Abstract

"Knowledge Creation in the Learning Firm: Penrose's Enduring Contribution "

Michael Best, University of Massachusetts Lowell (michael_best@uml.edu)

“One of the primary assumptions of the theory of the growth of firms is that ‘history matters’; growth is essentially an evolutionary process based on the cumulative growth of collective knowledge, in the context of the purposive firm.” Penrose 1995: xiii.

Edith Penrose wrote The Theory of the Growth of the Firm to make sense of what she observed at Hercules Powder. I too have been guided by my exposure to hundreds of enterprises in many times and places.

Penrose’s case study provides a detailed examination of the production and knowledge creation of the firm and is a model for understanding the innovative enterprise. Her case study resonated with what I observed in Emilia Romagna and Baden Württemberg in the 1980s and what was missing in London’s factories at the same time. Schumpeter’s description of price competition as the “bacilli of depression” aptly described London’s collapsing manufacturing sectors. He described what I saw in London.

For Penrose, firms exist because an individual cannot do everything alone or at once. Teamwork over time is essential. Successful firms build ‘defences in depth’ and ‘impregnable bases’. It involves an iterative dynamic by which the creation of new productive resources advances a firm’s knowledge base and in turn generates a search for new market opportunities. Once the market opportunities are captured, productive resources are released and the cycle repeat itself.

I suggest the study of rapid growth needs attention to how Penrose’s internal dynamic of innovation and knowledge creation can be adapted to particular circumstances and promoted in industrial policy. I apply these ideas from my experience of the workings of firms and the successes and failures of policy to modern China. Methodologically I stand shoulder to shoulder with Penrose.