Marks54's Reviews > The Theory of the Growth of the Firm

The Theory of the Growth of the Firm by Edith T. Penrose
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Sep 05, 12

Read in September, 1995

This book is a classic of economics that today is more important outside of economics in areas such as entrepreneurship and corporate strategy than it is inside current economic debates. The author takes a more institutional approach and writes in fairly nontechnical terms. Her argument is about why firms can grow large and prosper in environments where intense competition is expected in principle to eat away at any advantage, making advantage and profits difficult to sustain over a longer time frame. The argument, in a nutshell, is that firms are able to grow and succeed by developing resources and capabilities that are not highly subject to market competition and imitation. This defense from competition is what allows firms to gain and sustain advantage. This book is also influential on issues of corporate strategy - how several different businesses are combined profitably under one corporate roof. While arguments to restricted competition are certainly relevant, Penrose has an excellent discussion of how different businesses can profitably interact (in modern parlance "create synergies") and how firms can learn about new businesses.

This book was written in a tradition in which the author tried hard to think through her ideas thoroughly in a volume, after which she would move on to another topic. This is less common today. It reads fairly well, although one wishes for examples while pondering the more abstract ideas. Of interest, she prepared a detailed case study of a British firm (Hercules Chemical) that was intended for the book. It was not included, however, due to space concerns. Interested readers can find this as an article in Business History Review in 1960, the year after this book was published.

This is generally tough to read and intended for more specialist audiences, but it is accessible to readers with more general backgrounds
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