his paper examines the strategic renewal activities top service firms use to respond to environmental scarcity. Based on a longitudinal dataset of 97 leading European service firms, it empirically conceptualize s three clusters or strategic types of organizational response to overcome long - term financial strain . L eading E . U . service firms that attempt to maximize recovery by strategic expansion (i.e., increase in R&D investment, strategic M&A and recruitment ) generate growth in the ir operating profits and net sales in contrast to service firms that implement defensive retrenchment actions (layoffs and cutting back on R&D investment) . Th ese results contribute to the understanding of the po tentially posit ive and negative issues related to the actions service firms use to overcome environmental decline and the role that different responses play in fostering recovery from ongoing economic an d financial crisis, which have thus far remained empirically under - researched.