The effects of competition on referral alliances of professional service firms

The supply side of many professional service markets consists of two different pools of providers: generalists and specialists. Specialists usually gain access to new clients through referrals from generalists. To ensure a continuing stream of engagements, specialists often form referral alliances with multiple generalists. Engaging the right generalist partners and allocating resources to the resulting referral relationships are among the most important challenges facing these specialist firms. In this study, we examine how competition affects the management of referral alliances over time. Because of the high level of inseparability of the professional service engagement, the nature of competition among specialists is complex. Building on the ecological view of competition, we model the degree of niche overlap in the specialist's home markets and the generalists' markets as well as the potential overlap due to the proximity of rivals vis-à-vis generalists. Using data on visiting consultant clinics involving cardiology specialty practices and rural hospitals from a Midwestern state over a 13-year period, we find that the various aspects of niche overlap influence the involvement of these specialist professional service firms in referral alliances as well as resources they allocate to these relationships. In addition to expanding our understanding of vertical, bilateral alliances between professional service firms, this study enhances our general understanding of strategic alliances by demonstrating how partner attractiveness and the actions of rivals affect the resource allocation decisions of firms managing multiple strategic alliances over time.