Nassim Nicholas Taleb presented a quite interesting idea in his book The Black Swan: Categorizing work into scalable and non-scalable work. A non-scalable job would be one where the outcome (or income of the professional) varys from the amount of work an employee does and is confined by the amount of work he as a ressource can do. An example would be the consultant who can only do as much as his non-sleeping time allows. The produced value is bound to the amount of man hours billed.
Scalable work generates ideas which may be reused every so often – without the confinement of a ressource’s capacity. An example from Taleb’s book was J.K. Rowling’s novel Harry Potter. She only wrote it once, but millions and millions of people consume it.
Scalable work is more risky of course. While the potential is high, the risk is as well since there are only a limited amount of winners (see Carl Shapiro’s ideas), the competition is high – as are the initial costs. Why is the return on investment so high? Because the reuse of an idea is nearly free of costs. While the fix costs for generating the idea are high, the marginal costs for each further copy are nearly zero (again, see Shapiro’s book on that).
Scalable + Non-Scalable = Competitive Advantage
Applying this idea to a professional service provider: the service sold is non-scalable (man hours). Therefore, the competitive advantage can not arise from this “commodity”. The value of each man hour lies in the knowledge that is transfered to the customer. And this knowledge is in one part bound to the employee as intangibles – but on the other hand also centralized, transmittable ideas / knowledge.
value of man hour = intangible knowledge of employee + possible transmittable knowledge the employee can reuse
Therefore, the competitive advantage of a professional service provider comes from how good his people are and fom his investments in centralized knowledge generation and codification or transmission (R&D / market analysis department). The latter are scalable ideas – coming with risks (high fix costs) but also with the advantages mentioned above.