Source : Online at http://mpra.ub.uni-muenchen.

de/23180/

It is not an easy task to summarise all of Penroses major ideas. The following points, however, may help to recapitulate and complement the above account. Firms are bundles of resources, under internal direction, for production of goods and services, sold in markets for a profit. Their boundaries are defined by the area of coordination and authoritative communication. Firms differ from markets in that transactions in markets do not take place within administrative coordination. Entrepreneurs are in search of profits; firms desire to increase total long-term profits for the sake of the firm itself and in order to make more profit through expansion (1959: 29). Resources render (multiple) services. The heterogeneity of services from resources gives each firm its unique character. Effective use of resources and innovation takes place when resources are combined with other resources. Human, and in particular managerial resources are of essence, because expansion requires planning and managerial resources able to plan for the firm are firm-specific; they cannot be acquired in the market. The cohesive shell of the firm helps create knowledge. This can be objective (transmittable) or experience (hard to transmit). Experience renders managerial services firm-specific. Unused resources always exist; they are released after the completion of an expansion and they are created through experience and new knowledge. They are an internal stimulus to growth and innovation, and determine in part the direction of expansion. Firms are not defined in terms of products, but of resources and (so) diversification is the normal state of affairs in firm expansion. There are economies of growth, quite apart from any economies of size.

 There are limits to growth, but not to size, and are determined by the rate at which experienced managerial staff can plan and implement plans. The services of inherited managerial resources control the amount of new managerial resources that can be absorbed, thus limit the rate of growth of firms. The external environment is an image in the mind of the entrepreneur. Firms activities are governed by their productive opportunity; this involves a dynamic interaction between the internal and the external environment and includes all the productive possibilities that its entrepreneurs can see and take advantage of. In the long run, the profitability, growth and survival of firms depend on them establishing relatively impregnable bases (1959: 137) from which to adapt and extend their operations in an uncertain, changing and competitive world. A new technological base requires the firm to achieve a competence in some significantly different area of technology.