Structure, Strategic Groups, and Competitive Advantage: A Study of Employee Entrepreneurship

The strategy literature has traditionally focused on firm activities to obtain a competitive advantage in large, oligopoly industries. What is not clear in the literature are the strategies used in fragmented professional service businesses to obtain a competitive advantage. Fragmented professional service industries pose unique structural concerns for entrepreneurs to gain a competitive advantage, which have effects on individual and firm performance. The current study develops and tests collaboration effects on performance at the individual and firm levels of analysis; and then advances a multilevel mixed effects linear regression model. I contend that group membership and investments into group activity have a positive effect on performance at both the firm and individual level. In addition, I propose cross-level collaborative effects on performance. I test my hypotheses with a database of 30,901 transactions nested within 3,050 professionals nested within 445 firms within the fragmented search consulting industry. The multivariate linear regression models support investment effects by individuals on performance. The multilevel mixed effects linear regression model advanced is partially supported to demonstrate a cross-level collaborative investment effect on performance. While group membership in itself does not have an effect on performance, certain investments in collaboration do impact performance across levels. The results and their implications are discussed.