Child, D. The Essentials of Factor Analysis. Coakes, S. Cohen, W. Collis, D. Conner, K. Davies, S. Dess, G. De Vasconsellos, J. Dranove, D. Peteraf, and M.
An Economic Framework for Analysis. Faulkner, D. Grant, R. Govindarajan, V. Haanes, K.
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Theory of the Firm for Strategic Management: Economic Value Analysis
Hunt, S. Kamalesh, K. Subramanian, and C. Krause, J. Wilson, and F. Kotler, P. Principals of Marketing.
Given that resources usually exist in discrete quantities i. As new activities are added to the firm, new possibilities for growth arise in this dynamic process based on the development and exploitation of firm resources, always driven and constrained by the resources available to the firm at a given time. In modern economic terms, we could say that firms do not automatically reach the production possibility frontier. Thus, available resources, especially managerial expertise, place a limit on the future growth of the firm, at least in the short run, which is known as the Penrose effect.
Penrose actually goes as far as saying that the external demand that firms face is probably less important than the resources of the firm to understand the process of growth. Resource constraints, including managerial capability to cope with growth and even financial requirements, certainly limit how fast a firm can grow in the short term, but this limit probably varies depending on the set of available resources that constitute a firm.
Manuel Becerra Theory of the Firm for Strategic Management Economic Value Analysis
Different firms, each one a different bundle of resources, may grow at different rates and their growth rate may also depend on the direction they take. For instance, growth into unknown areas is associated with greater risk and uncertainty, which demands greater managerial attention, which in turn constrains the growth potential of the firm in those new areas.
There is also debate about how far firms can grow. In this approach, researchers view investing in a technology with a highly uncertain future as taking an option that may or may not be exercised, depending on how new information changes the option value of that opportunity. The objective of each funding milestone is to learn more, thereby reducing the uncertainty about the value of an opportunity.
The idea is that firms do not prematurely close down investment in a radical but unproven technology, but neither do they commit to the investment until it is fully developed. Key Readings:. Dixit, A. Investments under uncertainty. McGrath, R. Assessing technology projects using real options reasoning. Research Technology Management, 43 4 : Sustainable development involves the integration of environmental thinking into every aspect of social, political, and economic activity. Sustainability requires we pay attention to entire life cycles of our products.
Today, with our growing knowledge of the living earth, product development can reflect a new spirit which allows nature and commerce to fruitfully co-exist. Towards the sustainable corporation: Win-win-win business strategies for sustainable development.
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- Resource-Based Theory.
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California Management Review. McDonough, W. From Cradle to cradle: remaking the way we make things: North Point Press. The firm is a bundle of knowledge in this application which extends the Resource-Based View. Knowledge is a specific and special resource at the heart of the firm.
Knowledge is both highly heterogeneous, difficult to imitate and difficult to understand by those outside the firm. In this theory, knowledge forms the basis for competitive advantage. It should be noted that there are some researchers who question whether this is truly a theory of the firm. As such it is noted as a view. Foss, N. Organization Science, 7 5 : Grant, R. Towards a Knowledge-Based Theory of the Firm. Phelan, S. Arriving at a Strategic Theory of the Firm. International Journal of Management Review, 2 4 : It describes the firm as a nexus of contracts.
Both sides in the contract operate with self-interest and guile. Agency theory suggests that boards of directors act as monitors hired by shareholders over executives.
Berle, A. The Modern Corporation and Private Property. New York, NY: Macmillan. Eisenhardt, K. The Academy of Management Review, 14 1 : Fama, E.
Separation of Ownership and Control. Journal of Law and Economics, 26 June : Smith, A. Chicago: University of Chicago Press. Zajac, E. Intraorganizational Economics. Baum Ed. Oxford, UK: Blackwell Publishing. It attempts to explain how these structures impact the actions and boundaries of the firm. These structures provide stability to actions, routines and cultures; define legitimacy and constrain action. The theory focuses on how institutions are created, how they pervade societies and industries and finally how institutions change over time.
While well-accepted, it has provided stronger theoretical rather than empirical contributions to strategic management. Social Structure and Organizations. Handbook of Organizations. Chicago, Rand McNally, Meyer, J. American Journal of Sociology , DiMaggio, P. American Sociological Review , Game theory is a special branch of mathematics which has been developed to study decision making in complex circumstances.
It is a major method used in mathematical economics and business for modeling competing behaviors of interacting agents.