Business Growth in Knowledge-Based Services: Relational Embeddedness and the Breadth of Added Value Opportunities

42 Pages Posted: 29 May 2019 Last revised: 30 Mar 2020

See all articles by John Mawdsley

John Mawdsley

Strategy & Business Policy, HEC Paris

Deepak Somaya

University of Illinois at Urbana-Champaign - Department of Business Administration

Date Written: March 15, 2020

Abstract

The current paper complements and extends traditional Penrosean theories of firm growth by examining how a (supplier) firm’s relational embeddedness with its portfolio of existing buyers affects its business growth. Our theorizing rests on the foundation that a firm’s business growth stems from its breadth (or volume) of opportunities for creating added value with buyers, which more fully realizes the Penrosean vision that firm growth can be explained by a dynamic interaction between productive resources and demand-side market opportunities. While relational embeddedness may give a supplier some dyadic advantages with focal buyers, we theorize that it may lead to a narrower set of future added value business opportunities with the (supplier) firm’s entire portfolio of buyers. In addition, we hypothesize that this negative effect on business growth is moderated by a set of relational and demand-side attributes. These hypotheses are tested on a panel dataset of patent law firms (suppliers) and their relationships with corporate clients (buyers). Consistent with our hypotheses, we find that greater relational embeddedness is associated with slower supplier business growth, which is alleviated when these firms have greater cross-servicing ability and receive more relational commitment from buyers, but exacerbated when suppliers hold more buyer-specific knowledge and when buyers undertake more (internal) concurrent sourcing. In turn, our research demonstrates how the attributes of a supplier’s relationships with its portfolio of buyers can impact access to new business opportunities, and thus opens up new directions for research on firm growth, demand-side strategy and buyer-supplier relationships.

Keywords: relational ties, firm growth, professional services, added value, clients

Suggested Citation

Mawdsley, John and Somaya, Deepak, Business Growth in Knowledge-Based Services: Relational Embeddedness and the Breadth of Added Value Opportunities (March 15, 2020). HEC Paris Research Paper No. SPE-2019-1340, Available at SSRN: https://ssrn.com/abstract=3382294 or http://dx.doi.org/10.2139/ssrn.3382294

John Mawdsley (Contact Author)

Strategy & Business Policy, HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Deepak Somaya

University of Illinois at Urbana-Champaign - Department of Business Administration ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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