Purpose – Climate change demands that the built environment transforms to become more sustainable (Rohracher, 2001). From a service ecosystem perspective (Sivunen et al., 2013; Akaka et al, 2015; Banoun et al., 2016; Pulkka et al., 2016), the requirement is for successful transformation of existing actors and institutions into new service ecosystems in which resources are integrated with less impact on the climate over time. Existing research has proposed how service ecosystems may be successfully transformed (e.g. Taillard, et al. 2016), but no work to our knowledge has examined how transformations may fail. The aim of this paper is to examine ‘failure’ in a service ecosystem transformation by developing a conceptual framework based on the concept of ‘entropy’ from systems theory (Zucker, 1988; Edwards and Jones, 2008). We formulate a series of propositions linking non-adherence to service-ecosystem principles (Adner and Kapoor, 2010; Vargo and Lusch, 2016) to a service ecosystem’s ‘failed’ transformation into a stable state and to subsequent disorder and collapse. Design/Methodology/Approach – The conceptual framework is illustrated through a unique case: the introduction and demise of the Green Deal in the UK. Launched in 2013, the Green Deal was considered a "revolution" in upgrading the UK’s old and draughty housing stock. With the goal to “establish a vibrant new market in energy efficiency” (Warren, 2012), the programme was designed to encourage millions of households to install insulation and new boilers at no upfront cost. However, in 2015, faced with very low uptake, the Government scrapped the scheme which was labelled a "total flop" (Gosden, 2015). Findings – Under weak institutions such as poor policy design, the service ecosystem experienced phases of tension between its actors which progressively led to disintegration of relationships between the actors and an increasing instability of their agreements. Further factors contributing to failure included lack of mechanisms (including institutions and actors responsibility) to engage with consumers (i.e. home owners), the misalignment of the value propositions and the absence of a shared logic, particularly trust, among network actors. This was exacerbated by inertia in developing capacity to capture the potential of existing service ecosystems, that is, existing energy efficiency small businesses. Research implications – Understanding failed transformations is essential for theoretical development of service ecosystems. Practical implications – Guidelines are given for policy makers and businesses on the successful introduction of new initiatives. Originality/value – The system theory’s concept of entropy is applied to explain the processes of ‘failed’ transformation in a service ecosystem.