Rajanand Zingales discuss the vertical and horizontal hierarchies oforganizational structure, which attaches the employees to the firm’scritical resource. They came up with these organizational structuresbased on the idea that a business originates from new ideas,different management concept, equipment, or the identification of anon-satisfied consumer market. Rajan and Zingales explain that thevertical structure allows the entrepreneur to controls the access tothe critical resource in an organization, which allows forspecialization among the employees. Subsequently, the entrepreneuruses the specialized workers to monitor the action of new subordinateemployees.
Onthe other hand, the horizontal organizational structure uses a moresophisticated strategy where the entrepreneur is directly connectedto all the staff. Although the access to the resources is limited inthis structure, it gives the employees an incentive to specializesince ownership may be granted later based on the divide and conquertactic. Therefore, the entrepreneur directly chooses the employeeswho will specialize, which allows him or her to protect the criticalresources in the organization.
Inconclusion, entrepreneurs face a major problem when ensuring theco-operation of workers to create value without necessarily having togive away the surplus of any new venture. Thus, Rajan and Zingalesexplore the horizontal and vertical organizational structures as thebest strategy to manage this problem. Besides, the two designs allowan entrepreneur to venture into a new business and have maximumutilization of valuable resources as well as proper coordination ofthe organization resources through workers cooperation. Therefore,the structures allow the employees to work with the availableresources and specialize by acquiring knowledge about the resourcesand learn how to work with their superiors.