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Paper info: When the Supplier's Human Capital Walks Away, Where do the Customer Go?


When the Supplier's Human Capital Walks Away, Where do the Customer Go?


Arne Morten Ulvnes and Harald Biong

Place of Publication

The paper was published at the 17th IMP-conference in Oslo, Norway in 2001.


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Professional business service firms play an increasing important role in the modernsociety. Several aspects differentiate those kinds of organizations from production ofstandardized services and industrial goods. They are heavily dependent on highly skilledemployees to attract and retain clients. Usually there is a wide knowledge asymmetrybetween the professional agent and its client. The service output is specialized to eachclient's unique and varying needs. Hence, both the qualities of the professional serviceprovider and the service output may be difficult to assess correctly. Finally, theproduction of professional business services often necessitates close buyer-sellerinteraction with strong social bonds between the individual parties resulting. Thoseaspects of professional business service production places the individual service providerin a very special situation both vis-a-vis his or her organization and the client. In short,the individual professional controls the customer capital and can easily walk away withthe customers to a competing business. What can the professional service provider do toreduce its vulnerability and motivate the customers to stay in case the individual serviceagent leaves? By drawing upon institutional economics theory we suggest that the servicefirm can benefit from investing in firm specific structural capital. In spite of evidencefrom practice, little is known from research about factors motivating clients whether tofollow their contact persons to other service organizations or not. In this paper weidentify variables and develop research propositions about the client's decision to followthe contact person or remain with its incumbent service organization in case the contactperson leaves for a competitor. Implications for theory and practice are also discussed.