subsidiary, there was a jump from one stage to the next stage in the servitization transformation process. Table 2 conceptualizes SC (China)’s servitization transformation process. By going through different stages, SC (China) has transformed from a pure product provider to a performance-based provider in order to better serve customers with demands on high end trucks.

relations and the way they operate and it is preferred in this study (Siggelkow, 2007; Yin, 2002). 3.1. Case selection Following the theoretical sampling approach (Eisenhardt & Graebner, 2007), this research selected a global heavy vehicle manufacturer (GHVM)’s China subsidiary as the case company in accordance with the following motivations. First, GHVM's China subsidiary (SC (China)) chose to adopt servitization strategy to transform its business model and sales channel in order to grow and develop a stronger market presence. Second, the firm kept lifting up the degree of servitization and adopted different actions to manage and control the increased risks in the process (Su, Cui, & Hertz, 2017). It is in line with the research purpose of this paper. Third, this paper is derived from a multiple year research supported by a Nordic research foundation with GHVM as the industry partner. The aim is to investigate and reveal (to the public) the value of extended service business models through a regional comparison study (Agndal, Borgstrom, Harborn, Jobenius, & Su, 2013). GHVM retained a large number of files and materials and provided access to researchers. It is critical and helpful for writing up this research paper. A single case study emphasizes the uniqueness of the case, which is suitable for longitudinal study, and it could provide more details about how dynamic processes play out over time (Siggelkow, 2007). A single case study is often multi-case in nature (Eisenhardt, 1991). This study focused on a single case company's servitization process including four stages, but each stage can be regarded as a sub-case. In each stage, the decision making logics behind risk control actions were analyzed. In turn, the dynamics of decision making logics can be investigated.

3.3. Data collection This research project started in 2012 and ended in 2016 with researchers from Sweden and China. Data were collected mainly through in-depth, semi-structured, face to face interviews with key informants from the case company, its two major regional sales agents and representative customers across China. Since SC (China) sold through sales agents to logistics and transportation firms, this group of companies studied forms a three-layer service supply chain network to ensure the research validity. Table 3 provides detailed information of the interview informants. First, we interviewed six senior and three middle-level managers in SC (China). The interviews mainly covered the company's operation in China, problems encountered and solutions as well as managerial actions taken. Second, we interviewed managers from two sales agents of SC (China). The interviews were mainly about how the sales agents provided products and services to customers and how they cooperated with SC (China). Third, we interviewed managers from seven customers. The interviews were mainly about customers' evaluations and responses to SC (China)’s products and services, their encountered problems and managerial actions taken by SC (China). The information collected from sales agents and customers can verify the effectiveness of the service provided by SC (China) and alleviate the potential deviation caused by any single interviewee (Miller et al., 1997). In addition, the interviews with key informants from sales agents and customers can provide complementary information and help this study to obtain a richer and more detailed model (Dougherty, 1992).

3.2. Case background and research context Our study focuses on the empirical context of a case company originated from developed economies venturing into emerging markets. Emerging markets differ significantly from developed economies in terms of formal and informal institutions (North, 1990). The empirical context plays a critical role since it can influence managers' decision making and managerial actions (Teagarden, Von Glinow, & Mellahic, 2018; Xing, Liu, Tarbac, & Cooper, 2017) and shape the strategy and performance of firms (Hoskisson, Eden, Lau, & Wright, 2000; Peng, Wang, & Jiang, 2008; Wright, Filatotchev, Hoskisson, & Peng, 2005). Thus, the case background will be described together with the research context in the following paragraphs. In turn, we may provide a contextualized understanding of service market strategy adopted by manufacturing firms (Baines & Lightfoot, 2013). In 1891, GHVM was established in Sweden. It has become one of the world's leading manufacturers of high end heavy vehicles. GHVM entered China in early 1990s and chose to cooperate with a sales agent in the beginning. Their customers were mainly trucking firms with core business in road transportation. Besides, chassis were sold to governmental authorities and further developed into firefighting trucks or specialized engineering trucks. From 1990 to 2003, the heavy vehicle 18

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3.4. Data analysis

Buyer pays for the truck and extended services. Seller makes money by selling the truck and extended services.

During the data collection and analysis process, the empirical material and the theory in line with the idea of systematic combing were constantly compared (Dubois & Gadde, 2002). In particular, attention was paid to new issues emerging during the case study process. We analyzed the case company's whole servitization process in China and investigated the market conditions faced by the firm. We identified various risks in the servitization process and classified these risks into different subcategory. Besides, we examined the actions taken by the case company to control various risks and analyzed the decision making logics adopted by the firm behind these actions. As explained in the theoretical background, we differentiated decision makers' effectual and causal logics on five dimensions (see Table 1). Building on Dew, Read, Sarasvathy, and Wiltbank (2009), Chandler, DeTienne, Mckelvie, and Mumford (2011), and Fisher (2012), we went through the transcripts to identify statements and assorted them according to effectual or causal logics. A time-ordered metamatrix (see Appendix) was produced to assemble the data of each servitization transformation stage in one place. Various SC (China)’s servitization transformation stages were compared to identify the differences and similarities of the risks encountered, actions taken and decision making logics. The metamatrix provided a format for tracking changers over time. It was used to generate a holistic picture and to facilitate our theoretical investigation (Miles & Huberman, 1994). 4. Case analysis 4.1. Stage 1: providing products plus basic after-sales services (2004–2006)

Buyer pays for the truck. Basic after sales services are free. Seller makes money mainly by selling the truck.

In the beginning, GHVM only provided product sales in China. GHVM had a small market share and encountered sales difficulties. It was difficult for GHVM to compete with other heavy vehicle manufacturers. China's road transportation market began to develop rapidly between 2004 and 2006. The demand of high-end heavy trucks was small but it has a great potential. GHVM decided to invest exclusively in China and to set up a representative office in China. SC (China) provided customers with “products plus basic after-sales service”, i.e. maintenance and repair, to promote product sales and strived for a higher market share. At the strategic level, SC (China) realized that it would encounter lack of after-sales service resources and service capability if it started business and provided basic after-sales service in China. SC (China) cooperated with service agents and financial institutions in order to quickly obtain after-sales resources and enhance the basic after-sales service capability. Besides, SC (China) set up a training center to train the personnel at service agents. In order to control the risk of lack of resource and capability, SC (China) learned from other competitors, such as Volvo and Mercedes-Benz. SC (China) signed strict agreements with service agents to obtain basic service resources and enhance service capabilities, which could help them effectively manage the strategic risks of offering after-sale services. At the organizational level, compared with its competitors, SC (China) did not have its own after-sales service network in China. It also

Revenue and profit model

Governance

Buyer and seller have an arm's length relationship. Buyer and seller sign a sales contract of the truck. Basic after sales services are included. Structure

In total, 21 interviews were conducted with 18 key informants. Each interview was recorded and transcribed verbatim. Besides, three workshops (one each year) were held during the study period (2012, 2013 and 2014) and representatives from GHVM and SC (China), sales agents, as well as SC (China)’s customers participating in the research were invited by the research team to understand the research progress and preliminary findings, provide their feedbacks, and clarify issues that may be important for the research plan revision and theoretical development. In addition, secondary data including the firms' documentary material, company website, news reports, press release, and social media information were collected for later analysis purpose.

Buyer pays for performance and outcome such as uptime or ton kilometers. Seller receives a continuous cash flow.

Buyer and seller keep a long-term, dynamic, and interactive partnership. Buyer and seller sign a performance based contract and jointly develop a performance-based solution.

Provide the product and after-sales services. Meet customer's basic requirement. Value proposition

Buyer and seller have a simple and transactional relationship. Buyer and seller sign a product plus extended services contract.

Provide an integrated solution. Enhance customer's efficiency through the product's reliable operation. Buyer and seller keep a long-term, dynamic and interactive relationship. Seller develops a customized and integrated solution and signs an integrated solution contract with buyer. Buyer pays for the integrated solution. Seller makes money by assuring the truck's availability and controlling costs. Provide the product and extended services. Guarantee product functionality.

Provide a performance based solution that guarantees the product's operational performance.

Integrated solutions Products plus extended service Products plus basic after-sales services

Performance based solutions

Stage 3 (2010–2012) Stage 2 (2007–2009) Stage 1 (2004–2006) Stage/element

Table 2 Business model view at different servitization stages of SC (China).

Stage 4 (2013–present)

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Table 3 Description of interview informants. Company

Category

Interviewees

Position

SC (China)

Top Managers

A1 A2 A3 A4 A5 A6 B1 B2 B3 C1 C2 D1 D2 D3 D4 D5 D6 D7

General manager of China Executive director of China Director of the service department Director of Sales Department Sales Manager of China Sales Manager of China Sales Manager in Shanghai Service Manager in Shanghai Sales Manager in Shanghai General Manager General Manager General Manager General Manager General Manager General Manager General Manager General Manager Purchasing Manager

Middle Managers

Beijing QC—Sales Company Xiamen RYS—Sales Company Shenzhen ERL—Logistics Company Shenzhen FEL—Express Company Tianjin DLXRL—Logistics Company Guangzhou CSL—Logistics Company Shanghai YHL—Logistics Company Beijing XJFL—Logistics Company ZL—Equipment Manufacturer

Sales Agent Customers

customers, which could promote the truck sales, it did not directly generate profits for the firm. However, SC (China) accumulated a lot of customer information and truck usage data. During this time period, trucking firms and logistics companies had higher requirements on truck quality and attendance. The demand for high-end heavy trucks and services continued to grow. In order to achieve higher profit margins, SC (China) gradually changed its business model. In addition to providing products and basic after-sales service, SC (China) began to provide customized extended services. The firm delivered a so called “service packages” to customers including a variety of service, i.e. uptime service, driver training, parts supply, to further enhance the service level. At the strategic level, SC (China) realized that providing extended service required the firm to invest a lot of resources and to enhance the capability of extended service provision. However, the allocation of resources in the service sales and service channels was insufficient and the capability of providing service was relatively weak, which did not match the value proposition of products plus extended service. It would bring serious strategic risks. Based on the analysis of customer needs and characteristics, SC (China) formulated and recommended suitable “service packages” to some customers. It enhanced resources investment on service sales and channels. It also improved service capability and reduced the dependence on agents. SC (China) could forecast strategic risks and decision makers followed the “causal logic”. In accordance with the forecast and plan, SC (China) improved investment in service sales and resources and enhanced service capabilities to manage the strategic risk. At the organizational level, SC (China) did not have sufficient service sales and technical service personnel. Therefore, it had to rely on agents to provide related services. However, the service sales of the agents and their service capability were relatively weak. To confront with the organizational risks brought by “product plus extended services”, SC (China)’s training center and technical service center focused on recruiting and training staffs to enhance service sales skills. It organized various events to improve service skills and increased the number of skilled employees to enhance their service sales and service delivery capability. Meanwhile, SC (China) continued to expand and optimize sales and service outlets, integrated the service of agents and service network to provide customers with better services. SC (China) encountered more risk factors and the difficulty to control the risk increased. SC (China) understood the problems of insufficient service capability and the drawbacks of its organizational structure. Through adjusting the personnel structure and organizational structure, SC (China) could effectively control the organizational risks caused by service transformation. Therefore, decision makers mainly followed the

lacked Chinese employees with rich experience for after-sales service and service management. In addition, it was expensive to send foreign employees to China, especially the technical service personnel. In order to control the risk at the organizational level, on the one hand, SC (China) built a network of sales and after-sales service including three sales centers as well as ten after-sales service stations. On the other hand, SC (China) formed a special training center for training the newly recruited sales and technical service personnel. The training center also trained sales and service staff at service agents to provide high quality basic after-sales services and to promote the sales of heavy vehicles. At the operational level, SC (China) needed to rely on agents to provide products and basic after-sales service for customers. In order to quickly develop after-sales service capabilities, SC (China) established the after-sales service mode, which regarded agents as the main part to provide after-sales service resources and develop the service network. However, SC (China) might encounter agency problems. Agents may not provide services according to the agreement. It was difficult for the firm to guarantee the basic after-sales service quality. Service cost control risks might increase. Nevertheless, these risks were easy to identify. In order to cope with the operational risk, SC (China) trained the service personnel of agents and set up a service process and quality evaluation system to make sure the service quality provided by agents can meet requirements. At the same time, SC (China) strictly controlled the cost of basic after-sales services to promote product sales and to compete with other firms. The basic after-sales service was free of charge. It did not concern about service pricing and sales service. Thus, the difficulty to control operational risk was moderate. At this stage, it was about providing basic after-sales service for customer and promoting truck sales. SC (China) could learn from the business model of competitors and effectively predict, identify and manage three levels of risks. Since the uncertainties and risks at these three levels were relatively low while the impacts of these risks were not serious, SC (China) could establish a clear plan. According to the predetermined objectives, SC (China) could integrate and configure after-sales service resources and capabilities, adjust business strategies and methods, and reduce service costs as much as possible under the premise to guarantee service quality. Thus, decision makers mainly followed the “causal logic”. Through competition analysis, based on the predetermined objectives, SC (China) chose to avoid contingencies and to effectively predict the risks encountered in the process of servitization. In turn, it carried out the risk management. 4.2. Stage 2: providing products plus extended service (2007–2009) Although SC (China) provided basic after-sales service for 20

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“causal logic” and combined with some principles of the “effectual logic”. In turn, they formulated control actions to manage the organizational risks of providing the products and extended services. At the operational level, when SC (China) started to sell “service packages” to support the products plus extended services model, it would face the risk and challenge from service sales, quality, cost, pricing and so on. SC (China) sold heavy vehicles to customers and provided extended services to support truck operation but customers might not buy. Even if customers buy, there would be many questions like how to sell, how to provide, how to price. SC (China) encountered many problems in services provision and it was hard to make prediction. Therefore, SC (China) made experiments and provided “service packages” to a small number of customers in the range of affordable loss. Take service cost and service pricing as an example, SC (China) constantly tested the idea and calculated the cost of “service package”. It also constantly interacted with customers to determine the “service packages” pricing for further expansion. In this process, SC (China) might also need to improve the service method, adjust the portfolio of products and services in order to sell more effectively and provide customers the “service packages”. At this time, due to the high uncertainty of business environment and the choice of agent-based service mode, it was easy to cause agency problems. How to control the agent's opportunistic behavior became a key question. Therefore, SC (China) followed the experimentation principle and control principle. It chose to sign agreements with agents to control the operational risk in a certain range to avoid causing unaffordable loss. The experimentation principle and the control principle are crucial principles of “effectual logic” (Sarasvathy, 2001). Thus, in providing product plus extended services model, decision makers at SC (China) mainly followed the “effectual logic” to control the operational risks.

medium-sized customers. Meanwhile, the capability of the existing service agents to develop and provide solutions was obviously insufficient. Therefore, SC (China) technical service center needed to train skillful technicians and to focus on training staffs for solution design and development. Besides, staffs at the sales center needed to enhance their sales skills. Through the establishment of service project development team, SC (China) gradually built the solution development system. It developed and expanded the solution sales network and solution transfer network. SC (China) adjusted the organizational structure to set up many service teams. In order to effectively control the organizational risks, SC (China) attempted to build closer cooperation with suppliers and partners in some experimental projects. As a result, they could customize and provide integrated solutions for customers. Through continuous experimentation, SC (China) optimized the personnel structure and team structure to develop a series of solutions for their customers. At this stage, the decision makers mainly followed the “effectual logic” and adopted the principles of control, experimentation, affordable loss, and pre-commitment (Sarasvathy, 2001) to control possible loss brought by the organizational risks. At the operational level, SC (China) identified that developing and providing integrated solutions would face the risks from service development, sales, delivery, quality, cost and pricing. In the development of providing solutions, SC (China) needed to dig the existing as well as potential customer demand. SC (China) constantly interacted with customers and maintained good relations in the cooperation in order to develop solutions for customers effectively. The solution involved a large number of customized service content. The development process was relatively complex with high costs, which put forward higher requirements for the sales, delivery, quality, costs and pricing of solutions. SC (China) chose to develop and provide integrated solutions for representative customers in a small Scale. In order to develop suitable solutions for customers and then extend it, SC (China) continued to adjust the service content, service sales and service pricing. At this time, the decision makers at SC (China) mainly chose to control the possible loss from controlling operational risk rather than predicting possible risks in the future. They mainly followed the “effectual logic” and adopted the principles of control, experimentation, affordable loss, precommitment. In other words, they chose to conduct experimentation to control these risks within the range of affordable loss.

4.3. Stage 3: providing integrated solutions (2010−2012) SC (China) offered the “service packages” model for customers and it promoted the truck sales and improved profit margins. However, with the development of the transportation industry and continuously change of customer demand, the “service packages” model could not meet the needs of some customers. Therefore, SC (China) started to provide integrated solutions for some customers and called it “big package”. SC (China) provided trucks, related services and system integration for customers. Through the provision of integrated solution, SC (China) provided a variety of services, i.e. driver enhancement, driver management, vehicle management, in the truck's life cycle to the customers in order to enhance operational efficiency. At the strategic level, SC (China) identified that it needed to consider whether customers were willing to and were able to buy. It also considered which customer was worth exploring and whether SC (China) had the ability to provide the solution. However, compared to its competitors, SC (China) lacked the key customer resources and it could not effectively integrate related resources. Besides, the firm did not have sufficient capability to develop and provide integrated solutions. In order to manage and control the strategic risks, on the one hand, SC (China) made efforts to enhance its service capability, developed and constantly optimized a variety of integrated solutions according to customer needs. On the other hand, the firm organized customer development teams in order to get more key customer resources from the ones who were willing to buy the integrated solutions. At this stage, SC (China) could not forecast the strategic risk. It could only control the possible loss of strategic risk consciously. Therefore, the decision-makers mainly adopted the “causal logic” and combined some principles of “effectual logic” to control the risks. At the organizational level, SC (China) identified that providing integrated solutions required a large number of skillful technical service personnel. However, their service team lacked such kind of personnel. In turn, the service team could not meet the needs of large customers. Besides, they did not attach great importance to the needs of small and

4.4. Stage 4: providing performance based solutions (2013–present) SC (China) had been able to provide integrated solutions for customers. It helped the firm to obtain higher profits and witnessed an annual growth rate of 42%. However, the products and services provided for small and medium-sized customers were relatively insufficient. With the continuous development of China road transportation market and the changing customer needs, SC (China) started to provide performance-based solutions to some customers, especially small and medium sized customers. Compared to integrated solutions, performance based solution contains more service elements. Customers only need to pay the fees based on “ton kilometer” rather than buying trucks. SC (China) needed to integrated series of services including truck operation, after-sales service and customer process support, i.e. digital services, performance analysis, financial and security services, to provide transportation service for customers. At the same time, SC (China) was obliged to ensure the trucks' effective operation, attendance and transport efficiency while charging the customers by “ton kilometer”. At the strategic level, SC (China) identified that developing and providing performance based solutions customers will encounter the risks of lack of resources, capability, and unfavorable purchasing habit. In the beginning of this stage, SC (China) did not effectively integrate all kinds of customer resources in the transport market. It did not obtain sufficient data, information and other resources required by performance based solutions. The capability of providing information and 21

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explored and improved the performance based solutions for customers. In addition, regarding the service development, interaction, sales, delivery, quality, cost, pricing aspects, SC (China) coordinated with agents, suppliers, customers and other participants, and strived to achieve value creation together. Since ensuring performance is highly uncertain, SC (China) decision makers followed the “effectual logic” and adopted the principles of control, experimentation, affordable loss, pre-commitment, leverage contingencies (Sarasvathy, 2001) to control operational risks. Overall, thanks to the effective control of operational, organizational and strategic risks, SC (China) promoted the performance based solutions smoothly. SC (China) obtained a number of customers and suppliers as partners. In turn, it enjoyed a higher market share and better performance.

software for customers was weak. SC (China) also needed to focus on strategic risks brought by customers' traditional purchasing habit. SC (China) selected a small number of representative customers carefully and invested technical as well as service professionals, development of performance based solution funds, truck equipment and other resources. SC (China) cooperated with agents, suppliers, clients and customers' customers multilaterally. SC (China) also integrated and utilized the information resources of the logistics market to enhance the service development, sales and capability of providing performance based solution. They adopted sales, service, product design and other activities around the “ton kilometer” operation in order to influence customers' purchasing habit. Through continuous exploration, SC (China) gradually found suitable performance based solutions for Chinese customers. At this stage, the performance based solutions developed and provided by SC (China) faced very strong uncertain environment and it was difficult to predict possible risks. Therefore, SC (China) looked for methods, such as digitalization of user services and fleet management performance analysis, with partners and customers in order to enhance customer performance and to achieve value creation in the supply chain. In sum, SC (China)’s decision makers mainly followed the “effectual logic” and adopted the principles of control, experimentation, affordable loss, pre-commitment, and leverage contingencies (Sarasvathy, 2001) to control the strategic risks brought by providing performance based solutions. At the organizational level, in order to develop and provide effective performance based solutions for customers, SC (China) needed to build a flexible and efficient project team. SC (China) tried to adjust the existing organizational structure and develop a project team. The project team included personnel equipped with a variety of skills in order to coordinate the relationships among stakeholders. SC (China) also needed effective management of project team members. Otherwise, it would lead to various kinds of risks. In order to handle the organizational risks brought by performance based solutions, SC (China) cooperated with agents, suppliers, and customers to create highly customized performance based solutions for customers. SC (China) constantly adjusted performance based solutions and changed the structure of project team accordingly. They allocated professional and service technicians with the ability of maintenance service, data collection, processing and analysis to the project team. The project team could get familiar with the customer's operating activities, develop and optimize the performance based solutions. In the implementation process, SC (China) improved customers' operational efficiency to meet the service contract requirement. Through continuous experimentation and development of performance based solutions, SC (China) gradually summarized and found out the right solutions to meet Chinese customers' needs. In turn, they set up reasonable project structure configured with appropriate personnel. SC (China)’s decision makers mainly followed the “effectual logic” and adopted the principles of control, experimentation, affordable loss, pre-commitment, leverage contingencies (Sarasvathy, 2001) to control the organizational risks. At the operational level, when SC (China) provided performance based solutions, it would meet risks of service development, interaction, sales, delivery, quality, cost, and pricing. It was difficult to manage these risks. Take the development, delivery and quality control of the performance based solutions as an example, SC (China) had to deeply analyze the demand and characteristics of customers, collect their operational data, and integrate all resources of the firm in order to develop suitable performance based solutions. The project team dug in depth into customers' operation to effectively solve the problems of freight transportation. Meanwhile, in the aspect of quality control, SC (China) needed to ensure the existing customer service quality and to consider how to guarantee the service quality of performance based solution. In order to control operational risks brought by performance based solutions, SC (China) cooperated with suppliers and agents closely and they carefully selected representative customers and conduct experiments in the range of affordable loss. SC (China) continuously

5. Discussion Many manufacturing firms start to change from a product-based business model to a service-based business model. The severe issues that manufacturing firms must face are servitization transformation risks. A great number of studies have examined the benefits that manufacturing firms can get through servitization (Baines et al., 2009; Eloranta & Turunen, 2015; Kowalkowski, Gebauer, Kamp, & Parry, 2017; Kowalkowski, Gebauer, & Oliva, 2017; Luoto et al., 2017). However, less attention has been paid to investigate the management of strategic, organizational and operational risks in the servitization process. It is important to point out that manufacturing firms initiating servitization and changing business model can lead to benefits as well as risks. With the development of servitization, manufacturing firms face increasing and multiple risks. These risks have impacts on the success or failure of firm's strategic transformation and influence the growth and development of the firm. Inappropriate management of these risks can lead to losses and even bankruptcy (Benedettini et al., 2015). 5.1. Research finding summary and theory development This research investigated a global heavy vehicle manufacturer's servitization process in its China sales channel and obtained valuable findings for theory development. This research found that, in different stages of the servitization evolution, the decision making logics underlying the management of strategic, organizational and operational risks changed over time. This was due to the growing risks and control difficulties. It triggered decision makers to change from applying a casual logic to an effectual logic. This research also found the risks of servitization would first influence the operational level of manufacturing firms, and then affect their organizational and strategic levels. The adopted risk control actions would also change from a risk management focus to a risk control focus. In different servitization stages, although there were similarities among risk control actions, the decision making logics behind the adopted actions would change gradually from a causation orientation to an effectuation orientation. Previous research only discussed how firms control transformation risks but did not explore the decision making logics behind the control actions. A theoretical proposition is conjectured: As the servitization of manufacturing firms evolves, the strategic, organizational and operational risks will be increased in their intensities and the control difficulties; thus, the decision making logics behind the risk control actions should also be adjusted accordingly to increase the probability of servitization success.Fig. 1 provides a detail synthesis of the case findings the proposition is based on and further analysis and explanations will be followed. As the servitization process evolves, manufacturing firms will face increasing strategic, organizational and operational risks. At the same time, the difficulties of risk control will also increase as the degree of servitization grows higher. During the servitization evolution process, the case company adopted different business models at different stages to cope with the risk changes. As the business model moved up the 22

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Fig. 1. Risk management and control mechanism in the manufacturer's servitization process.

provide customers with customized products and services to match its business model changing needs (Vorhies & Morgan, 2003). Specifically, on the one hand, the case company kept developing servitization related human capital in order to enhance its service capabilities; on the other hand, it reorganized service teams, built a comprehensive service network, and designed effective service platforms in order to ensure service quality and better profitability through longer term relationships and contracts (Chakkol, Johnson, Raja, & Raffoni, 2014; Eloranta & Turunen, 2015). Regarding the control of the operational risks, the case company has considered not only the process of service operations but also each single service activity. It has enhanced service development, sales, delivery and related costs to better control operational risks and mitigate the risk of losses to obtain higher profits from advanced services. The risk control actions at different levels are not well explained in previous studies (Benedettini et al., 2015; Bigdeli et al., 2018; Kowalkowski et al., 2015) but are further clarified in this study. As for the decision making logics behind the risk control actions, the case company estimated the level of risks based on the uncertainty of external environment, market and competition, and then chose to follow causal logic, effectual logic or the combination of both logics in order to control related risks. Throughout the servitization evolution process, as the sertivization degree increases, manufacturing firms will face increasing risks. The adopted risk control actions do not simply follow the conventional causal decision making logic. The decision making logic has changed from a causation dominant logic to a combination of casual and effectual logics, and then to a effectuation dominant logic. In stage 1, which only provides products and basic after-sales service, the degree of servitization is low. Since the uncertainty is low, the risk patterns are relatively simple. Manufacturing firms can make a good prediction of the external environment.

ladder, SC (China) gradually encountered various problems relating to resources and capabilities. It was getting harder to acquire desired resources and capabilities leading to more strategic risks and difficulty of risk control. Meanwhile, as the process of servitization moved forward to more advanced stages, the case company needed to continuously adjust and change its original organizational and personnel structure in order to match with the new business models that can deal with the increased organizational risks and their control. In addition, the case company had to handle more complex operational issues and elements. Risk control of the operational elements became harder. In short, as the servitization process evolved, the case company encountered more risks with higher intensity at the strategic, organizational and operational levels. This finding confirmed Benedettini et al. (2015)’s research conclusion and further verified that the servitization transformation of manufacturing firms mainly revolves around risks at strategic, organizational and operational levels. With the growth of the degree of servitization, the risks at three levels will increase and the control of these risks will also become more challenging. This finding extends the knowledge of existing studies and provides a positive feedback to future research. Regarding the risk control actions, the case company continuously improved service capabilities, integrated service resources, and developed organizational and personnel structure. In order to systematically and effectively control the strategic risks, the case company constantly acquired external resources, integrated internal and external resources, and kept improving its capabilities. In return, the case company has achieved a dynamic matching between the external environment and its evolved business models. To better control organizational risks during the servitization transformation process, the case company has adjusted the organizational and personnel structure in order to develop and 23

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should have a dynamic perspective towards the change of risk patterns over time. When manufacturing firms transform from being product providers to performance providers, they would encounter changing patterns of risks. It is insufficient to stick with only one type of decision making logics. Practitioners should take a dynamic approach in applying a causal logic, an effectual logic or both according to the changing patterns of risks. Specifically, when it is in the early stage of servitization process and the risk as well as uncertainty is low, practitioners may be able to collect information and to make predictions. Their decisions could follow the causal logic. While at the more developed stage of servitization process, such as being a performance provider, practitioners would find it hard or impossible to predict. Their decisions should abide to the effectual logic. In other cases, practitioners should balance the use of both causal and effectual logics to make their decisions. Second, we advise practitioners to apply an effectual logic in the servitization process when uncertainty is high and the patterns of risk are difficult to predict. For instance, when the firm is developing performance based solutions, practitioners would encounter great difficulties to make decisions based on prediction since relevant data are not available. Practitioners should start with their means on hand, such as their knowledge, experience, and service networks, instead of predefining a specific goal for the pursuance. Besides, practitioners should apply the principle of experimentation and select a small number of representative customers to test their ideas within the range of affordable loss. It is particularly important for practitioners to try their best to co-create value with their agents, suppliers, and customer's customers so that the supply chain resources and capabilities can be leveraged. Third, practitioners should constantly evaluate their strategic, organizational and operational risks and adopt appropriate decision making logics to control these risks in the servitiztion process. In terms of controlling strategic risks, practitioners should integrate service resources and improve service capabilities. Through capabilities development and resource integration, they can upgrade their business model to better meet the changing customer demands and external environment. In terms of controlling organizational risks, practitioners should redesign their organizational and personnel structure in order to develop and deliver high quality service. In terms of controlling operational risks, practitioners should pay attention to customer demands and develop better solutions in the area of service development, service sales, service quality and service pricing to meet customer needs in the servitization process.

Therefore, decision makers can conduct competitive analysis, generate a clear expected revenue, set goals and plans, and select appropriate risk management approaches based on the casual logic. In stage 4 where performance based solutions are provided, the degree of servitization is the highest. Manufacturing firms will face the greatest uncertainty. It is hard to predict the market prospects and foresee customers' situations. Therefore, smarter decision makers tend to control the potential risks based on effectual logic and explore the possibility and opportunity to collaborate with suppliers, agents and customers. They apply the principle of experimentation within the range of affordable loss that carries out fast iteration of value co-creation projects to enhance both customers' and their operational performances. 5.2. Theoretical contributions This study explores servitization as an innovative strategy for manufacturers and investigates how the decision making logics relate to the change of risk patterns in the servitization process over time. By applying a case study approach in the examination of a heavy vehicle manufacturer's servitization process in China, several critical findings are derived with theoretical implications and contributions. First, this research breaks a new ground in servitization research by applying a novel theory to unveil the dynamics of decision making logics in the servitization transformation process. It is believed that the analysis of the dynamics of risk patterns and risk control in manufacturing firms' servitization process is of vital importance to the servitization research. Our research has found that the underlying decision making logics change in a dynamic way in accordance to the changing risk patterns and increasing difficulty of risk control. This research finding reveals the whole process regarding how manufacturing firms manage and control risks over time in the servitization process which extends the existing body of servitization research knowledge. Managers need to apply different risk management logics according to the risk patterns at various servitization evolution stages. The application of effectuation theory in the manufacturers' servitization process finds a novelty union between effectuation and servitization theoretical literature. It expands our understanding to both theories, and, more importantly, opens up a new direction for future theoretical exploration. Second, this research contributes to effectuation theory by extending its boundary to servitization research and responding to the call for conducting process based entrepreneurship research (Gupta, Chiles, & McMullen, 2016). This research has shown that effectuation theory can be used to explain the risk control behavior of manufacturing firms in their servitization process. As the servitization process moves from a stage with low risks to more advanced service stages with higher risks, the way in which decision makers respond to the risks changes from a casual logic focus to the mixed use of both casual and effectual logics and then to an effectual logic focus. It shows that these two logics may complement each other depending on what decision makers view appropriately according to the risk patterns. This finding is not only in line with but also enhances previous research results (Bigdeli et al., 2018; Chandler et al., 2011). Third, the major body of existing servitization literature focuses mainly on manufacturing firms of western origin while less attention has been given to other parts of the world (Luoto et al., 2017). This study investigates the case company's servitization evolution process in an emerging market, China. It offers a contextualized understanding of service strategy adopted by a global heavy vehicle manufacturer. It can be regarded as an attempt to enrich extant servitization research with western origins (Gebauer et al., 2012; Luoto et al., 2017).

6. Limitations and future research directions Although this research revealed several valuable findings regarding how an international manufacturing firm in China market could control its servitization risks, there are still inadequacies. Firstly, this research used only a truck manufacturer's sales channel for the study. Even though the case firm and its business partners are good representation in the road transport industry, the synthesis of the research findings are mainly theoretical derivations. More cases and industry-wide surveys are needed to validate the generalization of our findings. Secondly, although this research analyzed the dynamic relationship between risks control actions of the case firm and its related decision making logics during servitization evolution process, it is not clear how these decisions are made in the process of controlling servitization risks. The decision making formation process requires further studies. Thirdly, this research made an effort to provide contextualized understanding of the case company's servitization transformation process in China. However, the case company is still a western company. The research findings cannot disclose if manufacturing firms in emerging markets servitize differently than the firms in developed economies. Future research could investigate manufacturing firms in emerging economies and analyze how they servitize over time to make servitization research in emerging economies more visiable (Gebauer et al., 2012; Luoto et al.,

5.3. Practical implications The insights from this study can serve as a guide for practitioners in their decision making process during servitization. First, practitioners 24

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