Organizational structures and market structure are crucial component while setting up a business. It is up to an individual to decide which structure they wish to apply in their business as well as which form of market to operate in. This paper is divided into two tasks, task one entails discussion of the three organizational structures and comparing their chain of command and span of control. The second task entails discussion of determinant of market structure as well as explanation of different form of the market structure.
The way an organization’s structure develops usually falls into flat, matrix or tall structure. A matrix structure is the most complicated structure an organization could implement. In this case, a matrix structure is the organization structure where reporting relationship are usually set as a matrix or a grid rather than in traditional hierarchy (Morgan 2015). In this case, employees under matrix structure have dual reporting relations; that is to both the product manager and functional manager. Under matrix structure, personnel reporting to the department managers could also unite together in order to custom product or the project teams. Besides, in the matrix structure, the product managers usually have full control over the product-related issues, while the department managers usually have the authority over issues related to organization policy (Jonathan 2017). Basically, the matrix structure is usually created in response to the dynamism and uncertainty of the environment as well as need to offer specific attention to particular projects or products. Therefore, use of the matrix structure could increase corporation and communication amongst departments since the project managers would require coordinating their activities with those of the department managers. Generally, matrix structure increases frequency of the formal and informal communication in an entity (Johnson 2012). It also has the advantages of offering quick responses to the customer demands and technical issues. For instance, the matrix structure at Starbucks would be as shows in figure 1 below:
Figure 1: Example of matrix structure Starbucks
Source: Meyer (2018)
In tall structure, there are numerous layers of the administration amid the frontline personnel and top level personnel. Additionally, in the tall structure, number of personnel reporting to every manager is small, leading to higher opportunities for the managers to monitor and supervise the employees’ activities. The tall structure is good at satisfying the security needs of the employees. Tall structure usually leads to a one extended chain of command same to military (Morgan 2015). In essence, under tall structure, organization develops, number of the management levels also upsurges and structure becomes taller. To be more specific, under tall structure, directors usually form numerous ranks and every rank has small section of control. The tall structure gives distinct, clear layers with some obvious like of control and responsibility and clear advertising arrangement. Basically, in tall structure, there are considerable several middle-level posts between highest and lowest-ranked personnel (Jonathan 2017). The structure is more bureaucratic as there are various layers of the authority separating topmost manager from bottom most personnel. For example, Figure 2 below shows an example of tall structure in a banking institution.
Figure 2: Example of tall structure at Coca Cola Company.
In flat structure, only few layers of management exist. The flat structure comprises of large number of personnel reporting to every manager. Here, the managers are somehow unable to offer close supervision, resulting in higher level of the freedom of activities for every employee (Jonathan 2017). In essence, flat structure offer greater satisfactions for the personnel and higher levels of the self-actualization. This structure focuses on empowering personnel instead of adhering to different chains of command. Besides, by inspiring self-direction and sovereignty, the flat structure attempts to hit into the personnel’s creative gifts and in resolving some problems by collaboration (Johnson 2012). Additionally, flat structure gives more chances for personnel to shine while endorsing relatively high business vision. For the flat structure to properly function, leaders should share information and research rather than hoarding it. Hence, if they succeed being tolerant, vulnerable and even open, they shine in such setting.
Figure 3: Example of flat structure at General Electric
Scalar chains and the span of control are two significant aspects within an organization linked to the organizational structures. The two might be confusing since at times they could be used interchangeably as a result of their similarities in terms of objectives (Jonathan 2017). Nonetheless, they also differs in that scalar chains is level of the authority within an organization while span of controls is number of subordinates the managers is accountable for controlling. In matrix structure, there is a long top to bottom scalar chain or the chain of command. In this case, the chain of command begins from top to bottom, in straight line. Individuals share power utilizes open confrontation in resolving problems and use all directions within an entity in disseminating information (Digital Frontline 2018). On the other hand, the tall structure usually results in a single extended chain of command that is similar to military. Here, as organizations expands, number of the managerial level increases and structure become taller. Nonetheless, under flat structure the chain of command is relatively short as compared to tall structure. This is based on the fact that flat structure has few layers of the management.
The span of control on the other hand, comprises of the subordinates a specific manager is accountable for controlling. It is principally decided on the basis of whether an organization adopts flat or tall structure. In tall structure, span of control is usually narrow (Johnson 2012). This allows for high control, easy supervision of work as well as more chances for promotion. Nonetheless, the decision-making process is relatively slows as a result of numerous layers of the management as and might result in delays and communication problems. On the other hand, flat structure is usually characterised by wider span of control. Therefore, there are limited levels of the hierarchy. As number of personnel reporting to a single manager is usually high, a lot of work is usually delegated to the subordinates that in return increase their motivation and responsibility, offering sense of autonomy (Chron 2018). The decision making under flat structure is fast and is usually highly responsive to variation within the market. Nonetheless, workload for the managers might be excessive with wider span of control and some issues of the direct supervision might arise. In matrix structure the span of control is wider. This is based on the fact that matrix organization structure is decentralised with bottom-up decision making process.
Market structure is the type of number of organizations operation within a given sector. There are different means in classifying markets used in studying the nature of markets and the problems faced by every of them. Basically, there are different aspects used in determining market structure; these include number of sellers and buyers, market size, freedom of entry and exit, mobility of goods and aspect of production and knowledge of the market condition (Caves 2009). One, the number of sellers and buyers within a market indicates influence exercised by the market on price of a given commodity. When the number of buyers increases and sellers decreases, the gross profit increases resulting in entrance by some organization (Ciliberto & Tamer 2009). Therefore, the number of organizations within the sector increases, decreasing concentration of a market. Whenever, the market size increases, demand increase in turn, resulting in relatively higher profits for every existing organization. Such aspect is said to attract entrants in the sector sharing total profit from market demand. In this case, number of organizations increases, therefore, decreasing concentration of a market.
Nature of commodity is another crucial determinant of market structure (Caves & Porter 2011). In case, the commodity within the market is usually of homogeneous nature; that is, identical, then it should be sold at uniform prices. Nonetheless, in case commodity is differentiated, it might be sold at diverse prices. Again, in case commodity lack any close substitutes, select could charge relatively higher prices from buyers (Caves 2009).
Another determinant is freedom of the movement of organizations. In case, there is freedom of exit and entry of organizations, price would be relatively stable within the market (Caves & Porter 2011). Mobility of the commodities and aspect of production is also a crucial determinant of market structure (Ciliberto & Tamer 2009). In this case, whenever factors of production could move somehow freely from a particular place to another, uniform prices tend to prevail within a market. Nonetheless, in case of some immobility of factors and commodities, different prices might prevail within a market (Caves 2009).
Finally, knowledge of the market conditions is another determinant of market structure. In case, sellers and buyers have perfect understanding on market conditions, then uniform price tends to prevail within a market (Caves & Porter 2011). Nonetheless, in case of some imperfect understanding on market conditions by buyers, sellers tends to charge differentiated prices to these buyers.
There are five different types of the market structures; there are, monopoly, perfect competition, monopolistic competition, oligopoly and contestable markets. Contestable or duopoly market is usually the market with freedom of exit and entry, and low sunk costs. In this form of the market, variation in productivity and price of a particular firm would affect the other and therefore the other bearing the loss need to match up with price of its competitor.
Monopolistic competition entails a form of market with numerous sellers selling differentiated product. In this market competition is very keen, though it is not perfect among numerous organizations making similar products (Dunne, Klimek, Roberts & Xu 2013). Besides, in monopolistic competition, there is no organization that could have perceptible influence on price output policies of other sellers nor could it be at any point be influenced by their actions. This offer organizations certain level of the market power that permits them charge relatively higher prices in certain range. Therefore, monopolistic competition is the form of market with large number of the sellers that produce close though not perfect substitutes (Caves & Porter 2011).
Oligopoly market on the other hand is the market stipulation where there are relatively few organizations selling differentiated or standardised commodities. This leads to limited competition within the market. In this market, organization could opt to either compete against one another or to collaborate. In this form of market, it is a bit difficult to point number of organization within the competition among few. The action of one organization tends to afflict the other. Furthermore, an oligopoly sector produces either standardised products or some assorted products (Dunne et al 2013).
Monopoly market is a form of market in which there is only one organization selling commodities for which no close substitutes exists. To be more specific, in a monopoly market, there is only one single seller who has entire control on supply of specific products. In other words, in monopoly market, organization has highest level of power within the market since buyers do not have an alternative (Quick Economics 2018). Thus, a monopoly market reduces the output in order to increase prices and therefore earn significantly high profit.
A perfect competition is the form of market where number of sellers and buyers is relatively large, all engorged in selling and buying of standardised products without any form on unnatural precincts as well as processing perfect understanding of the market (Caves 2009). In other words, a perfect competition is the form of market where numerous organizations offer homogenous product (Caves & Porter 2011). Since there is the freedom of exit and entry, organization would make normal profits and their prices would be retained low by the competitive pressures (The Wall Street 2016). In this market, sellers and buyers are the price takers not price influencers. In perfect competition, forces of demand and supply determine amount of products produced and market price set in the market.
Figure 1: Price Fixation under perfect competition
Under perfect competition, price of commodities is usually determined by interaction of demand and supply, resulting to price of Pe. In this point individual organization would maximize the output where the MR equals MC at the quantity Q1. Here, the organizations would make some normal profits in long-run. Nonetheless, in case there is increase in the demand, price of the commodities would increase; thus demand curve and AR would shift upwards. This would cause organizations to generate supernormal profits and in turn attracting new organizations in the market. As a result, the price would decrease to equilibrium at Pe.
Conclusion:
In conclusion, the manner in which organizational structure develops usually falls into different structures with flat, matrix and tall structure being the most common ones. The matrix structure is the organizational structure where reporting relationship are usually set as a matrix or a grid rather than in traditional hierarchy. On the other hand, under tall structure, there are numerous layers of the management between the frontline personnel and top level employees while in flat structure, only few layers of management exist. Further, it can be concluded in the task 2 that perfect competition is an ideal market, since there is free exit and entry, so a good number of organizations move in the market and can easily exit whenever the market is not profitable.
Reference:
Caves, RE & Porter, ME (2011), ‘Market structure, oligopoly, and stability of market shares,’ The Journal of Industrial Economics, 289-313.
Caves, RE (2009), ‘The determinants of market structure: Design for research,’ In Markets, corporate behaviour and the state (pp. 3-18). Springer, Boston, MA.
Chron (2018), Tall and flat organisational structure. Viewed from: https://smallbusiness.chron.com/tall-flat-organizational-structure-3796.html (Accessed at 26th October 2018)
Ciliberto, F & Tamer, E (2009), ‘Market structure and multiple equilibria in airline markets,’ Econometrica, 77(6), 1791-1828.
Digital Frontline (2018), Tall and flat organisational structures. Viewed from: https://www.revision.co.zw/tall-flat-organisational-structures/ (Accessed 26th October 2018)
Dunne, T, Klimek, SD, Roberts, MJ & Xu, DY (2013), ‘Entry, exit, and the determinants of market structure,’ The RAND Journal of Economics, 44(3), 462-487.
Johnson, GA (2012), ‘Organizational structure and scalar stress,’ Theory and explanation in archaeology, 389-421.
Jonathan, S (2017), Tall vs. Flat Organizational Structures in Management. Viewed from: https://bizfluent.com/info-8117900-tall-flat-organizational-structures-management.html (Accessed at 26th October 2018)
Meyer, P (2018), Starbucks Coffee’s Organizational Structure & Its Characteristics. Viewed from: https://panmore.com/starbucks-coffee-company-organizational-structure (Accessed at 26th October 2018)
Morgan, J (2015), The 5 Types Of Organizational Structures: Part 3, Flat Organizations. Viewed from: https://www.forbes.com/sites/jacobmorgan/2015/07/13/the-5-types-of-organizational-structures-part-3-flat-organizations/#ae101026caa5 (Accessed at 26th October 2018)
Quick Economics (2018), The four types of market structures. Viewed from: https://quickonomics.com/market-structures/ (Accessed at 26th October 2018)
The Wall Street (2016), 4 market structures in economics. Viewed from: https://blog.wallstreetsurvivor.com/2016/08/01/4-market-structures-in-economics/ (Accessed at 26th October 2018)
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