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Coordination and Motivation as a Firm’s Purpose Essay

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The primary purpose for which a firm exists is to coordinate and motivate the economic activities of the people. Normally markets provide efficient solutions to the problems of coordination and motivation (Tracogna, 2000). When the markets fail to yield efficient solutions, firms become the principal alternative mechanism to support the coordination and motivation of people to promote economic activities. Because of specialization in their activities, individuals become interdependent for satisfying their needs. The satisfaction of the needs is accomplished by the exchange of the limited things and services each individual produces.

These interdependencies necessitate the coordination of the activities of different individuals and this becomes the primary purpose of the firm in addition to motivating the people for producing goods and services and making such exchanges. In general in the purest sense of the activities, markets emphasize motivation and hierarchies emphasize coordination. Usually every organizational form takes a midpoint in between these two extreme activities. In the process, the firms establish their own trade off between personal initiatives and enforced cooperation.

Markets and Firms

Market form of organization has some special characteristics. The markets are characterized by transactions carried out at arms’ length. Personal initiatives dominate the market form of organization and there would be cooperation among the participants only when there is a possibility of an acceptable bargain which can be struck. Thus markets become highly efficient mechanisms capable of delivering simple and powerful incentives. On the other hand, forms which are hierarchical forms of organizations lead to loss of personal initiative to some extent in order to achieve cooperation among organizational members.

Internal and external disaggregation, are the factors which can be considered as shifts away from enforced cooperation needed to promote personal initiative and make a hierarchy look more like a market. Internal disaggregation in effect is the process of decentralization and empowerment which many companies have adopted in recent period. External disaggregation lies on the other extreme where firms spin off parts of their business to the financial markets.

By doing this the firms reduce or surrender their ownership interests. Joint ventures are the typical example of external aggregation. While internal aggregation allows the corporate center to continue to have its intervention in planning and operation, external aggregation sets formal limits to the ability of the corporate center to intervene and take decisions.

It is to be understood that no form of organization possesses superior qualities inherently. Firms use several hierarchies where there is the need of tighter control. In case where activities can be outsourced firms use more disaggregated forms for coordinating and motivating the economic activities of the people. In order to pursue different objectives, firms working in groups use different forms of organization. Silicon Valley can be considered as a typical organization rather than General Electric or British Civil Service when viewed as a system of for promoting the motivation and coordination among the people.

Purpose of Firms

According to John Roberts firms exist to motivate the organizational members and to coordinate their activities. Therefore the performance of the firms get affected when there is lack of motivation, coordination or both. However, in the case of most of the firms, there is the lack of “entrepreneurialism” in the form of the inability of the firms to motivate the people at the top level so that the firms can seize the available opportunities and cash in on them.

Certain other firms have the challenge of developing, applying and capturing value from the new technological innovations. They also are unable to create value-adding linkages between different processes and business units. This can be viewed as a knowledge challenge or lack of coordination. Coordination is nothing but the completion of all the needed tasks without pointless duplication (Roberts, 2004). F. W. Taylor, the command and control function in any organization can work well when “Each employee should receive every day clear-cut, definite instructions as to just what he is to do and how he is to do it, and these instructions should be exactly carried out, whether they are right or wrong.”

According to this view coordination encompasses the function of dictating the activities of the employees in great detail so that they can perform efficiently and effectively. However this kind of monitoring and discipline may easily to lead to de-motivation among the organizational members.

In the present day form of organization top performance signify the extraction of full potential of the talented organizational members to such levels of initiatives and skills which the organizations in the past could not reach. In this context, the twin challenges of motivation and coordination have become predominant, especially in the case of companies which are in the fast-moving technologies and pharmaceutical sector. Therefore it can be interpreted that the markets stand in preference over the firms in coordinating and motivating the people in promoting economic activities.

Modern Firms and Coordination

“The firm is much more than a nexus of contracts. It is an autonomous player that acts as the counterparty in contracts with customers, suppliers, investors, and employees” (Spulber, 2009). In the present day competitive environment firms are made to adopt a variety of models of motivation and coordination. They also change the models with the emergence of new strategic challenges. However, one common factor that influences the modern firms is that the decisions of the constituent units influence the top management powerfully. While the firms historically were vertically integrated so that they can have access to scarce physical resources, the modern firms are disaggregated both internally and externally.

This enables them to participate in a variety of economic forms like joint ventures and other alliances. The modern firms because of the disaggregation are able to outsource even their core activities. In the past, the incentives provided by the firms were found to be weaker than those provided by the markets which made the markets provide better motivation and coordination to the economic activities of the people.

On the other hand the present day firms are designed to provide innovative and more powerful incentive systems that motivate and coordinate people at all organizational levels to promote economic activities not only for the firm but for the development of the economies of different nations.

Global competition, increased importance of knowledge and its efficient management, and the rapidly increasing cost of information technology has resulted in increased pressure on the firms to adopt various disaggregated designs for achieving effective motivation and coordination. The role of the chief executives has been shifted from an entrepreneur or chief monitors of performance to that of designers of firms which could achieve better trade offs between personal initiatives and enforced cooperation (Day & Wendler, 1998).

As a student of management the relationship between design of organizational hierarchy and the motivation and coordination among organizational members is of great importance. A sound knowledge in this realm would enable me to structure the hierarchical relationships in a better organized way to enhance the motivation among the members.


Day, J. & Wendler, J., 1998. . Web.

Roberts, J., 2004. The Modern Firm. Oxford: Oxford University Press.

Spulber, D.F., 2009. The Theory of the Firm. Illionois: Cambridge University Press.

Tracogna, A., 2000. Introduction to Business Management. Web.

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