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The Growth of the Firm—A Case Study: The Hercules Powder Company

Published online by Cambridge University Press:  13 December 2010

Edith T. Penrose
Edith T. Penrose
Affiliation:
Johns Hopkins University
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Abstract

Growth is governed by a creative and dynamic interaction between a firm's productive resources and its market opportunities. Available resources limit expansion; unused resources (including technological and entrepreneurial) stimulate and largely determine the direction of expansion. While product demand may exert a predominant short-term influence, over the long term any distinction between “supply” and “demand” determinants of growth becomes arbitrary.

Type
Research Article
Information
Business History Review , Volume 34 , Issue 1 , Spring 1960 , pp. 1 - 23
Copyright
Copyright © The President and Fellows of Harvard College 1960

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References

1 Penrose, Edith T., The Theory of the Growth of the Firm (New York and Oxford, 1959).Google Scholar

2 NOTE ON SOURCES: This study of the Hercules Powder Company was made possible by a Fellowship granted me by the Foundation for Economic Education in cooperation with the company, which enabled me to spend six weeks studying the company from within in the summer of 1954 with the full cooperation of all of its personnel. The paper was completed in 1956; when I decided to publish it now I inquired of the company about subsequent developments, receiving the following reply: “More recent events, while of great interest within Hercules (and we believe in the industry), are largely a continuation of the types of growth you have shown to be typical and more or less to be expected, except at possibly a somewhat faster rate. Actually, the manuscript can never be quite up to date in an expanding company, nor for your purpose does this seem to be necessary,” I agree with the last statement and for this reason have made no attempt to bring it to the present.

3 The story of Hercules also illustrates the point that the splitting up of large companies will often not have an adverse effect on efficiency if the advantages they have in expansion are economies of growth and not economies of size. For a discussion of these two types of economies and their significance see Penrose, The Theory of the Growth of the Firm, Chap. VI.

4 This rank is the one given in the Fortune Directory of the 500 largest United States industrial corporations. Supplement to Fortune (July, 1957). In addition to the above, Hercules had three plants in wholly owned subsidiaries abroad and employed some 6,000 workers in government owned Hercules-operated ordnance facilities.