Management as a productive resource

I’ve been browsing through Edith Penrose’s Theory of the Growth of the Firm, having read the biography by Angela Penrose, No Ordinary Woman. Published in 1959, it is an interesting narrative approach to the dynamics of individual firms, with plentiful examples from case studies. One can see that it was heading in a very different direction methodologically from mainstream economics, and hence why Penrose was taken up by business schools instead.

Yet mainstream economics is arguably rediscovering her core reasoning:
“The emphasis is on the internal resources of the firm – on the productive services available to a firm from management within the firm. … the experience of management will affect the productive services that all its other resources are capable of rendering.” The manager’s mind interprets the environment in which the firm is operating, the expectations of future demand and the directions in which to expand, she continues. It is not only the objective resources available, but how the management of the firm can use them, and how they understand the competitive environment in which they are operating. All of this reminded me very much of the recent World Management Survey work by Nick Bloom, John Van Reenen and colleagues looking at the importance of management quality for firm productivity. They write: “Economists have long puzzled over the astounding differences in productivity between firms and countries. In this paper, we present evidence on a possible explanation for persistent differences in productivity at the firm and the national level — namely, that such differences largely reflect variations in management practices.” Maybe Penrose was less puzzled than many.

Share