Market-Based Management Application - Essay Example

?Market-based Management in Koch Industries 26th of January, Table of Contents Table of Contents 2 Market-based Management in Koch Industries 3 Introduction 3 References 8 Market-based Management in Koch Industries Introduction The Market-based Management is a strategy that was developed by Charles Koch and has been greatly used in by Koch Industries. The approach is founded on implementation of rules of conduct, sound mental models, and application of economic thinking to harness the market. The approach aims at nurturing personal qualities such as humility and integrity. These values are important since they enable a company get the trust and confidence of its clients. Moreover, the principles encourage employees to learn from their failures and always think in terms of opportunity cost. Therefore, MBM entails learning how to understand and deal with the human nature and apply the concepts in an organization to ensure that the products or services are viewed positively by the customer since they satisfy their needs. This essay focuses on the concepts of Market Base Management (MBM), overview of Koch Industries and how the company implemented the MBM, MBM relates to Values Theory, challenges involved in implementing MBM and possible Solutions. Concepts of Market-based Management In companies, individuals possess varying knowledge regarding the operations of the company. Therefore, managers are required to learn how to manage the varying knowledge to enhance the performance of the company. Previously, most organizations focused on hiring competent managers since they believed that the persons would be capable of understanding the situation in the organization and make plans that would apply to the diverse employees. However, this approach has been unsuccessful in most companies since they failed to realize that a single individual could not possess all the skills required for apposite management. On the contrary, the skills are dispersed amongst the various employees. Understanding this led Charles Koch to develop varying concepts that he combined to come up with the Market Based Management, which is opposed, to centralization of management (Gable, Elllig, & Ellig, 1993; Koch, 2007). The philosophy entails setting clear vision and incentives in an organization and measuring the performance of the employees, which results in establishment of an entrepreneur behavior in organizations. The decision making power is distributed amongst employees and individuals do not have to consult the managers or superiors while making minor decisions. However, the company has a clear vision and the employees are encouraged to ensure that their decisions aim at ensuring the company’s vision is realized. Since the employees understand what they are required to accomplish, have integrity, and expect some incentives from their efforts, they become focused towards achieving their goals, which are in line with the companies vision (Kratzer, 2000). The incentives aim at ensuring that employees are compensated for their works as well as the value they create for the organization. Moreover, the philosophy emphasizes on having appropriate measures to quantity the individual performance, on time delivery, asset performance, as well as performance of the entire organization. Furthermore, the philosophy highlights the role of market principles in an organization (Gable, Elllig, & Ellig, 1993; Kratzer, 2000). Overview of Koch Industries Recently, Forbes magazine ranked Kochs industries as the largest privately held company in the world. Koch industries is an American multinational and is involved in activities such as trading, investments and manufacturing, refining and distribution of products such as petroleum, and manufacture of chemicals energy, polymers, fertilizers, fiber, paper and pulp. Fred Koch co-founded the company with other partners in 1940 but his sons Charles Koch and David Koch currently run it. The company is the best example of how the MBM philosophies have been applies since the company’s current CEO, Charles Koch, pioneered the approach. The company has over 11,000 employees. The subsidiaries of the company include Invista, Flint Hills Resources, Koch Pipeline, Georgia-Pacific, Koch Fertilizer, Matador Cattle Company and Koch Minerals (Koch, 2007). How Koch Industries Implemented Market-based Management Koch the founder of Koch industries said that the process of implementations of MBM is a lengthy process that involves experimentation through application of certain principles, which eventually result in increased prosperity. Moreover, there is need for company management to be conversant with how the strategy works. The initial stages of the implementation process involve helping the employees understand the need to change their behaviors and adopt a culture of compliance since MBM is guided by integrity and compliance (Gable, Elllig, & Ellig, 1993; Koch, 2007). Since MBM emphasizes on personal integrity, Koch Industries gave its employees individual jurisdiction or the freedom to operate properties under their control. The employees are free to sell or improve property under their control if they believe the opportunity will earn the company profits. Moreover, the company focused on identifying the areas in their operations that are most important and encouraged the employees to lay more emphasis on such areas. Focusing on areas that add value to the organization enabled Koch Industries compete effectively in the market since the quality of their products improved (‘Twenty questions for Charles Koch,’ 2009). Moreover, operations such as delivery were enhanced leading to reduced time wastage and effective utilization of the resources. Therefore, implementing the MBM entails ensuring that the six systems in an organization, which include labor division, property rights, and rules of just conduct, price system, market incentives, and free flow of ideas, are utilized towards enhancing organization performance (Gable, Elllig, & Ellig, 1993). Market-based Management and Values Theory Public value theory is crucial in understanding the results based management. Although the link between value judgment and economic success is unclear, management is grounded in value choices since there are certain values that drive people to make choices. Therefore, it is important to understand the drivers for appropriate management. The values theory is grounded on the idea that improving individual performance results in achievements, which eventually drives economic success of a company. This concept is closely related to Market based management, which emphasizes on individual compliance and integrity as crucial in organization success (Koch, 2007; Kratzer, 2000). MBM focuses on understanding human action and interaction. This is also a concept of Values theory, which seeks to identify what drives human action. Therefore combining the two concepts enhances the process of market analysis since it becomes easy to understand how free societies organize themselves to enhance harmony and improve the societal welfare. By understanding these concepts, a company can design its systems to ensure that the employees understand the needs of the customers and that the operations are aimed at designing products that satisfy such needs. In Koch Industries, the employees are trained to understand the behaviors of the society and ensure that their actions and products attract the customers (Gable, Elllig, & Ellig, 1993; Kratzer, 2000). Challenges of Implementing MBM and Possible Solutions The process of implementation of MBM tends to be lengthy and can be cumbersome. Moreover, the legacy that some companies use to operate impedes adoption of MBM. This is because most companies use the traditional top-down management style, which is incapable of allowing employees to have jurisdiction over their activities (Koch, 2007). One major challenge of MBM implementation is the high cost that arises due to decentralization. However, the benefits, which include proper time management and effective management of knowledge, outweigh the benefits. However, the high cost can be avoided by ensuring that employee performance is measure appropriately to encourage them to utilize the company resources appropriately (Gable, Elllig, & Ellig, 1993; ‘Twenty Questions for Charles Koch,’ 2009).  Summary The Marker Based Management is a philosophy that was developed by Charles Koch, the CEO of Koch industries. Therefore, Koch Industries is the best example of how MBM can be implemented successfully. The concept emphasizes the need to distribute managerial power to various individuals in an organization. This has been achieving in Koch industries where employees are allowed to make personal decisions regarding their activities. However, the organizational vision is clear. Moreover, the concept emphasizes on building integrity and humility amongst employees and a clear organizational goal. This ensures that employees tend to set goals that are in line with the organization vision. Moreover, having measures to quantify individual performance and reward the employers encourages the employees to set realistic goals and achieve them in time. Future studies should focus on how MBM goes beyond responding to the needs of the customer. References Gable, W. & Ellig, J. (1993). Introduction to market-based management. New York: Center for Market Processes . Koch, C. (2007). The Science of Success: How Market-Based Management Built the World's Largest Private Company. New York: John Wiley & Sons. Kratzer, D. (2000). Koch's market-based management more than theory. Wichita Business Journal, 15(40), 22-22. Retrieved from http://search.proquest.com/docview/229707417?accountid=45049 Twenty Questions for Charles Koch. (2009). American Journal of Business, 24(1), 15-18. Retrieved from http://search.proquest.com/docview/214180828?accountid=45049 Read More