The Operative Logic of the firm:the Combinatory System Theory view

A – The first objective of this paper is the attempt to demonstrate that the behaviour of firms profit oriented produces the After having introduced the distinction between operative and combinatory systems we will propose a new model to describe the operating logic of the firm, both at the micro and macro level: i) when viewed as individual units firms can, at the micro level, be interpreted as operating systems for efficient transformation that carry out five parallel transformations, which can be separately analysed but which are connected in their effects; ii) when viewed as elements of the economic system firms, at the macro level, can be thought of as a combinatory system "of improvement" which inevitably leads to "progress" in productivity, quality, costs and technology. B - Regarding point i), we try to show that every firm is a system that produces five basic transformations: (1) a productive transformation of factors into production; this is a transformation of utility, governed by productivity and by quality; (2) an economic transformation of costs and revenues into operating income; this is a transformation of value, governed by prices and therefore by the market; (3) a financial transformation of capital into returns; (4) an entrepreneurial transformation of information into strategies, which leads to a continual readjustment of the firm's strategic position; (5) an organizational transformation of strategies into actions of management control, aimed at maximizing efficiency. Each transformation is characterized by a level and a degree of efficiency, productive, economic, financial and managerial. All the levels of efficiency are connected in a system of relationships, which represents a basic, simple and effective model for describing the activity of any firm. By considering the relationships between economic efficiency and profitability we examine, finally, the conditions of teleology and teleonomy of the firm, highlighting the relation between the objectives of economic efficiency and the objectives of the creation of value. It is shown that the behaviour of firms depends on the financial transformation, where the value of the firm is created, in an attempt to maintain the monetary and financial integrity of the invested capital. C - Regarding point ii), as a whole, firms form a system - which we define as "combinatory" – capable of producing a macro behaviour which, on the one hand, is produced by the micro behaviours of the firms but, on the other hand, directs or conditions the micro behaviours. Thus a micro-macro feedback can be observed between micro-behaviours and macro-behaviours that produces an irreversible evolutionary dynamic in several fundamental economic variables of the system. We will demonstrate, by using a combinatory lattice, that if we introduce the hypothesis of irreversibility in the micro behaviours of producers, due to the micro-macro feedback, then the combinatory system of firms will produce a continuous rise in productivity, quality, costs and prices.