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An Integrative theory of firm growth implications for corporate organization and management

Author: Ghoshal, Sumantra ; Moran, Peter ; Hahn, M.INSEAD Area: Strategy Series: Working Paper ; 97/87/SM Publisher: Fontainebleau : INSEAD, 1997.Language: EnglishDescription: 33 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We integrate the insights of Penrose (1959) and Schumpeter (1934) contributions to the theory of the firm growth into a theory of the firm evolution that accounts for both growth and decline. The accumulation of resources that accompanies firm growth adds new possibilities for further growth but these possibilities support and stimulate new growth only to the extent they are enabled, perceived and motivated within the context of the firm's administrative organization. Administrative reorganization - or what Langlois (1995) has described as Schumpeterian integration - is needed by both established and new firms alike in order for them to assimilate old resources with the new and to broaden the exercise of entrepreneurial judgement within the firm. Firm growth, then, is the outcome of a symbiotic process of resource accumulation and administrative reorganization - a process that determines the success with which the firm's activities are expanded and influences the forces that constrain this expansion
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We integrate the insights of Penrose (1959) and Schumpeter (1934) contributions to the theory of the firm growth into a theory of the firm evolution that accounts for both growth and decline. The accumulation of resources that accompanies firm growth adds new possibilities for further growth but these possibilities support and stimulate new growth only to the extent they are enabled, perceived and motivated within the context of the firm's administrative organization. Administrative reorganization - or what Langlois (1995) has described as Schumpeterian integration - is needed by both established and new firms alike in order for them to assimilate old resources with the new and to broaden the exercise of entrepreneurial judgement within the firm. Firm growth, then, is the outcome of a symbiotic process of resource accumulation and administrative reorganization - a process that determines the success with which the firm's activities are expanded and influences the forces that constrain this expansion

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