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Preface
This thesis outlays the research conducted to explore the possibilities of implementing a marketing
and entrepreneurial structure within mid-market Dutch Law firms. Writing a thesis is an interesting
challenge, while it is a time consuming task, it’s also enjoyable to doe. Such research could never be
achieved alone.
Support from other people is very important, whether its that they give you new insights or give you
simply the motivation to carry. I would like to take this opportunity to thank the following people who
have helped me in writing this thesis. First of all drs. M.J. Flikkema for his talent in stimulating
students and for always asking the right questions. It was a pleasure working with you and I enjoyed
our interesting discussions. Dr. Frank Kwakman, partner at the Holland Consulting Group (HCG) has
given me significant help along the way. I want to thank you for giving me the opportunity to conduct
this research and for generating topics and new insights into my chosen topic. Furthermore I’m very
grateful that you have given me the opportunity to become a junior consultant within HCG.
During the initial phase of the thesis, I have spoken to many different experts within their field of
competence. I want to thank the following partners from HCG, Leo Kerklaan, Arend Ardon and John
Koster for exchanging their thoughts and giving me directions for further research. Dr. Rob C.H. van
Otterlo of the ‘Nederlandse Orde van Advocaten’ for his insight into the law market. I’m honoured
that I will get the opportunity to present the results of this research at the annual symposium of the
‘Nederlandse Orde van Advocaten’ in November of this year. I want to thank Pablo van Klinken,
director of KSU for the ‘historical’ data, the ‘Stand van de Advocatuur 2000-2005’ and for giving me
suggestions for this research.
Finally I want to thank Roel Smabers of Parantion. He gave me the opportunity of using the software
to build and conduct a web-based survey as a pilot. To all the other people who have helped me I also
thank you for your time and efforts, I really appreciate it.
Cris Zomerdijk
Amsterdam, August 2005
06-14100535
[email protected]
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Contents
Preface........................................................................................................................................................... 1
Management Summary .............................................................................................................................. 3
1.
Introduction ........................................................................................................................................ 4
1.1.
Problem Statement.................................................................................................................... 7
1.2.
Objectives ................................................................................................................................... 7
1.3.
Research Model ......................................................................................................................... 8
2.
Conceptual Model .............................................................................................................................. 9
2.1.
Practical References.................................................................................................................. 9
2.1.1.
Practical References Law Firms....................................................................................... 10
2.1.2.
Other research results Law firms .................................................................................... 11
2.2.
Theoretical References ........................................................................................................... 13
2.2.1.
Resource-Based View (RBV) ............................................................................................ 13
2.3.
Commercial & entrepreneurial capabilities ....................................................................... 15
2.4.
Market orientation .................................................................................................................. 15
2.4.1.
Customer orientation ......................................................................................................... 18
2.4.2.
Competitor orientation ...................................................................................................... 18
2.4.3.
Market information sharing (interfunctional coordination) ....................................... 19
2.5.
Market based assets ................................................................................................................ 20
2.5.1.
Brand Assets ........................................................................................................................ 21
2.5.2.
Relational Assets ................................................................................................................. 21
2.6.
Entrepreneurial Orientation ................................................................................................. 24
2.6.1.
Organizational Antecedents .............................................................................................. 29
2.6.2.
Innovativeness ..................................................................................................................... 29
3.
Research Design................................................................................................................................ 30
3.1.
Population................................................................................................................................. 30
3.2.
Sample ....................................................................................................................................... 31
3.3.
Instrumentation ....................................................................................................................... 31
3.4.
Procedures ................................................................................................................................ 32
3.5.
Data Analysis ........................................................................................................................... 33
4.
Results ................................................................................................................................................ 35
4.1.
Response ................................................................................................................................... 35
4.2.
Internal Consistency Analysis ............................................................................................... 36
4.3.
Factor Analysis ........................................................................................................................ 37
4.4.
General Scores ......................................................................................................................... 38
4.5.
Scores & Performance............................................................................................................ 40
4.6.
Front runners........................................................................................................................... 43
4.7.
Pack members .......................................................................................................................... 44
4.8.
Laggards ................................................................................................................................... 45
4.9.
Regression................................................................................................................................. 48
5.
Conclusions........................................................................................................................................ 49
6.
Limitations......................................................................................................................................... 55
References ................................................................................................................................................... 57
2
Management Summary
Managing a Law Firm is about aligning and balancing the needs and demands of its owners, its clients
and its professionals. In today’s competitive environment this forced firms to “professionalize” their
organization and become more entrepreneurial and market-oriented.
Firms that successfully control and convert their resources towards a high market- and entrepreneurial
orientation could gain competitive advantage and create value for it’s three stakeholders. If these
capabilities are really specific to a firm and could be compared with strong market-based assets a firm
could improve it’s performance and outperform competitors.
Market orientation is about the firm’s ability to generate and disseminate information about clients,
competitors and markets. On top of this the firm must create superior value for clients based on this
information. Entrepreneurial orientation concerns pro-active, risk-taking and innovative behaviour and
culture of a firm focused on (future) opportunities. Market-based assets are about a strong brand
(brand assets) and strong relationships with clients (relational assets), which are difficult to imitate and
copy by competitors.
In this research I have tried to determine if these three ‘constructs’ can determine the differences in
growth within the Dutch Law mid-market. The mid-market consists of more than 60 firms employing
20 to 60 lawyers and is the most dynamic Law segment. The firms that are growing rapidly all operate
within this market. We invited this entire market segment to answer a web-based survey consisting of
about 40 items. Out of this 31 firms reacted.
The research conducted, clarifies that firms find it important to invest in a high market and
entrepreneurial orientation and in their market-based assets. In general the current and the desired
scores were high. Especially within the current market situation, law firms find it important to invest
in their market-based assets. Expanding firms in the market score higher on every item compared to
declining firms, especially on items such as competitor orientation and brand assets.
Generating market information about clients and competitors must be one of the prime ambitions for
medium-sized law firms. This information should be distributed throughout the whole organization
and translated into improved and new services. Innovation is a big challenge for law firms to improve
their performance.
The three constructs could not fully determine the performance differences within the mid-market.
More independent or mediating variables need to be included into the research model.
3
1. Introduction
The professional service industry has changed dramatically the last couple of years. Due to market
changes, changing client perspective and internal issues a lot of professional service firms (PSF’s)
finding it hard to survive. PSF’s have found themselves fighting to maintain their current positions in
the marketplace.
I wonder what the main issues/ developments or problems are PSF’s face in today’s business
environment. Furthermore I want to know how PSF’s adapt to these developments. PSF’s have to
‘rethink’ their complete business and build new concepts for the future. In the end this ‘rethinking’
and ‘rebuilding process’ should lead to ‘competitive advantage’ and better results.
The evolvement of the thesis is initiated in close co-operation between Frank Kwakman and Meindert
Flikkema. Frank Kwakman focuses on strategic performance improvement for professional service
firms. His experiences in practice could be tested and hopefully accompanied with my research results
based on a comprehensive literature review and qualitative & quantitative research.
Focus
During researching and discussions about research questions, it became clear that focus is needed.
Professional service firms could not be generalized, as they all deal with different business dynamics
and environments. It is therefore necessary to research within a homogeneous population. Talking
with Meindert Flikkema, Frank Kwakman and other professional service firm experts, it became clear
clear that law firms would be an interesting focus. Law firms are also faced with a competitive
business environment. It would be interesting to see why some firms adapt or transform better than
others and in which areas law firms are ‘rethinking’ or ‘transforming’ their organization.
Law Market
The Dutch law- market consists of 2.850 firms. There are about 12.844 lawyers working in this
market. One man law firms are showing the highest growth rate, firms with between 5 to 10 lawyers
the lowest. The growth for law firms with 10 to 60 or more lawyers remains rather stable. Firms with
more than 28 lawyers are all in the top-50 of the ‘Stand van de Advocatuur 2005’. The most
expanding firm within the top 50 is the firm Van Mens & Wisselink (58 lawyers). All other expanding
firms are also in the mid-market segment (20-60 lawyers):
•
KienhuisHoving (47 lawyers)
•
Ploum Lodder Princen (40 lawyers)
•
Damsté (46 lawyers)
•
Hekkelman (46 lawyers)
•
Borsboom & Hamm (43 lawyers).
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The two ‘newcomers’ within the top 50 Kneppelhout & Korthals (30 lawyers) en Schreurs van Duijn
Abma Van Eeuwijk (30 lawyers) are also working in the mid-market.
Although the one-lawyer firms are the largest group, often working in a niche market, they are not
interesting to research from a management and organisation perspective. The mid-market on the other
hand would be interesting to research. The figures show that it’s the most dynamic segment. Growth is
taking place especially within this segment.
Big clients are also choosing for this segment nowadays and a lot of lawyers working in big firms are
shifting to mid-market firms. Lawyers often like these firms more because they can “work there at a
lower hourly-rate, but in a nice atmosphere”. (Stand van de Advocatuur, 2005)
Medium-sized law firms
Medium-sized law firms are faced with increased competition, commercialization and specialization
(Otterlo, 2002). Clients are becoming more perceptive and are imposing conflicting demands on
medium-sized firms. Firms have to rise to the challenge and live up to the changing demands of the
customer. Commercial and entrepreneurial capabilities are important to be successful. Therefore it
would be interesting to research if there’s a correlation between the creation of these capabilities and
the growth of law firms. Growth in this context is explained as changes in the number of employed
lawyers per firm.
Growth & Alignment
Growth is an important challenge for law firms. Growth is needed not only for making profit, but also
to satisfy the developmental opportunities of professionals within the firm. (Anand et al., 2004). Scott
(1998) also mentioned the importance of autonomic growth, and the need to invest in new people.
Three stakeholders are distinguished when talking about PSFs. Clients, professionals and owners all
need to be satisfied by aligning and balancing their needs. De Long and Nanda (2003), Maister (1993)
and Lorsch (2002) all distinguish these three stakeholders. Maister (1993) emphasizes “management
of a PSF requires a delicate balancing act between the demands of the marketplace (clients), the
realities of the people market place (professionals) and the firm’s economic ambitions (owners)”.
According to Maister (1993) and Lorsch (2002) a PSF first need to know the demands of the
marketplace and build long-term client relationships. This forced PSFs to become market oriented.
PSFs need to know what clients want and what competitors do within the marketplace. After that PSFs
need to build enduring client relationships and build a strong reputation within the market.
5
To make this happen and create excellent service, PSFs need to manage their human capital by
attracting, retaining and motivating their professionals. The whole organization will be empowered to
work close to the customer and build long term relationships. Professionals need to be trained in their
creative and commercial skills.
When the owners balance these acts their firm will ultimately win in the marketplace. Value and
growth will be created for all three stakeholders and the firm will ultimately enter into a virtuous
cycle, in which the three stakeholders operate in harmony and create shared value (De Long and
Nanda, 2003).
Firm
Owners
Profitability
Employee Satisfaction
Growth
Clients
Professionals
Excellent Service
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1.1. Problem Statement
Some firms have gained a lead on their competitors in terms of growth in the changing market. The
question is in what way these firms differ from their competitors in terms of the development of
marketing and entrepreneurial capabilities. Which lessons can be learned on firm-level from this
comparison of ‘front runners’, ‘pack members’ and ‘laggards’ (Cobbenhagen, 2000) in the midmarket. It’s about sector-specific success factors of growing firms. “Firms can achieve a competitive
advantage by exploiting a unique combination of capabilities”(Cobbenhagen, 2000)
The problem statement or central question makes the relation between three capabilities and growth in
the market clear:
“Do entrepreneurial, marketing capabilities and market based assets make the difference in
growth within the Dutch law mid-market?”
To answer this central question, this study focused on the following sub-questions:
1) Which firms within the mid-market are the front runners, pack members en laggards?
2) Which entrepreneurial or marketing capabilities seem to determine performance at “firm-level” in
the current situation?
3) Are there significant differences between performance groups in the current situation?
the desired situation?
5) Are there significant differences between performance groups and their ‘gaps’ (differences
between current and desired situation)?
1.2. Objectives
The introduction and problem statement above describes the questions of the project. Below I have
summed up the goals of the project. The project is mainly aimed at practitioners in the field therefore
my objective is mainly practical. On the other hand it would be nice to contribute to the theory of
organization competences:
1. Practical Objective; I want to get a better understanding and insight about the entrepreneurial
capabilities of law firms. I want to help meet the need for studies examining entrepreneurial
capabilities in a competitive environment like the law sector. Furthermore I would like to offer
partners within the law sector some useful insights to keep their firms successfully for
extended periods of time.
2. The scientific objective; Scientifically, I didn’t have the ambition to create a new theory, but it
would be nice to test the assumptions of organizational competences and maybe contribute to
this theory.
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1.3. Research Model
Market orientation
•
•
•
Customer orientation
Competitor orientation
Inter-functional
Coordination
Market based assets
•
•
Brand Assets
Relational Assets
Business Performance
• Employee
growth
Entrepreneurial orientation
•
•
Innovativeness
Organizational
Antecedents
Growth is used as a proxy for business performance which is also the case in previous studies (Brush
and Van der Werf, 1992; Chandler and Hanks, 1993; Fombrun and Wally, 1989; Tsai et al., 1991.
reference in Zahra, 1991). Growth as a measure of performance is more accurate and accessible than
accounting measures of financial performance. However a firm could choose to trade-off long-term
growth for short-term profitability (Zahra, 1991). We’ve tried to solve this problem to use the growth
figures of the last 5 years for the firms we have researched. Furthermore within professional service
firms, growth in the number of professionals is also an indicator of financial performance at least in
revenue terms. We have chosen employee growth within the last five years as an performance
measure.
Limitations Growth
Within the research model, growth has been used as an indicator of performance. It is assumed that
investments in the three constructs lead to growth. These three constructs could not explain all the
differences in growth. Below other developments or issues which lead to employee growth at firm
level are summed up. It is good to keep this in mind before and after analysing the results:
•
Mergers (two firms merging together leads to an increase of lawyers)
•
Open a new establishment at a new location inside the country
•
Appoint a new partner from outside with it’s own network of clients
•
Acquire new specialists about an ‘unknown’ area
•
Life Cycle of the firm, new start-ups grow fast in the beginning to consolidate after a couple
of years. The age of the firm could lead to differences in growth
•
Recruit a relatively large number of graduates. (‘junior-lawyers’ are cheaper and couldn’t be
compared with the recruitment of experienced lawyers)
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2. Conceptual Model
In this part of the proposal I will explain why entrepreneurial and commercial capabilities are more
important today than ever before for professional service firms, and more specific for law firms. This
analysis has a practical reference on one hand and a theoretical reference at the other hand. The
practical references are based on desk-research and interviews. The practical part started with
searching in business journals and reading books about PSF’s. After this first analysis, interviews had
been conducted with Leo Kerklaan, Arend Ardon and John Koster, which are all partners of Holland
Consulting Group (see appendix 1 page 2 for ‘gespreksverslagen’). These interviews lead to a focus
towards law firms and the three constructs mentioned in the research model. After this exploring initial
phase, two more interviews took place with law-firm experts Rob van Otterlo (Nederlandse Orde van
Advocaten) and Pablo van Klinken (KSU). Finally an intensive literature study was conducted to
complete the conceptual model.
2.1. Practical References
Business Journals like Fortune & The Economist headings of 1998 are describing the biggest boom
since 1886 and the ‘war for talent’ within the professional service industry. The situation dramatically
changed in 2002. Headlines from journals from 2002 describe a situation of empty offices and job
advertisements full of consultants searching for work. Books and articles about ‘the firm of the future’
argue that there’s a better way for doing business. Based on these business journals, books and
interviews with experts, we could differentiate some important problems within PSF’s:
•
Focus is on efficiency (instead of effectiveness)
•
Management & leadership is failing (bad leaders)
•
(Relationship) Marketing is still underdeveloped
•
No attention to relationship management and acquisition
•
No entrepreneurship within established firms
•
Client responsibility is an isolated function
•
Branding problems, (is it about branding the firm or branding the professional)
•
Intensified competition (new competitors & new technology)
……According to the experts, PSF’s need to professionalize and invest in these directions:
•
Focus on entrepreneurship and responsible professionals
•
New leadership and management & control style is needed
•
Result-driven coaching
•
Customer-focused organizations and teams
•
Network organizations
•
Training and development
•
Relationship marketing essence of marketing perspective
9
•
Increased productivity and innovation needed
2.1.1.
Practical References Law Firms
The law-market has grown dramatically the last couple of years. Due to the ‘juridicalisation of our
society’ the demand for juridical services and advice has increased. Especially within the public and
business sector the demand has increased (van Otterlo, 2005 & Klinken, 2005 speech during
publication of Stand van de Advocatuur 2005).
This increase in demand also resulted in increased competition. Competition does not only come from
within the traditional firms, but also from outside the market. Lawyers are competing with other
professional service firms, like controllers. Furthermore the law profession is not regulated anymore
for new entrants. Everybody who followed the right education could become a lawyer. The lawmarket is ‘ontsokkeld’. (Otterlo, 2005)
The mid-market is gaining more clients from the large firms. Bigger companies often choose for a
small-and medium sized law firm nowadays (Balie in Beeld, EIM 2002).
Commercialization
Competition has also lead to commercialization within law firms. Increased competition leads to more
focus on profit. (Otterlo, 2002).
Specialisation
Due to the increased complexity and commercialization, a strong differentiation has taken place within
law firms. This ‘focus’ is not only based on professional expertise, but also on the market (client
segments). We could distinguish a differentiation in three parts; small general firms focusing on a
specific region, bigger highly specialised firms operating nationally and full service offices, operating
in a national and international environment. In practice there’s a shift from ‘full service firms’ to
specialised firms. Market differentiation and specialisation are keywords.
Firms within the mid-market often offer a full service-domain. The request for specialisation is putting
pressure on these firms.
Scale
It is especially the small-and medium sized firms that are always ‘balancing’ between being large or
small. They often cannot reach high economies of scale, like the big firms. On the other side they have
to manage and organize their business in a professional way because they are bigger than the one man
10
firms. This is often difficult, in practice we could say “SME’s are operating in an environment of
greater uncertainty than larger firms” (Cobbenhagen, 2000).
New themes Law Firms
Because of the developments mentioned above law-firms and especially these operating in the midmarket are “professionalizing” their organization. According to interviews and the ‘Stand van de
Advocatuur’, this new professional manner is seen within the following fields:
•
Intrapreneurship (lawyer as a proactive, flexible and commercial entrepreneur)
•
Partnership Structure (more professional organization controlled with different management
and partnership structures, for instance an Ltd. or a non-lawyer managing the firm)
•
Quality & Transparency (high demand and critical clients have forced firms to structure their
processes and improve quality and transparency of their services)
•
Marketing (create and build a distinctive position, with selected clients and train lawyers to
improve their commercial skills and capabilities)
•
Cooperation & Networks (executing client-projects in cooperation with tax-experts, business
engineers etc. The lawyer needs to become a generalist on one hand and a specialist on the
other hand)
•
Performance & Value (shift from focus at billable hours towards added value for the client.
Added value should be a combination of juridical and market expertise)
•
HRM (quality of the lawyer determines the quality of the service. All these themes and issues
have implications for the approach towards HRM. A lawyer needs superior commercial skills
and competences, become more entrepreneurial and should function within networks)
2.1.2.
Other research results Law firms
EIM has been researching the law sector and its possible future developments. The results were
published in the year 2002, named ‘De balie in beeld’. It is focused on quantitative data. In this
paragraph the most important facts in relation to this study are described.
General Characteristics
Lawyers choose their profession mainly because of interest. The average age of lawyers is 38,8 years.
Lawyers are spending more than half of their time on legal proceedings. One third of all lawyers, have
been thinking seriously about leaving the profession. Lawyers leaving large firms are often moving to
a smaller firm. Leverage per fee-earner remains stable for almost 9 years (0,8). For every 5 lawyers,
there are 4 more employees supporting them. Integration of ICT- instruments within the work
processes is still in the initial phase, e.g. knowledge systems.
Experiences of ex-lawyers
11
Hierarchies are one of the negative aspects of working in this field, especially based on bad leadership
and the role of internships. Another negative experience is the substantial work pressure. Lawyers are
working under extreme pressure and high expectations. Also the focus on billable hours is experienced
as negative. The culture within a lot of firms is also perceived negative. In the end this culture or
atmosphere among firms is what makes lawyers leave the company. An unbalanced work-life-balance
is another subject which make lawyers decide to leave the firm. Ex-lawyers are often on a better salary
with reduced work pressure in their new functions. Positive experiences are based on the relationships
with their colleagues and clients.
Motivation to become a lawyer
Most lawyers choose their profession because of the variety of tasks, the intellectual challenge of new
cases and their demand for knowledge. This building and growing of tacit knowledge is not supported
or stored within ICT-instruments. For instance one half of the firms interviewed did not have a system
to search for advices they had already given to clients in the past. Autonomy and the variety of work
are rated positive. Coaching, feedback, stimulating leadership, creating and presenting a clear firmstrategy are said to be the least attractive points of being a lawyer.
Vision & Strategy
A lot of firms lack a clear vision and strategy for the future. This is an important subject as firms will
need to distinguish themselves in the market. Lawyers should be committed and involved within this
development and implementation of future policies. The “professionalisation” of firms should also
reflect the HRM-policy to develop the employees.
Client perspective
Private clients are asked to give their opinion about juridical services. Lawyers, accountants and
notary offices are surveyed. Lawyers are the lowest rated with regards to the other professions.
Lawyers are scoring a 7,2 which is not good compared to other juridical services. Accountants are
getting the highest mark which is 7,6. Private clients choose to work with the smaller firms because of
their service. Small-and medium sized firms are an important customer segment for all clients. Large
organizations are choosing large law firms. Lawyers within the largest offices are having less client
contact especially when it comes to telephone contact.
12
2.2. Theoretical References
The practical references clarified that law firms are challenged to become more market-oriented and
entrepreneurial. Furthermore they need to build and maintain client relationships and a distinctive
brand in the market. The fundamental challenge also is to do this better than the competitors. It is
assumed that the differences within the same market could be explained by the differences in the
creation of internal resources, capabilities and competences.
2.2.1.
Resource-Based View (RBV)
Hamel and Prahalad (1989) introduced the term ‘strategic intent’ instead of the more traditional
strategy schools of e.g. Porter (1980), Ansoff (1965) and Chandler (1962). Strategic intent stresses
their proposition that success is based on high ambitions. The firm’s resources are the foundation of its
strategy and success.
According to the resource based view (RBV) a firm is a bundle of resources and capabilities. Firms are
heterogeneous and the type, magnitude, and nature of a firm’s resources and capabilities are important
determining its success. (Amit and Schoemaker, 1993). PSFs need to manage and align their resources
and capabilities. The competitive advantage of a firm stems from (dynamic) capabilities embedded in
the high performance routines inside the firm, embedded in the firm’s processes, and conditioned by
its history (Teece and Pisano, 1994). It is the activation of the firms own resources that will ultimately
lead to its success.
The heart of the resource based school lies in it’s distinctive competencies. This refers to ‘things’ that
an organization does well, especially in comparison to its competitors. (Selznick, 1957). “Distinctive
competency is therefore a combination of numerous specific activities that the organisation tends to
perform better than other organisations within a similar environment”. (Cobbenhagen, 2000). In the
following paragraphs we will discuss the differences and relations between resources, capabilities,
competences and assets.
Resources
Resources are the available factors that are owned or controlled by the firm. Resources are the “inputs”
into the production process (Grant, 1991) and include items such as the skills of individual employees,
brand names, finance and so on. Resources determine what a firm can do, but the way in which they
are applied determine the success or growth. To ensure that resources become capabilities, ‘teams’ of
resources have to co-operate and be co-ordinated.
Capabilities
13
Resources have to be converted to become valuable. The capacity to deploy resources is called a
capability. “A capability being defined as ‘the capacity for a team (collection) of resources to perform
a task or activity’ (Cobbenhagen, 2000). Capabilities are intangible, firm-specific, heterogeneous and
the primary sources of competitive advantage. Capabilities are developed by combining physical,
human and technological resources at the corporate level (Amit and Schoemaker, 1993).
Over a period of time capabilities leading to success could change, therefore they need to be dynamic.
A firm should be prepared to change these capabilities, by altering their resources. This could
guarantee their success in the business environment. “Dynamic capabilities are the firm’s processes to
integrate, reconfigure, gain and release resources – to match and even create market change”.
(Eisenhardt and Martin, 2000). Eisenhardt and Martin (2000) argue that dynamic capabilities are not
always firm-specific and heterogeneous. There are certain ‘best practices’ which could appear among
firms. Firms which can alter their resources quickly and effectively could gain competitive advantage,
but not necessarily a sustainable advantage.
Core competencies
If capabilities are further combined or developed, resulting in a strategic advantage or strategic
capabilities, often the term ‘core competencies’ is used (Prahalad and Hamel (1990). Core
competencies are dynamic and unique, therefore immune to imitation by competitors. If these core
competencies are effectively applied it allows firms to offer new services, develop previously unseen
market opportunities and foster growth (Prahalad, 1990). Prahalad and Hamel (1990) focus on
technology-related competencies, Cobbenhagen (2000) also refers to managerial, organisational and
marketing competencies. It is clear that to create core competencies it is necessary that the firm is
constantly mobile and learning from throughout the whole firm.
Strategic Assets
Core competencies that are truly difficult to trade and imitate, scarce, appropriable and specialized are
often defined as strategic assets. These strategic assets are specific to a firm. Market-based assets for
instance are resources which are generated and leveraged through marketing activities and are rare,
difficult to imitate etc.
14
2.3. Commercial & entrepreneurial capabilities
Law firms should create core competencies and strategic assets to create a competitive advantage in
their market. The practical references make it clear that these competences should be created within
the marketing and entrepreneurial area. Academic literature shows that three different constructs can
create strategic assets resulting in improved performance. These three constructs, market orientation,
entrepreneurial orientation and market-based assets are these three constructs which will be described
below.
2.4. Market orientation
Introduction
Marketing is becoming more important in today’s competitive and dynamic business environment.
Professional service firms and especially law firms should seriously consider the role that marketing
can play. Due to deregulation and increased competition law firms can no longer approach marketing
as just advertising and selling. Marketing is still under developed within professional service firms.
Morgan (1991) explains that marketing is causing professionals more problems than any other
problem. Legal services have a high degree of intangibility and consist mainly of expertise from
professionals.
Market orientation could be seen as a prerequisite for success and profitability in most firms. It is
assumed that firms that increase their market orientation will improve their market performance.
It has attracted significant amount of academic and practical interest in marketing literature.
Market orientation is a company-wide climate or culture in which superior value will be created for
the customers. Market, and marketing orientation have both been used in describing the
implementation of the marketing concept.
The marketing concept could be seen as philosophy, whereas the market orientation could be seen as
the implementation of this concept. Furthermore marketing is a single business process within an
organization whereas market orientation embraces the whole organization. All business processes
should be focused on superior client value. Market orientation adds the focus on competitors next to
customers to the marketing orientation.
The market orientation approach should succeed through integration of efforts by all areas of the
organization. It’s this organization wide approach of having “superior market-sensing and customerlinking capabilities, that can assure a company of higher profits in comparison with firms that are less
market-oriented” (Day, 1994).
15
Perspectives
Market orientation is basically defined from out two perspectives. A cultural perspective (Narver and
Slater, 1990) and a behavioural perspective (Kohli and Jaworski, 1990). Customer orientation and
competitor orientation are two important factors of market orientation. Kohli and Jaworski (1990)
focus on the importance of information processing and responsiveness to information, also referred to
as intelligence generation, dissemination and responsiveness. In a competitive market it is critical to
consider both perspectives to perform well. It is necessary to create a market-oriented culture and to
try and perceive the needs of the customers, but also to react on this faster than the competitors
(Dickson, 1992).
Definition
Market orientation: “the organization-wide generation of market intelligence pertaining to current and
future customer needs, dissemination of the intelligence across departments, and organization-wide
responsiveness to it”. (Kohli and Jaworski, 1990).
Desphande and Farley (1998) define market orientation as being almost identical: “the set of crossfunctional processes and activities directed at creating and satisfying customers through continuous
needs-assessment”
Narver and Slater (1990) define market orientation a bit different: “the organization culture that most
effectively and efficiently creates the necessary behaviours for the creation of superior value for
buyers and thus, superior performance for the business”
Approaches
Berry et al. (2000) distinguish two approaches for being market oriented. A market driven approach,
which is the common approach used by most authors and a driving-market approach. A market-driven
approach is based on the assumption that the market structure and it’s behaviour is given. Driving
markets means shaping this market structure and it’s behaviour. Within the law market it is expected
that most firms adopt a market driven approach. Firms, understand, learn and respond to the
perceptions of stakeholders within a given market structure. They didn’t really change the composition
and/or roles of players in a market and/or the behaviours in the market. A firm could both be market
driven and driven markets.
Market orientation & performance
Direct relationship
16
“The literature generally supports the proposition that market-driven and innovative firms will
outperform their competitors “(Day, 1994; Gatignon & Xuereb, 1997; Jaworski & Kohli, 1993;
Narver and Slater, 1990; Slater & Narver, 1994).
Other researchers also found a positive relationship between market orientation and business
performance (Webster 1993; Ruekert 1992 and Desphande, Farley, and Webster 1993). Other
empirical studies offer a more complex picture.
Indirect relationship
Some researchers argue that there are some moderating and mediating variables that influence the
relationship between market orientation and performance.
Pelham (1997) gives an indirect relationship between market orientation and profitability. Pelham
stated that market orientation (customer understanding, customer satisfaction and competitive
orientation) leads to firm effectiveness (quality, customer retention, new services) and thereby
indirectly to growth. Growth is a mediating variable between market orientation and profitability.
Agarwal et al. (2003) uses innovation and judgemental performance as a variable between market
orientation and performance. It is found that innovation only partially arbitrates the relationship
between market orientation and judgemental performance. Innovation mediates the relationship
between market orientation and objective performance. There is also a direct and positive relationship
between market orientation and performance.
Hult and Ketchen (2001) also give some new insights into the market orientation debate. They build
upon the direct relations of Narver and Slater (1990) and Jaworski and Kohli (1993) and argue that
this relation probably is more complex. From a resource based view (RBV) of the firm, they focus on
four capabilities, each of which has a strong foundation in literature. Their framework distinguishes
market-orientation, entrepreneurship, innovativeness, and organizational learning as “first-order”
factors, leading to positional advantage (“second-order” factor). This positional advantage should lead
to a good long-term performance. They tested this framework from a sample of 1000 multinational
corporations. ‘Market orientation had the greatest explanatory power of the four capabilities
examined’. They conclude that it’s a relatively complex framework, that provides initial results only.
There’s another important marketing-based construct which could positively influence performance,
market-based assets (also referred to as brand equity). These assets will be described in the next
chapter.
17
Measurement
To measure market orientation a reliable and tested measurement scale is needed. “Among the
available scales for measuring market orientation (e.g., Churchill, 1979; Deshpande, 1993; Wrenn,
1997; Wrenn, LaTour, & Calder 1994), perhaps, the two most significant studies which have sought to
define and operationalize market orientation are the earlier mentioned Narver and Slater (1990) and
Kohli and Jaworski (1990)”.
These authors are referred to in almost every article about marketing orientation. They have integrated
the strategic management field centred on the sustainable competitive advantage and the marketing
field. Based on extensive review of this literature Narvar and Slater agreed that an operational market
orientation consists of three behavioural dimensions (customer orientation, competitor orientation, and
interfunctional coordination) and two decision-making criteria (long-term and profit focuses). Kohli
and Jaworski offered a more ‘process driven’ model, but have several similarities.
We have used the MKTOR scale (Narver and Slater, 1990) for a survey of the law market and also
added some items from the MARKOR scale (Kohli and Jaworski, 1990).
Scale
A lot of market orientation researchers used the “Likert –scale” to measure market-orientation. This is
the correct scale to use when measuring market-orientation (Wrenn, 1997). The “Likert-scale” has
been used in developing attitudes and behaviour management for all of the market orientation
constructs below. For example Kohli, Jaworski and Kumar (1993) and Narver and Slater (1990, 1994)
used the “Likert-scale” to measure the subjects below:
2.4.1.
Customer orientation
Understanding target customers and creating superior value for them is a key element of market
orientation. It includes analysis of the needs and satisfaction of customers and the actions that should
take place in response to this information. The items 21/ 23/ 25/ 45/ and 55 have been used for
measuring customer orientation (see appendix 2, page 11).
2.4.2.
Competitor orientation
This is an understanding of the strengths, weaknesses, capabilities and strategies of competitors. Not
to forget responding to the activities of the competitors. This implies that the top management team
regularly discuss competitor’s strengths and weaknesses. Furthermore a fast respond to competitor’s
actions reflects competitor orientation. The items 9/ 57/ 59 and 61 have been used to measure the
factor competitor orientation (see appendix 2 page 11).
18
2.4.3.
Market information sharing (interfunctional coordination)
This is about the distribution of market-related information between departments or functions.
Extensive sharing of market information between various functions could lead to a higher
performance. In basic terms, it is the extent to which an organization is coordinated internally and its
respective level of dynamism to the sharing of market intelligence
Intelligence generation (formal & informal)
Formal approach: The extent to which the organization’s employees and systems formally generate
intelligence on customers, competitors and industry for use in making business plans and identifying
modifications to products, services and new offerings.
Informal approach: The extent to which the organization’s employees informally generate intelligence
on customers, competitors and the industry through relationships, conferences, and “through the
grapevine”.
The variable market-information sharing is been measured by the items 33/ 41/ and 43 (see appendix
2, page 11)
19
2.5. Market based assets
Introduction
Assets are the organizational attributes of a firm. A firm can acquire, develop, nurture, and leverage
these attributes for both internal (organizational) and external (marketplace) purposes (Barney, 1991;
Hunt & Morgan, 1995; Mahoney & Pandian 1992, Srivastava, Shervani & Fahey, 1998). Assets can be
tangible and intangible and internal or external to the firm (Srivastava et a. 1998). The most valuable
assets for professional service firms are the intangible assets. They are crucial to creating value in the
market place. A distinction could be made between internal and external brand-assets. Within this
study we focused on the external assets, which consist of brand assets and relational assets.
Internal and External assets
Market-based assets are divided into internal and external assets (Sharp, 1995; Srivastava et al., 2001).
The external assets include relationships with and perceptions held by customers (and other
stakeholders. The internal assets are based on knowledge and skills, often referred to as intellectual
assets. Srivastava et al. (2001) described the distinction between relational and intellectual market
based assets in gaining competitive advantage. The intellectual assets that create customer value and
competitive advantage are created by a strong market orientation. It requires that organizations
increasingly invest considerable time, energy and money to create deep and insightful market
knowledge. (Fahley, 1999). “Market-based assets could boost market performance and lower risks.”
(Srivastava et al, 1998). Market-orientation already covers the internal assets by measuring the sharing
of market information. Only the external part of the market-based assets is used within this research.
External assets
Professional services are high on experiences and credence values. Credence attributes include any
product characteristics that consumers cannot determine or evaluate even after purchase or
consumption. (Darby and Karni, 1973). This means that a lot of clients choose their lawyer mainly
because of brand awareness. Brand awareness has a positive impact on the perceived quality and
preference (Baker et al, 1996. Zajonc, 1980). Awareness also reduces the risk factor, because clients
feel comfortable about their chosen firm. Within the service industry, the firm or even it’s
professionals are the primary brand instead of the product. Differentiating yourself is more difficult in
service markets however intense competition makes it necessary to do so. Brand cultivation could be a
principal driver of success, and the foundation for building trust-based relationships with clients
(Berry, 1999). Some researchers even argue that brand equity is more important for services than for
products, mainly based on the intangible characteristics of services mentioned before. For instance
Onkvisit and Shaw (1989) and Bharadwaj et al (1993) argue that branding is critical in services and
20
more important than in goods. Krishnan and Hartline (2001) did not support this assumption in their
research.
A strong brand consists of the presented brand which could be controlled by the company itself.
Advertisement, the company logo, the website and publications are core elements of the presented
brand. The uncontrolled part is called external brand communications. Word-of mouth
communications and publicity are the most common forms of external brand communications. These
forms both lead to brand awareness, which is “the customer’s ability to recognize and recall the brand
when provided a cue” (Berry, 2000).
2.5.1.
Brand Assets
Next to brand awareness, brand meaning influences brand equity. Brand meanings are the perceptions
of customers of a given brand. Although it’s important to know we could not actually measure these
meanings as we only questioned the firms themselves. That’s why we chose to focus on brand
awareness, reputation and another important asset, relationships with clients.
Brand image or brand reputation is seen as important to differentiate the firm from its competitors. It
allows the firm to stand out from the clutter (Sharp, 1995). Because of the difficulty mentioned in
assessing the quality of a professional service firm, investment and management of their reputation is
very important.
Item
Brand awareness and brand reputation is measured with the variable brand assets, consisting of items
7/ 9/ 13/ 65/ 85 (see appendix 2, page 12)
2.5.2.
Relational Assets
Clients select lawyers based on the dimensions of Parasuram et al (1985) competence, courtesy and
credibility. These choices will largely be determined by referrals. Therefore Morgan (1991) argues that
improving the communication skills of client contact, service provision staff and the interactive client
service system is much more important than brochures and PR
On top of this, current clients could also guarantee future clientele for law firms. Like Sharp (1995)
puts it: “Probably the greatest guarantee of future clientele for a professional service provider is the
existence of current clients”. To increase revenue the professional service firm could gain and retain
new clients or gain more sales from existing clients. Relationships are therefore crucial for
professional service firms. Also in today’s academic literature we can see a shift especially within
(professional) services markets towards relationship marketing. The relationship marketing approach
has received considerable attention in the last couple of years.
21
Market orientation and relationship marketing are closely related in that both ‘constructs’ emphasize
the need to attract, satisfy, and retain customers through continuous needs assessment. Steinman et al,
(2000) argues that market orientation and relationship marketing even overlap. Relationship marketing
or management requires that firms act in a market oriented way, because you have to know the needs
of the customer. Relationship marketing concerns attracting, developing, and retaining customer
relationships. (Berry and Parasuraman, 1991).
Relationship and Transaction Marketing
Relationship marketing could be viewed as the opposite approach of transaction marketing (Gronroos,
1995). Transaction marketing has a short time character and is focused on short-term sales, whereas
relationship marketing is focused on long-term relationships with clients. The relationship marketing
approach is most important within (professional) services. Transaction marketing is related to
industrialised (mass) products.
Relationship marketing
Relationship marketing focus on proactive behaviour, individual buyer-seller relationships, long
enduring relations with selected customers. It incorporates selected customers and meaning
competitors, customers and other stakeholders with partners. The exchange process is one of the key
issues within RM. ICT tools have allowed firms to focus more on relationships with selected
customers and ‘stay in close personal contact’. Social and structural bonds are important in the
exchange with customers. Structural bonds are adoption to products, financial exchanges and
information exchanges (Teale, 1999). Social bonds are more personal and can be strengthened through
multilevel contacts between parties, from formal to informal
Harker (1999) has reviewed 26 definitions of relationship marketing and stated RM as follows:
“Relationship Marketing occurs when an organization engaged in proactively creating, developing
and maintaining committed, interactive and profitable exchanges with selected customers over time”
Rao and Perry (2002) view RM also as a process consisting of different stages. Services, customers,
organizational management and cultural factors can influence the amount of RM practice. This makes
clear that organizations need to have some relationship capabilities to make RM work, such as the
mentioned culture, internal marketing, business strategy, strategic customer bonding and issues
relevant to information management.
Focus
22
Before relationship marketing should be implemented, firms have to focus their activities. Like
mentioned in the paragraph above, firms have to select customers and service fields. Firms have to
focus on clients which are appropriate to their strategy and reject others. The former methods of
segmentation of markets rarely work anymore.
Customers could be segmented based on considerations such as their current and potential value to the
firm (Gordon, 1998). In practice, it is a small percentage of clients that provide a large percentage of
the profits. The top 20 per cent of customers normally provide 75-90 per cent of profits (Cram, 2001).
Managing the relationships requires insight in profits and sales on client level. Relationship
management requires investments of resources (time, money and attention). To invest effectively it’s
necessary to focus on the most valuable customers.
Items
To measure if firms are truly managing their relations or relational assets, we ‘ve used the items 1/ 3/
29/ 47/ 49/ 51 (see appendix 2, page 12)
23
2.6. Entrepreneurial Orientation
Introduction
Entrepreneurship research has traditionally been associated with start-up of new firms. (Schendel,
1990; Sexton and Landstrom, 2000a). New entry is an essential feature of entrepreneurship in the
traditional way. Within this traditional way of entrepreneurship the focus is on the individual
entrepreneur. In this study we focus at entrepreneurship at firm-level. Entrepreneurship at firm level is
referred to as corporate entrepreneurship, intrapreneurship and entrepreneurial management. The best
established instrument for assessing a firm’s degree of entrepreneurship is the entrepreneurial
orientation (EO). (Brown et al, 2003). This orientation and its scales will be described after the
different concepts of entrepreneurship at firm level have been described.
Entrepreneurship at firm level
During the late 90’s entrepreneurship becomes more and more associated with established
organizations. This is referred to as entrepreneurship at firm level. Entrepreneurship is seen as relevant
for all firms irrespectively of the size or age of their organization. (Brown, Davidsson and Wiklund,
2001).
A good definition is important for the scientific field. The definition should include the characteristics
of firm level entrepreneurship, but not too broad defined that it’s not a specialized field on it’s own.
The definition by Stevenson is broadly used within literature. Stevenson agrees that entrepreneurship
is more than just starting a new business:
“Entrepreneurship is a process by which individuals-either on their own or inside organizations –
pursue opportunities without regard to the resources they currently control”. (Stevenson, Roberts, and
Grousbeck, 1989)
Stevenson emphasize in earlier work that an entrepreneurial focus is driven by perceptions of
opportunities. At the other extreme Stevenson describes administrative behaviour. Business and
environmental factors pull individuals and firms towards entrepreneurial behaviour or towards
administrative behaviour at the other extreme.
Corporate entrepreneurship
Management plays an important role within established firms. Therefore the concept ‘corporate
entrepreneurship’ or entrepreneurial management arise in the literature. Corporate entrepreneurship is
a means of growth and strategic renewal for existing firms (Lumpkin and Dess, 1996). It could be seen
as a link between corporate management and entrepreneurship.
24
Corporate entrepreneurship (CE) is often defined as a process whereby an individual or a group of
individuals create innovation. Shrama and Chrisma (1999) define CE as “the process whereby an
individual or a group of individuals, in association with an existing organization, create a new
organization, or instigate renewal or innovation within that organization”.
CE like market orientation is closely related to knowledge and learning. CE leads through knowledge
creation within firms which is the foundation for building new competencies or revitalizing existing
ones. CE in the end affects firm performance through this innovation. (Zahra and Covin, 1995; Zahra
and Nielsen, 2002).
Intrapreneurship
“Intrapreneurship could be viewed as entrepreneurship within existing organizations (Antoncic and
Hisrich, 2001). It is also reffered to as intrapreneuring (Pinchot, 1985) corporate entrepreneurship
(Burgelman 1983; Vesper 1984; Guth and Ginsberg 1990; Hornsby et al. 1993, Stophord and BadenFuller 1994), corporate venturing (MacMillan 19866; Vesper 1990) and internal corporate
entrepreneurship (Schollhammer 1981, 1982; Jones and Butler 1992).” (Antoncic and Hirsrich, 2001)
The concept is seen as beneficial for revitalization and performance of corporations, as well as for
small and medium-sized enterprises of all age and size. Intrapreneurship is an important predictor of
growth. The construct can be classified into four dimensions:
1. New business venturing; has to do with the autonomy dimension. It’s about new business
creation within an existing firm. This can be accomplished by redefining services or markets,
or create new streams or units within a large corporation.
2. Innovativeness; is often technology related; it’s about internal service innovations, service
improvements/ new service development/ new methods/ new procedures within the
organization.
3. Self-renewal; this is the transformation of organizations through the renewal of key ideas on
which they are built, meaning a new strategic and organizational direction. Adaptability and
flexibility are crucial characteristics of an entrepreneurial corporation.
4. Pro-activeness; reflects the aggressive posturing relative to competitors. A proactive
organization leads competitors instead of following competitors (competitive aggressiveness).
It also incorporates the risk-taking dimension. It’s a bold, directive, opportunity-seeking style
with aspects of risk taking and experimentation.
Entrepreneurial Orientation & Performance
An entrepreneurial orientation may be the key to success in today’s competitive business
environments. “The strategy and entrepreneurship literature suggest that an entrepreneurial orientation
25
(EO) improves firm performance” (Wiklund and Shepherd, 2005). It must be said that the empirical
evidence is more mixed. Recently entrepreneurial orientation is viewed as being a differentiator to
gain success. It is a strategic orientation to improve performance, by means of internal processes.
Entrepreneurship at firm-level is referred to with different names as described in this paragraph. The
best established empirical instrument for assessing a firm’s degree of entrepreneurship is the
entrepreneurial orientation (EO). (Brown et al, 2003). Most authors used the entrepreneurial
orientation (EO) construct to define entrepreneurship at firm level.
The entrepreneurial orientation is focused on ‘newness’. Based on opportunities, which were
previously undetected or unutilized market participants create new goods, services, raw materials,
markets and organizing methods (Shane and Venkataraman, 2000).
Definition
“EO is analogous with entrepreneurial management, in that it reflects the organizational processes,
methods, and styles that firms use to act entrepreneurially” (Lumpkin and Dess, 1996).
Entrepreneurial orientation refers to a firms strategic orientation, characterized by pro-activeness,
innovativeness and risk-taking. “EO involves a willingness to innovate to rejuvenate market offerings,
take risks to try out new and uncertain products, services and markets, and be more proactive than
competitors toward new marketplace opportunities” (e.g., Covin and Slevin, 1989, 1990, 1991;
Knight, 1997; Miller, 1983; Namen and Slevin, 1993; Wiklund, 1999; Zahra and Covin, 1995; Zahra,
1993a).
Lumpkin and Dess added two more dimensions to the entrepreneurial firm as described above. These
EO dimensions are closely related to firms starting up. The first is competitive aggressiveness and the
second is autonomy. Competitive aggressiveness is about outperforming industry rivals in the
marketplace. Newcomers need a willingness to be unconventional rather than rely on traditional
methods of competing. Autonomy is referred to as the independent spirit leading to independent action
bringing forth ideas to completion. (Lumpkin and Dess, 1996).
These dimensions underlie the processes, methods, and styles that firms use to act entrepreneurially.
Miller (1983) originally developed an 8-item scale based on these three dimensions. Wiklund (1998)
and Covin and Slevin (1986;1988;1989) further developed this scale. Despite its popularity some
weaknesses have been noted. The proactiveness dimension is ambiguous (Lumpkin and Dess, 1996;
1997). More important although the instrument overlap at some dimensions it is not comprehensive
enough. (Zahra, 1993).
26
Therefore Stevenson has created a scale around opportunity-driven behaviour and focused on the
management process. Stevenson argues that within established firm entrepreneurship should be
managed, entrepreneurship in his view is a ‘mode of management’(Stevenson and Jarillo, 1990).
Characteristics
“An entrepreneurial firm is one that engages in product market innovation, undertakes somewhat risky
ventures, and is first to come up with proactive innovations, beating competitors to the punch” (Miller,
1983 and Wiklund, 1999).
Common attributes of the entrepreneurial firm are summed up below, based on the integration of
corporate
entrepreneurship, intrapreneurship
and
entrepreneurial
orientation
and
corporate
entrepreneurship:
•
Opportunity driven/ recognition: like the definition of Stevenson, entrepreneurial
organizations recognize and pursue opportunities, regardless of resources currently controlled.
It’s searching for something beyond the current activities of the firm. Stophord and BadenFuller (1994) are talking about aspirations beyond current capability. It’s the strive for
continuous search for opportunities and improvement.
•
Organizational flexibility; the entrepreneurial firm is very flexible, has a flat structure, with
multiple informal networks. It’s dynamic and creative and communication and change is
taking place relatively easy.
•
Ability to measure, encourage and reward innovative and risk-taking behaviour; the culture
within a entrepreneurial firm promotes broad searches for opportunities. Also the control
system must stimulate innovation, proactiveness, and risk-taking. Therefore the reward
philosophy is not based on seniority but on value creation and innovative and risk-taking
behaviour. No formal long-term plannings- or budgeting systems exists in an entrepreneurial
firm.
•
Growth; is also a main trait associated with entrepreneurship, next to innovation, flexibility
and opportunity recognition. Results or performance of an entrepreneurial firm is often
translated into growth. Entrepreneurial firms desire rapid growth and that entrepreneurial
management will help create it. Risk is accepted to achieve this rapid growth.
Antecedents
Organizational and environmental antecedents are often described as antecedents of success or more
specific of intrapreneurship. Within the entrepreneurship and small business literature the individual
characteristics of the owner is also an important antecedent of success. Within this study the focus is
on established medium-sized firms, therefore the individual characteristics of the owner are less
important in comparison with small businesses or new ventures.
27
Organizational characteristics (communication openness, control mechanisms, environmental
scanning intensity, organizational and management support) and organizational values influence
intrapreneurship (Antoncic and Hisrich, 2001).
Organizational support has the most significant positive relation on entrepreneurship according to
research of Antoncic and Hisrich (2001). Organizational elements such as support from top
management and management involvement and commitment towards intrapreneurial activities are
critical. (Merrifield, 1993; MacMillan, 1986). Rewarding, training and trusting of individuals to detect
opportunities should lead to entrepreneurial behaviour.
Loose intra-organizational boundaries
(Hornsby et al. 1990), time availability, rewards and work discretion are crucial elements impacting
intrapreneurship.
Open communication in terms of amount and quality is also a critical element for intrapreneurship
especially towards innovation. (Kanter 1984; Pinchot 1985). Information needs to be shared among
colleagues to create knowledge.
Formal controls of intrapreneurial activities will be positively associated with intrapreneurship.
Activities need to be monitored and evaluated to get structural attention towards intrapreneurship.
The values and beliefs of the strategic leaders, or in other words the organizational values are
important drivers for entrepreneurship. Values need to be individual centred on the one hand and
competition centred on the other hand. This relation towards intrapreneurship is much weaker than the
other characteristics mentioned before according to Antoncic and Hisrich (2001).
Scanning of the environment for trends and changes is also viewed as a organizational characteristic
towards intrapreneurship (Khandwalla 1977; Zahra 1991). This character also has a weak relation with
intrapreneurship.
Environmental Characteristics
In addition to internal variables, a set of external environmental variables influence intrapreneurship.
Some characteristics are viewed as favorable, whereas others were viewed as unfavorable (Miller
1983; Khandwalla 1987; Covin and Slevin 1991). According to Antoncic and Hisrich (2001) the
environmental characteristics are less important than the organizational characteristics. Because of this
weak relation and because of the fact that all firms operate within the same environment we didn’t
focus on external characteristics within this research.
Scales
28
Two scales are dominant within the entrepreneurial literature to measure entrepreneurial orientation.
ENTRESCALE developed by Khandwalla (19977) and further refined by Miller and Friesen (1978)
and Covin and Slevin (1989) is one scale to measure “entrepreneurship at the firm level”. Zahra (1991,
1993) developed and refined a second scale, the corporate entrepreneurship scale. Antoncic and
Hisrich (2001) combined these two scales in their description of intrapreneurship.
From the strategic management literature the earlier mentioned scale from Stevenson is often used.
We’ve made a combination of both Stevenson’s scale as the EO scale initiated by Miller (1983).
2.6.1.
•
Organizational Antecedents
Pro-activeness (including risk-taking)
Pro-activeness suggest the forward-looking and anticipating perspective which is crucial to an
entrepreneurial orientation. It reflects a firm that is the quickest to innovate and first to introduce new
products or services. It’s a leading firm instead of a follower. (Lumpkin and Dess, 1996). It has the
will and foresight to seize new opportunities. Pro active firms have the desire to be pioneers, thereby
capitalizing on emerging opportunities (Wiklund and Shepherd, 2004). Items 63 / 67 & 71 have been
used within the organizational antecedents factor to measure this antecedent. (see appendix 2, page 13)
•
Organizational support (self-renewal & flexibility)
Elements such as support and commitment from top management are critical. Rewarding, training and
trusting of individuals to detect opportunities should lead to entrepreneurial behaviour. It’s about
training of employees in creative and commercial skills and competences. Employees should be
assessed on their entrepreneurial and acquisition skills. The items 73/ 75 / 79/ 83 & 87 have been used
to measure this antecedent (see appendix 2, page 13)
•
Open communication
Information should be easily shared among colleagues, the organizational structure and hierarchy
shouldn’t hinder this. Item 67 & 81 is been used to measure this openness. (see appendix 2, page 13)
2.6.2.
Innovativeness
Schumpeter is one of the first to emphasize the role of innovation in the entrepreneurial process. It
reflects a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative
processes that may result in new products, services, or technological processes. It’s about the emphasis
of a firm to create new products/services, and the number of new products/services. Also the spending
on this activities is incorporated within this variable. The items 15/17/19 and 69 are used to measure
this factor (see appendix 2, page 12)
29
3. Research Design
In this section the methods that have been used to answer the research questions will be described.
The object, population and sample will be described and also the instrumentation and procedures
which have been followed.
3.1. Population
Our object within this research are medium-sized law firms. We conducted research within the Dutch
mid-market at firm level. The mid-market is the most dynamic and therefore most interesting segment
within this market, like described before. Research at firm level is chosen, because the issues are about
‘the entrepreneurial and commercial capabilities of the firm’. The starting point is that differences in
the level of market orientation, entrepreneurial orientation and market-based assets lead to
differences in performance.
Growth
The ‘Stand van de Advocatuur’ produced by KSU, list fast growing firms every year. They also noted
within their annual publication that growth could fluctuate considerable. That’s why a more reliable
list is also presented, consisting of firms which have been growing over a period of 5 years or more.
The number of lawyers in the year 2000 was compared with the year 2004 (within the latest
publication, it’s between 2000 and 2005). Growth is calculated the same within this study.
Next to the top 30, which became a top 50 in the year 2004, KSU also presents the largest firms per
region. Because of the extension in 2004 from 30 to 50 firms, the biggest firms per region ended up in
the top 50. This resulted in some new firms becoming the largest within their region, of which data of
one or two years or even more is missing. Because we didn’t know the history of those firms, we only
focussed on the years of which data was available and based the categorization on this data.
Categories
The different objects are mentioned before as ‘front runners’, ‘pack members’ and ‘laggards’. Front
runners are the firms that grow more than 20% between 2000 and 2005, or between a shorter timespan when data is missing. Pack members are the firms that grow between 10% and 20%. Laggards
grow 10% or less. Pack members and laggards could grow in a positive way, but compared to their
competitors they remain stable or decrease. The average growth per year for most ‘laggards’ is
negative or near 1% or 2%. The average growth per year for ‘pack members’ is around 3% to 5%. The
average growth for front runners started from 5% up to 15% and even some spectacular average
growth figures of 18% and 38% per year.
30
This division of categories resulted into a population of 61 firms divided into 25 ‘front runners’, 17
‘pack members’ and 19 ‘laggards’.
3.2. Sample
The firms that have been marked red and italic are the respondents. The results and conclusions, which
have been drawn, are based on this sample. More than half of the firms replied the survey (31 out of a
population of 61).
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Frontrunners
> 20% growth
Frontrunners 2000-2005
Freshfield
Ploum Lodder Princen
Damste
Banning
Dommerholt & Van Dijk
Hoge van den Broek
Lexence
La Gro
Trip
Kienhuis Hoving
Adriaanse & van der Weel
Wijn & Stael
Schenkeveld & Loomans
Hocker Rueb & Doeleman
15 Schreurs & Van Duijn
Abma van Eeuwijk
16 Benthem & Gratema
17 Boels Zanders
Growth %
2000-2005
176,2
122,2
109,1
92,3
90,0
66,7
66,7
63,6
57,1
42,4
38,9
33,3
26,3
23,5
2001-2005
57,9
37,5
23,1
18
19
20
21
Borsboom & Hamm
De Haan C.S.
Boonstra Rademakers
Kupperman & van der Wiel
2002-2005
266,7
142,9
57,1
30,4
22
23
24
25
Kneppelhout & Korthals
Koster
Mens & Wisselink
Bird & Bird
2003-2005
42,9
36,8
34,9
21,7
Packmembers
10 - 20% growth
Packmembers 2000-2005
1 Schaap & Partners
2 De Kempenaer
3 De Jonge Peters Remmelink
4 Pot Jonker
5 Ekelmans & Meijer
6 Bosselaar & Strengers
7 De Voort Hermes De Bont
Growth %
2000-2005
19,0
19,0
18,5
18,2
15,6
15,0
14,3
8 Mannaerts & Appels
9 Kramer Bijkerk & Steenberghe
10 Boskamp & Willems
2001-2005
16,7
15,0
10,5
11 Wieringa
12 Van Traa
13 De Clerq Advocaten
14 De R de W & De V
15 Geelkerken & Linskens
16 V. H B T v. Houten
17 Spigthoff
2003-2005
20,0
16,7
15,8
13,6
10,0
10,5
10,0
1
2
3
4
5
6
7
8
9
10
11
Laggards
< 10 % growth
Laggards 2000-2005
Hekkelman
Plas & Bossinade
Lovells
Rassers
Barents & Krans
2000-2005
9,5
7,4
5,6
5,3
5,3
Laggards 2001-2005
Van Leeuwen Van der Eerden
Van Benthem & Keulen
Ten Holter
Smithuijsen
Van der Sijs De Vlieger & Holsbrink
Sandberg c.s.
2001-2005
11,1
4,4
-10,5
-12,5
-55,5
-90,0
Laggards 2002-2005
12 Marree & Dijxhoorn
13
14
15
16
Laggards 2003-2005
Klegal
Van Der Steenhoven
Asselbergs & Klinkhamer
Bogaerts & Groenen
Laggards 2004-2005
17 Norton Rose
18 Dijkstra Voermans
19 Van Iersel & Luchtman
Growth %
8,7
2003-2005
6,7
0,0
0,0
-17,4
2004-2005
-5,9
-6,3
-43,0
3.3. Instrumentation
The instrument that will be used is a survey containing questions that give an answer to the hypotheses
mentioned above. The survey is based on items, which could be scored on a 5-point ‘Likert-scale’
ranging from fully applicable to fully not applicable. Every item could be scored based on the current
situation and the desired situation. This could give more insight into the importance or ambition of
every subject.
The survey is based on the literature review, interviews and a copyrighted survey. This copyrighted
survey of HCG has thoroughly been tested by expert panels. It has been successfully used within
31
professional service firms. The original survey contains five steering domains, which is decreased to
three steering domains (management domains). Every domain contains customized items from the
original survey and items from scales used in other academic research.
Ambition Gap
The focus within this study is on the current situation and the development of firms started from 2000.
Next to this, also the desired situation has been measured on the same items. The value of the desired
situation (ambition) is the fact that it could strengthen the perceived importance of the three constructs
from the firm-perspective. It reflects the remaining potential of the three constructs.
If firms score high on the desired situation, it could be concluded that these items are perceived as an
important capability to improve their performance. Big gaps between the desired and the current
situation showed the potential and which ‘construct’ will be important in the near future according to
the firms. If the score on the current situation is high and the score on the desired situation is high,
then the ‘construct’ is very important based on experiences of the firm but no extra attention or
investment is needed. If the score on the current situation is low and the desired situation is high, then
the ‘construct’ is perceived important and extra attention or investment is needed. Concluding we
could say that the desired situation and the differences between the desired situation and the current
situation (ambition gap) is interesting because of three reasons:
1. To measure if chosen ‘constructs’ are important for improving performance
2. To measure on which ‘construct’ firms will focus their attention (invest) in the near future
3. To measure which constructs have the largest remaining potential
Survey
To draw meaningful conclusions and to try to raise the response different partners have been asked to
fill in the survey. The survey is web-based and will take about 15 minutes of their time.
3.4. Procedures
1. Explorative Quantitative and Qualitative desk research to understand the topic
2. Conversations with 3 professional service experts (Leo Kerklaan, Arend Ardon & John
Koster, all partners of HCG)
3. Searching for literature about the professional service firm and their problems
4. Focus -> law-market and three marketing related constructs (market orientation,
entrepreneurial orientation and market-based assets).
5. In-depth quantitative and qualitative research
6. Half-open interviews with Rob van Otterlo (Nederlandse Orde van Advocaten) and Pablo van
Klinken (director KSU)
32
7. Test survey at 4 law offices (Bosselaar & Strengers, Schreurs, Abma & van Eeuwijk, Pot
Jonker, Damste)
8. Test survey at EIM Rene Vogels (researcher with experience in law market) and Roel
Smabers (Parantion)
9. Search websites of all the firms and call the offices to ask for the addresses of the daily
management and introduce the survey
10. Send an invitation for the web-based survey including a letter with the purpose and
instructions and the possibility to add addresses of more partners.
11. Mail the web-based survey and a covering letter with the purpose and instructions of the
survey to other partners if necessary
12. After one week send an electronic reminder to non-respondents
13. After half a week after the reminder the offices which didn’t respond have been called as a
final option
14. Close survey, start data analysis
3.5. Data Analysis
The data of the online survey will be recoded into an SPSS file. Because we use five point Likert
scales the following analysis will be executed to answer our questions:
1. Labelling, missing values recode
2. Internal Consistency (test scales): Test the scales on consistency and data reduction
•
Test the scales of every factor to see if the scale is homogeneous (Cronbach alpha’s
test > 0,65)
•
Factor analysis (test for uni-dimensionality if scales are homogeneous)
3. Mean: Compute means for each of the items, variables and three constructs (entrepreneurial
orientation, market-orientation and market-based assets)
•
Mean of the market orientation and each of the different variables and items (current
and ambition level)
•
Mean of entrepreneurial orientation and each of the different variables and items
(current and ambition level)
•
Mean of the market based assets and each of the different variables and constructs
(current and ambition level)
4. Correlation & Differences Test correlation and differences (correlations, & ANOVA)
•
Correlation (Pearson R, to test correlations between variables X <-> Y)
•
Correlation between growth and other variables and performance and other variables
•
Regression to test the research model.
5. Differences: Test for significant differences between the three predefined groups (‘front
runners, pack members en laggards) related to the different variables
33
•
ANOVA (Because more than two groups)-> Variance analysis (F-test)
•
F-test (3 nominal groups related to interval scales p < 0,05)
•
Post hoc tests to see which groups differ
6. Conclusions
34
4. Results
The research design as been described in the last chapter clarifies the way in which I have tried to
answer the research questions and how data is collected. In this chapter the results of my research is
presented. The response figures are shown first followed by the results. More than half of the invited
firms replied the survey. This was a very pleasant response rate as I had be told by Rene Vogels from
EIM that in his experience, 25-30% is the average response rate when surveying law firms.
4.1. Response
32 out of 61 firms replied to the questionnaire, which means a response rate of 52% (see figure
below). For some firms, more than one person replied the questionnaire, which generated a total
response from 43 persons from 32 firms (see figure below).
Number of respondents
Number of firms
Stijger
10
Daler
Stijger
Daler
9
10
14
Blijver
Blijver
19
13
Most respondents replied the same day or the day after receiving the electronic invitation. A
‘reminder’ was sent out after 5 days, creating another surge of respondents. The last respondents
replied after receiving a reminder by telephone, 5 days after the electronic reminder was sent. Some
firms did not respond for reasons such as they had no time or they simply were not interested.
The cooperation of the Nederlandse Orde Van Advocaten (NOVA) and the promise of presenting the
results on their congress increased the response.
Multiple responses
As mentioned before, we received multiple-response for some firms. The variance differences have
been analyzed to see if these firms have a common understanding and opinion of their commercial
35
capabilities. This analysis made clear that the average difference per item was only 1 point or less. Due
to this small difference, all of the respondents were included in the analysis.
The largest differences were analyzed, this made clear that different opinions within one firm are
mostly based on the orientation towards customers and the level of innovation within the firm.
To assure the anonymity of the respondents only the number of respondents per firm and the average
differences per item are displayed.
(N)
Average difference per
item
3
1,1
4
1,0
2
0,79
2
0,75
2
0,53
2
0,40
4.2. Internal Consistency Analysis
The three ‘constructs’ and underlying variables in this study were measured based on 44 items. In the
appendix the items are shown on each variable and ‘construct’. All the items that were part of a
variable are called a scale. Within this paragraph I have checked if the items were consistent
internally. Which means that the items were homogeneous and have the same variable measurement.
The Cronbach’s alpha measures the internal consistency of a scale. Scales are reliable (homogeneous)
if the scores from Cronbach’s alpha are at least 0,65 or higher.
CONSTRUCT
CONSISTENCY SCORE
(Cronbach ‘s alpha > 0,65)
Market orientation
0,90
Customer Orientation
0,75
Competitor Orientation
0,76
Market Information Sharing
0,74
Market – based assets
0,87
Relational Assets
0,78
Brand Assets
0,79
0,89
Innovation
0,77
0,86
36
All scales are reliable (homogeneous), which means the items used for measuring correlate and all
measure the same variable. At first, the scale for customer orientation was lower than 0,65. After the
items 37 and 39 (“organization towards client segments & organization structure hinders cooperation”)
were removed, the scale was reliable.
4.3. Factor Analysis
The internal consistency analysis made clear that items that were used for measuring the different
scales are homogeneous. Factor analysis could make clear if these items measure more than one
dimension of each scale. In other words, some scales could be divided into 2 or more subscales
(components). A ‘data reduction’ test is been used to analyse the different factors. If the variance is
large within one scale, factor analysis deduces 2 or more components out of 1 scale. After this every
item that is been used is loaded on each component, to see which items belong to each component.
The general rule for factor analysis is that the total variance explained by each component has to be >
50%. Furthermore the initial own value needs to be > 1. This means that all the items together in one
scale, measure more than the items alone.
CONSTRUCT
FACTOR ANALYSIS (own value > 1 and total variance
explained > 50%)
Market orientation
1 component (2,6 & 52%)
1 component (2,4 & 59%)
Market Information Sharing
1 component (2,0 & 66%)
Market – based assets
Relational Assets
2 components extracted (2,9 & 48%)
Brand Assets
1 component (2,9 & 57%)
Innovation
1 component (2,4 & 57%)
2 component extracted (4,4 & 49%)
Factor analysis on relational assets leads to two extracted components. Two items of this scale load on
component two, but these items also load highly on component one (> 0,5). This means the second
component is not discriminate enough. Relational assets therefore is used as a single factor
Also the organizational antecedents generate 2 extracted components. Again, these two items also load
high on component one (> 0,5). Organizational antecedents are used as a single factor. All the original
scales have been used for the results presented below.
37
4.4. General Scores
The respondents were asked to fill in the survey for the current situation of their firm and the desired
situation. The difference between these two levels is called the ambition gap.
The first remarkable fact is that all the firms scored above average on each item (between 3 and 4 on
the five point scale). In general, firms have started managing their market-based assets. The ‘gapanalysis’ makes clear that a stronger market- and entrepreneurial orientation is desired.
Current Level
Ambition Gap
3,70
,90
3,66
3,60
,82
,80
,79
3,50
,70
3,40
Mean Score
Mean Score
3,37
,60
3,30
3,29
3,20
,55
,50
M.B. ASSETS
MO
EO
M.B. ASSETS
MO
EO
Variable level
The average scores on variable level emphasizes the fact that firms invest in their brand and relational
assets. This means they have focussed their business activities. Furthermore they actively manage their
reputation and the relationships with their clients.
Innovation and the orientation towards the competitor could be managed more actively in the current
situation. According to the gap analysis, an orientation towards customers is more important than the
orientation towards competitors according to the gap analysis.
Innovation is the most important ambition. Firms also want to share more market-information and
implement market-orientation throughout the whole organization.
38
Current Level
Ambition Gap
3,8
,90
3,7
3,6
3,6
Mean Score Variables
3,5
,91
,89
,83
,80
3,5
3,4
3,4
3,4
3,3
3,2
3,2
3,2
3,1
Mean Score Variables
3,7
1,00
3,0
,73
,70
,67
,60
,66
,50
,43
,40
,30
ts
se
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Item level
As it has been said before, the average score is high on each item (between 3 and 4). Only six items
score below 3 on the current level. This means these items are not fully applicable to the firms, or in
other words not well developed. In general the firms want to improve their commercial and
entrepreneurial capabilities. The gaps greater than 1,0 are presented in the next figures. According to
the respondents, these are the most important items for improvement.
Current Level
Ambition Gap
3,10
1,30
3,00
1,29
Mean Scores Item
2,90
1,20
2,88
2,86
2,80
2,70
Mean Scores Item
3,00
1,40
1,10
2,79
2,74
1,00
2,69
1,24
1,12
1,10
1,07
1,05
1,02 1,02
,90
2,60
ts
or
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at
ov
pm
inn velo
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cu n
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39
It is clear that innovation is marked low on the current level. The table above shows that firms score
low on the direct or indirect involvement of clients for new service development. Client surveys are
seldom executed and firms also score low on orientation towards competitors.
Ambition Gap
Firms therefore have the desire to gain more insight into their performance and are willing to pay more
attention to innovation. Firms want to involve clients in their development of new services directly, or
indirectly by using client reviews. Furthermore they want to have the innovative edge over their
competitors. Most large ‘gaps’ are on variables or on low scoring items in the current situation. In the
end firms want their performance to be similar on every ‘construct’.
Sharing of market-information inside the firm and within departments (sections) is another important
ambition. Partners of law firms want to discuss market developments more regularly. Furthermore
they want market-information to be discussed and flow through the organization to generate more
cross-selling opportunities. This could lead to increased acquisition.
4.5. Scores & Performance
The results described above, give a good first impression of the current and desired commercial and
entrepreneurial managing areas within the mid-market. It would be interesting to see if there are
significant differences between ‘performance groups’. This analysis of variance (ANOVA) presents
differences in one independent variable, consisting of 3 groups (performance) and some dependent
variables. The dependent variables are the different items that were used in the survey.
Before using the analysis on differences it already became clear that ‘front runners’ in the market
score higher on each item in comparison to ‘laggards’. Not every difference is significant, but we
could say that ‘front runners’ made more progress in developing their commercial capabilities.
A more in-depth analysis is presented below, starting on construct level and finishing at item level.
Differences construct level
The pictures below showed that ‘front runners’ score higher on each construct compared to ‘pack
members’ and ‘laggards’. All performance groups want to improve on the three constructs. The
ambition gap clarifies
that an entrepreneurial and a market orientation are the most important
dimensions for the future.
40
Current Level
Ambition Gap
12,00
2,50
,85
3,57
10,00
3,20
,80
2,00
3,21
,71
8,00
1,50
3,65
3,30
1,00
4,00
3,90
3,65
,88
3,25
3,51
Mean Score
Mean Score
6,00
EO
2,00
MO
0,00
M.B. ASSETS
,78
E.O.
,50
,44
,63
,54
M.O.
0,00
M.B. ASSETS
r
be
em
M
d
ar
gg
La
ck
Pa
r
be
em
M
er
nn
tru
on
Fr
d
ar
gg
La
ck
Pa
er
nn
tru
on
Fr
Performance
,79
Performance
Differences variable level
As mentioned before ‘front runners’ score higher on each variable, compared to the other two
performance groups. ‘Pack members’ score higher on each variable compared to ‘laggards’. These
differences are much smaller and not significant at (0,05) significance level.
Below the statistical significant mean differences are displayed at variable level. The output is based
on the ANOVA analysis. ANOVA compares the mean scores of each performance group with each
other and shows if these variance differences are significant. Running a post-hoc test (LSD) after this
analysis, made clear which groups differ significantly statistical with a level of 0,05.
Current level
Variable
Performance (I)
Performance (J)
Mean difference
Sign.
(I-J)
Competitor
Front runner
Pack member
0,469 *
0,032 *
Orientation
Front runner
Laggard
0,579 *
0,013 *
Brand Assets
Front runner
Laggard
0,500 *
0,041 *
Mean difference
Sign.
* The mean difference is significant at the 0,05 level
Ambition level
Variable
Performance (I)
Performance (J)
(I-J)
Competitor
Front runner
Pack member
0,422 *
0,047 *
Orientation
Front runner
Laggard
0,450 *
0,044 *
41
‘Front runners’ in the mid-market are more actively oriented towards competitors, compared to pack
members and laggards in the market. Front runners actually have the ambition to become even more
competitor oriented. Front runners also manage their brand assets more active compared to ‘laggards’.
These two variables are related, because strong brand assets distinguish a firm from competitors.
Brand assets are distinctive capabilities towards competitors.
Item level
Competitor orientation and brand assets are the variables that contain significant mean differences
between performance groups. It would be interesting to see, which items are responsible for these
differences. Running ANOVA, including the post-hoc test resulted in the following results:
Current level
Item
Performance
Performance
Mean
(I)
(J)
difference
Sign.
(I-J)
Brand Assets
Invest in reputation
Front runner
Pack member
0,82 *
0,021 *
Front runner
Laggard
0,74 *
0,045 *
Distinctive capabilities
Front runner
Laggard
0,71 *
0,008 *
Distinctive & clear house style
Front runner
Laggard
0,81 *
0,036 *
Front runner
Pack member
0,79 *
0,032 *
Front runner
Laggard
1,11 *
0,005 *
Front runner
Laggard
0,76 *
0,017 *
Performance
Performance
Mean
Sign.
(I)
(J)
difference
Fast response to competitor actions
Whole organization serves the market
Ambition level
Item
(I-J)
Brand Assets
Distinctive capabilities
Front runner
Laggard
0,59 *
0,025 *
Front runner
Pack member
0,77 *
0,037 *
Front runner
Laggard
0,81 *
0,035 *
Front runner
Pack member
0,94 *
0,017 *
Front runner
Laggard
0,86 *
0,038 *
Fast response to competitor actions
Innovate faster than competitors
42
The results emphasise that the biggest differences are at the current level. ‘Front runners’ have been
investing in their reputation and know their distinctive capabilities in comparison to competitors. A
clear and distinctive image enforced their brand assets and distinguishes them from the competitors.
The orientation towards competitors is also reflected in the willingness to respond fast to competitor
actions. ‘Pack members’ and ‘laggards’ are far less oriented towards their competitors. Finally ‘front
runners’ take a more commercial and entrepreneurial approach throughout the whole organization.
The differences in the desired situation are smaller, although ‘front runners’ in general have a strong
tendency to be ahead of other competitors as far as introducing new services.
Gaps
The gaps for ‘laggards’ are the largest compared to the ‘pack members’ and ‘front runners’. Although
the differences are not statistical significant, laggards are willing to become more market-oriented and
entrepreneurial. Only at the competitor orientation, ‘front runners’ have a bigger gap than laggards.
Pack members also have a greater gap compared to front runners, although not statistically significant.
The only factor where front runners had a larger gap than the laggards was the factor “market
information sharing”.
Performance Groups
The differences between the three performance groups have been presented. This gives a first
impression of the distinctive areas for each performance group. In this chapter we will take a more indepth look towards every performance group. This will give a better insight into the current situation
on each domain and the ambitions for every group. The biggest gaps will be presented for every
performance group on item level. The top 10 of every group will show were firms must make an
investment.
4.6. Front runners
Front runners score high on every item compared to the other two performance groups. The mean
score on the items is around 3,8. The highest scores are of course on the market-based assets items.
The mean scores for the market-orientation and entrepreneurial orientation variables are almost the
same. Innovation is marked low, compared to the other variables.
To get insight into the ambitions of ‘front runners’ the biggest ambition gaps have been studied. These
are gaps ranging from 1 to 1,30. In the figure below, the top 10 is been displayed. The value in the
‘gap’ column displays the difference between the ambition level and the current level.
43
Items
‘Gap’
1.
Insight in revenues and profit information on client level (performance)
1,30
2.
Lawyers regularly discuss ‘cross-selling’ opportunities with each other (E.O)
1,30
3.
Partners discussing client developments on a regular basis (M.O)
1,20
4.
Innovate faster than competitors (E.O)
1,20
5.
Measure client satisfaction (M.O)
1,10
6.
Know the commercial output (performance)
1,10
7.
Keep track of developments in our business sectors and translate this into improved and
1,10
new services (M.O)
8.
Make resources (time & money) available for development of new services (E.O)
1,0
9.
Involve clients for the development of new services (E.O)
0,9
10. Lawyers publicising articles in media which will be read by clients (Brand)
0,9
Innovation is the most important ambition for ‘front runners’. Firms want to make resources available
for the development of new services. The client needs to play a central role in the innovation process.
Firms want to keep track of developments within their client businesses and involve the client directly
and indirectly in the innovation process.
Information and insight in results also becomes more important. Front runners want to get more
insight into their commercial output and the satisfaction of their clients. Finally they want to have
more insight into revenues and profits of their clients. All this information and knowledge needs to be
shared more actively among partners and lawyers. This information sharing could increase the marketand entrepreneurial orientation.
4.7. Pack members
Pack members in the mid-market have a mean score around 3,3 on the items at the current level. Pack
members score relatively low on innovation and competitor orientation. The average scores on the
other variables are quite similar, although the relational and brand assets get the highest average score.
To get more insight into the ambitions of the ‘pack members’ the biggest gaps have been studied. The
top 10 ‘gaps’ are ranging from 0,84 to 1,42:
Items
‘Gap’
1.
Know the commercial output (performance)
1,42
2.
1,22
3.
Results from client reviews are used for improvement and innovation (E.O)
1,21
44
4.
Everybody directly or indirectly supports acquisition (E.O)
1,17
5.
1,11
6.
1,0
7.
Keep track of developments in our business sectors and translate this into improved and
1,0
new services (M.O)
8.
Keep track of developments at competitors (M.O)
0,94
9.
Make resources (time & money) available for development of new services (E.O)
0,84
10. The distinctive aspects compared to competitors is clear (Brand)
0,84
Again a stronger market- and entrepreneurial orientation is desired. Pack members want everybody in
their firm to become more entrepreneurial. Insight into the needs and wants of clients and competitors
is also desired. This information will be used as input for improving their services or developing new
services. Innovation is important and ‘pack members’ have the ambition to make more resources
available for development of new services.
‘Front runners’ already build distinctive capabilities in the market, whereas ‘pack members’ want to
improve on this.
4.8. Laggards
The third performance category is a slightly special. This group consists of firms that had a decline in
their labour force the last five years and firms which remain stable, but decreased in the market. The
first group are the absolute ‘laggards’, the second group are the relative ‘laggards’. The relative
laggards dropped in the ranking list (Stand van de Advocatuur), but employed a stable number of
lawyers. Absolute laggards are the firms where their labour capacity has shrunken.
To see if these two groups differ, the ‘laggards’ category has been split up in-to a group of relative
laggards and a group of absolute laggards. An independent sample T-test was carried out to see if
these two groups differ significant. A T-test compares the means of two different groups and computes
if these differences are statistically significant.
First the mean scores are displayed in a stacked bar chart, to display the differences on construct level.
45
Current Level
Ambition Gap
12,00
3,50
1,22
3,00
10,00
3,22
3,20
2,50
8,00
2,00
3,16
6,00
1,28
3,35
,48
4,00
3,65
3,37
2,00
1,00
EO
MO
0,00
M.B. ASSETS
Rel. Laggard
Mean Score
Mean Score
1,50
,49
,82
,50
,44
0,00
GAPMO
GAPMB
Abs. Laggard
Rel. Laggard
Performance
GAPEO
Abs. Laggard
Performance
The two figures emphasize that in the current situation, there’s not much difference at construct level.
At an item level most of the scores of the relative laggards are higher compared to the absolute
laggards.
The ambition gap shows the big differences between the two categories. Relative laggards are willing
to invest in all areas. Absolute laggards are far more satisfied with the current situation and didn’t
display any real ambitions for the future. At the desired level the relative laggards score even higher
on every single item
Differences at variable level
At the current variable level there are no statistical significant differences between the different
variables. The scores at construct level already make this clear. Below the statistical significant mean
differences are displayed at the ambition level. The independent sample T-test has been used for this
table. Instead of the significance level of 0,05, this time a level of 0,10 is been used.
Ambition level
Variable
Laggard Rel.(I)
Laggard Abs.
Mean difference (I-
(J)
J)
Sign.
4,57
3,97
0,60 *
0,075 *
Market-Information Sharing
4,62
3,90
0,71 *
0,009 *
Brand Assets
4,66
3,74
0,91 *
0,013 *
Relational Assets
4,29
3,88
0,40 *
0,078 *
Innovation
4,39
3,75
0,64 *
0,052 *
4,48
3,62
0,86 *
0,008 *
46
It is the relative laggards that especially want to become more entrepreneurial. The mean difference of
the entrepreneurial construct is the largest one at (0,75). The mean difference of the market-based asset
construct is (0,66). The mean difference of the market-orientation construct is the smallest at (0,59).
Growth
The respondents were asked about growth as an important strategic goal for their firm the last years.
The difference in this answer was minor, although relative laggards scored higher than absolute
laggards. (3,4 and 3,0)
Item
Laggard
Laggard abs.
Mean
rel. (I)
(J)
difference
Sign.
(I-J)
Growth is an important strategic goal (current
3,43
3,00
0,43
0,43
3,57
2,86
0,71
0,14
level)
Growth is an important strategic goal
(ambition level)
The mean difference at the ambition level is larger, although not of statistical significance. Relative
laggards have a stronger ambition to growth, compared to absolute laggards. The absolute laggards
find it even less important when comparing the current situation with the desired situation.
Top 5 Gaps Relative laggards
Items
‘Gap’
1.
2,29
2.
Results from client reviews are used for improvement and innovation (E.O)
2,00
3.
Innovate faster than competitors (E.O)
1,71
4.
1,71
5.
1,71
Four out of five “ambition” items are about innovation and entrepreneurship. These groups show the
largest gaps, compared to the other three performance groups. Relative laggards are really focused on
improving their commercial performance.
Top 5 Gaps Absolute laggards
Items
1.
‘Gap’
Everybody directly or indirectly supports acquisition (E.O)
1,00
47
2.
Everybody inside our firm serves the market (M.O)
0,86
3.
Partners discussing client developments on a regular basis (M.O)
0,86
4.
The distinctive aspects compared to competitors are clear (M.B. Assets)
0,86
5.
0,71
Absolute laggards have small ambitions compared to relative laggards. Innovation and
entrepreneurship is less important. Acquiring and keeping clients is more important for these firms.
Even absolute laggards have to invest in their market-based assets.
4.9. Regression
The results clarifiy that there are some (significant) differences between performance groups and
management of the three ‘constructs’.
The three ‘constructs’ strongly correlate, between 0,726 and 0,824 on the Pearson’s R score. These
high positive scores mean that if one construct increases, the other construct also increases. The
correlation is linear and significant at the 0,05 level (all scores 0,00). Also the correlation with growth
is significant at the 0,05 level, the exception being the entrepreneurial orientation construct.
s
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Regression analysis explains whether the growth percentage can be predicted based on the scores on
the three ‘constructs’. Growth is the dependent variable (Y) (see percentages table on page 31) and the
three constructs are the independent variables (X1, X2 and X3). The output of the linear regression
analysis is a R-square (R2) score of 0,133. This means a weak correlation between the independent
variables and the dependent variable. The average growth percentage per year has also been used as
dependent variable (Y), but the correlation remain weak at an R2 of 0,221. (R2 of 1 reflects a strong
correlation)
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48
e
5. Conclusions
Introduction
This study began with certain questions about performance within the competitive market of
professional service firms. Such as “Which management themes are professional service firms
struggling with?” and “In which direction are PSF’s rethinking their business?”
After some qualitative and quantitative desk-research the questions became more focused.
Professional service firms were narrowed down towards Dutch law firms within the mid-market.
Rethinking themes was translated into commercial and entrepreneurial capabilities and assets. This
resulted in the following central question of this study:
“Do entrepreneurial, marketing capabilities and market-based assets make the differences in
growth within the Dutch law mid-market?”
To answer this central question, this study focused on the following sub-questions:
1) Which firms within the mid-market are the front runners, pack members en laggards?
the current situation?
3) Are there significant differences between performance groups in the current situation?
5) Are there significant differences between performance groups and their ‘gaps’ (differences
Within this chapter the sub-questions below will be answered. The final question will be answered
after this, followed by the limitations.
1) Which firms within the Dutch law mid-market are the front runners, pack members and
laggards?
The law market has grown the last couple of years. Especially the number of lawyers working in
regional firms has increased. Fast growers are all operating in the mid-market. Firms employing 28
lawyers or more are all in the top 50. Firms with 20 to 28 lawyers are listed as regional firms. The
population and its sample are described on page 31. The largest group within the population are the
‘front runners’ (25 firms). The ‘laggards’ consist of 19 firms and the ‘pack members’ consist of 17
firms, based on our measurement scale.
49
2) Which entrepreneurial or marketing capabilities seem to determine performance at “firm-level”
within the current situation?
In general the scores on each of the entrepreneurial and marketing capabilities are scored high.
Market-based assets are best managed at the current level. It’s like Treacy and Wiersema (1998) put it
“choose your customers, narrow your focus, dominate your market.”
Market orientation and entrepreneurial orientation is less developed. Described below is the situation
per capability/ construct.
Market-based assets
Indeed law firms within the mid-market have chosen their clients and narrowed their business focus.
Furthermore most law firms understand that their selected clients must be aware of their brand. Most
law firms are actively managing and creating a distinctive and clear brand and reputation.
Relational assets were also managed although the average scores for these items are lower in
comparison to brand assets. Almost 90% of the firms acquire new clients from existing clients. It
seems that firms understand that “the greatest guarantee of future clientele for a professional service
firm is the existence of current clients” (Sharp, 1995). A critical note is based on the fact that firms
score marginally lower on the time spent on maintaining client relationships or building new ones.
Market Orientation
The second best item that is managed is market orientation, although more than half of the firms are
not actively managed towards being a market oriented firm. Firms find the orientation towards clients
more important than the orientation towards competitors. The orientation towards clients is managed
better than the orientation towards competitors. Most firms know their competitors, but only a small
part actively keep track on them.
The generation and dissemination of market information is also not actively managed in the current
situation. Less than one third of the firms measure whether the client is satisfied with their services.
Firms are not really market-oriented throughout the whole organization.
Finally firms do not have a clear insight into the results of their (commercial) investments. Few firms
have insight into profit and revenue figures at client level. Most firms do not know the output of their
commercial investments.
Entrepreneurial Orientation
An entrepreneurial orientation score was almost the same as that of the market orientation construct.
About half of the firms already answered that their firms are entrepreneurial oriented. Especially the
50
organizational antecedents to achieve an entrepreneurial orientation are fulfilled according to the
firms. This means that the conditions are shaped to become entrepreneurial at firm level. For instance,
lawyers are trained and selected based on their commercial skills and competences within more than
half of the firms for instance.
Innovation is an important dimension for improvement. Less than half of the firms are making
resources (time & money) available on a structural basis. Furthermore clients have limited
involvement in direct or indirect (reviews) development of current and new services.
3) Are there any significant differences between performance groups in the current situation?
This conclusion is drawn from the perspective of growing firms. In the end these firms are the
examples for the other performance groups. Front runners in the mid-market score higher on each
variable compared to the other two performance groups, although not significantly (mean = 3,8). The
significant differences are displayed at the brand assets and competitor orientation. Front runners in
the market invest more in their reputation and image, to create brand awareness towards their clients.
This brand awareness distinguishes the ‘front runners’ from their competitors. These two variables
have a strong correlation (Pearson R 0,682, sign. 0,00). If the strengths, weaknesses, capabilities and
strategies from competitors are clear, it is easier to build a distinctive brand and reputation within the
market. Brand assets are an important distinctive capability towards competitors.
Another important difference that becomes clear when analysing at the item level, is the fact that ‘front
runners’ are more market-oriented throughout the whole firm. All the functions within those firms are
responsive to, and integrated in, serving target markets.
Pack members in the mid-market have a mean score around 3,3 on the items at the current level. As
mentioned ‘pack members’ and ‘laggards’ score relatively low on innovation and competitor
orientation.
Laggards are a special category within this study that is divided into relative laggards and absolute
laggards. The differences in the current situation are not significant, although relative laggards score
higher on almost every item compared to absolute laggards. Absolute laggards are mainly the small
firms, employing around 20 lawyers. The largest differences between these groups become obvious in
the desired situation. Which will be described in the next sub-question.
4) Which entrepreneurial or marketing capabilities seem to determine performance at firm-level in
51
Different ‘gap-analysis’s been executed to find out the ambition of law firms on the marketing and
entrepreneurial capabilities. It’s no surprise that market orientation and entrepreneurial orientation are
the most import ambition areas.
The greatest ambition for law firms is to be innovative. This reflects a firm’s tendency to engage and
create processes that may result in new services or processes. Firms want to involve the voice of
clients directly, or indirectly based on client reviews. The comments of the clients could be used to
develop new or improved services. Furthermore firms want to have the innovative edge over their
competitors.
Market Orientation
Firms want to become more market-oriented in general. Firms especially focus on clients and the
dissemination of client information throughout the firm. The orientation towards competitors is less
important according to the scores. Client needs and satisfaction assessments and the sharing and
discussing of this information department-wide are crucial ambitions for either improvement,
innovation and ‘cross-selling’.
5)
Are there significant differences between performance groups and their ‘gaps’ (differences
Front runners score higher on every ambition item compared to laggards. Although laggards have high
ambitions, they still did not reach the level of the front runners. Front runners already have a higher
orientation towards competitors and also want to become even more competitor oriented. It seems that
pack members and laggards are more ‘inward-looking’; they are focused on the internal environment.
Front runners score significantly higher on the items from the external environment. Front runners
have the ambition to develop their distinctive competences that differentiate them from their
competitors even more. Furthermore they want to be more innovative than their competitors and
respond faster to competitor actions. Front runners want to make resources available for the
development of new services. On top of this they understand that in order to become more innovative,
market-information generating and distributing is important. Measuring client satisfaction will
generate market and client information. Keeping track of development in business sectors and involves
clients directly is also important. To realise this partners must discuss client developments on a regular
basis. Lawyers should regularly discuss ‘cross-selling’ opportunities with each other and articles by
the lawyers should be published regularly. It is this generation and dissemination of marketinformation that should lead to improved and new services and better performance.
Pack members want everybody in their firm to directly or indirectly support acquisition. Whereas front
runners already build distinctive capabilities in the market, pack members want to improve their brand
52
equity. The absolute laggards did not
want to grow. The relative laggards score higher on all
“ambition” items.
Relative laggards want to become more entrepreneurial, compared to the absolute. An entrepreneurial
orientation is positively related with a market-orientation. Investing in an entrepreneurial orientation
will also lead to a more market-oriented firm with strong market-based assets. Growth could also be
viewed as an entrepreneurial orientation. Relative growers score higher on the item of growth as an
important strategic goal, which emphasize the willingness to become more entrepreneurial.
Answer Central Question
Entrepreneurial and marketing capabilities are important for law firms in their competitive
environment. Firms score high on either the current and desired situation. Firms that score best on
their entrepreneurial and marketing capabilities are the large growers. These firms also have the largest
ambition to growth. The ‘front runners’ score higher on each item, compared to the other performance
groups, although not significantly. It must be said that these three constructs can only partly determine
the differences in growth. Regression analysis clarified that growth cannot be predicted or explained
when based solely on the level of market- and entrepreneurial orientation and strong market-based
assets. Other determinants of growth, which have been described on page 8, should also be included
into the research model to generate a complete picture.
Performance and growth is all about clients; current clients and a guarantee for future clients. Firms
attach great importance towards all three ‘constructs’, this became clear by the high current and
desired scores. Firms seem to agree about the assumed importance of brand awareness and long-term
relationships. Law firms have already developed a clear and distinctive image. They invest in
managing and promoting their reputation and talk about their positioning regularly. The creation of
this brand awareness could lead to transactions with selected clients.
In order to convert this initial transaction into a long-term relationship, firms seem to develop
relational assets. Firms have already narrowed down their business and have selected their target
clients and services they wish to offer. Firms want to spend more time on building and retaining client
relationships. Investing in market-based assets also requires that firms act in a market-oriented way.
Firms have to know the characteristics, needs and demands of the client, its competitors and its
market.
This leads to a great ambition towards strengthening their market-orientation. Front runners
differentiate on this, by not only focussing at clients within their chosen market-segment but also by
focussing on competitors. Front runners know their competitors and understand the competitor’s
strengths and weaknesses. This understanding of the external environment and the position of growers
53
within this environment gives ‘front runners’ the opportunity to even strengthen their market-based
assets.
Front runners already create more entrepreneurial behaviour throughout the firm compared to other
performance groups. Pack members and laggards still have the ambition that every lawyer directly or
indirectly supports acquisition. Front runners already fulfilled more of the conditions needed to have
an entrepreneurial firm. Growth is one of the main traits associated with entrepreneurship. Front
runners also employ more entrepreneurial professionals and invest in training and development of
entrepreneurial skills.
Most firms have now arrived at a stage on which innovation is needed to differentiate from
competitors and to realize more growth. Law firms have a desire to generate more market-information
and share this information throughout the firm in order to improve and innovate. Firms want to make
more resources available for innovation.
Involving clients directly and indirectly by measuring client satisfaction will generate marketinformation. Furthermore keeping track of developments within their client business sectors generates
this information. This information will be shared and distributed in discussions at both partner and
lawyer level.
In the end, this should lead to improved and perhaps even to new services. This innovation needs to
take place faster than competitors in order to create distinctive capabilities in the future. M.O. and E.O.
are the capabilities, which have the largest remaining potential to differentiate yourself in the market.
Concluding we could say that according to the high scores on the current and desired level, firms do
appoint great importance towards the three constructs. To explain the differences in current and future
performance more independent variables should be included into the research model. The differences
between the “construct scores” are simply too small to explain the enormous differences and variances
in growth.
It would be interesting to analyze the growth developments again after a couple of years. This will
clarify if firms have already fulfilled their potential and if they appoint the same importance towards
the three constructs. I’m curious to see if the firms will generate more market-information and
distribute this throughout the firm. I would also like to see in which direction and how fast law firms
will develop in the near future!
54
6. Limitations
A lot of energy and effort has been put in this study in the last six months. Intensive desk-research has
been done to create a theoretical and practically interesting and reliable study. After reading
professional service firm literature and interviewing some PSF’s experts, the research questions
became focussed. Further reading and interviews resulted in the study of growth within medium-sized
law firms based on differences in commercial and entrepreneurial capabilities.
Much attention is been paid to make this study as reliable and valid as possible. When carrying out the
study certain limitations or ‘learning moments’ became clear, which could be used for further
research. Below these limitations and remarks are put down.
•
Direct relation constructs and performance (growth)
The literature generally supports the proposition that market-driven and innovative firms will
outperform their competitors. Other studies on this subject also found a positive direct relationship
between M.O. & E.O and performance. Some researchers argue that there are some moderating
and mediating variables, which influence this relationship. It would be interesting to insert certain
of these variables as a follow-up study.
•
Determinants of growth
In the chapter about the research model other developments and issues, which determine growth
differences, have been described (see page 6). Further research should give attention to these other
issues to get a more accurate growth picture.
•
Customer Intimacy value proposition
This research is been approached from a customer intimacy or relationship management approach
as a value proposition of law firms. It is assumed that all law firms within the mid-market are
‘using’ this value-principle. Customer-intimate companies are those that have put the client in the
centre of their core processes. These firms are market-oriented and entrepreneurial firms. Treacy
and Wiersema (1998) also distinguish two other value principles, product-leadership and
operational excellence. It could be the case that some firms ‘uses’ another value-principle and
create different capabilities which could also determine growth. This would be interesting for
further research.
•
Performance Management
Although this research did not focus on performance management and control, two items were
added to gain insight into this area. It became clear that most firms did not have insight into
revenue or profit figures at client level. Firms also did not know the output of their commercial
55
investments. Firms do have a desire to gain more insight into performance and (commercial)
results, so this area might be interesting for further research.
•
Level of M.B. Assets, M.O & E.O
This study is centred around clients and how to win these clients. In the end the clients determine
the right level of market-orientation or entrepreneurial orientation and in which direction to invest.
Within this study the firms give the answer about their level on the three constructs and their
ambitions. The same questions should be asked towards the clients of the different firms to see if
there are ‘gaps’ between the assumptions of firms and their clients. This is an interesting case for
further research. Firms also have this insight by now and wanted to measure client satisfaction.
•
5-point Likert-scale
Within this research a 5-point Likert-scale is been used to measure the different items. A lot of
firms answered the items between 3 and 4. This resulted in small differences between items and
between groups. Maybe a 7-point Likert scale would lead to larger differences between items and
between groups. The disadvantage of a 7-point scale is the difficulty to explain differences
between the middle and the two extremes. An item could be answered by saying “more applicable
than not applicable” “applicable”’ and “fully applicable”’. Although the differences probably
would be larger, you could risk losing the meanings of the results.
•
More integrative approach of M.O. & E.O.
Market orientation and entrepreneurial orientation could both lead to success in today’s business
environment. “It has been argued that firms with combined high market and entrepreneurial
orientations will outperform other firms.” (Hamel and Prahalad 1994; Slater and Narver 1995). I
found only one article (Atuahene-Gigma and Ko, 2001) that integrates both constructs. Further
research should combine both entrepreneurial and marketing research. This could lead to more
empirical results and a better distinction and integration of both constructs which can help the
academic field.
56
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