18 / 2006 A Note on Cyert and March ( 1963 ) and Penrose ( 1959 ) : A Case for Synergy

Cyert and March’s 1963 seminal book is one of the two major economics-based theories of the firm that goes inside the ‘black box’ (the firm) – the other being the contribution of Edith Penrose. The two theories have differences, but also similarities, and substantial scope for cross-fertilisation that have gone unnoticed in the literature. In this note we try to integrate important ideas in both books, paying particular attention to the issue of ‘excess resources’ /slack, and (intra-firm) conflict. We then build on the integrated framework by delving into the nature of intra-firm conflict, the degree of intra-firm rivalry and the relationship between firm performance and ‘productive opportunity’. We derive propositions common to the two theories, but also new ones, of import to our understanding of organisational growth and change.