Pragmatic Theory of the Firm: PowerPoint Presentation
39 Pages Posted:
Date Written: May 16, 2020
This PowerPoint summarizes key ideas in my book, Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism. The primary focus is the pragmatic theory of the firm, which enables a comprehensive understanding of how a firm's long-term prosperity depends on its knowledge-building proficiency. A knowledge-building loop is discussed that emphasizes the components to building knowledge, and especially, the critical role of one's worldview, assumptions, and language. Attention to how we build knowledge offers insights into how we can improve business performance. Management's fundamental task is to nurture and sustain a knowledge-building culture in order to continually adapt to a changing world. When knowledge building becomes an integral part of every employee's job, both job satisfaction and retention of key employees improve. Such a culture unleashes creativity and motivates employees to solve problems (and create new opportunities) through discovering obsolete assumptions and unraveling root causes. The pragmatic theory treats the firm as a system of connected activities and uses a life-cycle framework that provides a visual and intuitive way to display track records which explain shareholder returns over time and help analyze intangible assets. Fourteen key points are reviewed, some of which provide new angles of thinking for empirical research in finance and accounting.
Keywords: knowledge, pragmatic theory, value creation, life cycle, CFROI, culture, excess return
JEL Classification: D21, D22, D83, G12, G30, G32, G38, L2, M41, P17
Suggested Citation: Suggested Citation