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Introduction
On May 1, 1979, in spite of bleak prospects, a handful of people met for champagne in a run-down production hall that housed a small company called Fiberline Composites. The young founder Henrik Thorning and his wife Dorthe Thorning had decided to celebrate this day as the company’s birthday. On this day Fiberline, which had been founded in January the same year, managed for the first time to pull a usable product through their machine. They were trying to learn how to make profiles in reinforced plastic by a relatively new method called pultrusion.
Reinforced plastic materials are strong, flexible, and lightweight, and in the 1970s they had been known and used in a number of different industries for a period. Pultrusion would ensure better control of the process in which plastic material is mixed with reinforcement fibers. The potential lay in making more homogeneous profiles of better strength, which would make the possible use of the profiles much greater compared to those already on the market. Henrik Thorning founded his company on this hope. However, it turned out to be exhaustingly difficult for Fiberline. To get production up and running was one thing, but it was quite another to manufacture larger amounts of profiles of a quality able to compete with well-known substitutes like steel or aluminum.
A year after the founding, around New Year 1980, Fiberline’s situation was critical. Though they could now produce profiles of a somewhat even quality, the development of the production continued to be very expensive. On top of this it turned out to be next to impossible to sell the profiles, even though Fiberline was cooperating with one of Denmark’s largest and most respected dealers of plastic materials. In the drawer of his desk, Henrik Thorning kept a note he had written on a particularly challenging day. It read: “Never give up.” He looked at it often in the beginning, when the struggle for survival was intense.1
Twenty-five years later, in 2004, the company had approx. 100 employees. The yearly turnover was growing fast; closing in on 200 million DKK and the years prior to 2004 had shown the largest profits in the history of the company. The main part of the profiles was exported, and Fiberline was present at most European markets. A small book was produced as part of the celebrations on the occasion of Fiberline’s anniversary that year. It was given to employees as well as friends and acquaintances of the firm. The book portrays a confident firm that perceives itself as an entrepreneurial start-up, founded on the vision of Henrik Thorning, and grown to become an international technological leader of the industry.2 Indeed this would seem a happy history of development and growth.
In this book I will tell my history of Fiberline, asking how this company developed through time from idea to international company. I use this history to theorize the concept of growth drawing on the seminal work of British economist Edith Penrose. In 1959 she was amongst the first to open the black box of the firm in order to study growth. She argued that firm growth should be understood as an emergent process and studied historically. I will explore the underpinnings of the growth process, showing it to be both highly subjective and context dependent. In doing so I offer a new and deeper reading of Penrose’s theory of growth; a reading which embraces the historicity of her arguments and focuses on the mechanisms of decision-making that lies beneath the firm’s use of resources.
Penrose and the Historical Study of Firm Growth
In The Theory of the Growth of the Firm, Edith Penrose seeks to explain the process of growth of manufacturing companies.3 She proposes that such processes should be studied through historical analysis for two reasons. The first involves the way resources are exploited in the company. Penrose describes the firm as a pool of resources, the service of which may be exploited to meet productive opportunities thereby creating competitive advantage and firm growth.4 The key concept is service, which describes how the resources of the firm are put to use.5 For the growth of the firm the use of some services is more important than others; experience and knowledge are especially central.6
As the company pursues new productive opportunities, it draws service from its existing (inherited) resources, gaining new experience and knowledge, which can then be put to service in the exploitation of new opportunities. This cumulative process is fundamental for understanding the direction and method of the growth of the company. The process is controlled by putting the available managerial resources of the company to service: these then determine the pace and set the limit to growth. In this process, Penrose notes, the firm may use different tools of growth like diversification or specialization.7
Firm growth from this perspective is a path-dependent process drawing productive services from resources built up over time and limited by the managerial and entrepreneurial services available to the firm at any given time. In the foreword of the third edition of her book, Penrose concludes that “One of the primary assumptions of the theory of the growth of the firm is that history matters; growth is essentially an evolutionary process …”8 which is the main reason why company growth should be studied historically.
In a later text Penrose further notes that a second argument for conducting historical analysis is the contextual specificity of the growth process of any given firm. That is the historicity of the growth process. Quoting Schumpeter, who made the same point and also applied historical methods, she notes that “… the subject matter is essentially a unique process in historical time.”9 The context specificity of any given firm (or industry, market or any unit of analysis one might imagine) in both time and place is a prime argument in the field of business history for the relevance of the field, but as noted above not the only one offered by Penrose.
In her case study of the Hercules Powder Company, Penrose exemplifies how firm development can be studied through historical analysis.10 Penrose tells the history of the development of the Hercules Powder Company, focusing on the interaction between the productive opportunities of the firm and the exploitation of the services available from its resources. The starting point of the history is a steep dive in the market for explosives after World War I, which pushed the company to explore new opportunities and yield new services from their entrepreneurial resources.11 For this they turned to their development department, whose strong knowledge of chemicals could be operationalized in pursuit of new markets particularly in the growing plastic industry. Through the almost 50 years, Penrose analyzes the growth of the company this would lead them to diversify into many different markets, while the knowledge base was continuously strengthened and could be put into new service.12
In the Hercules case study, Penrose makes her central point about firm growth by exemplifying the cumulative process of exploiting productive opportunities drawing on and developing resources, experience, and knowledge. She notes that the history of Hercules demonstrates that the development of a company, though unique in its details, “is by no means unique in its general pattern and will be found repeated in greater or less degree in the story of any number of long-established successful firms.”13
Subjectivity, Entrepreneurial Attitude, and Image of Context
As described, the productive opportunity of the firm is a central concept for Penrose and she uses it to further explore the underpinnings of the growth patterns of firms. Defining productive opportunity, she notes that it “… comprises all of the productive possibilities that … [the firm’s] ‘entrepreneurs’ see and can take advantage of. A theory of the growth of firms is essentially an examination of the changing productive opportunity of firms.”14 This notion has important implications for the way growth processes may be understood, because emphasis is not on what possibilities are “out there” but on what possibilities the company sees – or perceives. She notes the same in the Hercules study:
So, what determines the kind of opportunities the company considers? To answer this Penrose suggests an interrelation between the firm’s conception of self and its exploitation of resources. In a later passage she elaborates on the firm’s self-conception by noting that
Furthermore, Penrose suggests a dynamic interrelation between the company’s self-conception, exploitation of resources and the context (environment) of the company. She notes that
The idea of the company’s conception of itself and the relation between this and the company’s image of context is intriguing. Via the concepts of productive opportunity and entrepreneurial attitude, Penrose places conception at the center of both path-dependency and firm growth. However she doesn’t elaborate further and leaves resources as well as experience and knowledge at the center of growth analysis, even though the firm’s exploitation of all three (not just resources as already mentioned) is dependent on self-conception. It appears that though Penrose had no fear of opening the black box of the company and showcasing it to economists, she drew the line at phenomena like attitude and conception, which she considered too elusive for analysis.
Penrose touches upon the reason for this when defining enterprise in The Theory of the Growth of the Firm. In doing so she comes close to her use of entrepreneurial attitude in the Hercules case by saying that “There are probably many ways of defining enterprise, but for our purpose it can usefully be treated as a psychological predisposition on the part of the individuals to take a chance in the hope of gain.”18 She further notes that “This extremely personal aspect of the growth of individual firms has undoubtedly been one of the obstacles in the way of the development of a general theory of the growth of firms.”19 Nevertheless, Penrose continued to be intrigued by the subjective foundations of action and in her introduction she notes that
