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Penrose-inspired 'resource based theory' - Essay Example

Extract of sample
Penrose-inspired 'resource based theory'

In the Netherlands, large-scale shipyards were engaged in a struggle for survival--with all eyes focused on the government for subsidies--while at the same time specialist firms were successful in the fields f yacht-building and dredging. The great differences in profitability between firms within the same industry are difficult to explain by resorting to neoclassical theory. (Rumelt 169-185) For these differences lie in the introduction f innovative concepts, new combinations f production factors and the smart use f technologies. The internal side f the firm plays a crucial part in this. Firms like Primark and McDonald's, for example, have developed specific routines and skills which are difficult for competitors to imitate. The existence f this sort f firm-specific competencies does not fit in very well with the cookbook metaphor f neoclassical economics. The new insights indicate that a sustainable competitive advantage can only be attained by creating new organization-specific knowledge.
On the cutting edge f strategic management and evolutionary economics, a debate is currently taking place about new theories f the firm in which the special qualities f knowledge are incorporated. In these theories, static thinking is replaced by a more realistic process perspective. Concepts like limited rationality (or even trial and error), path dependency and heterogeneity are all embraced. The role f 'soft' variables like knowledge, culture and network relations is emphasized. The most important role is played by the Penrose-inspired 'resource based theory'. This approach traces firms' reasons for existence to their greater effectiveness in gathering and circulating knowledge when compared to the market as a whole. For a knowledge economy, this theory is therefore f the utmost relevance and for this reason it will be used here as the starting point for the development f new guidelines for government policy.
In the following discussion, three important changes in theoretical thinking with respect to firms will be considered in greater detail. Subsequently, the modern conceptualization f industrial behaviour and strategy will be examined to see what possible implications it could have on government policy. The three changes can be characterized as:
from homogeneity to heterogeneity;
from capital exploitation to knowledge development;
from global to local.
According to traditional industrial economics, the structure f an industry is f central importance for the conduct and performance f firms (hence, this paradigm is called the structure-conduct-performance or SCP paradigm). (Scherer 1-7) This structure to a large extent determines the profitability f the firms which operate within that industry. This principle resulted in strategic management researchers, most prominently Michael Porter, trying to formulate strategies that made use f these insights: for example, by advising firms to build entry barriers and hide ...Show more

Summary

According to the neoclassical paradigm, a firm combines labour and capital in a specific production function. As production factors in this paradigm are completely mobile, all the firms in a given industry have access to the same production factors-which they can combine in a similar way-as if they were working from a recipe in a cookbook, (Nelson 61-74) Competitive advantage, according to the 'cookbook' paradigm, can only arise from economies f scale, market imperfections and entry barriers, because these restrict the mobility f production factors…
Author : nicholaus73
Penrose-inspired resource based theory essay example
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