Strategic management of professional service firms: Balancing the demands of human resource management, client service, and financial performance.

Abstract

Even though professional service firms (PSFs) play a significant role in the United States' economy, management scholars understand little about their strategic behavior. This dissertation addresses this research vacuum by integrating literature from organizational theory, strategic management, and sociology to develop and empirically test a model that explains a resource-based view of control and coordination mechanisms in PSFs. This model hypothesizes that in PSFs certain types of control and coordination mechanisms will develop socially complex organizational resources which result in high performance of professional service firms--the ability to maintain a balance between client demands, human resource needs, and the economic goals of the firm. To test the hypothesized model, data were collected from 515 local offices of public accounting firms and analyzed using causal modeling. Results of the data analysis indicate that because bureaucratic control mechanisms conflict with the attitudinal attributes of professional employees, they are non-valuable to PSFs and have negative performance consequences. However, since clan and intrapreneurial control mechanisms are aligned with the values of professional employees and tacit, thus difficult for competitors to imitate, they create organizational resources that lead to high levels of human resource management and financial performance. In addition, the data analysis provides empirical support that integrative coordination mechanisms and external networks are significant determinants of a PSF's ability to develop socially complex organizational resources which result in high levels of client service and financial performance. Interestingly, the data analysis also suggests that since differentiation and adhocracies are easily imitated, and hence common in the public accounting industry, these forms of coordination mechanisms only result in competitive parity. Future research should extend this study with a new sample and the inclusion of control variables.