Seeking Competitive Advantage in Organizations: Efficacy of Organizational Structures - Essay Example

Seeking Competitive Advantage in Organizations: Efficacy of Organizational Structures Introduction The firm (organization) is an entity that exists primarily to make profits through the provision of commodities (both goods and services) to the market (consumers). The existence of the firm is born out of specialization in production and the pertinent risk of incomplete contracts in delivery of goods and services that are required by the market (Boyes). Therefore, organizational structures refer to the arrangement of employees within an organization and the jobs therein in a manner that helps the overall organization to realize set targets and objectives. It concerns who does what, where, and to whom does s/he report to within the organization? The main objectives and purpose of formation of organizations (involved in any form of trade activities) is making profits (Miles and Snow). As such, the ability and the extent to which these two parameters are met is highly pegged on the organization’s ability to stay ahead of other competitors within the same market segment. This concept is referred to as a competitive advantage. It is a complex function of the resources of the organization and the prevailing conditions in the market. Although, it should be noted that competitive advantage may exist even in the presence of market failures. Market failures are generally externalities that hinder the allocation of resources efficiently to high end users (also referred to as arbitrage); and may arise due to asymmetric information and adverse selection (Boyes). Sources of competitive advantage to an organization include: Efficiency of markets - Where an allocation mechanism is used to match the prices of all traded items at demanded quantities with the quantities supplied of the same items. Another mechanism for ensuring market efficacy is the voluntary participation in the market especially by buyers (consumers) and suppliers (producers). Arbitrage – This is the action of searching for profit in the market by organizations. Competition decides which firms survive in the market in the long-term and which shut down operations within any given market segment by allocating resources efficiently to high value users. Barriers of entry - This can be achieved through legislation as seen in legislative monopolies and protection of local markets from cheaper imports; establishing market dominance; control over vital resources for the production process (seen through the use of trademarks and copyright laws) and high capital requirement for start-up. Governance over markets - A governance system that supports and preserves private property rights is an efficient system (Boyes). The proper functioning of markets is enhanced by appropriate rule and regulations: they enable the realization of gains from trade, safeguards against resource waste and guarantees that property privately owned will not be damaged or confiscated. This paper attempts to analyze whether an organization’s structure can amount to competitive advantage for the organization. If so, how effective is the structure in either expanding or sustaining competitive advantage and profitability by examining the various types of organizational structures, their impact on the organization and ways of improving it where necessary. Discussion As mentioned earlier, organizations structures help to develop a formal structure to an organization from the manner with, which interactions as between the employees, the management, and the outside world, i.e., consumers and creditors. There are several types of such organizational structures including: Flat organizational structure This is an organizational arrangement characterized by high delegation of both power and responsibilities. There are many employees reporting to fewer superiors. Employees are given the latitude to make decisions for themselves but are equally required to account for them. The model is good for making rapid decisions in response to changes in the operating environment. Motivation of workers is also upheld due to feeling of direct participation in the decision-making process. However, the model can be a major inhibitor to the competitiveness of the firm by creating a mismatch between the efforts of the individual employees of the organization i.e. non-uniformity of policies and decisions. Hierarchical or Tall organizational structure Each employee interacts with only one boss whom they report to within this organizational structure. It is used especially where employees are specialists in a particular production process, which happens to be highly technical (Baye). A Complex hierarchy organization arises when there is a need for employees to be in continued feedback with a group of employees but not all of them. Efficiency is achieved by dividing employees into groups and then proceeding further to organize the groups into larger ones. This traditional model is characterized by high job specialization, centralized authority, narrow spans of control and extensive departmentalization. Departmentalization was identified to be efficient where there are economies of scale in specific jobs However, in the same breathe; it was noted to be demerit such as overlapping divisions and/or departments (Boyes). a) The Unitary form organizational structure (U-model) This model originated in the late 19th Century where large firms were characterized by combinations of many formerly independent firms (that were still usually run by their founders). Development in technology meant that firms could better benefit from economies of large-scale production and thus, firms invested in large-scale plants and internalized activities that previously had been conducted by the independent firms, e.g. sales, marketing, production. Under this model, a single department is responsible for a single basic business function. The model allows for specialization of labor allowing for realization of significant economies of scale within departments of large organizations. b) The Multi-divisional structure (M-model) The model was because of the paradigm shift with regard to increasing the economies of scale from the normal single product line to diversification of production. It also addressed limitations in the Unitary model experienced as an overload i.e. manager’s exceeding of their span of control (Boyes). The model involves a set of autonomous departments headed by the firm’s corporate head office. The structure is based on product line associated with different business units, geographical locations, and/or type of customer. This model is able to generate more profits than the unitary model (at least in the short run) (R.Armandi). However, continued growth of the model downward and horizontally there was a significant increase in operational costs to the firm being charged against the diminishing profits. It also imposed the challenge of dealing with the ever-changing customer needs and preferences. Matrix organizational structure The practical limitations of the M-model precipitated its evolution into a dual-departmental or divisional structure i.e. product groups and functional departments. Regional coordination would increase the bargaining power of the firm in dealing with large external suppliers, pricing and promotional mechanism. The structure facilitates the use of highly specialized staff and equipment so specifically required by modern multinational firms and allowing for sharing of resources as needed. This further lowers the cost of operations of the firm and hence increasing its profit margin and competitiveness in the market. However, the model can hide great flaws too. Top management must develop proper procedures and guidelines on new product development to ensure transparency and safeguard against resource waste within the whole organization. Communication channels must also be clear at all times to signal any potential conflict that might hinder the functioning within the organization. Network organizational structure A trend in many large organizations is seen in the use of network organizational structures. This is because; some markets provide efficiencies of scale in some activities, and deficiencies in others. Therefore, flexibility becomes the surest way of deriving competitive advantage for such organizations. Conclusion In all the above models except for the matrix structure, there is some sense of focus targeted on vertical organizations synonymous with subordinate-superior relations. This is at times necessary but may become an inhibitor in rapidly changing environments. All parts of an organization rely on each other for harmony to reign in the organization. Technology is by far the best-known means of flattering organizations. There is no one best model fits all. Considerations must be made with due considerations to people skills, organization’s functions, the changing operative environment. Works Cited Baye, Michael. Managerial Economics & Business Strategy. McGraw-Hill/Irwin, 2009. Print. Boyes, William. Managerial Economics: Markets and the Firm. Arizona: Cengage Learning, 2011. Print. Daft, Richard L. Organization Theory and Design. Cengage, 2008. Distelzweig, Howard. "ORGANIZATIONAL STRUCTURE." 15 July 2004. Reference for business. Web. 11 March 2012 . Grashow, Kurt. The concepts of empowerment, self-managed teams, and cross-functional teams. A case for their inclusion in either a tall or flat organizational structure. Kurt Grashaw , 2011. Print. Miles, Raymond and Charles Snow. Organizational Strategy, Structure, and Process (Stanford Business Classics). Stanford Business Books, 2003. Print. R.Armandi, Barry. Organizational Structure and Efficiency. University Press of America, 1983. Print. Read More