Market Based Management

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The Market-Based Management philosophy was developed by Charles Koch and is employed by Koch Industries, the largest privately-held company in the world, according to Forbes magazine. MBM is based on rules of just conduct, economic thinking, and sound mental models which harnesses the dispersed knowledge of employees, just as markets harness knowledge in society. Market-Based Management enables an organization to succeed long term by applying the principles that cause a free society to prosper. Market-Based Management applies concepts and tools posed in the application problems, it allows you to learn experientially by changing input values to see how different situations impact performance, and also teaches to perform your own analysis by replacing the application problem data with your own data. We know from history, economics, and other disciplines that prosperous societies have very different rules and values from failed societies, and that the rules and values in prosperous societies encourage entrepreneurial innovation that leads to wealth, health, and happiness. An organization applying the MBM approach is one that has similar principles, rules, and culture, in order to foster principled, entrepreneurial behavior among its employees ( (para 1). MBM is organized in and interpreted through five dimensions: vision, virtue and talents, decision rights, incentives, and knowledge processes ( (para 3). The concepts to be discussed throughout this paper will be incentives, compensation, and motivation. Incentives, compensations, and motivation are applied within numerous organizations to not only help increase employee performance, but to also help the longevity of the organization. If an employees’ overall performance increases, so will the company’s profitability. For instance if company A gives their employees an incentive to meet a certain sales quota...
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