Strategic performance options in professional service organisations

In the current debate on HRM and organisational performance (Mahoney and Pandian, 1992; Storey, 1992; Paauwe, 1994; Wright et al, 1994; Flood et al, 1995; Becker and Gerhardt, 1996; Boxall, 1996; Mueller, 1996; Beatty and Schneider, 1997; Coff, 1997; Guest, 1997; Paauwe and Richardson, 1997; Boxall and Steeneveld, 1999) HR theorists, who refer to the `resource-based view of the ®rm’ (Penrose, 1959; Wernerfelt, 1984; Barney, 1991), argue that HR is a major determinant of a ®rm’s competitive advantage. This argument is relevant particularly in the case of professional service organisations, such as auditing and law ®rms and management consulting organisations (Maister, 1993; Grant, 1997; Nachum, 1998). A ®rm’s ability to generate rents depends largely on its employees competencies (knowledge, skills and attitudes) in tracing work-related problems, diagnosing backgrounds and designing, implementing and evaluating successful solutions. In view of the currently increasing scarcity in labour markets for professionals and the rapidly changing and expanding product markets, HR policy nowadays is even more important to a professional service organisation’s success. Adequate management of HR is a challenging task since knowledge, skills and attitudes are vital but elusive resources. Since competencies are based on former experience and innovative creativeness, they are valuable resources in dealing with familiar and unfamiliar work-related problems. At the same time, knowledge, skills and attitudes are hard to control, since they are inextricably bound to their owners and difficult to identify, measure, protect and destroy (Sadler and Milmer, 1993). Hence, sophisticated HR practices, which successfully cope with the challenges of HR, are important for professional service organisations in order to create and sustain competitive advantage (Coff, 1997). A first step in understanding HRM’s role in professional service organisations is to analyse HR strategies in view of the organisation’ s output market strategy. Recent literature on strategic management in the professional service industry (Maister, 1993) points out that distinct strategic options can effectively enhance organisational performance. Some professional service organisations successfully focus on offering tailor-made solutions for extraordinary organisational problems (expertise orientation), while other organisations stress the effectiveness of more standardised procedures and methods for dealing with a client’ s organisational problems (ef®ciency orientation). The purpose of this article is to chart the relationship between HR and strategic performance options ± or what Boxall and Steeneveld (1999) call, `®rm’s competitive strategy’ ± in professional service organisations by presenting, in an `ideal typical way’ (Weber, 1968; Burger, 1976), two different HR strategies which enhance organisational performance effectively in either expertise or ef®ciency-oriented output market strategies. Analysis is based on an exploration of HR strategies and practices which are currently used in actual professional service organisations in the management consulting industry.