Creating and Sustaining Competitive Advantage: Management Logics, Business Models, and Entrepreneurial Rent
Creating and Sustaining Competitive Advantage: Management Logics, Business Models, and Entrepreneurial Rent, Chandra S. Mishra, 2017, Palgrave Macmillan, New York.
Posted: 12 Jan 2017 Last revised: 27 Jul 2017
Date Written: January 9, 2017
Creating and Sustaining Competitive Advantage develops a theory of competitive advantage, namely the theory of entrepreneurial rent, which explains the phenomena of competitive advantage creation in a firm with a dynamic environment. Our theory of entrepreneurial rent posits that a firm’s competitive advantage lies in the firm’s superior execution of their value creation and appropriation processes that constitute the business model mechanism. The firm’s business model mechanism constituting the management logics, value opportunities, core resources, and value activities, underlying the firm’s competitive advantage creation is hitherto a “black box.” Our theory of competitive advantage opens this black box and looks into the business model processes underlying the competitive advantage creation. Further, the business model mechanism links the management pay-performance incentives with the firm performance. Our theory of entrepreneurial rent also uncovers the processes underlying the pay-performance relation.
The entrepreneurial ability to proactively exploit environmental uncertainty in the firm’s favor and thereby achieve a business model execution advantage, sustained by powerful entrepreneurial incentives, creates and sustains the firm’s competitive advantage in a dynamic environment. The firm’s competitive advantage thus lies in the superior execution of their business model mechanism (firm value creation and appropriation), which is sustained by powerful entrepreneurial incentives. Entrepreneurial incentives for management constitute uncertain, performance-based compensation in the executive’s pay mix, which motivates the management to enhance the execution of the firm’s business model mechanism wherein lies the competitive advantage. Thus, the superior execution of the business model enables the firm to create and sustain competitive advantage that yields the firm with an entrepreneurial rent, which further provides the management with an entrepreneurial surplus. It is the management’s desire to earn an entrepreneurial surplus (an above-industry-average compensation), enhanced by the entrepreneurial incentives, which is central to the firm’s ability to achieve and sustain competitive advantage. With powerful entrepreneurial incentives that enhance the firm’s absorptive capacity, the firm continually updates and strengthens the management logics, thereby enhancing the management cognition and situation awareness. The managers in entrepreneurial-oriented firms proactively seize and thereby exploit cognitively distant Schumpeterian opportunities in a timely manner, promoting the value creation and appropriation mechanism that further enhances the firm’s business model advantage and thus providing the firm with a sustainable competitive advantage.
Keywords: Strategy, Business Model, Executive Compensation, Competitive Advantage, Absorptive Capacity, Corporate Entrepreneurship, Entrepreneurial Orientation
JEL Classification: L26; M12; M13
Suggested Citation: Suggested Citation