The resources of the firm are both tangible and intangible. Tangible resources include physical assets, such as plant, equipment and physical labour, while intangible resources include skills and knowledge about productive and managerial processes. These resources are employed to supply a heterogeneous range of services to the managers of a firm, to be used in the various activities that the firm undertakes. Thus, the output that any given unit of a tangible resource can produce is not dependent just on the production function but also on the intangible resources embedded in the inputs. Knowledge enables the productive capacity of a resource to increase over time. Thus, the firm tends to generate unused productive resources that the firm’s management tries to ¢nd uses for in the pursuit of increased rates of product and growth.

Tangible assets can be purchased in the market, and more machines or workers can be hired at a price. However, intangible knowledge and skills reside within humancapital and cannot be so easily purchased because they are acquired from training and within the firm and may only be valuable within its specific structures residing within individuals who can be hired.. Such considerations may apply to management resources, in particular. Managers plan and co-ordinate the operation of the firm using firm-specific structures and routines. Individual members of a management team are skilled in the ways of the ¢rm as well as their functions. The interaction between members of the team means that the sum of the parts is greater than that of the individuals alone because the e¡ectiveness of one is dependent on the e¡ectiveness of others.


The abilities of resources that combine tangible and intangible qualities have come to be termed ‘‘competences’’. A competence is the ability of the resources employed to perform a task or activity involving complex co-operation between people and other resources. Because of their knowledge and skills some resources are unique and can perform particular tasks more efficiently than others (see Foss and Knudsen 1996). Individual firms possess competences in unique combinations, are part of what Kay (1993a) terms the architecture of the frrm and are particularly e¡ective in given industries or markets. When these competences can be clearly identified as being at the heart of the firm and form the basis of its competitive advantage, they are termed core competences (Prahalad and Hamel 1990); these represent the collective learning of the organization: that is, the know-how needed to undertake the complex tasks of organizing a particular activity. Some ¢rms may understand the oil industry better than their rivals, but their competences do not necessarily transfer to other business activities. If they do, then they can form the basis of a development pattern for the firm.


The Penrosian model concentrates on the growth process within the individual firm and identifies those forces that enable it to grow. As time passes there is an inherent tendency for the resources of the firm to accumulate knowledge and skills. In addition, the time and commitment required to undertake any given tasks is reduced as procedures become routines that are easily learned by others. Learning, experience and the routinization of managerial and production processes enables the firm to gradually expand its production capabilities; this implies the creation of unused resources that are available to the firm at zero marginal cost, to be used in new productive activities. It also implies increasing returns to the managerial function as the scale of the business increases.




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