Firm's core strategy for sustainable growth

Abstract

This communication describes the parameter knowledge productivity, in what concerns national economies' and firms' sustainable growth. Taking knowledge, individual and social, as the foundation for value, it clarifies how society has a natural propensity to increase its value creation and, simultaneously, its value distribution. The discussion is about the optimum balance between value creation and distribution, the former being triggered by investment and the latter represented by labor costs and supporting consumption. The conclusions are, for whole economies, that society quickly distributes extra value in forms of salaries and social benefits increases, flattening the growth rate of knowledge productivity. However, for individual firms, knowledge productivity may increase steadily, what can be considered as a core strategy for firms' economic sustainable growth. I. INTRODUCTION Sustainable growth means constant or increasing growth for a long period. What is the right strategy to achieve this goal, at the firm's level? Many authors and models have produced a variety of answers, dealing with specific parts of the whole, like marketing strategies, R&D efforts, organization management, lean production and others. The aim is increasing profits, output, market shares, capital intensities, shareholders' equity, stakeholders' happiness, etc. However, is there an elemental and simple answer that defines a core strategy? I argue in this communication that the objective of increasing knowledge productivity is a good and simple basis for that. Data from OECD about Unit Labor Costs will be used to illustrate how knowledge productivity varies with economic growth and how society distributes value at about the same pace as creates it. The causal-effect relation between the two parameters, knowledge productivity and growth, will be justified by a logical argument, that shows how the increase of individual knowledge depends on action and work involving technology and capital. As such, investment should grow at least at the same pace as individual and social knowledge. On the other hand, consumption feeds individual knowledge maintenance and creates conditions for new knowledge, what leads to conclude that consumption is as crucial as investment. Finally, transferring these arguments to the firm's level, propositions will be outlined, relevant to the firm's growth strategy, which could be condensed in one only parameter - the increase of the firm's knowledge productivity. Two examples of economic sectors, from the Portuguese economy, will depict how the growth rate of knowledge productivity correlates with Gross Value Added (GVA) growth rate. I will use the term individual knowledge as the knowledge that exists and belongs to the individual and, as such, can not be directly assessed. It is expressed through work, therefore, indirectly valued. Social knowledge has a value attributed by society and may be recognized and accessed, as it is embodied in technological and capital forms.