The managerial capacity problem refers to the problem that arises when the growth of a firm is limited by the managerial capacity (i.e., personnel, expertise, and intellectual resources) that a firm has available to investigate and implement new business ideas.
When the managerial resources of a company are not enough for taking advantage of its new product and services opportunities, the consequent bottleneck is known as the managerial capacity problem.
Managerial capacity problem states that the ability of a company to grow is directly associated with its ability to include managerial capacity for controlling the growth. Companies vary in several key areas in terms of the management techniques that they apply to reduce the impact of this problem and increase company growth. Identifying new market, service, or product opportunities can do a little for a company if it doesn’t possess the managerial capacity for acting on these opportunities.
Penrose (1959) articulated this problem for the first time. He argued that the ability of a company for growing effectively is directly associated with its ability to include the managerial capacity to control and ensure its growth. Frequently growing companies decrease the impact of this problem by using cash incentives, employee empowerment practices, and strategic alliances. Incentives and employee empowerment practices are planned to eliminate discretionary practices from employees and decrease the probability where employees may avoid work. Taking part in alliances gives companies access to the managerial talents and resources of their partners, which, as a result, permits them to outsource a part of their resource requirements.
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