Examining the link between service modularity and firm performance: A capability perspective

While service scholars have generally supported the idea that service modularity enhances firm performance, the literature offers very little evidence of the actual process through which service modularity continuously contributes to firm performance. This study draws from a capability perspective to examine the link: service modularity capabilities－service modularity－new service advantage－firm performance, as well as the moderating role of radical innovation capability in the effect of service modularity on new service advantage.
To examine this link, data were collected from a cross-industry survey of 231 leading service firms. Structural equation modeling and hierarchical moderated regression analyses were employed to test the model.
Analyses reveal that new service advantage mediates the service modularity－firm performance relationship. Moreover, service modularity capabilities act in an important antecedent role to configure service modularity. Among the findings, it is worth emphasizing that radical innovation capability not only strengthens the positive effect of, but also alleviates the negative effect of, service modularity on new service advantage.
This study provides a more complete understanding of how service modularity enhances firm performance by discovering the hidden role of new service advantage that bridges service modularity and firm performance, clarifying the role of service modularity capabilities in configuring service modularity, and confirming the important role of radical innovation capability in sustaining the effectiveness of service modularity.