Chapter 9: The evolutionary theory of the firm

Pages Contents
238-267Although the three theories of the firm discussed in the previous chapters explain some of the principles that guide business firms, none of these theories attempts to explain 'why some firms constantly and deliberately evolve through the relentless pursuit of competitive advantage'. Evolving firms rely on entrepreneurial activity and they need a special habitat to flourish in. In this chapter, an attempt is made to identify the key concepts that may be used as building blocks for developing an evolutionary (or entrepreneurial) theory of the firm. In brief, the chapter aims to establish that the firm is a 'creative destruction' or 'mutation inducing' entity, which evolves not only as a reactor to change (à la Darwin) but also as a creator of change (à la Schumpeter). It is argued that the black box of the firm is a research and development laboratory with the mission to improve and create new competitive advantage; competitive advantage gives birth to the firm's production and demand functions, which in turn create output and profit. Additionally, the chapter describes the basic characteristics of the habitat needed for the evolving firm and the habitat's importance for the overall growth of an economy. Moreover, the chapter adds to the description of the architecture of the US entrepreneurial system originally charted by Schramm's (2004), it discusses the link between market structure and innovation and it stresses the significance of incentives for invention and innovation. Finally, the paper focuses on society's motivation to grant patents, copyrights and trademarks, as incentives for inventive and innovative activity.
1 Introduction
2 Creative destruction
3 The essence of Schumpeter
4 Styles of entrepreneurship
5 Entrepreneurial capitalism
6 Habitat for entrepreneurs
7 The architecture of the US entrepreneurial economy
8 Market structure and innovation
8.1 Schumpeter's assertion
8.2 Process invention
8.3 Patents, copyrights and trademarks
9 Strategy and firm structure
10 Summary

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