Digital Transformation and Firm Performance in Manufacturing: the Role of Servitization and Corporate Entrepreneurship

This study examines how digital transformation translates into firm performance in manufacturing by addressing the digital transformation paradox through interdependent knowledge mechanisms. Drawing on the knowledge-based view and integrating perspectives on knowledge management and absorptive capacity, the study proposes and tests a sequential pathway in which digital transformation enables servitization, servitization fosters corporate entrepreneurship, and corporate entrepreneurship ultimately drives firm performance. Survey data from 130 South Korean manufacturing firms were analyzed using PLS-SEM, controlling for knowledge and technology intensity, research and development intensity, firm size, firm age, and geographic location. Results show that digital transformation significantly enhances servitization, servitization significantly promotes corporate entrepreneurship, and corporate entrepreneurship significantly improves firm performance. By contrast, the direct links between digital transformation and firm performance, and between servitization and firm performance, are not significant; only the sequential pathway linking digital transformation to firm performance through servitization and corporate entrepreneurship is supported. This study contributes to theory by clarifying the digital transformation paradox through a layered knowledge-based framework that frames digital transformation as a knowledge infrastructure, servitization as a knowledge interface rather than a direct performance driver, and corporate entrepreneurship as a knowledge-enactment mechanism linking digital transformation to firm performance. For managers, the results underscore the need to strategically orchestrate digital transformation, servitization, and corporate entrepreneurship as interlinked stages of a knowledge-based process to translate digital investments into sustained performance improvements in manufacturing.