We have emphasized Penrose’s contribution to the resource-based theory of the ﬁrm. Some of her ideas are consistent with the dynamic capabilities framework; yet until two decades ago when strategy scholars picked up on this work (Teece, 1982), Penrose’s emphasis on fungible resources had not received much attention in either the economics or the strategic management literature. Rather, it was her work on constraints on ﬁrm-level growth and on the role of learning that received attention. While she recognized how the fungible nature of a ﬁrm’s resources could create the foundation for lateral enterprise expansion, it was her emphasis on the administrative and managerial constraints on growth that captured the attention of scholars.
Penrose argued that the human resources required for ﬁrm growth and the management of change are ﬁrm speciﬁc. As a corollary, at any moment in time these resources are constrained by their internal availability. Put differently, managerial capacity cannot be expanded indeﬁnitely and at will. Rather, expansion requires the recruitment and development of additional high-level human resources.18 Accordingly, the level of current efﬁciency will, beyond a point, diminish with the rate of change in size.
The above constraints on ﬁrm growth became known as the “Penrose effect”. Both microeconomic and macroeconomic schol- ars recognized the Penrose effect in the 1960s. These scholars incorporated Penrosian thinking into their work (e.g. Marris, 1964; Uzawa, 1969). However, as noted above, we think the more endur- ing legacy will be Penrose’s conceptualization of the ﬁrm as a bundle of (quasi-fungible) resources.
Interestingly, the Economic Journal (1961) predicted that the “Theory of the Growth of the Firm” would be an inﬂuential book; however, that inﬂuence has been far greater in the ﬁeld of strategy than in the ﬁeld of economics. Economists in the main are resistant to her teachings, as they imply the total inadequacy of the neoclas- sical theory of the ﬁrm.
Source: Teece David J. (2009), Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth, Oxford University Press; 1st edition.