Strategizing, Disequilibrium, and Profit

4 August 2006 at 6:20 am Nicolai Foss Leave a comment

| Nicolai Foss |

Stanford University Press has just published John A. Matthews’ Strategizing, Disequilibrium, and Profit. A 14-page sample is available here.

Matthews, who holds the Chair of Strategic Management at Macquarie Graduate School of Management, Sydney, has contributed for many years to what is sometimes called “industrial dynamics,” that is, the strongly empirically oriented intersection between process approaches to economics (evolutionary and Austrian views) and strategic management (mainly the capabilities and resource-based views). Accordingly, the main sources of inspiration for the current book are Schumpeter, who provides the overall dynamic view of the economy as an evolving system; Knight, who contributes a theory of profits, and Penrose who contributes a theory of the firm.

The book may be read as a frontal attack on strategic management’s dominant perspective, the resource-based view.Thus, Matthews urges us to focus on entrepreneurship (which is virtually neglected in the RBV), disequilibrium (the fundamental RBV analysis is cast in an equilibrium mould), and (entrepreneurial) profits (rather than rents in equilibrium). However, the author seems to intend something more conciliatory:

My claim is that the RBV comes into its own when applied in a dynamic, disequilibrium setting; in this setting it involves much more than simply ascertaining whether the firm is acquiring resources that are valuable, rare and nonimitable. In a dynamic setting, we are concerned with the strategies through which firms build bundles of complementary resources, and the process of resource exchange they engage in to do so (p.158).

I concur. However, perhaps in contrast to Matthews I think that the explication of a dynamic RBV may very usefully draw on new institutional economics perspectives, and not just on evolutionary ones. Here is a first attempt (SMG WP 2006-7) to tell such a story.