Chartering new territory: diversification, legitimacy, and practice area creation in professional service firms

Abstract

SummaryDiversification into innovative domains through new practice area creation is a critical imperative for professional services firms. Using theories of organizational territoriality and corporate charters, we conceptualize professional firms as federations of distinct practice areas and argue that the chartering of a new practice is an inherently political act. New practice area founders need to engage in appropriate legitimacy-mobilizing efforts in order to sustain diversification efforts. Our analysis of 46 cases of new practice area creation efforts in consulting and law firms shows that the mix of legitimacy required for new practice areas created through radical diversification is very different from that required for incremental diversification efforts. Our findings have important implications for studying how innovation is structurally accomplished in professional firms.

Service Innovation in the Digital Age: Key Contributions and Future Directions

“…Through client interaction and coproduction of knowledge with business partners, professional service firms are able to improve their knowledge development processes for value creation (Dougherty 2004;Fosstenlokken et al 2003;Gann and Salter 2000). Service innovation in professional service firms such as management consultancy and law firms involves creating new practice areas (Anand et al 2007;Gardner et al 2008) and leveraging of the Internet to develop new online assurance services (Barrett and Gendron 2006;Gendron and Barrett 2004) in order to diversify into new markets. For example, WebTrust, a seal of assurance certifying a client's best practice to online consumers, was developed in the early 2000s as a service innovation by accounting firms and institutes to leverage and build upon their expertise to create a new market in online assurance.…”

How do high performance work systems influence organizational innovation in professional service firms?

“…PSFs' innovation in service is achieved through the application of new ideas, processes and methods expressed in customized solutions rather than technologies, e.g. refining and re-combining their services (Anand et al, 2007;Gardner et al, 2008).…”

High‐Performance Work Systems in Professional Service Firms: Examining the Practices‐Resources‐Uses‐Performance Linkage

“…Making effective utilization of their resources in order to promote strategic action, in the form of both exploration and exploitation, permits PSFs to adapt to dynamic market changes. They achieve this by pursuing innovation, testing new or adaptive services and by recognizing new opportunities in existing client relationships (Anand et al, ; Gardner, Anand, & Morris, ). Both resources and their uses enable the firm to sense changes in its markets and take adaptive actions (Teece et al, ).…”

“…In its execution, organizational ambidexterity relies on the knowledge, skills, and abilities of professional staff, as well as their willingness to pursue these strategies (Wasko & Faraj, 2005). When PSFs have high-quality human capital, staff tend to be creative and highly skilled and apply expertise in their own roles and functions (Subramaniam & Youndt, 2005 new or adaptive services and by recognizing new opportunities in existing client relationships (Anand et al, 2007;Gardner, Anand, & Morris, 2008). Both resources and their uses enable the firm to sense changes in its markets and take adaptive actions (Teece et al, 1997).…”