INTERNATIONAL EXPANSION AND PERFORMANCE IN CROSS-BORDER

INTERNATIONAL

INTERNATIONAL EXPANSION AND PERFORMANCE IN CROSS-BORDER

CONSULTANCY

Faculty of Management

& Organization

Björn van Coeverden

in Cross-Border Consultancy

An In-depth Analysis on the Internationalization of a Knowledge Intensive Process Consulting Firm

Author Organization Supervisor Pentascope

Björn van Coeverden Pentascope International BV J. Kester

Boomstraat 24 – bis Utrechtseweg 11 – 13 Tel. +31(0)33 46 79 977 3582 KS Utrecht 3811 NA Amersfoort Fax +31(0)33 46 79 990 Tel. +31(0)64 23 46 510 Tel. +31(0)33 46 79 977 kester@pentascope.com Student nr. 1062425 Fax +31(0)33 46 79 990

bvancoeverden@hotmail.com www.pentascope.com

Institute First Supervisor Second Supervisor

University of Groningen Dr. K. van Veen Prof. Dr. L. Karsten Faculty of Management Tel. +31(0)50 36 33 866 Tel. +31(0)50 36 33 848

& Organization Fax +31(0)50 36 32 032 Fax +31(0)50 36 32 032

Postbus 800 k.van.veen@bdk.rug.nl l.karsten@bdk.rug.nl

9700 AV Groningen

Utrecht, January 2004

© The author is fully responsible for the contents of this paper; the copyright of the paper rests with the author. No part of this paper may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic,

mechanical, photocopying, recording or otherwise without the prior written permission of the author or Pentascope

International BV

PREFACE

This final research project marks the closing chapter of my study International Business at the faculty of Management and Organization at the University of Groningen. The thesis reports on the internationalization process of knowledge intensive consulting firms and is conducted on behalf of the Pentascope Group, an independent Dutch-based consulting firm. Research has been conducted from the period of March 2003 until November 2003.

In today’s world of rapidly increasing international service sector activity, service firms are extensively seeking to extend to international markets. With respect to consulting firms however, international expansion cannot be expected to unfold in an unproblematic manner. Due to the very specific nature of the consulting business and the services offered in it, consulting firms are faced by a unique set of challenges when planning to go abroad. Barriers specific to these knowledge intensive firms will hinder a lot of service providers in their internationalization process and international expansion can therefore be regarded a relatively risky and complex proposition. This research paper will offer an explananation of these consulting specific factors that are both critical to strategizing as well as impinge on the successful internationalization of consulting firms. It emphasizes the key characteristics specific to consulting firms and the resultant strategic and operational implications when these firms go international. It will furthermore discuss the various risks and barriers faced by these firms as well as problems related to the international marketing of their services. The paper might therefore serve as a valuable resource to those interested in the internationalization of consulting firms.

Throughout this research period I have been supported by several persons. In the first place I would like to thank Dr.

Kees van Veen and Drs. Jelle Bezemer for providing the support, guidance and critical comments that helped me structuring this research and writing my final thesis. Their feedback challenged me to get the best out of this research and enabled me to stay focussed on the main points of issue. Furthermore I would like to thank Prof. Dr. Luchien Karsten for providing his feedback on the first concept of this research paper. His critical comments and fruitful suggestions enormously contributed to a further refinement of this final thesis. I would also like to express my appreciation and gratitude to Marcel Ririassa and Josbert Kester of Pentascope International BV. They have provided me the opportunity to conduct this research in a social and non-traditional business environment and their support and commitment during the research period have provided me with unforgettable experiences. Furthermore I would like to thank both management and accountmanagers from Pentascope for their assistance and willingness to help me. Input from several strategic sessions as well as the interviews carried out have provided me with the resources needed in conducting this research project.

Finally, special thanks go out to my parents, family and friends. My parents in particular have provided me the opportunity to study in the first place and they have been a steady support over the past years. Their mental support and encouragement, not only during this final research project, have always kept me motivated.

B. van Coeverden

Utrecht, January 2004

MANAGEMENT SUMMARY

The Pentascope organization is a Dutch based independently and privatly owned consulting firm. The organization has been founded in 1990 and throughout the last ten years it has grown intensively in both annual turnover and employees. Now it has developed into one of the largest independent consulting firms in the Netherlands and one of the strategic lines which has been set for the future is directed at the international expansion of the Pentascope organization. The Pentascope organization can currently be divided into two main division, namely its national division offering a wide range of consulting services on the domestic market and an international division offering telecom consultancy worldwide. Although international service offerings are currently provided by its international telecom division, management is facing difficulties in its strategic decisionmaking with respect to the internationalization of its national division. Earlier expansion to Belgium did not turn out to be a cost-effective and successful operation and based on this experience, a through understanding on how to successfully organize and shape future internationalization is currently absent.

Research Design and Method

Based on preliminary research prior to the conduct of this research, it was found that service firms face a unique set of challenges when crossing international boundaries. The internationalization of these firms was furthermore found to be highly contingent upon the service specific characteristics of the very specific type of service offering and the way in which the service is delivered. Based on this preliminary research, the following main research question has been formulated in order to enable management of the Pentascope organization to develop a coherent internationalization strategy:

In order to answer this main research question and to provide the organization with recommendations on how to successfully organize and shape future international expansion, the research project has been divided into three main phases:

1. Service Classification

2. The Internationalization of Consultancy 3. Case Analysis

Phase 1 has been aimed at a closer examination of the Pentascope services. Semi-structured expert-interviews with account managers from within the Pentascope organization have been carried out in order to determine the very distinct and unique service specific features of its current service offerings. Based on substantial and systematic research on the nature of consultancy and services internationalization literature, phase two subsequently consisted of an in-depth investigation on the internationalization of consultancy. Risks and barriers to the internationalization of consultancy and factors required for successful foreign market entry have been identified in this phase. A case analysis on the Pentascope organization has finally been central to the third and final research phase. Findings from

“Which are the consulting specific factors that are both critical to strategizing as well as impinge on

the successful internationalization of the Pentascope organization?”

phase one and two have been combined with data gathered from interviews and internal documentation in order to evaluate the organizations’ expansion to Belgium and to analyze its international telecom division.

Results

Based upon a closer examination on the Pentascope services, it was found that distinct and unique service specific features of the Pentascope service offerings included an extensive intervention in the client organization, an approach highly customized to specific and unique client needs and organizational culture, and professional and complex knowledge as being core to their service package. Intensive client-consultant interaction, extensive customization requirements and both an input and output exclusively based on professional and complex intangible assets, were therefore identified to be service specific features of the organizations’ current service offerings.

Phase two has subsequently sought to identify the extent to which such service specific features impact on and limit the internationalization of consulting firms. It was found that the intangible dominant character of the service and the high degree of client-consultant interaction required, have a number of important implications for both the users and suppliers of consulting services. Two problems have been subsequently identified. The first one relates to the problems that arise for clients in assessing a consulting firms’ or consultants’ quality and competence pre and post- purchase. The second problem relates to the difficulties faced by consulting firms and their consultants in convincing its clients of its level of service quality and market expertise. It was found that the combined effects of these service specific features, reinforced by the lack of institutional regulation, underspecification and intransparency of the consulting business, significantly affect how consultants develop business and satisfy their clients. It implies that clients stress factors, such as the reputation of the consulting firm and their, or others, perception of quality of previous experiences with a particular consultant or consulting firm, to be able to evaluate their services and to select between alternative service suppliers. Success then requires these firms to promote a demand for their services, attract clients and gain legitimacy as reputable suppliers of consulting services. The development of close working relationships with client firms, and the use of personal recommendations as a means of securing further clients and assignments, then becomes crucial to their growth, competitiveness and market success. This means that for consulting firms, the effective management of trustful and enduring (client) relationships, as well as its interaction process with its clients, will become critical to their long-term-success.

As such consulting specific implications of these intangible dominant and highly interactive service characteristics hold even true in a national situation, they can however be expected to be significantly emphasized on the international market. They were furthermore found to give rise to significant risks and barriers in the international marketplace.

Access to the foreign market, and therefore internationalization, can therefore be expected to be more restrictive for the Pentascope organization than to the traditional domestic ones.

First of all, given the intangible dominant character of their service offerings, maintaining quality control in the

international market will prove to be particularly challenging as clients will face difficulties in understanding what they

are actually paying for. This intangible nature of its very specific service offerings, dictates that trust, reputation and

personal relationships on the foreign market are crucial to the success of foreign operations. International relational

competence skills and cultural sensitivity, which means effective communication skills and an increased

understanding of the local culture, language and business traditions, then take on added importance in building and

maintaining a relationship of cooperation and trust. As quality assessment is furthermore made by means of the

various tangible representations of the service and the people who provide it, a strong corporate image or reputation of quality on the foreign market is then crucial to successful internationalization. The effective management of the tangible representations of its service offerings and its service climate, will then take on added importance.

Secondly, face-to-face contact requirements will give rise to significant linguistic and cultural barriers to the creation of strong ties to foreign firms. Given the impact of such differences, relationship building and gaining client acceptance within the foreign business community will prove to be increasingly difficult for consulting firms. The fact that the service is furthermore highly customized to specific and unique client needs and preferences, will furthermore lead to increased costs and needs for understanding the foreign market. On international markets, where great distance and large cultural and linguistic variations exist, cultural awareness and sensitivities to local culture, language, business traditions and clients’ preferences and perceptions, is then required to facilitate successful service delivery. A physical representation on the foreign will furthermore prove to be equally important as client and consultant need to be in close proximity of one another in order to provide ongoing and customized services and to maintain continuously and good relationships with the foreign channel.

Conclusion

Consulting specific factors as elaborated on above, make the internationalization of the Pentascope organization a highly risky, complex, and costly proposition. Client acquisition can expected to be long-lasting, costly and insecure as it will take considerable time to invest in relational capital, establish the required amount of trust and increase certainty in the foreign relationship. Success on international markets then first of all requires the organization to understand these challenges clearly, as they relate to the unique characteristics of their service offerings in particular. What is furthermore needed for Pentascope to successfully expand to international markets, is then a combination of reputational and relational capital in the foreign market, next to a great awareness of cultural sensitivities. The initial access to business relationships on the foreign market is then most likely to spell the difference between success and failure. Long-term relationships, and client loyalty in turn, on the domestic market may then be the key ingredients for successful internationalization. Furthermore, time and effort, next to the vision on the part of top management, to expand abroad will be a prerequisite for successful internationalization. To increase its chances for succes on foreign markets, international expansion will therefore require considerable investments and managerial commitment over an extended period and a sufficiently large number of managers involved in international decisionmaking.

Recommendations

Based on the successfactors for internationalization as concluded on, several recommendations on how to

successfully organize and shape future international expansion have been developed. If internationalization is to be

continued, it has been recommended to the organization that it should either seek to pursue international business

opportunities through its current business relationships and partners, or it seeks to purchase these relations on the

foreign market by means of mergers and acquisitions. Most important current business relationships include its current

client base and the international network of its international division. Pursuing a strategy based on mergers and

acquisitions can then expected to be the most effective, given its relatively ease and speed in facilitating and

consolidating international expansion. Recommendations for further research included the need to investigate the

extent to which adaptations to foreign markets are needed in the current Pentascope service offerings, as well as the

opportunities that might arise in emerging or reforming markets.

INDEX

PREFACE...II MANAGEMENT SUMMARY...III

1 INTRODUCTION ... 1

1.1 Pentascope Profile ... 1

1.2 Research Background ... 1

1.3 Management Problem... 2

1.4 Preliminary Research... 2

1.5 Problem Definition ... 3

1.6 Research Design and Method ... 5

1.7 Research Limitations... 7

2 SERVICE CLASSIFICATION: THE PENTASCOPE SERVICES ... 8

2.1 Pentascope Services ... 8

2.2 Service Classification ... 9

2.3 Conclusion ... 10

3 THE INTERNATIONALIZATION OF CONSULTANCY... 11

3.1 Introduction ... 11

3.2 The Internationalization of Services ... 12

3.3 The Nature of Consultancy ... 14

3.3.1 The Intangible Nature of Consultancy Services... 15

3.3.2 The Inseparable Nature of Consultancy Services ... 16

3.3.3 Structure and Dynamics of the Consultancy Business... 17

3.3.4 Quality Assessment in Consultancy ... 18

3.4 The Internationalization of Consultancy... 21

3.4.1 Implications of Tangibility on International Service Creation and Delivery... 24

3.4.2 Implications of Face-to-face Contact on International Service Creation and Delivery ... 26

3.4.3 Risks and Barriers to Internationalization in Consultancy ... 28

3.4.4 Internationalization Strategies in Consultancy... 30

3.5 Conclusion ... 33

4 CASE ANALYSIS: THE PENTASCOPE ORGANIZATION ... 35

4.1 Pentascope Belgium ... 35

4.2 Pentascope International ... 37

4.3 Discussion ... 39

5 CONCLUSION AND RECOMMENDATIONS ... 40

5.1 Conclusion ... 40

5.2 Recommendations ... 42

5.2.1 Recommendations for Further Research ... 43

REFERENCES ... 45

1 INTRODUCTION

This chapter will serve as an introduction to this research and to the organization of Pentascope. A short overview of its corporate profile will be provided in paragraph 1.1 after which will be elaborated on the research background in paragrah 1.2. This will subsequently lead to the formulation of the management problem which is currently present within the Pentascope organization in paragraph 1.3. A short overview of the preliminary research carried out prior to the conduct of this research project will follow in paragraph 1.4. These two paragraphs will serve as the input for the problem definition in paragraph 1.5 in which the main research goal and research question to be answered will be presented. Following this discussion, attention turns to the design and research method used for this research in paragraph 1.6 and the limitations of this research in paragraph 1.7. Paragraph 1.6 will elaborate on data collection issues and will provide a structural overview of the remainder of this paper.

1.1 Pentascope Profile

Pentascope is a Dutch based independent and privately owned consulting firm. The organization has been founded in 1990 and subsequently developed into one of the largest independent consultancies in the Netherlands. Until 1995, sales volume increased by 40 percent each year, reaching an annual turnover of

2,5 million in that same year. In 1996, sales volume had been doubled and organizational growth stayed course in the years after. Listed on the European Top 500 fastest growing organizations in 2001, the organization realized a turnover of more than

25 million in that year. It now employs over 300 qualified professional staff with offices located in Amsterdam, The Hague, Gouda, Amersfoort, Groningen and Eindhoven.

The Pentascope organization serves clients in the area´s of health-care, telecom, retail and industry, local and national governments, housing corporations, social security and finance. It offers them consulting services specialized in various business area’s such as Implementation and Change Management, Procedure Design and Support and Human Resources Development. Pentascope activities include for example the creation of new or improved business procedures, business process redesign, supply chain optimization, cost-control and reduction programs, cultural change projects and improvements in operational performance and customer satisfaction.

1.2 Research Background

In trying to hold on to its strong organizational growth, the Pentascope organization has set its goals in becoming a

‘Full Implementation Services Network’. The driving ambition in becoming such a Full Implementation Services Network, is to fully serve its client organizations regarding the implementation of change processes and innovations.

In order to realize such an ambition, several strategic lines have been set by the organization, of which the provision of international support is one. As businesses are increasingly becoming international oriented and client organizations are intensively becoming involved in internationalization themselves, the Pentascope organization wants to explore opportunities outside its domestic market.

In 2001, the Pentascope organization started with the implementation of its international strategy. Realizing that it did

not have the luxury of being able to gain international experience before committing itself to international markets, it

decided to invest on the Belgium market. A local office was opened in Brussels and a senior consultant was appointed

to start up and organize the activities on the Belgium market for the period of one year. Although some leads with

prospective clients were generated during that year, the Belgium operation eventually did not turn out to be cost-

effective. In the absence of any structural business and commercial success, management of Pentascope therefore decided to close down its Belgium activities at the end of 2002.

In that same year, Pentascope has continued its expansion process by the foundation of Pentascope International.

This international division originated from the international consulting arm of KPN Royal Dutch Telecom, KPN International Consultancy. A part of the KPN IC’s activities has been acquired by the Pentascope organization and was continued under the name Pentascope International. Building on over 25 years of telecom experience, these former KPN consultants have first hand operator knowledge and have worked in operations, marketing, sales or finance of various telecom operators and service providers world-wide. Service offerings are focussed on the privatisation of African, Middle Eastern and Eastern European telecom operators and the provision of telecom consultancy worldwide on area’s such as Network Solutions and Roll-out, Marketing & Sales, Customer Care & Billing, Operational Excellence and the Implementation of New Services. It furthermore takes care of major modernization, reorganization and strategic development activities within its client organizations which contribute to a more efficient organization with improvements in performance of services and customer satisfaction.

In march 2003, Pentascope International signed a three-year management contract with the Federal Government of Nigeria to operate the state-owned operator Nitel. This contract is to expand and improve Nitel’s business operations in preparation for the sale of 51 percent of the shares of the company in 2006. For a period of three years, Pentascope International will fill the executive management positions of both the fixed line operator (Nitel) and the mobile operator (M-tel). Change programmes on areas such as Network roll-out, restructuring, marketing and sales, finance and human resources will enable Nitel to compete successfully in an increasingly open telecom market

1.3 Management Problem

The Pentascope organization can currently be divided into two main divisions, namely its national division offering a wide range of consulting services on the domestic market and its international division offering telecom consultancy worldwide. Although international service offerings are currently provided by its international telecom division, its national division is still entirely national in scope. It is this national division which is the main focus of this research, as it wants to explore opportunities for international expansion of its services as currently offered on the Dutch consulting market.

Keeping its experiences on the Belgium market in mind however, a thorough understanding on how to successfully organize and shape the internationalization process of its national division is currently absent. Faced with a lack of substantial international experience and a thorough understanding on foreign consulting markets, the Pentascope organization is therefore facing difficulties in its strategic decisionmaking. In order to take any further strategic decisions on its internationalization process, a profound understanding is therefore needed in the challenges and implications of foreign market commitment as well as the factors required for successful international expansion.

1.4 Preliminary Research

In order to structure the conduct of this research, an extensive literature study has been carried out prior to the

conduct of this research. Whereas various streams of research on the internationalization process of firms has

emerged throughout the past decades, research on service industries however has been more limited than for

manufactured goods. The study on services in an international setting has therefore been seriously neglected and the study on consulting services in particular, is a relatively unexamined area.

When reviewing scientific research on service industries, it has been agreed by various authors (e.g. Zeithaml et al, 1985; Knight, 1999) that services entail some unique features that sharply distinguishes them from manufactured goods. Such features include the intangibility, heterogeneity, inseparability and perishability characteristic of services and it is pointed out by Zeithaml (1985) that these features poses some very special problems for service firms that are not faced by goods. It is therefore strongly argued that the nature of goods and services fundamentally are not the same and that there are important differences to be acknowledged for between them. According to Holmlund (2002), part of these problems can be considered the same even in a national situation, but in many cases their role was found to be emphasized in the international situation as they gave rise to significant barriers to entry. These barriers hindered a lot of service providers in their internationalization (Winsted and Patterson, 1998) and particularly affected their decision to expand abroad and their subsequent choice of method of entry (Erramilli, 1990; Erramilli and Rao, 1993). The above mentioned four basic characteristics were therefore found to heavily impact on the internationalization process of service firms (e.g. Nicoulaud, 1989; Grönroos, 1999). A further examination on service internationalization literature furthermore showed that the mentioned four basic characteristics are not universally aplicable to all services industries (e.g. Lovelock and Yip, 1996). As a diversity of services exist, considerable variations between service firms were to be seen in both the scale and nature of service internationalization (e.g.

Erramilli, 1990 and Nachum, 1999). For this reason, it is argued that internationalization has got different implications for different kinds of services (Holmlund, 2002) which makes international performance (Erramilli, 1990) and the type of course in foreign market entry (Grönroos, 1999) highly contingent upon the very specific type of service offered.

The mode of service internationalization for service firms is therefore influenced by a combination of both the nature of the service, as well as the way in which the service is delivered (Vandermerwe and Chadwick, 1989).

Based on this preliminary review on service internationalization, it can be well argued that due to the existence of some very service-specific features, service firms face a unique set of challenges when crossing international boundaries. As such features were found to significantly impact on international performance as well as on the method of foreign market entry, it makes international expansion highly contingent upon a combination of the very specific type of service offering and the way in which the service is delivered. For this reason, it is reasonable to expect that the mode of service internationalization for consulting firms is most likely to be driven by some service-specific, or rather consulting specific, features as well.

1.5 Problem Definition

Given the management problem as stated in paragraph 1.3 and the preliminary review in paragraph 1.4, a

fundamental issue for Pentascope becomes that it understands the special characteristics its services as currently

offered possess. It furthermore becomes of particular relevance that it is aware of what kind of implications these very

specific characteristics may have on its internationalization process. However, the significance of consulting

characteristics in the international environment have received limited scholary attention and the strategic practices of

consulting firms in international markets is a relatively unexamined area. As this research is aimed at furthering and

structuring the strategic decisionmaking of the Pentascope organization, research at the level of the service sub-

sector is therefore required. In order to enable management of Pentascope to make strategic decisions on how to

organize and shape its internationalization process, the following main research goal has therefore been formulated:

Main Research Goal

These factors can both be related to very distinct and unique features rooted in the nature of the consulting business, as well as in the very specific type of service offerings as currently provided by the Pentascope organization. By offering an explanation of these factors, the Pentascope organization should gain a thorough understanding in the extent and nature of internationalization in the consulting business. Consistent with this line of reasoning, the main research goal has been translated into the following main research question:

Main Research Question

Answering this main research question, should provide the Pentascope organization with a profound understanding on both the challenges and implications of foreign market commitment as well as the factors required for successful international expansion. Based upon these successfactors, recommendations regarding future international expansion can be developed. It will therefore enable management of Pentascope to direct its strategic decisionmaking on its internationalization pattern to follow and how to organize and shape the expansion strategy of its national division.

In order to answer the main research question as stated above, this research question has been operationalized into several related research questions. These research questions will adress different but interrelated fields of particular relevance in this research. Together they will provide a structured answer to the main research question as formulated for this research.

Related Research Questions

It has been argued that service internationalization is highly contingent upon a combination of the very specific type of service offering and the way in which the service is delivered. For this reason, an understanding in the very specific type of service offerings as currently provided by the Pentascope organization, as well as the way in which these services are delivered, then becomes crucial. Research question one therefore becomes:

1. Which are the distinct and unique service-specific features of the consulting services as currently offered by the Pentascope organization?

When having distinguished on the distinct and unique features of the services as currently offered by the Pentascope organization, a further examination on the internationalization of consultancy becomes necessary. An in-depth

“Which are the consulting specific factors that are both critical to strategizing as well as impinge on the successful internationalization of the Pentascope organization?”

“Enable management of Pentascope to develop a coherent internationalization strategy, instead of a

set of accidental or even conflicting choices. This will be done by offering an explanation of the

factors that are both critical to strategizing as well as impinge on the successful internationalization of

a knowledge intensive consulting firm like Pentascope.”

investigation is therefore needed on the extent to which consulting specific features impact on and limit the internationalization of consulting firms. Furthermore, risks and barriers to their internationalization have to be distinguished on as well as the factors required for successful foreign market entry. Research question two is therefore formulated as follows:

2. Which factors determine the successful internationalization of a knowledge intensive consulting firm?

As it was argued that internationalization has got different implications for different kinds of services, having answered both research questions should provide a fruitful basis for a discussion on the Pentascope organization. The extent to which the Pentascope very specific features will impact on and limit their internationalization can be examined and strategic and operational implications of its service offerings will be determined. It will therefore offer an explanation of the consulting specific factors which are both critical to its strategic decisionmaking as well as the factors required for successful international expansion.

1.6 Research Design and Method

As pointed out in the previous paragraph, two related sub-questions are to be answered in order to answer the main research question. These research questions will be answered in the following two chapters, after which attention turns to a discussion on the Pentascope organization. Conclusions and recommendations will subsequently be drawn in the final chapter. A visual representation is presented in figure 1.1 below.

Fig. 1.1 Structural Overview of the Research

As follows from figure 1.1, chapter two will start with an in-depth investigation of the Pentascope services as currently offered by the organization. This chapter will provide an answer to research question one by providing an understanding in its very specific type of service offerings and its distinct and unique service-specific features. The

CHAPTER 2

CHAPTER 4

CHAPTER 5 CHAPTER 3 RESEARCH QUESTION 2

RESEARCH QUESTION 1 SERVICE CLASSIFICATION: THE

PENTASCOPE SERVICES

THE INTERNATIONALIZATION OF CONSULTANCY

CASE ANALYSIS: THE PENTASCOPE ORGANIZATION

CONCLUSION AND

RECOMMENDATIONS

way in which these services are delivered to its clients is furthermore examined. The client-consultant relationship therefore plays a central role in this chapter.

When having distinguished on the Pentascope service-specific features, chapter three will continue with a further examination on the internationalization of consultancy. This chapter will start by elaborating on the very specific nature of the consulting business and the services offered in it. It subsequently emphasizes the key characteristics specific to consulting firms and the resultant strategic and operational implications when these firms go international. Various risks and barriers to internationalization faced by consulting firms are furthermore discussed. The chapter will conclude by providing an understanding on internationalization strategies in the consulting business and by offering an explanation of the factors that determine the successful internationalization of consulting firms. In doing so, it will provide an answer to research question two.

As illustrated in figure 1.1, a case analysis of the Pentascope organization will be central to chapter four, in which findings from both chapter two and three will be combined. This chapter will provide an understanding in the challenges and implications of foreign market commitment, as well as the factors required for successful international expansion specific to the Pentascope organization. Based upon the findings of both chapter two and three, chapter four will consist of a discussion on the organizations’ attempt to set foot on the Belgium market. Strategic decisionmaking with respect to the foundation of Pentascope Belgium in 2001 as well as the operational activities and experiences during that year will be analyzed in order to evaluate the implemented strategy. Based upon such an evaluation, possible reasons for failure of the Belgium operation can be highlighted and more effective recommendations can be drawn for future expansion. A short investigation on the organisations’ current international division will furthermore be subject to this chapter. This will be done in order to diagnose the way in which this division has succeeded to establish international operations and has become actively international involved.

An answer to the main research question will finally be presented in chapter five and conclusions and recommendations will be drawn.

Data Collection

In order to obtain the required data to provide an answer to the main research question and related research questions, several data collection methods have been used for this research. As it is illustrated in table 1.1, information has been collected by means of both desk and field research.

Chapter two will be mainly based upon information gathered from expert-interviews on the current Pentascope service offerings. These interviews have been carried out with account managers from within the Pentascope organization and had a semi-structured and open character. This means that the questions asked were organized around several main topics and respondents were allowed to explain their answers rather than to respond to predetermined answer alternatives. Information collected from the interviews has been combined with analyses on internal documentation such as market brochures and company statistics. In order to classify its current service offerings, literature concerning various types of consulting services has been studied.

Literature research has been the main input to chapter three. In order to answer research question two, substantial

and systematic research has been conducted on the nature of the consulting business and on services

internationalization literature currently available. Information collected has been combined with external documentation such as market survey reports and publications of various branche organizations.

With respect to chapter four, findings from chapters two and three have been combined with internal documentation in order to analyze the Pentascope’s current situation. Furthermore, semi-structured interviews have been carried out with the managing directors of the Pentascope organization in order to obtain the necessary data on strategical and operational issues regarding the foundation and operational year of Pentascope Belgium. Internal documentation will be used in the analysis on the organizations’ current international division.

Tabel 1.1 Methods of Research

1.7 Research Limitations

The total package of services as currently provided by the Pentascope organization take shape in five different networks: Pentascope Implementation Network, Pentascope International, Next Dimension, Ability Alliance and Triam Knowledge Management. Since this research is conducted on behalf of the Pentascope Implementation Network, the other networks as described above will not be subject to this research. As pointed out in this paragraph, just a short investigation on the organizations’ international division will be provided in this research.

Research will furthermore be only directed at the very specific type of service offerings as currently provided by the Pentascope Implementation Network. As a variety of consulting services exist, this research will therefore only examine the Pentascope organizations’ current service offerings and the extent to which its specific type of service characteristics impact on and limit its internationalization.

Since the conduct of this research is furthermore limited to the Dutch consulting market, it will not explore or provide any in-depth analysis of any foreign markets nor market segments which might provide potential opportunities for international expansion. As research is aimed at furthering and structuring the strategic decisionmaking of the Pentascope organization, it will solely be directed at the examination of the consulting specific factors which are both critical to its strategizing as well as impinge on a successful internationalization.

Method: Chapter 2 Chapter 3 Chapter 4

A. Desk Research

Literature Research X X X

Internal Documentation X X

External Documentation X X

B. Field Research

Interviews X X

2 SERVICE CLASSIFICATION: THE PENTASCOPE SERVICES

In order to determine to what extent services as currently offered by the Pentascope organization will impact on and limit their internationalization process, a closer examination of the Pentascope services becomes necessary. It furthermore becomes crucial to distinguish on the distinct and unique features of its very specific type of service offerings, as these features are expected to affect the scale and nature of its internationalization. Based on semi- structured interviews carried out with account managers from within the Pentascope organization, a systematic investigation of the Pentascope services and its characteristics will be provided in paragraph 2.1. A discussion on these services and its distinguishing characteristics will thereafter follow in the service classification in paragraph 2.2, after which the answer to the first research question as formulated for this research will be presented in paragraph 2.3.

2.1 Pentascope Services

On the Dutch consulting market, the Pentascope organization has positioned itself as an implementation specialist. It is both the marketing slogan of the organization as well as the guiding principle behind the people working in it.

Implementation and Change Management is the organizations’ main business area and services offered include the deployment of process facilitators and coaches, next to implementation specialists and designers who shape client projects. These services are grouped together in different area’s of expertise, so-called business lines, which can be regarded distinctive aspects of implementation (e.g. project management and training), or specific area’s of interest (e.g. finance and human resource management).

In the ICT community, the term introducing is often used when it comes to implementation. It carries with it associations of having a beautiful system designed, developed and built and then letting the users take over the responsibility for the system and its introduction. Implementation is then quickly recognized in the meaning of installing and is not considered to be a high minded activity. In organizations, this ICT approach is often experienced as ‘forcing it onto the organization’. With respect to the Pentascope organization however, the persepctive of implementation is much broader. Implementation to the Pentascope organization is most of all ‘putting into practice’ and it conceptualizes implementation as follows:

“translating strategic decisions into concrete results that are accepted and incorporated by the client organization”

Pater, 2002

This conceptualization of implementation underlines the Pentascope specific approach towards consulting. It implies

that strategic decisions are translated into concrete results that are both accepted and incorporated by the client

organization. Implementation is then not seen as an end phase. It encompasses the entire change process and

already starts during the formation of the advice, where not only the change process but also the embedding of the

desired change in the organization is given a place (Pater, 2002). Instead of solely focussing on the end results, its

approach is therefore heavily focussed on the process itself. Implementation then literally starts at the beginning and

involves the entire process from the idea or the problem to the actual realization of the desired change process

(Geisler, 2003). The approach is therefore not only about the formation and delivery of the advice, but carefully fitting it

into the client organization and with it, the realization of the mental changes necessary within everybody who is

involved. According to Heinis (2003), account manager of Financials, it is this people oriented approach and its special

attention for the actual embedding of the change process to be realized what is truly distinctive for the Pentascope organization. As pointed out by Geisler (2003), account manager of Health Care: “by paying attention to and incorporating the values and beliefs of the people within the client organization in the change process, acceptancy and therefore commitment is created. It is this acceptancy and commitment which is essential in every change process as it increases the chances of a successful implementation”. Without paying attention to these individual needs, existing working environments cannot be changed successfully (Gijsbertse, 2003) as people have to unlearn old procedures and need to learn working within new developed structures or business processes (Van Velsen, 2003). The account manager of Social Insurances furthermore points out that it is therefore necessary to know what drives these people in order to change their working practices (Van Velsen, 2003). A successful implementation is only then possible when the consultant is able to place himself in the minds of the people central in the client organization (Broecks, 2003). For this reason, each client deserves a unique approach in handling its specific needs, as there is a specific mix of desired change and specific norms, beliefs and values in particular (Van Velsen, 2003). Dependent on the clients’ needs and its organizational culture, a unique approach towards the implementation project is determined and a large amount of flexibility is therefore always needed (Geisler, 2003).

In order to increase the chances of success, the Pentascope approach is therefore heavily focussed on managers and people working within the client organization. Instructing and motivating these persons as well as creating support are then seen as prerequisites for a successful implementation. Each consulting, or implementation, project is therefore characterized by three distinct core values, namely making, learning and fitting in. Making is about the final result which has to be achieved, the content. What the change is about, what the desired result has to be and what has to be designed. Learning is about the organizational ability and willingness to change next to the degree of operational support and resistance. Making the change last within the organization and enabling it to initiate and manage further improvements by themselves concerns the fitting in of chances. Enabling clients to implement the desired changes themselves, even after the Pentascope consultants have left the organization, is therefore what is strived for (Pater, 2002). The aspect of fitting in makes clear that the Pentascope approach is strongly focussed on enabling the client organization to implement new or improved procedures or business processes themselves. As pointed out by Heinis (2003): “these are the people which eventually have to work within new environments, so the chances of success are increased when they learn implementing and working in such environments themselves. Change processes are implemented by the client organization itself and the consultant only intervenes when necessary”. Instead of solely providing specialistic knowledge, the Pentascope consultant therefore fulfills more a supportive role. Gijsbertse (2003), account manager of Governments, points out that for this reason, the Pentascope consultant can be regarded more a facilitator, coach, or trainer, rather than a consultant.

2.2 Service Classification

From the discussion above, it becomes clear that both managers as well as employees from within the client organizations are strongly involved in the Pentascope implementation projects. The Pentascope approach is largely directed at the realization of mental changes and enabling the client organization to carry out these implementation projects themselves.

In terms of Kubr (2002), the Pentascope consultant can therefore be classified as a process consultant, rather than a

resource consultant. In the resource role, also referred to as an expert or content role, the resource consultant tries to

suggest to the client what to change, were the process consultant mainly suggests how to change. Management does

collaborate with the resource consultant, but this collaboration may be limited to providing information on request, discussing the progress made, accepting or declining proposals and asking for further advice on implementation (Kubr, 2002). In this role, the consultant merely provides technical expertise and is more external and less contingent on the interaction between client and consultant (Glückler, 1999). In the process role however, the consultant as the agent of change attempts to help the organization to solve its own problems by making it aware of organizational processes, of their likely consequences and of intervention techniques for stimulating change. Instead of passing on technical knowledge and suggesting solutions, the process consultant is then primarily concerned with passing on his or her approach, methods and values so that the client organization itself can diagnose and remedy its own problems (Kubr, 2002). Instead of solely providing expertise and information, the Pentascope consultant intervenes in the corporate dialogue and provides methodology in order to make the client solve its problems itself. The aim of the consultant is then to pass on the skills of how to diagnose and fix organizational problems so that the client is more able to continue on its own to improve the organization (Clark, 1995). According to the author, empowering the client is at the core of this model of consultancy. This approach however, is not as easy to standardize as the expert consulting approach because much depends on the personality of the consultant (Kubr, 2002). Interaction with the client is reflexive and hence, highly contingent on the consultants role-playing (Glückler, 1999). With respect to this process consulting approach, Kubr (2002) furthermore points out that while any consulting engagement involves some collaboration with the client, the process approach is a collaborative approach par excellence. This form of consulting is highly interactive and therefore also very contingent upon the charismatic qualities of the consultant.

2.3 Conclusion

As follows from this chapter, the role as taken by the Pentascope consultant during the process of consulting can be regarded as process consultation, since its approach is largely directed at the proces of change itself. As this approach is largely directed at the realization of mental changes within client organizations, the Pentascope consultant deals extensively with the social and behavioural aspects of the change process. Interpersonal and intergroup dynamics then become increasingly important as they affect the process of problem solving and change. The fact that this approach is not only highly directed at specific and unique client needs, but to specific organizational cultures, norms, beliefs and values as well, makes its service offerings highly customized. The consultant furthermore to a large extent intervenes in the client organization and for this reason, intensive client – consultant interaction and therefore face-to-face contact is required for successful service delivery. Such extensive involvement of the client organizations’

managers and employees result in a situation in which service delivery becomes highly inseparable from their users.

Furthermore, only professional and complex knowledge is core to their service package which makes the actual

service offering exclusively based on highly intangible assets and dependent upon the consultant-client organization

interaction. Intensive client-consultant interaction, extensive customization requirements and both input as well as

output entirely based on complex and intangible assets, therefore have to be regarded very distinctive aspects of the

specific Pentascope service offerings.

3 THE INTERNATIONALIZATION OF CONSULTANCY

As the previous chapter has provided an extensive understanding on the very distinct and unique features of the Pentascope services, a systematic investigation on the internationalization of consultancy now becomes necessary.

Based on a wealth of scientific research, this chapter will examine the extent to which consulting specific features impact on and limit the internationalization of consulting firms. This will be done by elaborating on the very specific nature of the consulting business and the services offered in it. It subsequently will offer an explanation of the resultant strategic and operational implications in cross-border consulting operations and the mechanisms used to overcome the various risks and barriers to internationalization. Finally, several internationalization strategies will be distinguished on, as well as the factors required for successful foreign market entry. In doing so, it will provide an answer to the second research question as formulated at the beginning of this research. Prior to the service classification of consultancy services, this chapter will first start with an introduction on the internationalization of consultancy and an overview on service internationalization.

3.1 Introduction

Management consulting, as well as many other knowledge intensive business services, has experienced a remarkable boom throughout the last fifteen years. Especially in the years from 1980 to 1997, in which 80 percent of the consultancy experience has been generated (Ernst and Kieser, 1999), the consultancy market has expanded overwhelmingly. In 2001, the European market for consulting services alone for example, reached a turnover of 47.5 billion euros compared to 11 billion in 1994. In that same period, employment rose from 95000 to 300000 consultants (FEACO, 2001). On a world level, consulting firms have grown continuously at rates far above 10 percent annually until the economic downturn in 2001 (Glückler, 2002). In 2002, the global market for consultancy services was estimated to be a 119.1 billion dollar business (Kennedy Information Research Group, 2003). This remarkable growth in consulting activities indicates that consulting firms and their services have steadily gained importance and its economic significance has become increasingly evident within domestic economies. However, in a world of intensifying cross border economic activity, businesses are becoming increasingly international in scope and in their search for organizational growth, more and more firms are seeking to extend to international markets. Furthermore, as an increasing number of manufacturing firms go global, it is argued that their service suppliers must often follow (Vandermerwe and Chadwick, 1989). Whether motivated by push or pull factors however, consulting firms as well are increasingly faced by pressures to become actively involved on international markets themselves.

With respect to service internationalization distinct and unique characteristics rooted in the very specific nature of services were found to significantly affect the internationalization process of service firms (e.g. Zeithaml et al, 1985;

Nicoulaud, 1989; Bouquet et al, 2001; Cicic et al, 2001). Barriers specific to service firms hindered a lot of service providers in their international expansion (Winsted and Patterson, 1998) and particularly affected their decision to expand abroad and their subsequent choice of method of entry (Erramilli, 1990; Erramilli and Rao, 1993).

Researchers have therefore broadly agreed that the nature of goods and services fundamentally are not the same and that services face a unique set of challenges when crossing international boundaries (La Vinh et al, 2003).

Fundamental differences were furthermore not only to be seen between goods and services, but even within specific

service sectors as well (e.g. Erramilli, 1990; Patterson and Cicic, 1995; Ekeledo and Sivakumar, 1998). Research

carried out by Erramilli (1990) for example, showed that considerable variations were to be seen in both the scale and

nature of internationalization between service firms. Furthermore, challenges to international expansion tended to vary

significantly from sector to sector. For this reason, it is argued that internationalization has got different implications for different kinds of services (Holmlund, 2002) which makes international performance (Erramilli, 1990) and the type of course in foreign market entry (Grönroos, 1999) highly contingent upon the very specific type of service offered. The mode of service internationalization for service firms is therefore influenced by a combination of both the nature of the service, as well as the way in which the service is delivered (Vandermerwe and Chadwick, 1989). For this reason, it is reasonable to expect that the mode of service internationalization for consulting firms is most likely to be driven by some service-specific, or rather consulting specific, features as well. However, the internationalization process of knowledge intensive, or professional, service industries, too which consulting services belong, has just been examined by only a few researchers (e.g. Nachum, 1999; Gray et al, 2001; Roberts, 2001). None of these studies however has reported on the distinctive performance drivers of these kind of service firms in an international context, as well as the various risks and barriers to international expansion. They furthermore neglected to analyze the very specific nature of these kind of service offerings and their impact on internationalization. It can therefore be seriously argued that previous theoretical discussions have failed to recognize the strategic implications of such service characteristics on the internationalization process of consulting firms. The study on expansion and performance of consulting firms in an international environment is therefore a relatively unexamined area.

When planning to go abroad however, it becomes of particular interest for these kind of service firms to be aware of the operational and strategic implications their services may have on international expansion. A fundamental issue therefore becomes that they understand the special characteristics their services possess. In view of the limited scholarly attention on this dynamic and strategic sector, this chapter redresses this gap by offering an explanation of the consulting specific factors that are both critical to strategizing as well as impinge on the successful internationalization of consulting firms. In doing so, it makes contributions to both theory and practice by offering a profound insight in service as well as market related contingencies that can guide future research as well as international expansion practice in the consulting business. As most of the findings as presented in this chapter will apply to most consulting firms, this study will in particular focus on consulting firms active in the field of process consultancy. As these specific consulting firms are highly directed at the provision of methodology and the realization of mental change processes, their role is more internal to the client organization and highly contingent upon the interaction between client and consultant (Glückler, 1999; Kubr, 2002). Services as offered by these specific consulting firms are therefore based exclusively on intangible assets and are furthermore characterized by the highest degree of intimate contact between client and service provider. As will be shown in this chapter, international expansion will pose special challenges for these process oriented consulting firms.

3.2 The Internationalization of Services

Throughout the last couple of decades, the overall value of service trade and investment has undergone a radical

growth. Today, more than half of the annual world FDI flows are in services and in most economies around the world,

services account for the largest shares of production and employment. Such an increase in service sector activity has

not only become evident within domestic economies, but services have become increasingly international in scope as

well (Roberts, 2001). In their search for new markets, both large and small service firms have sought to

internationalize their operations. The number of service firms now operating on international markets has therefore

grown significantly. Despite this increasing international service sector activity however, the study on services in an

international context has been seriously neglected (Lovelock, 1999; Grönroos, 1999; Roberts, 2001 and Gray et al,

2001). While there have been many efforts to understand the process of internationalization, previous research has

tended to heavily concentrate on the behaviour of manufacturing multinational corporations (Erramilli and Rao, 1993;

Grönroos, 1999 and La Vinh et al, 2003). Relatively little research attention has therefore been given to the performance of service firms in the international context (Knight, 1999), despite the fact that there are likely to be distinctive factors that impact upon export performance in service firms (Lovelock and Yip, 1996). In a growing body of literature, researchers broadly agree that there are important differences to be considered between manufactured goods and services. A significant amount of this research has been conducted on intangibility, heterogeneity, inseparability and perishability as features that sharply distinguishes them from products (e.g. Zeithaml et al, 1985;

Knight, 1999). Intangibility can be considered a common characteristic of all service firms (Gray et al, 2001; Cicic et al, 2001) and implies that a service is experienced or performed (Patterson and Cicic, 1995). Services can therefore not be seen, felt, tasted or touched (Zeithaml et al, 1985) and physical ownership cannot occur (Botten and McManus, 1999). The heterogeneity characteristic addresses the potential for high variability in the performance of services (Grönroos, 1990). This means that each service encounter is unique and highly customized (Knight, 1999) and therefore requires assessment of, and adaptation to, specific client circumstances (Greenwood et al, 2002). As services are furthermore mostly produced and consumed simultaneously (Nicoulaud, 1989), services are inseparable from their users and require direct involvement and input from those benefiting from the service (Winsted and Patterson, 1998). Perishability finally means that, unlike manufactured goods, services cannot be stockpiled (Zeithaml et al, 1985; Winsted and Patterson, 1998) and therefore usually must be consumed at the time they are produced (Knight, 1999).

In an international setting, features such as intangibility, heterogeneity, inseparability and perishability were found to have serious consequences for the internationalization process of services (Zeithaml et al, 1985; Nicoulaud, 1989;

Knight, 1999) and the decision to expand abroad (Holmlund, 2002) and the choice of method of entry in particular (Erramilli, 1990; Erramilli and Rao, 1993). Intensive customer contact, extensive customization requirements, cultural adaptation and degree of tangibility are unique challenges faced by most international service providers (Knight, 1999). Such barriers specific to service firms hindered a lot of service providers in their internationalization process (Winsted and Patterson, 1998; Grönroos, 1999) and international entry therefore tends to be relatively more complex than for traditional manufacturers (Knight, 1999). International expansion can therefore not be expected to unfold in an unproblematic manner and internationalization can be regarded a relatively complex and risky proposition. Even more important, as a diversity of services exist, considerable variations between service sectors were to be seen in both the scale and nature of internationalization. Challenges to internationalization tended to vary significantly from sector to sector (Erramilli, 1990). This means that internationalization has different implications for different types of services (Holmlund, 2002) and significant differences in service characteristics within service sectors therefore have to be acknowledged for. Lovelock and Yip (1996) therefore argue that the mentioned four basic characteristics are not universally applicable to all services. In recognition of this, several classification schemes have been developed throughout the years and a variety of variables have been used to classify services. Examples include Erramilli’s (1990) hard service/ soft service scheme, Patterson and Cicic’s (1995) location-free professional, location-bound customized, standardized-service packages, value-added customized services (adapted from Vandermerwe and Chadwick, 1989) and Lovelock and Yip’s (1996) people-processing, possession-processing and information- processing services scheme. In these classification schemes, a variety of dimensions have been used to classify services. However, the intangibility dimensions has been invariably prominent in most frameworks (Patterson and Cicic, 195) and services are therefore typically described along a continuum according to the degree of intangibility.

This view is supported by Clark (1995) who points out that it is more useful to distinguish a continuum of intangibility,

ranging from one extreme of highly tangible services to another of highly intangible services. According to Nicoulaud (1989), a usefull way of looking at services internationally is therefore to place them on an intangibility-environmental sensitivity map.

Vandermerwe and Chadwick (1989) were among the first to acknowledge the existence of considerable differences in service characteristics within service industries. These authors argued that the mode of service internationalization is influenced by a combination of both the nature of the service, as well as the way in which the service is delivered. In response of this, they have developed a classification system based on two dimensions: the degree of interaction between service provider and consumer (degree of face-to-face contact), and the degree to which services are embodied in or delivered through goods (degree of service tangibility). This classification system resulted in a framework, consisting of six distinct and service-specific sectors in which services could be clustered, which demonstrated the relationship between some critical service characteristics and modes of internationalization. This classification scheme of services in international markets has later been empirically examined and revised by Patterson and Cicic (1995). The revised framework consists of four different cells and illustrates modes and strategies of service internationalization as a guide for managers taking their services into world markets. The resultant four-cell framework identified service firms that in many cases had significantly different profiles in international operations.

Based on an investigation of 179 service firms, barriers, costs and perceived risks as well as the motivations and benefits to internationalization between various groups of services were distinguished. As these tended to vary significantly between various groups of services, the variety of differences in entry modes within service industries was confirmed.

Both the intangibility and the inseparability dimension as used in the Patterson and Cicic (1995) framework are highly relevant in profiling both strategic (intangibility dimension) and operational (degree of contact) characteristics in an international context (Vandermerwe and Chadwick, 1989; Patterson and Cicic, 1995; La Vinh et al, 2003). With respect to the discussion on the significance of specific consulting characteristics in an international context, the Patterson and Cicic (1995) framework therefore serves as a useful basis for gaining insights into the cross-border strategic and operational activities of consulting firms. By applying the key dimensions of intangibility and degree of contact during service delivery, process consulting firms can be positioned within the framework. Based on the framework and its two key dimensions, barriers to internationalization and entry mode strategies specific to consulting firms can be identified and distinctive determinants of service export performance can be discussed. Research at the level of the service sub-sector however is required and an in-depth understanding on the key characteristics of the consulting business and its services is needed. Particular attention will therefore now be drawn on the distinct and unique characteristics rooted in the very distinct nature of the consulting business. As pointed out before, an examination of process consulting firms will be central to this discussion. In order to subsequently place them in the Patterson and Cicic (1995) framework, this discussion will be structured along the key constructs of the framework, namely the intangibility and inseparability dimensions.

3.3 The Nature of Consultancy

With respect to services industries, an important distinction can be made between consumer services industries and

professional services industries. Consulting services are included in the category of professional services (Nachum,

1999; McLachlin, 2000; Kubr, 2002; Gray et al, 2001; Greenwood et al, 2002), which are also often referred to as

Knowledge Intensive Business Services (KIBS) as well by various authors (e.g. Hales, 2000; Roberts, 2001; Glückler,