Reputation, Diversification and Organizational Explanations of Performance in Professional Service Firms

Organization Science Volume Vol. 16, No. 6, 2005

University of Alberta School of Business Research Paper No. 2013-405

Posted: 25 May 2013

See all articles by Royston Greenwood

Royston Greenwood

University of Alberta - Department of Strategic Management and Organization

Stan Xiao Li

York University - Schulich School of Business

Rajshree Prakash

Independent

David L. Deephouse

Alberta School of Business, University of Alberta

Date Written: November 1, 2004

Abstract

Growing interest in knowledge as a competitive asset suggests the benefit of studying professional service firms (PSFs). These firms are highly successful examples of organizations whose ability to manage knowledge is critical to their success. Furthermore, they are worthy of study because they constitute a significant sector of the economy, whether measured by their size, numbers, or influence. Despite their significance, little is known of the determinants of their performance. This paper proposes that the core tasks of PSFs raise unusual strategic and organizational challenges, the resolution of which affects organizational performance. We elaborate the effects of reputation and diversification and contrast them to theory for goods-producing industries. We also hypothesize that PSF managers face a choice in designing structures between the retention and motivation of the professional workforce and transferring knowledge from partners to other professionals. These predictions are tested and supported by data from the largest 100 U.S. accounting firms for the period 1991–2000. The paper thus contributes to a theory of professional service firm management.

Keywords: professional service firms, reputation, diversification, leverage

Suggested Citation

Greenwood, Royston and Li, Stan X. and Prakash, Rajshree and Deephouse, David L., Reputation, Diversification and Organizational Explanations of Performance in Professional Service Firms (November 1, 2004). Organization Science Volume Vol. 16, No. 6, 2005 , University of Alberta School of Business Research Paper No. 2013-405, Available at SSRN: https://ssrn.com/abstract=2268765

Royston Greenwood (Contact Author)

University of Alberta - Department of Strategic Management and Organization ( email )

Edmonton, Alberta T6G 2R6
Canada

Stan X. Li

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Rajshree Prakash

Independent ( email )

David L. Deephouse

Alberta School of Business, University of Alberta

Edmonton, Alberta T6G 2R6
Canada
780 492-5419 (Phone)
780 492-3325 (Fax)

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