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8/3/2019 STRATEGY CH 07 - The Firm as an Administrative Organization
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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