Characteristics of Business Service Firms

The growth in employment in business services was also reflected in extremely high rates of new firm formation. Business services were the main contributors of UK small firm service sector growth in the 1980s and 1990s. Not only were business service growth rates generally slightly higher than those for consumer service sectors, but business services generated nearly 3 times as many extra businesses (52 300) as consumer services (18 800) (1985–89). Particularly outstanding was an expansion of over 11 000 new computer service firms, but substantial growth rates were also experienced by management consultants, professional and technical services (surveyors, architects, consulting engineers, and draughtsmen), and market researchers.

The structural composition of all business service sectors reflects a bipolar distribution with a high number of very small firms and smaller numbers of large firms. This reflects a firm formation process that has comparatively few barriers to entry. In this context, it is important to distinguish between goods related services and KIBS. The goods related service providers supply relatively standardized support services often involving manual workers. They tend to have higher barriers to entry with regard to capital and equipment. They also tend to be much larger companies and in many cases these markets are dominated by large transnational service suppliers. A good example is Integrated Service Solutions (ISS), a Danish provider of goods related business services. This company was established in 1901 to provide security services, but has diversified into contract catering, cleaning, maintenance, facility management, and office support. Since 1998, ISS has made over 350 acquisitions and since 2005 the group has introduced a new strategy to transform itself from its core business as an international provider of cleaning services to a supplier of integrated service solutions customized to client needs. Compared to goods related services KIBS firms have very low barriers to entry (capital and equipment) as many of these firms sell expertise or knowledge founded upon the established reputations of individuals. Successful business service professionals create individual brands, and in some cases are transformed into iconic individuals, that are recognized by clients. Low barriers to entry means that from the 1980s the growth of small business service firms stands out as the single most important component of the rapid growth of small service sector business.

The majority of business service activities have yet to be transformed into professional occupations. The process of professionalization represents an attempt by an industrial sector to restrict entry by establishing a system of formal examinations or an accreditation process. Professionalism represents a form of social closure in that it is designed to maintain the integrity of an industry’s knowledge base and also ultimately to limit supply and consequently enhance profit margins. The primary business service professions are represented by lawyers and accountants, but other business services are trying to transform themselves into recognized professions. Management consultancy has tried to professionalize but failed due to the difficulties of identifying a single branch of knowledge that can be defined as ‘management consultancy’. Fundraising, a neglected business service targeted at not for profits, has also tried to professionalize though the establishment in the UK of the Institute of Fundraising in 1983, but this has so far failed to develop into a profession, in part, due to a shortage of fundraisers.