THE MICROECONOMICS OF INNOVATION UNDER UNCERTAINTY AND THE RESOURCE-BASED VIEW OF BUSINESS STRATEGY

Abstract

We link end-product innovations with those entrepreneurial endeavors aimed at developing firm-specific valuable, rare and unique resources (VRIO) under uncertainty. These resources are responsible for rent and sustainable competitive advantage by the resource-based view (RBV) of business strategy, yet their uncertain cost and productivity are not explicitly operationalised in RBV. We argue that acknowledging resource-uncertainty implies uncertainty in the path-dependent evolution of VRIO resources, which translate to heterogenous end-product attributes that shape the competitive environment. Resource-uncertainty requires management to be active in resource-risk-management, a role that ultimately reduces the uncertainty management observes, compared with the uncertainty that an outsider observes. Our framework highlights complementarities between those entrepreneurs responsible for disruptive innovations, and routinised innovation processes of established firms. Both cope with and manage innovation risk, and both are essential for the creative destruction process.