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Performance Implications of Diversification in Professional Service Firms: The Role of Synergies

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  • Karthik, D.
  • Upadhyayula, Rajesh

Abstract

There is growing interest in the Professional service firms because they are seen as archetype of the knowledge-based economy. In this study we look at under researched area of exploitation of synergies in professional service firms and its implications for performance. Overcoming the uni-dimensional nature of extant studies, we examine the performance implications of diversification along the twin dimensions of services they offer and the knowledge of the industry domain of their clients. We hypothesize that moderate levels of coherence in these dimensions lead to improved performance while excess coherence in these domains lead to diminished performance. These predictions are tested and supported by data from the Indian IT industry which is synonymous with emergence of knowledge economy in India. Our study thus contributes to the theory of diversification of professional service firms.

Suggested Citation

  • Karthik, D. & Upadhyayula, Rajesh, 2011. "Performance Implications of Diversification in Professional Service Firms: The Role of Synergies," IIMA Working Papers WP2011-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:wp2011-01-01
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    References listed on IDEAS

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    1. Nicolai J Foss & Jens Frøslev Christensen, 2001. "A market-process approach to corporate coherence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(4-5), pages 213-226.
    2. Rachel Davis & L. G. Thomas, 1993. "Direct Estimation of Synergy: A New Approach to the Diversity-Performance Debate," Management Science, INFORMS, vol. 39(11), pages 1334-1346, November.
    3. David J. Teece, 2003. "Expert talent and the design of (professional services) firms," Industrial and Corporate Change, Oxford University Press, vol. 12(4), pages 895-916, August.
    4. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January.
    5. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    7. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters,in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446 World Scientific Publishing Co. Pte. Ltd..
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