Customer Reviews

The Theory of the Growth of the Firm

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This book helped provide the foundation for what has become known as the resource-based view of the firm (RBV). Back in 1959, when the male gender dominated the economics discipline, Ms. Penrose set out to answer this question: Was there "something inherent in the very nature of any firm that both promoted its growth and necessarily limited its RATE of growth."

I found this book so interesting and helpful (I am a business appraiser) that I read it twice. This led me into studying the resource-based view of the firm.

I recommend this book for anyone interested in the broad topics of business strategy and management. Related books that I recommend include "Contemporary Strategy Analysis," by Robert Grant; "Modern Competitive Analysis, by Sharon Oster; and "Why Firms Succeed," by John Kay.

The Theory of the Growth of the Firm is a classic book in management literature, and one that is explored by academics as well as business enthusiasts. With this book, Penrose founded what's known as the resource-based view. Essentially, she determined that there must be something inside the firm that drives its growth (i.e. success).

The author explores the reasons for such growth. Penrose moves away from the neoclassical economics model of the firm towards a definition of the firm as one that has administrative responsibilities (strategic planning or management) and a view of the firm as a collection of resources (human resources, technologies and other capabilities a firm has). She argues that choice of how those resources are put to use is central to a firms "entrepreneurial" activity.

Penrose goes on to say that change and growth of firms must be driven from inside the firm because the economy as a whole does not constrain firms. Managers, she says, know that they can alter their environment, and that the environment is not independent of their activities.

The resources that are available within firms are ever changing, of course, and often come together in bundles. This means that there are always some resources that are not being used, or being used inefficiently. Managers who realise this can develop those resources and grow their companies as a result. Thus, it is knowledge in combination with resources that drives growth. This is also what makes each firm unique: there are hundreds of ways to combine those resources, and each firm does it differently.

The book then talks about how growth takes place - sometimes as part of a diversification process or through an acquisition or merger. Penrose also discusses the role of time, and the difference between a small or a larger company growing. Growth, she concludes is possible for all firms - size does not necessarily mean that a firm is more efficient (which is the typical economic argument). The only thing that constrains growth, really, is the limited capacity we humans have for managing a lot of change at once.

The style of writing is conversational, if somewhat dated. The only slight drawback is that Penrose often returns to hammer on the same point. But that's not unusual for this type of book. The most astonishing aspect by far is that Edith Penrose was a woman, in a world of business and academia that then, and still now, consists largely of men.

I find myself springing to the defense of this book, because when I read it - right through - it was with a sense of appreciation for its acumen. Penrose's terminology is a little idiosyncratic but it does not take long for the reader to adjust. Moreover, when reading it with the circumstances of actual companies in mind, it presents a way to gain insight into their histories. One other way to express this is that my notes on this book are very detailed and lengthy. I didn't make these notes simply because the book is a "classic".

Tant d'économistes travaillent sans s'interroger sur ce qu'est une firme qu'il est passionnant de lire un ouvrage, déjà ancien, d'une économiste qui se situe en dehors de la logique néo-classique de la théorie de l'agence (à la Jensen-Meckling) ou de la théorie des coûts de transaction (à la Coase ou à la Williamson) pour nous parler de l'entreprise et de ce qui obsède la plupart de ses acteurs : comment progresser? comment croître? Edith Penrose est à l'origine de ce qu'on appelle l'approche par les ressources de l'entreprise. Mais la lecture de son livre apporte bien plus que ce que suggèrent les manuels d'économie qui la citent en deux lignes. Elle donne des indications extrêmement précises sur les mécanismes qui contribuent à la croissance des entreprises. Sa lecture éclaire quelques unes des difficultés de l'économie française qui souffre, comme chacun sait, d'être trop duale : nous avons une quarantaine de très grandes entreprises, de dimension internationale qui n'ont plus d'espace de croissance chez nous, et une multitude de petites entreprises qui n'arrivent pas à croître faute de ressources financières mais aussi de compétences, de ces compétences que l'on acquiert dans les grandes entreprises et là seulement. Sa lecture est très stimulante et donne des pistes pour sortir de l'ornière dans lequel se trouve notre économie.

Il semble me souvenir que ce livre avait été publié en français aux éditions Homme et Techniques il y a de nombreuses années. A défaut d'être réédité, il faut se précipiter sur cette réédition britannique d'un des grands textes de l'économie industrielle.