How Digitalization Changes our Understanding of Professional Service Firms

Abstract

The digital transformation currently at play changes the conditions for firms across different industries which challenges the way we have previously understood them. As the economy is becoming increasingly knowledge-based and service-oriented, the professional service firms (“PSFs”) are of particular importance. Being characterized by high knowledge intensity, low capital intensity, and professionalized workforces, these firms have developed certain management practices and organizational forms. However, despite being persistent and remarkably successful over time, PSFs are starting to change. This article suggests that digitalization is the driver of these changes and draws on empirical data from law firms to analyze the effects of digitalization on the distinctive characteristics of PSFs. The findings show that digitalization enables legal service delivery at lower levels of knowledge intensity, whereas it increases capital intensity for most firms and decreases the professionalization of the workforce. Consequently, this article argues that digitalization has changed the distinctive characteristics of PSFs, which promotes new practices, allows for variation, and transforms their competitive contexts. In light of these findings, we should reconsider our understanding of PSFs.

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