Strategy for Business

By: Amr Badran, MBA

Section 3
Firm Effects: Resources, Capabilities and Core Competencies

Amr Badran, MBA

Chapter 7

The Firm as an Administrative Organization

Amr Badran, MBA

Introduction
So far, no economist has attempted a general 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 is good 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 the organization of production. The nature of the economy is to some extent defined in terms of the firms composing it, their size, the way theyre established and grow, their methods of doing business, and the relationships between them.
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The Limits to Size

The equilibrium analysis require that there be something to prevent the indefinite expansion of output of the individual firm. In competition, the limit is when production cost rises after a certain point. In monopoly, the limit is when revenues fall as additional quantities are sold.
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Function and Nature of the Industrial Firm

The primary economic function of an industrial firm is to make sure of productive resources available (utilized) for the purpose of supplying goods and services to the economy in accordance with plans developed and put into effect within the firm.

Amr Badran, MBA

Size and Administration Co-ordination

Can the firm get too big and still be properly administered? It was agreed that beyond a certain point returns would decrease and costs would increase. However, proper administration could be achieved via a team of proper organization, cohesion, shared values and commitment
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The Firm as a Collection of Productive Resources (ctd.)

The firm is more than an administrative unit; its also a collection of productive resources that are disposed between the different uses over time as per admin. decisions.

Amr Badran, MBA

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The Firm as a Collection of Productive Resources

The physical resources of a firm consists of:
Tangibles (Plant, equipment, land and natural resources, raw material, semifinished products, waste products and byproducts.) Human Resources (Unskilled/Skilled labour, clerical, admin., finance, legal, technical and managerial staff).
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The Productive Opportunity of the Firm and the Entrepreneur

The administrative structure of a firm is the creation of the people who run it. It can be haphazard or organized, individual or collective. The productive opportunity comprises all of productive possibilities that its entrepreneurs see and can take advantage of.
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The Managerial Limit

Firm growth might be limited due to the following:
Managerial Ability (inside firm factors) Product or market (outside firm factors) Uncertainty and Risk (a combination)

Expansion does not take place automatically, it must be planned.

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The Continuing Availability of Unused Productive Services (ctd.)

Resources include the physical things the firm buys, leases, and produces for its own use, and the people hired on terms that make them effectively part of the firm. Services are the contributions theses resources 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 of Unused Productive Services (ctd.)

A firm must possess resources from which it can obtain the productive services appropriate to the amounts and types of products it intends to produce. Some of the services are obtained from resources already under firm control, others will be obtained from the market as occasion demands.

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The Continuing Availability of Unused Productive Services

As long as expansion can provide a way of using the services of its resources in a more profitable manner, the firm can expand. Also, if resources are not fully used, the firm can expand. Unused productive services available from existing resources are a waste.

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The Firm as a Pool of Resources

A firm is essentially a pool of resources the utilization of which is organized in an administrative framework. The final products being produced by a firm at any given time merely represent one of several ways a firm would be using its resources.
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Any Questions?

Amr Badran, MBA

End of Chapter, and Thank You.

Amr Badran, MBA