Market-Based Management
MBM (Market based management) is a management concept that encompasses the key elements of a free society and incorporates them to the organizational structures within an organization. Charles Koch, the CEO of Koch industries initiated the concept of MBM and incorporated some of its principles into the company. As Koch explains it, the practice of MBM does not entail copying the external marketing principles within the firm. Essentially, a business only facilitates individuals to meet the specific objectives and mission set by the firm. However, the broader society referred to in the MBM exists to facilitate individuals to achieve their own set goals. Additionally, MBM facilitates the discovery of the duties, organizational structures, qualities and the incentives that keep individuals motivated during the process of achieving a common mission. Therefore, the use of MBM does not merely allow its employees to carry out the activities they deem viable but it also enables them to utilize such activities to generate revenue. MBM is also not solely oriented towards being responsive to the market. Every business firm in the market that has an effective management system ought to assist the firm’s managers as well as its personnel to make appropriate responses to customers. MBM is comprised of more aspects that are beyond the provision of responses to customers.
Superficially, the concept of MBM contains some elements that are similar to some management practices such as total quality management and the just-in time inventory control method. The similarity lies in the fact that practices assist the firm to use the dispersed and essential knowledge held by several employees within an organization. It is significant to tap the creativity and knowledge that is dispersed within an organization. However, it is an extremely demanding practice. This fact can be seen by the increasing number of firms that decided not to use use quality management sytems that are generated as a result of various frustrations. MBM provides a paradigm shift for comprehending an organization’s challenges rather than just providing an additional list of tools that ought to be implemented by the management. The paradigm provided by the concept of MBM assists a company’s management during the examination and evaluation of the tools present in total quality management, just-in-time inventory and the other practices that are used to advance a firm’s performance. The principle underlying the concept of MBM defines the understanding of human actions and interactions. It enhances people’s understanding of the modes of operation of free societies in regards to the freedom accorded to the people in their lives and work, thus enabling them to work harmoniously. The establishment of MBM is motivated by the need to enhance human well-being experienced experienced by customers. MBM is usually created through activities that are undertaken independently and those that are coordinated with the activities of other people. A vivid example is the spontaneous order that helped to improve the living standards of many societies after the industrial revolution. It is also important to note that people usually experience an improvement in their well-being after exercising their own individual initiatives as opposed to the implementation of policies by the government. The market system played a vital role in ensuring that people generate and distribute wealth at a optimal scale that is considerable.
A company is usually considered to be analogous to the society, but it usually has some distinguishing factors. The firm can increase its effectiveness by using the market system just like the societies that adopted market-oriented rules to improve the well-being of humans. The market system can be used as a guide for establishing systems for a firm to improve its results. During the past, managers used command-based management techniques to manage the firm. This has, however, being discouraged by the same managers because of the disastrous results they have continually shown to their businesses. The two major command-based management techniques are; Taylorism and centralized economic planning. The two management schemes are based on a similar framework. The framework emphasizes order and coordination based on the planning ability of a central authority.
The MBM differs from various conventional management techniques such as industrial democracy and participative management. It offers varied solutions to the problems of management coordination, but shares a similar approach in regards to the administration of a centralized management. Conventional management techniques usually offer employees a chance to voice their concerns before a major decision is made, either through employees’ representatives or directly by the employees. This approach depends on the input made by everyone provided they are informed to make contributions during the decision making process. The MBM approach segments the decision making process allowing the team or individual having requisite knowledge and appropriate incentives to make the required decision and to bear responsibility for the outcomes hat ill be witnessed.
Property Rights, Roles, and Responsibilities
The concept of roles and responsibilities was developed from the concept of property rights that is found in the knowledge of market structures. Private property plays a vital role in a market’s economy since it promotes the productivity of the individuals involved in production process. There are three basic characteristics of property rights. A person has the freedom to decide how to make use of their property. For instance, a person can decide to generate income by selling the property. A person may also decide to transfer the property to another person without charging him/he any costs. These aspects have a lot of significance in regards to influencing the social role of decision making. The judgment is usually made independently to derive knowledge that is utilized to address the situation challenge.On some occasions, the central authority may not, however, not be in a position to solve situational challenges appropriately. The owner of the property receives income that helps him gain feedback in regards to the satisfaction level of the customers. The sale of the property optimizes the value of the earnings made in the future making individuals consider the long-term outcomes of their decisions.
- Independent judgment solicits for knowledge
The social system is designed in a manner that provides a way of coordinating the resources required to meet the human wants and needs. The intensity of desires of an individual are best known by the particular individual, and it is possible that they may remain unknown to another person or committee. Every individual within the society has the knowledge pertaining to the desires and abilities within their disposition. The private property facilitates an individual to harness necessary knowledge for making independent decisions in regards to the use of the resource. Exchanges in knowledge happen during voluntary trade which is not solely restricted o the exchange of money and property. A concise scenario that emphasizes the system of voluntary trade is when a customer having US$10 decides to buy a pair of shoes. When the customer gives the US$10 dollar to the seller and takes the pair of shoes, the exchange is it is equivalent declaring that the customer places more value on the pair of shoes than the US$10. Similarly, when the seller accepts the US$10 and hands pair of shoes to the customer, it shows that the seller values the US$10 more than the pair of shoes. Overall, the system entailing voluntary exchange facilitates for several transactions that generate the knowledge on the valuable resources within the society.
- Revenue generated provides feedback
The income generated after voluntary exchange acts as an incentive to the business while providing a feedback concerning the satisfaction of customers. During an exchange that exempts charges, the individuals involved have the control to decide on the value of a resource, which is indicated by one individuals giving the other resource that is required for the exchange to take place. This is an illustration of the basic laws governing economics. In order for a firm to acquire additional profits in a free market, the firm has to search for ingenious ways of providing quality services and products to the customers, and at simultaneously use less resources when compared to the competitors. This ensures that the society benefits in the sense that the firm gains profit while the customer acquires a valuable resource. The profit is a reward received after the firm serves is customers successfully. The profits earned by a firm signal that it has contributed a valuable resource to the society. These profits also provide the firm’s managers with an appropriate judgment that enables them to control additional resources and to derive value on a remarkably large scale. The losses illustrate that the firm has reduced the value of the resource offered to a customer. It also assists in delineating weak judgment form the control of resources. An indispensable strength in marketing is the ability to combine the control of the resources with the correct decisions.
- Future effects capitalized by the purchase and sales
Decisions that influence use of private property are usually tailored to ensure that the owner remains accountable for the consequences emanating from their actions. For the property that is considered public, Many people have a habit of misusing public resources since they usually have the opinion that they cannot make profits from such resources. An example of a public resource is air. A majority of individuals do not an efforts to preserve air that is equivalent to the effort involved in protecting their privately owned profitable resources. Instead, such responsibilities are left to the government and some of organizations that take measures that are geared towards preventing air pollution. This is reinforced by the fact that there is no private owner responsible for the consequences of neglecting the air condition.
Owning a private resource is an incentive that compels the owner to preserve the value of the resource since translates to profit. Most business firms have a culture of instituting measures that ensured the preservation of the value of a resource because they have the legal right of ownership. They are also aware that the profit generated from the resource is directly proportional to the value placed on the resource. The higher the value of the resource, the higher the profit acquired by the entrepreneur. An example that succinctly expresses how the purchases and sales capitalize on future effects can be drawn from an analysis of the habits of home-owners and tenants. The homeowner takes the initiative of planting trees, using long-lasting materials for building the house, and installing heavy appliances since they know that the value of the investment increases when the house is sold. The tenants have to give the homeowner a deposit in advance to pay for damages that may be imposed by the renter. The purpose of the deposit is to compels the renter to take care of the property and to maintain its initial condition. It is a vital incentive that makes the renters behave like the homeowners. After creating value of resources, the seller usu earns profits. Morever,it also leads to the creation of wealth within the society.
Application of the private property, roles and responsibility concept
The management of business organization seeking to employ the concept of private property, its roles and responsibilities ought to comprehend the benefits derived from private property. This does not imply advocating for the employees to acquire their own tools. In fact, it emphasizes on the need for the management to understand the significant role that private property plays in a given market economy. After gaining clarity regarding the benefits gained, the management should then designate responsibilities in a manner that elicits independent judgment from its employees. This should also help in presenting a strong feedback, and influencing the employees to capitalize on the future impacts that result from their decisions.
A company that applies this strategy should create profit centers where profits and losses should be calculated. The profit center represents a unit within the company where auditors can prepare financial statements. The profit centers are sections that operate within the company. Although profit centers are advocated for by the concept, there is a need to coordinate them and to ensure that they function in harmony with the mission of the entire company. An example of a company that utilizes the concept is the Koch Industries limited. The corporation has created profit centers where the amount of profit is determined. In order to control the profit centers, the corporation evaluates the profitability of one profit center and the benefits or costs it creates for the other profit centers. This enables the company to monitor the actions and decisions used to generate the profits for a particular profit center. Koch Industries ensures the sustenance of some of the profit centers based on the positive impact that they provide for the other profit centers, but not merely because of the profits they earn. The other departments classified as support groups e.g. the accounting department is evaluated based on the value they provide to the profit centers. Although this strategy of evaluation is usually difficult and complex, decentralization of the evaluation processes is very essential as it assists profit centers to remain in harmony and to reap profits.
The value theory holds that the elements used by individuals to measure value influences their actions. In this light, the value theory relates to the concept of private property. The role and responsibility of the theory and the concept was built on the premises that the value of a resource determines the action of an individual. More specifically, the concept provides that the owner of a private property places substantial value on the resource and subsequently, makes efforts directed towards preservation of the resource’s value. This is consistent with the theory, which also supports that the value drives actions.
In conclusion, the MBM strategy is based on the market system and decentralization of the decision making process. The strategy encompasses the concept of private property, its roles and responsibilities which calls for the management to seek vivid comprehension of the beneficial characteristics found in private property ownership. More, significantly, the concept emphasizes that private property is valued highly by the owner, and this makes the owner to find ways of maintaining the itsvalue. This is influenced by the notion that the value of the resource determines its profitability. This is also consistent with the value theory, which associates the value of an entity to the type of action an individual takes.
Works Cited
ESS EDU. (2012, August 25). Introduction to the value theory. Retrieved from European Social Survey Education Net: http://essedunet.nsd.uib.no/cms/topics/1/1/1.html
Klein, P. (2006, May 7). Market-Based Management. Retrieved from Organizations and markets: http://organizationsandmarkets.com/2006/05/07/market-based-management/
Koch Industries Inc. (2013, January 6). About the Company. Retrieved from Koch Industries Incorporated: http://www.kochind.com/Newsroom/Publications.aspx
Koch, C. G. (n.d.). Introduction to Market-Based Management. Virginia: Fairfax.
