Taxonomy of Operations, Costs and Benefits Relevant to the Creation, Existence, Evolution and Growth of Firms

Most of the standard economic analyses of the firm utilize only the capital (including the human one) and labor factors, and a term called technology to embrace all the remaining elements. The introduction of the transaction costs (TCs) by Coase (1937) has generated a new stream of complementary theory of the firm as developed mainly by Williamson (1985 etc). Then, a crit ique on TCs has lead to the recognition of other factors such as internal capabilities, information and know-how, routines, strategies, and so on. However, it seems that there is still a gap in economic theory or management theory as to the exact nature of all types of costs (besides transaction and production costs) involved in the creation, existence, and evolution of firms. According to my findings, all the activities and practices of firms can be split into 5 interdependent groups of processes of operations, namely those of movement, of factors, of contracts, of wisdom, and of strategies. In turn, each one of these processes is related to kinetic, physical, transaction, wisdom, and strategic costs respectively. Then, for each group I assign several essential characteristics that fully describe it. The implications of this paper are also briefly discussed.