The Firm as a SelfReproducing System

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The Firm as a Self-Reproducing System
by Pavel Luksha

• Presentation for ISSS03
• System Applications in BusinessIndustry
• 8 July 2003, Crete

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Three Major Concepts of Firm In
Contemporary Economic Theory

• Technological aspect
• a firm is a kind of black box that turns input
  resources into output products with its
  technology, increasing efficiency through economy
  of scale (Fordistic paradigm)
• Organizational aspect
• a firm is a way to distribute limited resources
  alternatively to the market thus black box has
  internal flows of information and interactions
  between its elements, which may efficient or
  inefficient (Coasian paradigm)
• Social aspect
• a firm is an organized group of people who
  reproduce specific production activities, and
  whose main purpose is a collective sustenance in
  a capitalistic world (System Thinking approach)

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Firm as a Survivor

• External survival mitigation of potential
  disturbance sources
• act better than your competitors do (given market
  rules set by government)
• a classical approach
• Internal survival self-maintenance
• firm must reproduce routines internally
• an evolutionary approach
• Can this be considered in a broader context?

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Processes in a Firm
productive/commercial activity, probably
beneficial to a firms owner
processes of management regulation and control
through information processing and exchange
finance, administration, IT, legal etc.
costly to a firms owner, in a sense that part of
valuable resources is spent to restore initial
system properties
Firm an engine metaphor?
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Interaction with Environment
OWNERS/ STAKEHOLDERS
SUPPLIERS
CONSUMERS
EMPLOYEES/ TOOLS
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What is a Key Process?
Firm may exist without running its useful
action (as malfunctioning firms sometimes do),
BUT Firm will not exist without maintaining
itself Can we turn things upside down and say
that firm is self-reproducer at first hand? (we
think of self-reproducers in broad (such as
autopoetic) sense, to include reproduction inside
a system itself reproduction time-wise, not
space-wise)
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Classification of SR Firms
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JVN Automate
Most universal SR structure, as designed by John
von Neumann Neumann, Burks, 1966
SR automate
Copy of SR automate
Instructions
Instructions
Copying unit
Copying unit
copy of instructions
Production unit
Production unit
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JVN Automate flow of resources
Formal dynamic structure of flows in JVN
automate, suggested by Plekhanov/Luksha Luksha,
2003 A production unit, B copying unit, ? -
instructions. F1, F2 resources for
production W1, W2 resources for
production Reproduction requires a variety of
diverse elements, ALL of which must exist (or be
produced) in system environment
instruction reproduction

?
W1
F1



B

units reproduction

W2
F2


A

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Firm as JVN Automate
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Implications
Sociocybernetics Rule of Thumb Realizing
property of (social) system changes systems
behavior toward this property (self-reference)
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Implications

• Internal Changing Employee-Employer Relations
• External Firm Becoming a Social Partner
• In-sourcing social functions
• Increased social spendings (social standards)
• Change Organizational Design
• Role of tutors in organizational change
• Particular role of technologies (knowledge
  databases, corporate training)

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Firm Evolution Biological Analogy

• shop craftsman before 17-18 century
• full cycle of operations,
• translation of knowledge to apprentices
• transfer of instrument

enlargement giant firms end of 19 century2nd
half of 20 century

• manufactory 18-19 century
• specialization of workers in specific activities,
  
• transfer of all knowledge of technology chain
  through one bearer

• multi-cellar organism
• specialization of cells in specific functions,
• translation of information through genetic
  material

• a cell
• a self-reproduction cycle with self-maintenance
• multiplication through division and transfer of
  all key elements into a new cell

• enlargement giant organisms
• giantism of every kind of biological species as a
  typical evolutionary blind-alley

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Firm Evolution (continued)

• innovation economy on a society level future
  economy?
• based on self-organization principles
• transfer to a new level of firm organization

• informational meta-firms since 1970s
• closely interacting, yet independent, small- and
  medium-sized firms, which can only be reproduced
  as unity in close cooperation

?

• pre-social organization, e.g. herd, flock or
  pride

• Homo Sapiens society
• super-population