Abstract

This book discusses the development of a theory on the growth of the firm. It is shown that the resources with which a particular firm is accustomed to working will shape the productive services its management is capable of rendering.

The experience of management will affect the productive services that all its other resources are capable of rendering. As management tries to make the best use of the resources available, a ‘dynamic’ interacting process occurs which encourages growth but limits the rate of growth.

Analysis / notes

Penrose explored how firms grow - for how fast and how long. She argued that firms are defined by their resources, knowledge and how people learn: objective and experiential. She believe that firms grow because they are mobilising more knowledge than others (using knowledge as an internal growth engine).

The ability to use old knowledge is dependant on the acquisition of new knowledge

Interestingly, Penrose notes that more information about possible future events is crucial to reduce the firms uncertainty. Fundamentally, knowledge and information are crucial for planning (growth). Big companies use R&D labs to generate knowledge and information to support this - they invest heavily to sustain growth but naturally, their growth will eventually decline. In principle, even within this model - there is still room for small firms to grow.