Are Professional Service Firms Uniquely Suited for Corporate Entrepreneurship? a Theoretical Model Connecting Professional Service Intensity and Corporate Entrepreneurship

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ABSTRACT

We propose a theoretical model in which the distinctive characteristics of professional services firms both enable and drive Corporate Entrepreneurs hip (CE). Prior research has shown that CE enhances firm performance, but the phenomenon remains unexplored in the professional service industry. This lack of inclusion is unfortunate, because professional service firms (PSFs) play a vital role in the US and global economy. In addition, PSFs differ markedly from traditional non-professional firms in their structure and management, resulting in a unique expression of CE within this context that has not yet been captured. This paper maps the distinct characteristics of PSFs to the well-established domains of CE. This paper further proposes that a firm's level of professionalism is predictive of CE.

INTRODUCTION

The professional services industry consistently ranks among the world's strongest and fastest growing sectors. During the last two decades of the twentieth century the professional services industry has grown by over 10 percent worldwide, while traditional sectors like manufacturing and agriculture have declined (Suddaby, Greenwood & Wilderom, 2008). Nowhere is this more pronounced than in the US, which in recent years has been transformed from a manufacturing-based economy into a service-based nation (Suddaby et al., 2008).

Professional services firms not only play a vital role in the US and global economy, but they also possess distinctive organizational and management characteristics that differentiate them from traditional forms of business. The services provided by PSFs are highly specialized and knowledge specific, a fact that makes the individual professionals employed by the firm its most valuable asset. On balance PSFs require far less physical capital than traditional firms, which increases the salience of human and social capital within the firm (von Nordynflycht, 2010). In addition, the decreased focus on plant, property, and equipment largely frees management from the need for outside investors and managers. Finally, professional regulations and additional obligations impose the dual burden of achieving commercial success as well as their client's non- commercial best interests (Burk & McGowan, 2010). These and other aspects combine to form a distinct business entity facing a set of challenges and opportunities that is altogether different from non-professional firms.

This dynamic may suggest that professional service firms function within a staid industry that is resistant to entrepreneurial initiative. The very nature of classic PSFs, such as law and accounting firms, require them to abide precedents, self-regulate their actions, and adhere to professional obligations to their clientele that deviate from their pursuit of profit. In addition, the unique regulatory schemes imposed upon some professions limit their ability to advertise and obtain outside investors and managers. On its face, these characteristics paint a picture of a sector with relatively limited room for innovation and creativity.

However, rather than stymie innovation, these unique aspects may actually galvanize entrepreneurial behavior. PSFs must continually adapt to the changing marketplace, as well as a constantly evolving regulatory framework. In addition, professional employees, who are the most prized asset of such firms, possess transferable skill sets and clientele, which serve to increase career mobility and increase the risk of organizational turnover (von Nordenflycht, 2010; Burk & McGowan, 2010). These industry constraints require an agile and adaptive organizational structure and management system. In essence, these characteristics suggest that an industry traditionally viewed as resistant to innovation may actually depend upon entrepreneurial initiative for its survival.

In particular, PSFs may exhibit many of the classic aspects of corporate entrepreneurship (CE). Defined as the process in which individuals or groups within an existing organization instigate revitalization or create new ventures (Sharma & Chrisman, 1999), corporate CE has been shown to positively influence financial performance (Zahra and Covin, 1995; Zahra, Neubaum, & Huse, 2000), and corporate competitiveness (Lumpkin and Dess, 1996) within non-professional work environments. …