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Interest alignment rents and competitive advantage

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Few scholars would deny the importance of employee motivation to explain the variation in performance across firms. Yet, the dominant theories of rent generation and sustainability of competitive advantage have so far focused on aspects of industry structure or of firms' endowment with assets and capabilities as the drivers of sustainable profitability, leaving the influence of variations in degrees of employee motivation either absent or exogenously determined in their arguments. This paper articulates a theory of the conditions under which the superior alignment of the interests of the individual with those of the firm generates economic rents (i.e. advantages over and above the costs necessary to generate them) as well as sustainable competitive advantage (i.e. economic rents resistant to competitive pressures). The resulting argument leverages, links and attempts to integrate the extensive body of knowledge in motivation and incentive alignment theory derived from social psychology and agency theory with the resource-based, knowledge-based and market competition arguments central to current theories of competitive advantage in strategic management. The authors discuss how intrinsic and extrinsic motivation interact as determinants of interest alignment, show how superior interest alignment can lead to increased organizational effectiveness, and elaborate on the conditions necessary for those advantages to generate rents on the market for human resources. Finally, they identify a set of conditions that lead to a competitive advantage based on superior interest alignment along with the corresponding specific competencies in interest alignment processes required for its sustainability over time in light of competition within a dynamic environment. Their analysis highlights the strategic relevance of motivation and its antecedents as a possible source of economic rents and sustainable competitive advantage.

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