Edith Penrose
The influence of Edith Penrose remains a fundamental element in the discussion of the growth of the firm. It is essential to evaluate the input that she had in the world of business and the central role that she had in the establishment of the fundamental elements of the growth of the firm. It is essential to consider the overall influence of these theories in relation to the growth and development of different industries. The usefulness of these tenets is entrenched in the impact that they have on the daily operations of the various organizations across the world. There is a need to evaluate the overall effects of this theory of the firm concerning the impact that it has on the management of organizations and the corporate world. The theory of the firm is a crucial framework that highlights various aspects of organizational management. This theory explores the basis of the formation of the different organizations in terms of their impact in the society as well as the centrality of internal organization in furthering the agenda of the various institutions. The influence of the growth of the firm theory defines the role of managers and policymakers. Edith Penrose played a vital role in exploring the different elements of the doctrine of the firm and contextualizing these factors to address the significant issues in the cooperate world.
Edith Penrose
Edith Penrose remains one of the iconic figures whose influence in the corporate world is still relevant in modern practice. Edith was born in 1914 in Lose Angeles (Penrose 2017). She later went to school and graduated from the University of California with her undergraduate degree. She undertook her masters and Ph.D. in the field of economics (Penrose, 2019). Her growing interest in economics remains one of the essential elements that influenced her impact in the global economic arena. Penrose (2017) notes that Edith’s works have been crucial in defining the different aspects of the institutional frameworks towards enhancing the understanding of these companies as well as their role in determining the growth of the various economies. She also studied the economics of the oil industry while in Baghdad before she moved to the United Kingdom, where she was appointed the chair of economics (Johannisson 2017). The desire for furthering the oil industry was evident in the roles that she continued to play in enhancing the outcomes of the sector, including both academic and leadership positions (Penrose 2017).
An important note is the development of the theory of the firm and its impact on the different companies. Following her experience in the oil industry as well as other areas in the economics industry, Edith was instrumental in the exploration and interrogation of the theory of the firm in terms of its relevance to organizations (Penrose 2017). Edith’s perspectives were influenced by different concerns that are also captured in her book with a similar name. She developed a model representation of the theory of the growth of the firm as a means of defining the key elements that dictate the performance of any organization (Penrose 2017). there is a need to explore the role that Edith played in promoting the understanding of the theory of the firm in terms of the overall impact of this theory in the management of the different organizations. The discussion of Edith’s role must also consider the arguments that she presents in her book regarding the part of the firm in advancing its growth (Penrose 2017). A fundamental notion is the provision of critical strategies that are essential in defining the performance of multinational entities across different markets. It is, therefore, necessary that an evaluation of the role of Edith considers the impact of her arguments on the performance of multinational companies across the world.
Many of her published works are a reflection of her perspectives of the business realm. There is an intentional approach that she adopts in her writing that seems to have been established through practice and years of professional engagements (Penrose 2017). As such, it is primary that proper considerations are considered in enhancing the role that she plays in defining the corporate world. Despite having focused on multinational oil companies, the value of these factors transcends the oil industry, and many of these concepts can be applied to all multinational companies. The influence of Edith in the explanation of the theory of the firm requires an in-depth analysis of the critical elements of this theory as a means of exploring the key areas of influence. Edith’s work remains relatively relevant, especially in the evaluation of organizational success in the global context. The theory of the firm presents vital considerations that are necessary in understanding the place of the firm as well as the influence of Edith’s contributions.
The theory of the firm
The method of the firm remains a basic template that highlights the vital aspects of organizational performance. It is crucial to consider the importance of this theory in dictating elements of the economics that influence the performance of different organizations. According to Johannisson (2017), the theory of the firm is designed as a means of addressing key aspects of organizational performance and existence. For instance, the theory seeks to outline the basis for the existence of the different organizations (Penrose 2017). It answers why these organizations are formed and the factors that drive their continued existence across the different markets.
Further, the theory also evaluates the organization of the different institutions. Multinational companies are often designed in a particular way. As such, this theory aims to explore the basis of these approaches to management as well as the reasons for the choices that are established in these organizations (Teece & Kay 2019). The interplay between formal and informal relationships in organizations plays a vital role in highlight the relevance of the style of organization that an economic entity opts to choose (Kor et al. 2020). The mediation of different transactions is also a critical issue that is ingrained in the theory of the firm. As such, there is a need to evaluate the transactions that every institution performs and the role of these transactions in enhancing the output of these companies.
A vital feature of the theory of the firm is the need to identify the heterogeneity of each organization. According to Almeida & Pessali (2017), there are salient factors that dictate the performance of each company, especially in regards to the role and impact that they have on the economy. It is, therefore, necessary that the actions of any multinational institution remain defined by definite plans and frameworks that are central in enhancing the success of these companies (Penrose 2019). The theory of the firm explores the different methods that have been successful in determining the growth and positive performance of the different companies across the various markets. There is a basis for all the actions taken in an organization, and these are driven by the desire to maximize on the profits while limiting the expenses incurred in the organization (Babelyte-Labanauske & Kriauciunas 2018).
A significant factor in the discussion of the theory of the firm is hinged on the value maximization that occurs in these multinational organizations. According to Rugman & Verbeke (2004), the assumption is that the owner of the company often seeks to increase short-run profits. While it is essential to maximize profits alone, modern approaches have considered issues such as time value for money and the issue of uncertainty of the markets (Babelyte-Labanauske & Kriauciunas 2018). These are vital factors that highlight the perceived value of the organization in terms of its growth in the market. The perception of the value of the firm is tied to the understanding of the determiners of the future value of the present profits in the company (Rugman & Verbeke 2002). Relying on the expectations of the cash flows, considering the appropriate interest rate, an organization can determine its present value.
As such the setting of every firm is based on the influence of different factors. The composition of the firm is defined by six factors that Pitelis (2004) cites as contributing elements in the performance and output of the organization. One of the elements in the society which provides the context within which the organization exists (Penrose 2019). The theory of the firm considers the basis for the existence of the different organizations and seeks to highlight the factors. The society provides the frameworks in terms of the policies that regulate the existence of organizations as well as the laws that influence the diverse markets (Penrose 1955). The society also defines the scope of the market within which the company can operate without affecting other elements around it.
Apart from society, the firm is defined by investors and suppliers. The investors are vital elements in the growth of a firm as they plow in the much-needed capital to jumpstart or expand the business (Penrose 2017). Multinational companies operate across different markets, and as such, the centrality of investors remains a critical element that would drive the performance of the company (Pitelis 2004). Investors also act as determiners of the likelihood of success of any organization. In the critical elements of the theory of the firm, one of the major issues cited by Penrose & Penrose (2009) is the heterogeneity of the firm’s performance. Every firm must understand the role of investors in furthering the reason for the existence of the organization.
On the other hand, the suppliers are also essential cogs in the daily operations of the organization. Penrose (1952) postulates that suppliers are among the most instrumental providers for every multinational firm. The goods and raw materials that facilitate the provision of services to the markets enhance the performance of every organization (Demsetz 1988). Notably, the theory of the firm focuses on the intention of every multinational firm to increase its profit margins. Therefore, the balance between the costs of getting goods and raw material must consider the need to increase the profits. There is a need for better relationships and interactions between the suppliers and the firm as a means of developing better working relationships.
The employee of the firm and the customers are key factors that also facilitate the performance of the multinational company. According to Demsetz (1983), the employees understand the vision of the organization, and they are expected to facilitate the achievement of this vision in their daily operations. Fama (1980) adds that the internal organization of the firm evidence the success of any company, and the employees play a vital role in defining the output of every firm. Issues such as marketing and branding are a preserve for the employees who are tasked with pushing for the vision of the organization in their daily interactions.
The theory of the firm also outlines the place of management in aiding the value of the firm. In discussing the implications of the future value of any organization, management plays a vital role, especially in determining the choice of policies that are adopted in the organization (Pitelis 2004). The management of the organization establishes the organizational culture, and as such, the employees are guided by the policies established by management. The administration must consider all other factors in the firm during the decision making process. The management must find the different prices offered by suppliers, and the management should also consider the best wage bills for the organization, especially those that will limit expenses and increase revenues. Babelyte-Labanauske & Kriauciunas (2018) note that proper business management requires an understanding of the customers as well. Demsetz (1983) discusses that the customers for every business are a significant element in promoting the performance of the organization. The business model must seek ways of understanding the expectations of the customers and availing the products and services at prices that are favorable to the majority of the customers. Through market research, the management should establish the target market, including all the factors that influence the performance of the market. Penrose (2019) cites economic factors, social factors, politics, and demographic elements that would dictate the competition of the markets. Therefore, the customer remains a critical factor in the determination of organizational performance. The discussions of the theory of the firm must also consider the implication of this theory in the daily management of the different organizations.
All the six factors are crucial in establishing the alternative system to the market-price mechanisms that will facilitate the meeting of the objectives of the organization towards promoting better performance (Almeida & Pessali 2017).
The contribution of Edith Penrose
Following her experience in multinational economics, Edit Penrose’s influence on economics cannot go unnoticed. A significant part of her arguments has been considered in the explanation of the theory of the firm, especially in regards to the factors that influence the growth of the firm. According to Penrose (2017), the writings by Edith Penrose remain critical literature that would facilitate the understanding of the operations of multinational companies in terms of their impact on the markets where they operate. Research by Teece & Kay (2019) indicates that the impact of Edith’s contribution was experienced in her consideration of the firm. A major issue that defined the neoclassical period was the consideration of the business world in ambiguity. Edith instead preferred the evaluation of the firm as a potential factor in the growth of the economy (Penrose 2017). Therefore, she used her book to promote the argument on the centrality of the firm as the key business element. In order to contextualize her influence and contribution, it is imperative to consider some of the elements captured in her book.
One of the main issue is the role of internal elements in defining the growth of the firm. According to Johannisson (2017), the argument extends that an organization is only as efficient as the internal environment that it creates. The internal environment of every firm is based on the policies and decision that the firm makes inflation to other players in the market. To this extent, Edith argued that issues of demand were not as important compared to the internal status of an organization. Therefore, she insisted on the centrality of quality decision making and balanced approaches to the development of a thriving internal environment for every organization. Penrose & Penrose (2009) also note that the inner resources that an organization has are key determiners of the value that the firm projects in the market. Edith’s argument dwelt on the need for every organization to promote healthy internal values which would ensure that the firm generates the useful resources that would further its plan as a critical player in the given markets where it operates.
A critical notion that was promoted by Edith was the significance of growth for every organization. The theory of the firm considers boundaries as a crucial factor in the determination of the firm, and Penrose (1955) notes the importance of identifying the barriers for every organization. However, Edith’s perception of growth was captured in terms of mergers and acquisitions. Her perspective on mergers and acquisitions considered these as the extension of goodwill and market position to other firms (Penrose 2017). There is a need to explore the implications of profits according to Edith’s arguments. Penrose created the narrative that benefits should be considered as the determiners for growth, especially in instances where a company enjoys increased profits in the short-run (Penrose 2019). Every organization should only expand in the profits are higher than the expenses. The amount of profits determines the viability for growth that an organization can claim within a set period (Penrose 2017). The growth of the firm is, therefore, a value that is attached to its performance in the markets.
The interrogation of the role of Edith Penrose must also consider the perceptions about business in the neoclassical times. A significant issue was the consideration of the structure-conduct-performance model that was used to define the economics of the period. While this approach was widely used, Penrose argued that it ignored the subtle elements that dictated the success of the organizations (Penrose 2017). The microcosm of business is the firm, which is also influenced by various factors. The six elements of the firm are internal factors that will contribute to the overall performance of the organization. Penrose noted that the employees were critical features in the production of any organization. The employees bore the vision and goals of the organization while the management was tasked with designing the goals of the firm (Kor et al. 2020). In this model, Penrose provides a means of defining economics from the lowest levels. The society, the suppliers, and the customer are also essential factors in the growth and expansion of the firm. The understanding of the multinational organization must first consider the smallest unit in the organization, which is a single firm (Penrose 1952). There is a need to evaluate these arguments in the context of the more massive economic theories, especially those that highlight the role of the business in defining the markets.
A significant contribution of Penrose was the insistence on the boundary of the firm. A fundamental notion was the blurred lines between the firm and the market. The considerations of the Penrosean firm highlighted the need to distinguish the firm from the market as a means of defining the relationship between these two (Penrose 2019). Therefore, she argued that the boundary of the firm should be the critical difference between the firm and the market (Penrose 1955). The boundary of every firm is based on the administrative coordination and scholarly communication that highlight and influence the operations of every firm (Rugman & Verbeke 2002). These are features that are not existent in the broader market. By identifying these differences, it is evident that the form must be separated from the market to facilitate the identification and evaluation of its growth. The growth of the firm is reliant on the available resources.
Edith argued that a combination of the human and managerial resources must be coupled with proper planning and coordination towards meeting the demands for growth for every firm (Johannisson 2017). The identification of the firm by Edith remains her fundamental contribution in defining the growth of the market and the economy.
The theory of the firm provides a specific view of the different elements that dictate the performance of organizations. While it is essential to consider the economic role of the markets, there is an inherent need to appreciate the building blocks that dictate every economy. The firm is construed as the tiniest element that facilitates the performance of any economy. Edith’s view considers the centrality of the firm above the overall relevance of the market, and her contribution centers on the crucial need for discussions of the firm instead of the market as the whole unit.