Geography Reference
In-Depth Information
4.2.2
Penrose and the Resource-based View of the Firm
A dissatisfaction with traditional economic theory in setting the principles
underlying the growth of the firm motivated Edith Penrose's seminal con-
tribution in
The Theory of the Growth of the Firm
(1959). In the neoclassi-
cal framework the firm is the abstract microeconomic unit of production,
actually suitable for the purpose of a theory whose focus is on the relation-
ship between output and prices. Meanwhile, transactions costs economics
had shifted the attention to the transaction as the main target of observa-
tion. In neither theoretical approach was the firm regarded as an economic
institution. In Penrose words, however, the firm 'is a complex institution,
impinging on economic and social life in many directions, comprising
numerous and diverse activities, making a variety of significant decisions,
influenced by miscellaneous and unpredictable human whims, yet gener-
ally directed in the light of human reason' (1959, p. 9). The firm is seen
both as an administrative planning unit and also as a 'bundle of resources'.
In order to understand the motives for 'the expansion of the innovating,
multiproduct, 'flesh-and-blood' organizations that businessmen call firms'
(p. 13), it is necessary to consider the organization as a 'whole'. The firm
is therefore treated as a
collection of productive resources
, that is, physical
and human resources, the latter being the most important. Resources per
se are never seen as 'inputs', but only in terms of the services that they
can render, which are regarded as being unique to each individual firm.
Entrepreneurial and managerial services are crucial, as they determine the
direction of change and the 'single-mindedness' of the firm.
The motivations of the firm therefore also become much wider com-
pared to the orthodox economic analysis as both profits and growth are
equivalent criteria for the selection of new investment programmes. The
limits to a firm's growth are found not only in the external market, but
rather in its failure to provide specific resources. Growth requires man-
agement with firm-specific knowledge, which is not available on a simple
demand and supply basis. Indeed, the prominence attributed by Penrose
to the firm's management is clear-cut in relation to growth, and both the
market and the demand are treated as perceptions ('images': see Penrose
1959, p. 42) in the manager's mind. The dynamic interaction between the
internal resources of the firm and the perceived external environment gives
rise to the
productive opportunity
of the firm, that is, all the productive pos-
sibilities that the entrepreneur envisages (Pitelis 2007a). Opportunities to
produce new products therefore arise from changes in the productive serv-
ices and knowledge available in the firm, or from changes in the external
supply and market conditions as perceived by the firm. Most importantly,
diversification in response to specific opportunities or to solve demand
