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Strategy for BusinessBy: Amr Badran, MBA

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Section 3

Firm Effects: Resources,Capabilities and CoreCompetencies

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Chapter 7

The Firm as an AdministrativeOrganization

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Introduction

So far, no economist has attempted ageneral theory of growth in firms.

Growth means an increases in amounts

sales, exports. It could also mean

increase in size or quality.

We usually consider whether growth isgood or bad for a particular firm.

Theres no specific exact size of a firm.

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The Firm in Theory

The firm is the basic unit for theorganization of production.

The nature of the economy is tosome extent defined in terms of thefirms composing it, their size, theway theyre established and grow,

their methods of doing business, andthe relationships between them.

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The Limits to Size

The equilibrium analysis require thatthere be something to prevent theindefinite expansion of output of the

individual firm.

In competition, the limit is whenproduction cost rises after a certain point.

In monopoly, the limit is when revenuesfall as additional quantities are sold.

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Function and Nature of theIndustrial Firm

The primary economic function of anindustrial firm is to make sure of

productive resources available(utilized) for the purpose of supplyinggoods and services to the economyin accordance with plans developed

and put into effect within the firm.

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Size and AdministrationCo-ordination

Can the firm get too big and still be

properly administered?

It was agreed that beyond a certainpoint returns would decrease and costswould increase.

However, proper administration could beachieved via a team of properorganization, cohesion, shared valuesand commitment

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The Firm as a Collection ofProductive Resources (ctd.)

The firm is more than an administrativeunit; its also a collection of productive

resources that are disposed betweenthe different uses over time as peradmin. decisions.

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The Firm as a Collection ofProductive Resources

The physical resources of a firmconsists of:

Tangibles (Plant, equipment, land andnatural resources, raw material, semi-finished products, waste products and by-products.)

Human Resources (Unskilled/Skilledlabour, clerical, admin., finance, legal,technical and managerial staff).

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The Productive Opportunity of theFirm and the Entrepreneur

The administrative structure of a firmis the creation of the people who run

it. It can be haphazard or organized,individual or collective.

The productive opportunitycomprises all of productivepossibilities that its entrepreneurs

see and can take advantage of.

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The Managerial Limit

Firm growth might be limited due tothe following:

Managerial Ability (inside firm factors)

Product or market (outside firm factors)

Uncertainty and Risk (a combination)

Expansion does not take placeautomatically, it must be planned.

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The Continuing Availability ofUnused Productive Services (ctd.)

Resources include the physical things thefirm buys, leases, and produces for itsown use, and the people hired on terms

that make them effectively part of the firm.

Services are the contributions thesesresources can make to the productive

operations of the firm. A resource, then, is a bundle of possible

services.

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The Continuing Availability ofUnused Productive Services (ctd.)

A firm must possess resources from whichit can obtain the productive servicesappropriate to the amounts and types of

products it intends to produce.

Some of the services are obtained fromresources already under firm control,

others will be obtained from the market asoccasion demands.

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The Continuing Availability ofUnused Productive Services

As long as expansion can provide a wayof using the services of its resources in amore profitable manner, the firm can

expand.

Also, if resources are not fully used, thefirm can expand.

Unused productive services available fromexisting resources are a waste.

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The Firm as a Pool of Resources

A firm is essentially a pool ofresources the utilization of which isorganized in an administrative

framework.

The final products being produced bya firm at any given time merely

represent one of several ways a firmwould be using its resources.

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Any Questions?

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End of Chapter, and

Thank You.

Amr Badran, MBA