Handbook of Research on Entrepreneurship in Professional Services
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Handbook of Research on Entrepreneurship in Professional Services

Edited by Markus Reihlen and Andreas Werr

The expert contributors discuss entrepreneurship and innovation from a number of different perspectives, including the entrepreneurial professional team, the entrepreneurial firm and the institutional environment. The first part of the book looks at the challenges of entrepreneurship specific to the professional service firm while the second explores the creation and exploitation of entrepreneurial opportunities in the professional service team. Part III turns to the organization and Part IV to the management and growth of the entrepreneurial professional service firm. The final part discusses the interplay between professions, firms and the institutional environment.
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Chapter 7: Changing career models and capacity for innovation in professional services

Michael Smets, Timothy Morris and Namrata Malhotra


A number of professional sectors have recently moved away from their longstanding career model of up-or-out promotion and embraced innovative alternatives. Professional labor is a critical resource in professional service firms. Therefore, changes to these internal labor markets are likely to trigger other innovations, for example in knowledge management, incentive schemes and team composition. In this chapter we look at how new career models affect the core organizing model of professional firms and, in turn, their capacity for and processes of innovation. We consider how professional firms link the development of human capital and the division of professional labor to distinctive demands for innovation and how novel career systems help them respond to these demands. The chapter proceeds as follows. First, we describe the nature of innovation in professional service firms (PSFs), arguing that in important ways this differs from innovation in other types of firm. Second, we outline the organizing model of professional firms, explaining how their incentive structure, leverage ratio, team composition and billing arrangements shape the transfer and utilization of expertise as teams of professionals transform know-how into services and client relationships. Third, we describe the career model, and specifically the tournament promotion system at its core, by which PSFs have traditionally staffed its ranks with professionals of adequate quality to sustain their organizing model. Fourth, we show how such tournament promotion systems have come under pressure and present data from our own research on how elite UK law firms have responded by introducing new positions and an alternative career model altogether. Finally, we discuss the impact of the alternative career model upon the organizing model of these firms and, in turn, on their capacity for entrepreneurial action and innovation.

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