Small Service Firms Research Articles

Digitalization and business model change in small professional service firms: evidence from tax accountants

ABSTRACT Digitalisation offers many business opportunities for professional service firms (PSFs) in general and for tax consulting in particular. Digitalisation is changing the cost structures of PSFs, which affects the scope and scale of PSFs and their service offering. Scope, scale and offered services are part of a business model. Given the increasing importance of PSFs to an economy, it is unfortunate that evidence is lacking on whether and how digitalisation is changing PSFs’ business models. This study provides insights into how tax accountants, as a subgroup of PSFs, are changing their business model in the wake of digitalisation. Tax professionals can respond reactively or proactively to digitisation, either meeting client needs or actively engaging with new technologies. However, smaller accounting firms may face challenges due to resource constraints and lack of expertise, which could be addressed through collaboration, alongside considerations of data security and regulatory compliance.

Buffering the adverse effects of social nonmarket strategy on corporate financial performance

Purpose Firms are advocating for social change to a growing extent, but the performance implications of corporate activism are not clearly understood. This study aims to introduce social nonmarket strategy (SNMS) as a goal-directed form of corporate activism, explore whether such strategy harms corporate financial performance (CFP), and assess the buffering potential of effective market-based strategy and good standing with stakeholders. Design/methodology/approach A reflective measurement model and all hypothesized relationships were tested using consistent partial least squares structural equation modeling on a data set of 202 US-based small, medium, and large manufacturing and service firms. Findings SNMS is positively related to good standing with stakeholders but negatively related to CFP. By contrast, a higher market strategy (MS) is positively associated with both stakeholder performance and CFP. MS and stakeholder performance buffer but do not fully neutralize the adverse financial effect of SNMS. Practical implications Firms undertaking SNMS face serious risks. However, effective MS and higher levels of stakeholder performance can buffer but not fully neutralize the adverse financial effect of SNMS. Originality/value This research introduces SNMS as a goal-directed form of corporate activism, establishes the conflicting performance effects of such strategy and estimates the buffering potential of MS and stakeholder performance.

Solar panel adoption among Mexican small and medium-sized commercial and service businesses

We analyze the determinants of adoption of distributed solar photovoltaic systems, focusing on small and medium-sized commercial and service firms. We use monthly billing data that are perfectly matched with data from a novel survey that gathers information on electricity consumption, stock of electric equipment, and a rich set of firm characteristics in the Metropolitan Area of Aguascalientes, Mexico. Using an econometric model, we find evidence that a set of explanatory variables such as business characteristics, the economic sector, ownership status, stock and usage of equipment and appliances, presence of other solar technologies, and views about the use of renewable energy are important determinants of the probability of adoption of solar panel systems. Furthermore, using machine learning methods to identify the best predictors of solar adoption, we indirectly validate the theory-driven empirical model by assessing a large set of explanatory variables and selecting a subset of these variables. In addition, we investigate relevant cases where a priori solar panel adoption seems to be cost-effective but structural adoption barriers and adoption gaps might coexist for certain groups of electricity users. We also calculate the social cost savings and the avoided CO2 emissions. Finally, based on our results, we provide several policy implications and recommendations.

Digitalization processes in small professional service firms: drivers, barriers and emerging organisational tensions

PurposeThis study aimed to provide an exploratory analysis of digitalization processes in small professional service firms (SPSFs) by examining their main drivers and barriers and their impact on customer management practices, considering the intra-organizational, inter-organizational and service offering dimensions.Design/methodology/approachThis study adopted a qualitative, exploratory and inductive research methodology based on in-depth interviews with 19 owners or consultants of small tax/accounting firms, focusing on the role of digitalization in their internal and external processes.FindingsThe findings reveal external and internal barriers to and drivers of digitalization, as well as its effects on customer management practices. They also reveal the emergence of tensions related to the intra-organizational, inter-organizational and service offering dimensions.Originality/valueThis work contributes to the research on the role of digital technologies in the professional service sector, with a focus on SPSFs, which has thus far received limited attention. This research highlights the complexity of combining increasingly standardized processes and services with the need to maintain flexibility and informality in internal and external interactions.

The importance of owner loans for rebalancing the capital structure of small knowledge-intensive service firms

The purpose of this study is to analyze the financing behaviors of young and old small knowledge-intensive service (SKIS) firms, giving particular attention to the relationship between owner loans and the level of indebtedness and to the effect of owner loans on rebalancing the capital structure of such firms. Using dynamic panel data, this study used two samples, one with 421 young SKIS firms and another with 1353 old SKIS firms. Based on the findings, the financing behaviors of both the young and old firms closely resembled the predictions of the pecking order theory. However, the young SKIS firms attempted to rebalance their capital structure, being able to renegotiate credit under favorable terms, while the old SKIS firms slowly adjusted, suggesting the presence of high transaction costs. Regarding owner loans, they positively impacted the adjustment speed, with greater magnitude on the old SKIS firms.

Organizational Culture and Corporate Performance in the Ecuadorian Environment

This study examines how organizational culture influences corporate performance in the Ecuadorian service sector. The study employs four organizational culture features and twelve concepts for corporate performance using a self-designed online questionnaire, which were supplied to postgraduate students from academic programs at Universidad de Las Americas (UDLA) in Quito, Ecuador. The respondents were working as managers or employees in small Ecuadorian service firms. The operational items of the questionnaire to measure organizational culture and corporate performance were designed using the Denison model. The findings reveal a statistically positive relationship between organizational culture and firm performance. Moreover, involvement, adaptability, consistency, and mission affect the non-financial performance of the Ecuadorian service sector. Involvement is the critical determinant of the influence of organizational culture on corporate performance, while training shows the strongest association with organizational culture. This study provides a perspective on long-term organizational strategies, vision, and performance. Future research should include the characteristics of the studied firms to increase the effectiveness of the proposed model.

Viewpoint: a transformative view for small service firms in the new Latin American service marketplace

PurposeThis paper aims to propose a framework of transformative strategies across the different levels of the service ecosystem for the recovery, well-being and inclusion of Latin American small service firms in the new service marketplace.Design/methodology/approachThe viewpoint presents an overview of the transformative strategies that can be developed by ecosystem actors for Latin American small service firms in the new marketplace, due to the pandemic crisis. The data are based on personal research and secondary industry reports.FindingsThe pandemic crisis has had an unpresented effect on the service industry in Latin America, particularly on small service firms, which are largely informal. This viewpoint provides themes for timely and actionable transformative strategies for the service industry ecosystem in this region and proposes research avenues for service scholars.Research limitations/implicationsThis viewpoint provides implications and ideas for future research on transformative actions for a new services marketplace in Latin America.Originality/valueThis viewpoint the first to propose transformative ecosystem strategies for recovery, well-being and inclusion of small service firms in the new service marketplace in Latin America.

Studying Service SME Adoption of Mobile Marketing Technology (MMT) via Technology-Organization-Environment Framework

While the acceptance and use of mobile marketing technology (MMT) is playing a significant roles in Small and Medium Enterprises (SMEs), few studies have explored how an appropriate framework for understanding the underlying factors that shape MMT adoption in Nigeria can be developed. This is because majority of practitioners in Nigeria often generalize and extend the findings from the developed economies as if there are no environmental differences. This paper attempts to propose a grounded theory approach for assessing factors within technology-organisation-environment (T-O-E) framework in attempt to explain and predict small service firms’ adoption of MMT. The data collection approach spans unstructured and semi-structured interviews with 26 respondents; and the proposed framework provides an organized way to explore MMT adoption, and a foundation for developing a model of MMT adoption in developing country.

Innovation Configurations and Firm Performance: An fsQCA Approach

Emerging research has unraveled complementarities between certain innovation forms, of product, process and organizational innovations. However, there is little consensus on how various innovation configurations and key institutional contexts and characteristics might interact to lead to superior or inferior performance. The aim of this paper is to investigate which sets of innovation configurations empower firms to attain greater performance given key institutional contexts (regulatory intensity and knowledge- vs. research-intensity of industries) and firm characteristics (firm size). We argue that innovation is a causally-complex phenomenon characterized by multifaceted interdependencies and equifinality. We employ the German Community Service Innovation survey, which consists of a broad array of innovation-related questions. We utilize the fuzzy-set qualitative comparative analysis, a set-theoretic configurational method that enables discovering complex patterns in a simultaneous and iterative processes. We find that in lightly-regulated industries, successful firms largely conform to product-marketing and process-organizational innovation pairings. Crucially, regulation demands high-performing firms to supplement these pairings with a third, i.e. respectively organizational or product, innovation form; The exception being small service firms who need to focus on one organizational form.

A network perspective on foreign entry modes of small knowledge-intensive services firms

PurposeIntegrating network attributes from studies of social networks, business relationships and small- to medium-sized enterprise (SME) internationalization, this study adopts a perceptual view of a firm’s focal “net” of relationships to examine foreign market entry mode choice. This study aims to examine how the interaction between knowledge-intensive service (KIS) firm’s network ties, embeddedness and position is related to choice of mode and subsequently the firm’s perceived insidership status within its focal net.Design/methodology/approachThis research is based on qualitative interviews with 25 small- to medium-sized KIS firms engaged in direct exporting or foreign direct investment (FDI). This study derives an empirically grounded framework of four distinct network patterns of these KIS firms through an iterative process of triangulation between cases and theory.FindingsThe four network patterns illustrate the complex interaction between network attributes and entry mode choice by KIS firms. The findings suggest formal ties and centrality in closed network relationships provide the “central controller” firm discretion over their entry mode choice. Resource-intensive FDI by “opportunistic investors” proved essential to securing centrality through formal, institutional ties. Less optimal patterns lacking institutional ties and centrality, however, precluded choice of FDI by “specialized exporters” and “client followers.” The study finds that entry modes are less likely to be influenced by the firm’s embeddedness in open or closed network relationships, but rather by the desire to achieve a more central network position and legitimacy through more formal, less imitable ties.Research limitations/implicationsThe findings demonstrate the importance of network structure, a position of centrality, and strength of professional and institutional ties to small KIS firm internationalization. By adopting a more finely grained examination of the interaction between key attributes of the firm’s focal net, this study provides a valuable first step in conceptualizing the complexities associated with networking and adoption of export/investment internationalization modes.Practical implicationsThere are a number of implications for the strategic and operational facets of smaller KIS firm internationalization. To avoid excessive network liability for resource-deficient SMEs, practitioners should consider network positioning as a strategic activity, with the costs associated with building and maintaining networks offset against economic- and resource-related returns.Originality/valueThe authors contribute to a better understanding of entry mode choices of KIS by taking a network perspective that accounts for the combined effects of different network attributes. The four network patterns identified extend current theoretical knowledge on the role of networks for entry mode choices of small KIS by highlighting that entry mode choices reflect the particular firm’s focal net and its attempt to achieve insidership status through high centrality and formal ties.

Exploring some marketing practices in management consulting firms: evidence from small service firms in Italy

PurposeThe purpose of the paper is to investigate the marketing and communication activities carried out by small management consulting firms and how they relate to customers.Design/methodology/approachAfter the framing of the literature on the subject, the study is based on the results of a survey carried out through an online questionnaire. The sample under investigation is represented by 914 small consulting firms located in central Italy.FindingsResults show that half of the sample carried out marketing and communication activities, mainly through the website and social media, while others participating in events as speakers at conferences. It also emerges that management consulting firms carry out activities aimed at maintaining relationship with customers even if they do not invest time in market research in order to find potential and new clients.Practical implicationsThe study suggests that management consulting firms should adopt a systematic and strategic approach to communication and should develop a complete and integrated digital communication strategy, as well as to rethink the consulting business model.Originality/valueThere are no previous studies that provide insight into the everyday practice of marketing and communication of small management consulting services in today's dynamic and changing economic environment.

Non-technical innovation and entrepreneurship in project-based small service firms

Background: Because of doubts about the sufficiency of convention indicators to continually gauge innovative outcomes at the firm level, a burgeoning stream of scholars has shifted their empirical efforts to the theoretical development of non-technical innovations. Aim: This study investigates the contribution of non-technical, innovative, entrepreneurial and marketing endeavours to the development of superior entrepreneurship through two types of firm capabilities. Setting: Over several stages, a structured questionnaire form was formulated. Firstly, an extensive review of previous similar research was performed to identify the adoptable scale items. After adjusting the scales based on the feedback from the pre-testers, the final questionnaire comprised 55 items measured on a five-point Likert-type scale. Methods: A total of 155 valid questionnaires, with the inclusion of late-responses, were obtained and this represented a response rate of 22%. Particularly, a conceptual model connecting market orientation, organisational learning, non-technical innovation and entrepreneurship was tested using partial least square path modelling. Results: In considering the criticality of innovation as the fulcrum of service-based delivery, our model advances the existing empirical approaches with a more intangible dimensionality of innovative efforts. Overall, the model distinguishes that small service firms engaging in dual modes of non-technical innovation strategically nurture intangible capabilities, which in turn provides them with enduring performance outcomes in outperforming competitors. Conclusion: The findings could assist small firms in accomplishing new value creation via non-technical innovations.

Digitally immersive, international entrepreneurial experiences

This study explores how entrepreneurs acquire international experiences within physical and digital business environments, and how these experiences influence the way international opportunities are recognised and exploited. Based on multiple case study evidence, including in-depth interviews with international entrepreneurs from 16 small virtual service firms, findings suggest entrepreneurs who interact with digital technologies in a responsive way in international settings may promote the emergence of a new type of experience: “digital internationalisation experience”. This new type of experience, in turn, contributes to enhanced idea generation and opportunity confidence that enable international entrepreneurial exploitation.

Exploring the role of goal setting and external accountability mechanisms in embedding strategic learning plans in small firms

PurposeThis paper explores the role of goal setting and external accountability mechanisms in embedding strategic learning plans in small firms. The research question asks, how are strategic learning plans embedded in small firms?Design/methodology/approachInsights from in-depth action research carried out with three small firm owner-managers (OMs) inform the study.FindingsFindings present valuable insights into how small firms learn strategically, and the link between OM goal setting and external accountability mechanisms in pursuit of embedded learning. A framework for embedding strategic learning plans in small firms is presented.Research limitations/implicationsThis study offers a contribution to knowledge in the areas of small firm learning, strategic planning and social learning theory. While the sample size is small, data and case protocols are in place which allow for replication of the study. As the research is embedded in social learning theory, alternative theoretical frameworks may shed a different light on the research question.Practical implicationsThe study may be of interest to practitioners working in the design, development, delivery and evaluation of learning interventions for small service firms. Given the importance of the small firm sector to the global economy, the research may also be of interest to government agencies, who strive to protect the survival and growth of small firms generally and who set aside resource amounts each year to fund training programmes for small firm OMs.Originality/valueThe research contributes to the body of existing knowledge in the small firm setting concerning social learning theory and small firm learning strategies. It has identified a link between OM goal setting and external accountability mechanisms in pursuit of sustainable organisational learning in small firms and offers a framework for embedding strategic learning plans in small firms. The study answers calls for a more robust framework to advance understanding of how OMs learn and whether that learning is consequently embedded in the organisation. The proposed framework can be used as a guideline for support organisations in assisting small firms in reaching their learning potential. It can also be used by small firms in the attainment of strategy learning capability.

Exploring the role of goal setting and external accountability mechanisms in embedding strategic learning plans in small firms

PurposeThis paper explores the role of goal setting and external accountability mechanisms in embedding strategic learning plans in small firms. The research question asks, does an external learning intervention influence how strategic learning plans are embedded in small firms?Design/methodology/approachInsights from in-depth action research carried out with three small firm owner-managers (OMs) inform the study.FindingsFindings present valuable insights into how small firms learn strategically, and the link between OM goal setting and external accountability mechanisms in pursuit of embedded learning. A framework for embedding strategic learning plans in small firms is presented.Research limitations/implicationsThis study offers a contribution to knowledge in the areas of small firm learning, strategic planning and social learning theory. While the sample size is small, data and case protocols are in place which allow for replication of the study. As the research is embedded in social learning theory, alternative theoretical frameworks may shed a different light on the research question.Practical implicationsThe study will be of interest to practitioners working in the design, development, delivery and evaluation of learning interventions for small service firms. Given the importance of the small firm sector to the global economy, the research may also be of interest to government agencies, who strive to protect the survival and growth of small firms generally and who set aside resource amounts each year to fund training programmes for small firm OMs.Originality/valueThe research contributes to the body of existing knowledge in the small firm setting concerning social learning theory and small firm learning strategies. It has identified a link between OM goal setting and external accountability mechanisms in pursuit of sustainable organisational learning in small firms and offers a framework for embedding strategic learning plans in small firms. The study answers calls for a more robust framework to advance understanding of how OMs learn and whether that learning is consequently embedded in the organisation. The proposed framework can be used as a guideline for support organisations in assisting small firms in reaching their learning potential. It can also be used by small firms in the attainment of strategy learning capability.

Does Venture Capital affect capital structure rebalancing? The case of small knowledge-intensive service firms

This study analyses small knowledge-intensive service (SKIS) firms’ capital structure rebalancing, before and after Venture Capital (VC) entry. We use data for a sample of 1161 Western European SKIS firms, for the period 2006–2015. Two sub-samples were created: one composed of firms before VC entry; the other composed of SKIS firms after VC treatment. We use panel data models and the system GMM (1998) dynamic estimator. The results obtained suggest that after VC entry, SKIS firms are close to the predictions of the pecking order theory. Therefore, SKIS firms after VC participation on firm equity, probably become less dependent on debt, choosing internal finance to fund assets that are firm-specific or have an intangible nature, and, hence cannot be pledged as collaterals.

The outsourcing practice among small knowledge-intensive service firms

PurposeThis paper aims to present findings on outsourcing practices in small service firms in Iceland, where the prime focus is on knowledge-intensive service firms.Design/methodology/approachTo gain information on the scope and reason for outsourcing, telephone and online surveys were used. In total, 802 firms participated in the surveys, which were conducted in the period 2009-2018.FindingsThe results show that knowledge-intensive firms outsource far more than other service firms and are also more likely to have an outsourcing strategy. The grounds for increased outsourcing are cost reduction and strategic reasons, such as a focus on core competency and the search for external knowledge. In comparison with other firms, knowledge-intensive firms are increasingly outsourcing cleaning, security services, canteen and transportation, IT processes, human resource management, training and consulting. Additionally, managers of these firms select suppliers more on the basis of cost and quality. They also realize more cost savings as a consequence of outsourcing. Outsourcing had a very limited effect on employment in the firms, while cost reduction was achieved in 48.3 per cent of the firms involved.Research limitations/implicationsThe findings are in line with the resource-based theory and, interestingly, this is not limited to knowledge-based firms, but to a large portion of service firms as well.Originality/valueThis is the first in-depth study on outsourcing patterns in knowledge-intensive firms, which uses theoretical classification in empirical analysis.

Service creativity reinforcement and firm performance

PurposeMany service firms have adopted creativity reinforcement mechanisms to manage employee-based service creativity so as to pursue their performance growth. However, its impact on firm performance has rarely been investigated in the extant research. The purpose of this paper is to satisfy this knowledge gap through an examination of how service creativity reinforcement (SCR) affects a firm’s performance.Design/methodology/approachTwo samples were used to test the hypotheses. The first sample included a total of 4,381 service firms and was analyzed by using a traditional moderated regression method in relation to sales growth as the outcome variable. Due to a number of missing values, the second sample was reduced to 1,481 service firms. This sample was analyzed by using a moderated fractional regression method and the outcome variable was innovation performance. Furthermore, a multi-valued treatment approach with the augmented inverse-propensity weighted estimator was adopted to assess the performance effect that was associated with each of the SCR mechanisms.FindingsStatistical analyses suggested that SCR positively affected both the firm’s performance and its innovation performance. Specifically, the stronger performance effects of SCR were associated with firms that had high innovation intensity, were small service firms and were part of the knowledge-intensive business service (KIBS) sector. The results also found that brainstorming sessions, a multi-disciplinary team approach, task rotation and non-financial incentives had greater performance effects than other mechanisms, especially for firms in the KIBS sector that had high innovation intensity. In addition, the results indicated that team-level mechanisms were more effective in developing highly innovative services than were individual-level mechanisms.Originality/valueThis study has contributed to the service literature by developing a contingency framework for SCR. This study has also advanced service research through the presentation of contextual effects associated with each mechanism of SCR.

Strategic outsourcing in SMEs

PurposeSo far, there are very few empirical research studies available on the outsourcing pattern among small- and medium-sized enterprises (SMEs). The purpose of this paper is to examine strategic outsourcing among Icelandic SME service firms, from 2009 to 2018.Design/methodology/approachThe data presented in this paper cover responses from 802 small service firms, which were collected through telephone and online questionnaires. In order to have sufficient data on strategic outsourcing and to ensure a decent analysis, three surveys were combined.FindingsThe main finding of the present paper is that SMEs that have a developed strategy on outsourcing seem to perform better than those who do not have. The former are more likely to have achieved cost reduction, especially in housing and finance, and they use outsourcing to increase core businesses. They select vendor firms more on the bases of cost and services, rather than personal contacts. Also, these firms have improved service quality, by focusing on their core competences.Originality/valueTo the authors‘ knowledge, the present study is one of the few empirical studies that have examined outsourcing in SMEs from a strategic perspective. The findings are valuable for managerial practice and could be a base for outsourcing strategies in SMEs.

Training and development in small professional services firms

PurposeThis paper aims to examine whether participation in training and development (T&D) events is associated with employees’ affective commitment and propensity to enact innovative behaviours in small professional services firms. The study also investigates associations between both attitudes towards T&D and policy and practice supportive of T&D and levels of participation in T&D events.Design/methodology/approachData from 203 employees in small professional services firms employing 50 or fewer staff were analysed using regression analysis and PROCESS macro.FindingsOnly policy and practice supportive of T&D was associated with participation levels. Participation in T&D events was positively related to affective commitment. Furthermore, employees who participated in more T&D events were more likely to enact innovative behaviours, while affective commitment mediated the positive relationship between number of T&D events attended and innovative behaviours. Contrary to expectations, neither participation in just training nor participation in just development was associated with either attitudes or behaviours.Practical implicationsThe findings have important implications for small firms which tend to rely on wholly work-based experiences for the development of employees’ knowledge and skills. Such an approach to learning for work may inadvertently shape a workforce that lacks commitment to the organisation and that has a diminished capacity for innovative behaviours.Originality/valueThere is limited research on how T&D affects attitudes and behaviours in small firms. Large and small firms are fundamentally different, thus findings from studies in large firms may not extend to small firms.