Sumantra Ghoshal’s research while affiliated with INSEAD and other places

This book adopts a knowledge-based perspective that sees the firm as a store of knowledge resources and capabilities. The firm’s knowledge base includes the expertise and experience of individuals, the routine and processes that define the distinctive way of doing things inside the organization, as well as the knowledge of customer needs and supplier strengths. To the extent that the knowledge and capabilities are unique and difficult to imitate, they confer sustainable competitive advantage on the firm. Unlike traditional products, knowledge-based products and services can enjoy increasing returns, so the firm developing an early advantage has a better chance of growing market share through network externalities and customer familiarity effects.

Edith Penrose has been one of the most significant economists of the second part of the twentieth century. Her contribution to the theory of the firm has reinvented and productively developed the classical tradition in economics, and informed the currently dominant, knowledge-based theory of the firm. This volume builds on a special issue of Contributions to Political Economy that celebrated forty years since Penrose’s classic The Theory of the Growth of the Firm. It includes fifteen chapters by leading contributors on the aforementioned aspects of Penrose’s work.

The 'theory of the firm' is a significant part of modern economics. Because it informs strategic choices, it is highly relevant to business administration in general, and for strategic management in particular. Two dominant streams may be identified in the literature, namely the 'competence' and 'governance' perspectives on the firm. While there has been little direct discussion between the main proponents of these perspectives, both claim that they are reaching for a 'strategic theory of the firm'. Such a theory would not only shed light on the classical questions considered in the theory of the firm (e.g. why firms exist, what determines their boundaries and internal organization), but would also be helpful for informing strategy issues, such as understanding strategic flexibility, strategic options, and the sources of competitive advantage. This volume brings together prominent voices on competence, governance, and entrepreneurship to advance and stimulate economic strategy research. By pooling and mobilizing intellectual resources of both competence and governance perspectives, the contributions show that an innovative joint venture between these two main perspectives potentially leads to a new avenue of future research on strategic issues such as 'corporate growth', 'interfirm cooperation', and 'corporate entrepreneurship'.

Conventional wisdom says that companies from the periphery of the global market can't compete against established global giants from Europe, Japan, and the United States. Companies from developing countries have entered the game too late; they don't have the resources. But Christopher Bartlett and Sumantra Ghoshal disagree. The problem for most aspiring multinationals from peripheral countries, say the authors, is that they enter the global marketplace in low-margin businesses at the bottom of the value curve, and they stay there. But it doesn't have to be that way. They studied 12 emerging multinationals based in such countries-from emerging markets like Brazil to relatively more prosperous yet still peripheral nations like Australia to developing countries like the Philippines. These companies now enjoy global success because they treated global competition as an opportunity to build capabilities and move into more profitable segments of their industry. The path to globalization isn't easy, but the authors show that it is possible. Each company in the study overcame the same core challenges. They broke out of the mind-set that they were unable to compete successfully on the global stage. They adopted strategies that made being a late mover a source of competitive advantage. They developed a culture of continual cross-border learning. And they all had leaders who drove them relentlessly up the value curve. The companies discussed in this article are models for the thousands of marginal companies in peripheral economies that have the potential to become legitimate global players.

We develop a framework to describe value creation as a process comprising resource combinations and exchanges and use the framework to show how organizations in general, and business firms in particular, interact with markets to create economic value for themselves, for their members, and for society. The theory offers an explanation of why neither a market nor a firm, by itself, can achieve adaptive efficiency and why institutional pluralism contributes to the process of economic development.

The corporation has emerged as perhaps the most powerful social and economic institution of modern society. Yet, corporations and their managers suffer from a profound social ambivalence. Believing this to be symptomatic of the unrealistically pessimistic assumptions that underlie current management doctrine, Ghoshal et ai, encourage managers to replace the narrow economic assumptions of the past and recognize that: Modern societies are not market economies; they are organizational economies in which companies are the chief actors in creating value and advancing economic progress. The growth of firms and, therefore, economies is primarily dependent on the quality of their management. The foundation of a firm's activity is a new "moral contract" with employees and society, replacing paternalistic exploitation and value appropriation with employability and value creation in a relationship of shared destiny. In the 1980s, managers concentrated on enhancing competitiveness by improving their operating efficiencies. They cut costs, eliminated waste, downsized, and outsourced. They extracted value - as reflected in shareholder returns - hut at what price? In contrast, firms that seem to continuously proliferate new products and technologies (for example, HP, 3M, Disney, and Microsoft) have never accepted this logic of auto-dismemberment. They have escaped what the authors term "the deadly pincer of dominant theory and practice": an almost exclusive focus on appropriation and control. A different management model is now taking shape, based on a better understanding of individual and corporate motivation. As companies switch their focus from value appropriation to value creation, facilitating cooperation among people takes precedence over enforcing compliance, and initiative is valued more than obedience. The manager's primary tasks become embedding trust, leading change, and establishing a sense of purpose within the company that allows strategy to emerge from within the organization, from the energy and alignment created by that sense of purpose. The core of the managerial role gives way to the "three Ps": purpose, process, and people - replacing the traditional "strategy-structure-systems" trilogy that worked for companies in the past.

Starting from the empirical observation of a positive correlation between the prosperity of an economy and the relative role of large firms operating in that economy, we propose that this correlation is an artifact of the positive influence of 'management competence' on both these variables. Drawing on Penrose's, we develop a theoretical framework that distinguishes between two aspects of management competence, i.e., entrepreneurial judgment and organisational capability. Both aspects relate to the process of value creation through the combination and exchange of economic resources. Whereas entrepreneurial judgement refers to the cognitive aspects of perceiving potential new resource combinations and exchanges, organisational capability is the ability to actually carry them out. As we show, the interplay of these two factors affects the speed at which firms expand their operations, the kind of expansion, and the process through which firms create value, not just for themselves, but for society as a whole.

A punto de clausurar el siglo, empresas y directivos sufren una profunda ambivalencia social. Es el momento de reemplazar los viejos supuestos por otros más realistas que describan el nuevo papel del management.

People are innately curious and, as social animals, are naturally motivated to interact and learn from one another. Over thousands of years, families, clans, and communities have evolved as teaching and learning groups, with individuals sharing information and synthesizing knowledge as a central part of their binding social interchange and as a key engine of their collective progress. Yet, somehow, modern corporations have been constructed in a way that constrains, impedes, and sometimes kills this natural human instinct. Focused on maximizing short-term static efficiency, most have been designed to extract as much value as possible from all their assets, including people. In that process, however, they have sacrificed the long-term dynamic efficiencies that come from continuously enhancing and upgrading the capabilities of individuals so as to enable them to create new value.