ABSTRACT
In this chapter we examine the relationship between IT and competitive advantage from the perspective of economic theory. We first examine the nature of competitive advantage which we define as economic rents, a concept that has strong theoretical validity but weak empirical reliability in the strategic management literature. We examine the creation of economic rents in two distinct but overlapping realms of economic activity – equilibrium and disequilibrium. We focus on disequilibrium as a source for innovation and long-term economic growth. We examine the concept of complementarity, the value of IT as a general purpose technology and the importance of imitation as well as innovation in realising long-term benefits from technology. Taking the concept of equilibrium as a point of departure between classical and evolutionary economic theories, we examine the major components of Schumpeterian theory to better explain the role of technology. These are Schumpeter’s vision, and his views on innovation, leadership, entrepreneurship and management. Our intention is to link the practice of management to economic theory in a way that is transparent (the actions of managers are clearly grounded in the economic system in which they operate) and relevant (economic theory is ‘the elephant in the room’ which sets the parameters for management strategy).
