Strategy and Strategic Alignment in Professional Service Firms

Abstract

This chapter reviews the strategic management choices that are central to Professional Service Firms (PSFs), which in turn undergird their competitive advantage and long-run performance. The first part of the chapter focuses on human capital as a critical resource for PSFs, and explores different ways in which firm value is created by attracting, developing, configuring, and leveraging human capital. Further, it is critical that PSFs’ human capital be aligned with and harnessed to the firm’s objectives, which naturally raises issues related to motivating professionals, the sharing of economic rents with (and among) them, and the overall governance of the firm. The authors draw on these building blocks of strategy in PSFs to explain the corporate strategy decisions (such as service and geographic diversification) that PSFs must make, and discuss the value-creating role of client relationships.