Strategizing, Disequilibrium and Profit Douglas J. Miller and Joseph T. Mahoney Department of Business Administration, College of Business, University of Illinois at Urbana-Champaign, 343D Wohlers Hall, 1206 South Sixth Street, Champaign, IL 61820, USA Emails: djmiller@uiuc.edu; josephm@uiuc.edu John A. Mathews (2006). Strategizing, Disequili- brium and Profit, Stanford, CA: Stanford University Press, 265pp. ISBN 0-8047-5483-7 John A. Mathews’ Strategizing, Disequilibrium and Profit is grounded in a theory of dynamic business systems (Schumpeter, 1934), a theory of economic profits (Knight, 1921) and a resource- based theory of the firm (Penrose, 1959). In this framework, firms are viewed as bundles of resources and activities, operating in markets for resources and in markets for goods and services (Penrose, 1959; Porter, 1991). In terms of strategy formulation, it is the function of the entrepreneur to create such bundles in response to subjective opportunity sets, and in strategy implementation it is the function of the manage- ment team to build the organizational routines that connect the firm’s resources with its current activities. Firms engage with markets seeking to earn economic profit. Mathews maintains that the field of strategic management must distance itself from neoclassi- cal microeconomics to understand the most interesting and important questions concerning firm behavior. In contrast to economic theory about rents created in equilibrium, an ‘alternative ruling paradigm’ (p. 8) based on economic profits earned in disequilibrium is proposed to form the foundation of a ‘unified theory of management, one that places strategic entrepreneurship at its core’ (p. 171). Mathews’ ideas should be of particular interest to scholars working in the areas of entrepreneurship, evolutionary theory and the resource-based view of the firm. After a brief introduction, this book covers eight additional chapters (2–9) that are reviewed here in turn. The second chapter offers the Schumpeterian schema of a dynamic economy operating in disequilibrium, where change is driven by entrepreneurial initiative. The starting point is Schumpeter’s (1942) process of ‘creative destruction’ in which there is innovative competi- tion for new products and services, new technol- ogies, new sources of supply and new types of organizational forms. Entrepreneurial activities are manifested in new firm formation as ‘an index of resource re-circulation and dynamic flux in an economy’ (p. 17). The following chapter focuses on the concept of entrepreneurial profit, which is defined as a pure ‘residual’ income that accrues to the bearer of uncertainty after all contractual payments for the factors utilized have been paid (Knight, 1921). In chapter 4, Mathews correctly notes that much of the emphasis from the resource-based view of strategy has focused on the firm’s pursuit of economic rents. Indeed, Barney observes that: ‘The resource-based view is simply an extension of Ricardian economics but with the assertion that many factors of production – besides land – are inelastic in supply [and can thus be the source of economic rents]’ (2001, p. 645). By contrast, Mathews emphasizes uncertainty and Knightian (1921) profits that are derived from entrepreneur- ial alertness in assembling resources into one kind of bundle that achieves superior resource com- plementarities relative to another bundle. The fifth chapter examines the Penrosean (1959) firm as a vehicle for strategizing. ‘Pen- rose’s point [is] that it is the way that resources are combined together that is the critical issue, rather than the individual characteristics of the resources, and that this process of bundling British Journal of Management, Vol. 19, 294–297 (2008) DOI: 10.1111/j.1467-8551.2007.00548.x r 2007 British Academy of Management