Innovative Capabilities in International Professional Service Firms: Enabling Trade-Offs between Past, Present and Future Service Provision

Abstract

This study examines the relationship between service provision and innovation in international professional service firms (IPSFs). Through an extended study in one IPSF, we find that innovation stems from the provision of services in the past and present. Different service provisions offer different learning opportunities which influence the modification, renewal, and creation of service concepts,service processes, technologies, and relationships. In order to take advantage of the learning opportunities, certain operational and dynamics capabilities are identified as important. With regard to operational capabilities, understanding customer needs, internal learning, formalization, external and relational learning, integration, and commercialization are identified as important capabilities. Further, two dynamic capabilities driving innovation are identified: learning and knowledge accumulation and scaling and expanding the service portfolio. The learning and knowledge accumulation apability is grounded in the efficient provision of standardized-provided services. By providing these services, insights into customer’s needs are gained, specialized expertise is developed, and reputation and legitimacy for solving novel and complex problems increase. The scaling and expanding capability enables the IPSF to develop customized–co-produced services into standardized-provided services over time with global outreach. Our study shows that careful management of the service portfolio is of utmost strategic importance for the sustainable competitive advantage of IPSFs