The Theory of the Growth of the Firm

by Edith T. Penrose

Why do some firms perform better than others? What enables a firm to grow and take advantage of its opportunities?
Currently much discussion of these questions pivots around the ideas of competencies and capabilities, and the concept of the learning organization or knowledge-creating company. The Theory of the Growth of the Firm is a rich and pioneering work that addresses these questions and laid the
foundation for this approach often referred to as the "resource based view of the firm." Edith Penrose analyzes managerial activities and decisions, organizational routines, and knowledge creation within the company and argues that they are critical to the ability of a firm to grow.

Genres: Business, Economics, Management, Leadership, Nonfiction

304 pages, Paperback

First published January 1, 1980

Reviews

[Deniss Ojastu · Rating 3 out of 5]

The classic book from 1950s which paved the way for the resource-based view on the development of the firm. It outlines the primary factors which influence whether the firm will grow or fail. The most important contribution of this book to the later business and strategy theory has been the concept of the inherent management limit - it is the limited management capacity which is the primary limit for the business growth. The most valuable resources in any firm are the entrepreneurial and management resources.

Clear and logical conclusions, however when reading this book now, many of them seem rather trivial. This feeling is enhanced by Penrose's (author's) writing style - she tends to describe the same argument several times and remind of them later in the book. I would recommend to read the first three chapters which capture the main argument - the rest is becoming repetitive and specific.

The book might be especially interesting for the management consultants, those dealing with conceptualising M&A processes and business&strategy scholars.

[Marks54 · Rating 5 out of 5]

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

[Eric · Rating 2 out of 5]

I wanted to like this book but honestly, I cannot read it. First, most of the pages are covered with annotations. I am pretty sure that half the book are just annotations. Second, I had to re-read twice or thrice so many sentences that make no sense or that are just badly constructed that I finally gave up. It's sad because I have the feeling that Edith Penrose got something here and the preface was promising. I will try a summary written by somebody else.

[Robert Bogue]

What makes some organizations grow and thrive and others wither and die? That’s just part of the question that Edith Penrose set out to answer in Theory of the Growth of the Firm. Her book was initially published in 1959 and was reprinted after her death. It’s a classic work about how firms grow, including the forces that lead to growth and those that inhibit it.

Read more

[Radhika · Rating 4 out of 5]

The stars are for being one of the most significant female economic historians. It calls for a certain level of admiration for her. A good exercise is to compare her work with Schumpeter and Marx. I read it with the mindset of identifying sources of innovation.

[Sarah left GR]

Molly Wood went on a riff about path dependence on this episode of Make Me Smart:

http://www.stitcher.com/s?eid=4972923...