Entrepreneurial dominant logic
Kurt A. Heppard and G. Dale Meyer
Entrepreneurial dominant logic is a constantly evolving information filter that is economically and managerially oriented and is based on organ izational processes, schemas, or mental maps. This filter attenuates the complexity of informa tion in the firm’s external environment and shapes the conceptualization and execution of wealth creation within the context of the existing firm and its businesses. Entrepreneurial domin ant logic is at the heart of corporate entrepren eurship and drives or guides the configuration or reconfiguration of internal resources and cap abilities to reactively or proactively support environmentally related change or diversifica tion via growth into new ventures in order to create or capture entrepreneurial rents in the new competitive landscape. When combined with analytic procedures used by corporate entrepreneurs, it forms the entrepreneurial in telligence or entrepreneurial mindset, of the firm.
Entrepreneurial dominant logic is derived from the concept of dominant logic designated by Prahalad and Bettis (1986) to link patterns of diversification and performance . More specific ally, dominant logic was said to consist of ‘‘the mental maps developed through experience in entrepreneurial dominant logic 73 the core business and sometimes applied in appropriately in other businesses’’ (1986: 485). The concept was refined by Bettis and Prahalad (1995) when they extended the notion of domin ant logic to environmentally driven change and conceptualized the dominant logic as an in formation filter. This filter determines relevant data for the analytic procedures used by man agers, which are incorporated into competitive strategies, values and expectations, measures of performance, and reinforced behaviors (Bettis and Prahalad, 1995). Organizational learning and unlearning links these organizational func tions with the dominant logic in a recursive feedback loop. This feedback system linking or ganizational learning and unlearning to the need to change or shift an organization’s dominant logic to meet the challenges of an ever changing competitive landscape is vital. The basic concept of dominant logic is illustrated in figure 1.
Entrepreneurial dominant logic places these concepts in the context of strategic entrepren eurship and provides a fundamental link be tween scholarly research in the strategic management and entrepreneurship literatures (Meyer and Heppard, 2000; Hitt et al., 2001). The concept also creates a relationship that is valuable for future studies of entrepreneurial strategies. In fact, dominant logic consensus among top managers has recently been identified as an important research issue in the investiga tion of corporate entrepreneurship (Dess et al., 2003).
Entrepreneurial dominant logic (information filter), combined with entrepreneurial analytics (managerial procedures) of a firm, makes up the entrepreneurial intelligence of a firm. This entrepreneurial intelligence is, most basically, an organization’s ability to learn and unlearn (Bettis and Prahalad, 1995; Hitt and Reed, 2000), but in the entrepreneurial context is perhaps the most widely referred to as an ‘‘entrepreneurial mind set’’ (McGrath and MacMillan, 2000) or entre preneurial cognition (Mitchell et al., 2002). Strategic managers play a key role in developing this information filter in that they state a stra tegic vision and make important decisions about firm strategies, structures, and overall organiza tional form (Miles et al., 2000; Covin and Slevin, 2001).
A key aspect of entrepreneurial dominant logic is that it favors information regarding the potential for wealth creation. Wealth creation is at the heart of both strategic management and entrepreneurship research (Ireland et al., 2001). It is shaped by an organization’s competitive strategy, values and expectations, measures of performance, and reinforced behavior. Wealth creation has also been related to super normal profitability, economic profits, or eco nomic rents. Four basic economic rents are generally recognized as monopoly rents, quasi monopoly rents, Ricardian rents, and entrepren eurial rents.
Entrepreneurial dominant logic is focused specifically on entrepreneurial rents.
Figure 1
Source: Bettis and Prahalad (1995)
Entrepreneurial rents arise from new combin ations of resources in environments of great un certainty (Rumelt, 1987). Rumelt defines entrepreneurial rent as ‘‘the difference between a venture’s ex post value (or payment stream) and the ex ante cost (or value) of the resources combined to form the venture’’ (Rumelt, 1987: 143). Entrepreneurial rent, then, is the reward or result of expected uncertainty in returns of a new venture. These rents are also typically con sidered non sustainable, given the assumption that other competitors will erode profitability. This assumption forces firms to transition to other information filters and managerial analy tics that focus on sustainable competitive advan tage and supernormal profitability in the face of eroding entrepreneurial rents.
Entrepreneurial dominant logic is related most closely with two key streams of strategic management research related to wealth creation: adaptation and diversification. Adaptation or strategic fit (Zajac, Kraatz, and Bresser, 2000), in the rapidly changing external environment described by Bettis and Hitt (1995) as the new competitive landscape, is particularly important. The new competitive landscape is characterized as an environment of great uncertainty and op portunities for many new and innovative re source combinations. Hitt and Reed (2000) further specify an ‘‘entrepreneurial zone’’ in this new competitive landscape, in which market opportunities for entrepreneurial rent must be immediately spotted and explored, where in creases in productivity and innovation must occur quickly, where organizational structures can be changed almost immediately, and where learning and unlearning occur very quickly. Eisenhardt, Brown, and Neck (2000) extended this notion further by proposing that entrepren eurial adaptation is proactive rather than reactive and allows firms to compete on the entrepre neurial edge of chaos and time.
The second key concept is growth related diversification through the creation of new ven tures (Burgleman, 1983). The objectives of this entrepreneurial diversification are twofold, in that it provides internal diversity for a corpora tion and seeks entrepreneurial rents in the mar ketplace. The links between entrepreneurship and diversification are well established. Teece (1982) provided important reasons why entre preneurial activities would lead to firm diversi fication and why there could be economic returns associated with such activities. Burgel man (1983: 1349) formally defines corporate entrepreneurship as ‘‘the process whereby firms engage in diversification through internal devel opment.’’ He goes on to stress the importance of new resource combinations in entrepreneurial diversification and refers to corporate entrepren eurship as the ‘‘corporate analog’’ of individual entrepreneurship. More recently, Alvarez and Barney (2000) have developed a resource based view of asset combinations and recombinations associated with entrepreneurial strategies.
In summary, fully understanding the com ponents of entrepreneurial dominant logic requires a synthesis of ideas related to the con cepts of information filtering, selection, and processing found in studies of strategic manage ment, entrepreneurship, managerial and organ izational cognition, organizational learning, entrepreneurial cognition, and knowledge cre ation. As the components of the entrepreneurial dominant logic are more fully refined, it is im portant for researchers to recognize that entre preneurial dominant logic is specifically the information filtering component of the overall entrepreneurial intelligence or entrepreneurial mindset of a firm. Entrepreneurial dominant logic is most appropriately described as a com ponent of corporate entrepreneurship and is most closely related to strategic adaptation to a rapidly changing competitive landscape and growth through diversification by the creation of new ventures.
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