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The Growth of 'Connected' Firms Open Research Online The Open University’s repository of research publications and other research outputs The growth of ’connected’ firms: a re-appraisal of Penrosian theory and its application to artisanal firms operating in contemporary business networks Other How to cite: Blundel, Richard Kenneth (2003). The growth of ’connected’ firms: a re-appraisal of Penrosian theory and its application to artisanal firms operating in contemporary business networks. Richard Blundel. For guidance on citations see FAQs. c 2003 Richard K. Blundel Version: Version of Record Link(s) to article on publisher’s website: http://www8.open.ac.uk/business-school/people/dr-richard-blundel Copyright and Moral Rights for the articles on this site are retained by the individual authors and/or other copyright owners. For more information on Open Research Online’s data policy on reuse of materials please consult the policies page. oro.open.ac.uk THE GROWTH OF ‘CONNECTED’ FIRMS A re-appraisal of Penrosian theory and its application to artisanal firms operating in contemporary business networks by RICHARD KENNETH BLUNDEL A thesis submitted to The University of Birmingham for the degree of DOCTOR OF PHILOSOPHY Business School Department of Commerce The University of Birmingham August 2002 THE GROWTH OF ‘CONNECTED’ FIRMS A re-appraisal of Penrosian theory and its application to artisanal firms operating in contemporary business networks Abstract The thesis is concerned with the growth of ‘connected’ firms, characterised as small firms that are engaged in stable spatial and vertical network relationships, involving a variety of actors, including larger firms. It locates these firms within the landscape of the ‘New Competition’, (Best 1990, 2001), highlighting the relatively unexplored region occupied by connected artisanal firms. The literature review is constructed around a detailed re-appraisal of Edith Penrose’s (1959) study, The Theory of the Growth of the Firm, which traces its antecedents, re-constructs its interconnections and calibrates its explanatory potential against the work of contemporaries, successors and opponents. The review provides the basis for development of a modified Penrosian framework, designed to embrace a multi-level analysis of growth processes that span the ‘blurred boundaries’ of the connected firm. An empirical study of the growth of connected artisanal firms demonstrates the application of this modified framework. The study is presented in the form of an analytically structured narrative, illustrated by network mapping sequences and informed by a qualified critical realist perspective. The final chapters reflect on the theoretical, methodological and practical policy implications of the study, highlighting the broader implications for researching the growth of other forms of connected firm. Dedication For my parents. Acknowledgements I have gained enormously from the ideas, comments, practical assistance and moral support of very many people, some of whom are identified here. Peter Clark has been a vital source of productive opportunity, offering obscure references, challenging questions, subtle guidance and stimulating conversation. I am much indebted to John Child and Michael Rowlinson, and to a number of people at the Univerity of Birmingham, including Barbara Satchwell, Jennifer Tann, Jane Whitmarsh and colleagues in Information Services, Postgraduate Student Services and the Bindery. Others have helped in specific areas of the research. Steve Conway provided valuable insights into network mapping and, more broadly into ways in which network theory might enhance the analysis. Bengt Johannisson gave several useful suggestions regarding entrepreneurial networking, along with valued comments on a draft paper; Martin Hingley, Brian Shaw and David Smith shared their deep experience of innovation networks and industry supply chains. These networking ideas were developed in discussions with Udo Staber, Boris Blumberg and other members of the EGOS Standing Working Group on Business Networks, including Mark Ebers, Anna Grandori, David Knoke, Amalya Oliver, Brian Pentland and Jörg Sydow. Some initial thoughts on Edith Penrose and critical realism were stimulated in a seminar given by Christos Pitelis and chaired by Tony Lawson. I am also grateful to David Musson for reflections on working with Penrose on the Third Edition of The Theory of the Growth of the Firm, and to Brian Loasby for an helpful discussion regarding her intellectual legacy. Others, who kindly responded to my unreasonable e-mail requests, included: Sarah Carter, Mark Freel, Steve Phelan, Constance Helfat, Alan Rugman and Margherita Turvani. The Danish Research Unit for Industrial Dynamics (DRUID), based at Copenhagen Business School, proved to be a bountiful source of research ideas. They also hosted an excellent summer conference in 2002, which clarified several issues – many thanks to Jill Archer, Andrew Cummings, Dan Marsh, Peter Maskell, John Mathews and Alessandro Nuvolari. The methodology section of the thesis was informed by an interesting seminar series at Birmingham, including contributions from Hugh Willmott, John Hassard and Diana Sharpe, as well as by Colin Mills’s ever-incisive critique. Former colleagues at Harper Adams, who helped me grasp some of the complex idiosyncracies of dairy foods and farming, included: Chris Cartwright, Paul Custance, Ralph Early, Colin Henderson, Abigail Hind, Paul Lewis, Trish Parrott, Steve Parsons, Naomi Pattisson and Keith Walley. I am greatly indebted to Christine, Lucy and Edward Appleby and Justin Beckett, several other cheese-makers and farmers and four Birmingham MSc students, all of whom contributed so generously with their time during the empirical study. I would also like to thank colleagues at Oxford Brookes University, including Emma Coles, whose graphical skills are displayed in the network maps, and Clive Wildish, for his ever-cheerful support. Warm regards to Dan Herbert, who shared the experience of ‘part-time’ thesis writing at Birmingham, and to Tina Fawcett, an exceptional editorial assistant and sympathetic friend. Any remaining errors and omissions are my responsibility. Preface When I was young I told my mum, I’ m going to walk on the moon someday. Armstrong and Aldrin spoke to me, From Houston and Cape Kennedy, And I watched the Eagle landing, On a night when the moon was full, And as it tugged at the tides, I knew deep inside, I too could feel its pull. Billy Bragg, The Space Race is Over (1996) As Neil Armstrong set foot on the Sea of Tranquillity, the career paths of two youngsters were set in motion; both would be astronauts and journey to the moon. After three decades, one remained grounded in the English Midlands, writing about the growth of small cheese- making firms. His childhood friend got a little farther, though the odds were stacked against his breaching the stratosphere at the controls of a Boeing 747. So what happened? Why did these paths diverge so dramatically from one another, and from their initial shared goal? (1) This thesis is concerned with the growth trajectories of firms, rather than the life histories of individuals, yet it addresses a similar question. Why do firms develop in such divergent and seemingly arbitrary ways? Previous research has demonstrated that it is no more possible to predict the growth path of a particular firm than it is to anticipate the biography of an individual. Indeed, firms have an enviable capacity to flout the life-cycle that sets an ultimate boundary on our own histories. However, most small firms’ research has continued to pursue the more common, and necessarily generic, factors contributing to differential growth outcomes. This study takes a different approach to the task of explaining the growth process. The research problem arose from direct experience of small and medium-sized horticultural firms engaged in supply relationships with multiple food retailers. I became interested in the mechanisms that generated observed changes in such firms, notably the rapid development of new capabilities (e.g. international product sourcing, managing overseas operations, product and process innovation), to meet the requirements of multiple food retailers. The initial proposal for the thesis was based around an empirical study of similar dyadic relationships amongst artisanal cheese-making firms. Two major ‘turning points’ in the research have shaped its subsequent form. First, early exposure to Penrose (1959) generated an increasing interest in the unresolved challenge of conceptualising growth processes that seemed to extend beyond the boundaries of the firm. Second, I became convinced of the need to address growth at multiple levels of analysis, incorporating network relationships rather than simply the dyadic ties, and taking greater account of both context and temporality. The final product is a more integrative approach to conceptualisating the growth process, which extends the original Penrosian framework in a way that addresses the distinctive circumstances of the ‘connected’ firm (2). These conceptual innovations are also reflected in the accompanying research methodology and empirical study. Hence, while one part of the study is indeed concerned with ‘what happened’ to two English cheese-makers, its broader aim is to shed a new theoretical light on the growth of the firm. Finally, a brief comment on the use of quotations. A recurrent theme in the re-appraisal of Penrose’s legacy is the extent to which her work has been mis-represented in later
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