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Management Series: professional-services

What are professional service firms and why do we study them?

The word 'professional' is often used rather loosely: the lay person will as easily apply it to footballers, actors, and hairdressers as to lawyers and accountants. In the altogether more precise language of academics it is still a highly contested term - as, by extension, is the expression professional service firm (PSF).

Author(s): Professor Laura Empson - Cass Business School;

But if no one can quite agree on whether we should use the term "professional service firm" to describe only firms working within the formally regulated professions, such as law, accountancy, and architecture, or if the definition can be extended to encompass organisations such as management consultancies, advertising agencies, and investment banks, there is general consensus on the three distinctive characteristics of a PSF.

Resource base
PSFs have relatively limited physical resources; their value derives primarily from their professional workers, and specifically the technical knowledge, expertise, and experience which they possess.

Organisational form
Through the partnership form of governance, which is common among PSFs, professionals experience a higher degree of autonomy than they would typically enjoy in conventional bureaucratic structures.

Professional identity
Firm members identify themselves as professionals and are united by a shared understanding of the concept of professionalism.

The sector as a whole has grown by more than 10 per cent a year over the past 25 years and currently generates more than US$1,000 billion in revenues globally. There has been a corresponding growth in the size of the firms within this sector, as many PSFs have followed their clients abroad and sought to become global. For example, the largest accounting firm, PricewaterhouseCoopers, currently employs 163,000 people in 151 countries, with a 2009 gross revenue of US $26 billion.

The growth of the sector has run in parallel with its increasing influence. The majority of MBA students from top business schools wish to join consulting and investment banking firms. Many global investment banks are now far larger than the clients they serve and have a profound impact on financial products. Accountants are no longer simply watchdogs or even specialist business advisers to their clients: they have become deeply embedded within client firms through long-term relationships. PSFs are also subsuming the activities of their clients into their own organisations as they become increasingly involved in outsourcing activities. Their influence extends to the way we are governed as well as the way we do business: PSFs have taken the lead in reshaping the public sector in many developed and developing economies and have become major funders of political campaigns.

As a result, management literature, which traditionally focused on manufacturing, retail service, and technology-based firms, shows a significant growth in interest in PSFs over the past two decades. For some researchers, PSFs are an important subject of study in their own right. For others, PSFs are interesting because of what they can teach us about organisations in general. In particular, as industries in developed economies have become relatively less capital-intensive and more knowledge-intensive, PSFs are a useful source of insights into the management of knowledge and knowledge workers.

This is an updated extract of an entry written by Laura Empson in the International Encyclopedia of Organizational Studies. Stewart Clegg and James Bailey, Editors, Sage Publications, 2007

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