Do You See What I Mean? An Entrepreneurship Perspective on the Nature and Boundaries of the Firm

In answering the questions 'why does the firm exist?' and 'what determines its boundaries?', established theories of the firm have focused on boundary choice in a context of relatively easily identified and evaluated alternatives. This paper starts by asking the kindred question 'why does the firm come into existence?', shifting attention to the circumstances and choices surrounding new firm formation and the exploitation of new and untried business ideas. It proceeds to delineate an entrepreneurship perspective on the nature and boundaries of the firm, where boundary decisions are driven by the difficulty of implementing new, subjective means-ends frameworks in sometimes very unreceptive markets. A set of propositions developing the concepts of cognitive incongruence and cognitive incompleteness suggests that activities are internalized when other market participants are unable to accept or understand the entrepreneur's subjectively perceived means-ends framework. In conclusion, the paper supports the development of theory that explains choice of modes of action based on subjective world views and the emerging notion of a distinctive entrepreneurship-based theory of the firm. Copyright Blackwell Publishing Ltd 2007.