Dominant Logic and Entrepreneurial Firms' Performance in a Transition Economy

Article excerpt

Dominant logic is the manner in which firms conceptualize and make critical resource-allocation decisions, and over time develop mental maps, business models, and processes that become organizational recipes. This study compares and contrasts the dominant logic of Polish entrepreneurial firms. We find evidence that a dominant logic characterized by external orientation, proactiveness, and simplicity of routines significantly influences the performance of entrepreneurial firms in this emerging economy. These dominant logic characteristics of high performers serve as a key intangible resource in transition economies that are characterized by the absence of strong institutions and resource constraints. Future research in this critical domain should include how dominant logic needs in transition economies evolve over time as the institutional environment matures and market mechanisms become more solidified.

Introduction

It has often been argued that one of the key factors in the success of a new venture is the dominant logic of the firm (Nadkarni & Narayanan, 2007). Dominant logic refers to how firms "conceptualize and make critical resource allocation decisions--be it in technologies, product development, distribution, advertising, or in human resource management" (Prahalad & Bettis, 1986, p. 490). It is "in essence, the DNA of the organization" (Prahalad, 2004, p. 172) and can be seen as one of the key valuable, rare, and difficult-to-imitate resources for the firm (Amit & Schoemaker, 1993; Barney, 1991). However, while the dominant logic concept is intellectually appealing, the empirical support for its impact has been weak to date (Obloj & Pratt, 2005). Moreover, its application has largely been limited to more developed economies. We argue that dominant logics may also play a critical role in emerging economies. In fact, transition economies offer the potential for a strong test of dominant logic and its relevance. In particular, those economies transitioning from a socialist economic system to a market economy offer the potential to test the value of dominant logic and its importance as an intangible resource in the environment where tangible resources are in short supply and institutional support is not well developed (Bruton, Ahstrom, & Obloj, 2008; Kolvereid & Obloj, 1994; Meyer & Peng, 2005).

This research addresses the role of dominant logic in emerging economies and, in doing so, makes four specific contributions to the literature. First, it provides insight into the little examined transition economies of Eastern and Central Europe. Second, it provides empirical support for the importance of dominant logic for the performance of new ventures. Third, the article extends theory in this area by integrating dominant logic with a resource-based perspective. Fourth, this article provides a critical "first test" of an inductive model of the structure of dominant logic of entrepreneurial firms in transition economies (Obloj & Pratt, 2005). Specifically, we develop empirical measures to assess various dimensions of the dominant logic in order to examine the importance of dominant logic as an intangible resource of the firm facilitating resource acquisition and resource deployment. (1) The implications of these findings as a foundation for future research are discussed at the end of the manuscript.

The article is structured as follows. We first propose a theoretical framework where we integrate dominant logic--and a cognitive approach more generally--into a wider, resource-based view of the firm. Next we focus on theory development and propose measures for assessing entrepreneurial dominant logics followed by hypothesis development. In the following section we detail the data selection procedure and model specification and then provide the results of the analysis. We conclude with a discussion on the implications and limitations of our findings.

Theory Foundation and Hypothesis Development

The Dominant Logic, Resource Shortages, and Resource Acquisition

The resource-based view sees organizations as bundles of resources that can generate performance heterogeneity and rent differentials across firms. …