Growth strategies for service firms

TLDR

Services are intangible and produced simultaneously, making traditional profitability determinants such as life cycle, experience, and market share less applicable to strategic planning. The paper argues that growth strategies for service firms must be revised and proposes alternative paths. It suggests specific alternative growth strategy paths tailored to service firms. The study highlights three key recommendations: limit overextension across diverse segments, view service development and concentric diversification as closely linked rather than sequential, and approach international expansion cautiously with cultural flexibility.

Abstract

Abstract Two characteristics of services—intangibility of the offering and simultaneity of production and consumption—have important implications for strategic planning. Four of these implications are described. Life cycle, experience, and market share, which are the usual determinants of profitability that provide guides for strategic planning are not easily applied to the service firm. Therefore growth strategies need to be revised. In its second part the paper suggests alternative growth strategy paths for service firms. It brings forward three main remarks. First, the service firm should not overuse its delivery system and its image by attempting to serve the needs of too many sociodemographic segments. Second, service development and concentric diversification are not sequential choices; the latter is not so distant from the former as may be commonly perceived. Third, expansion to out‐of‐country markets represents a risk discontinuity; it should be approached by service firms with considerable flexibility and willingness to interact with different cultures.