Recognizing opportunities: initiating service innovation in PSFs

Purpose – The purpose of this paper is to shed more light on the crucial initiation stage of service innovation in professional service firms (PSFs) by individual professionals and the implications for knowledge management. Design/methodology/approach – The paper builds theory, based on an in‐depth review of the relevant literature. The developed theory is illustrated with a case study of PricewaterhouseCoopers AG (PwC), one of the Big Four accounting and consulting firms. Formal and informal interviews about innovation, learning in client interactions, and knowledge management were held with more than 70 employees of PwC over a three‐year period. Findings – The paper shows that entrepreneurial opportunity recognition is a suitable framework to explain the initiation of service innovation in PSFs. Prior knowledge, alertness and search are identified as bases for the recognition of opportunities and hence the initiation of service innovation in PSFs. Therefore, the author argues that knowledge management should raise the alertness of individual professionals to engage in opportunity recognition and also provide a fruitful environment to enable active search for opportunities on the basis of relevant prior knowledge at hand. Practical implications – The findings aim to help managers in PSFs to understand better the initiation of innovation in their companies and enable fostering of innovation through the application of dedicated knowledge management initiatives. Originality/value – Previous research has not yet taken an in‐depth look at the initiation stage of service innovation by individual professionals in PSFs. In this paper, entrepreneurial opportunity recognition is presented and applied for the first time as a framework to explain the activity of professionals in the initiation of service innovation in PSFs. In doing this, the paper also contributes to the understanding of the under‐researched corporate entrepreneurial role of professionals in PSFs.