The Principles Of Market Based Management Business Essay


Handy (1985) explains an organization as a setting, in which executives directs all available resources to attain its explicit goals. And good executive practices focus on effectiveness and efficiency to produce these intended outcomes. The effectiveness and efficiency emerge through integrated planning (Green, 1992), evidence-based resource distribution, performance measurement, and participatory decision-making (Amonoo-Lartson, 1996). This is also the core idea of Market-based Management.

The Market based Management philosophy attempts to apply the market practice principles in businesses to add value to organizational profitability and performance by exploiting free market principles as well as the knowledge of each worker, irrespective of the rank in the business (Holian, 2007).

Market-Based Management is a holistic move toward management that integrates both theory and practice and prepares businesses to deal effectively with the challenges of change and growth. A market-based management viewpoint has been employed in many firms and industries, whether officially through the use of the MBM structure or just by using market-based philosophy (Bozeman and Wilson, 2004).

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Komfo Anokye Teaching Hospital is the organisation selected to review if there is any element of Market Based Management present or how would the introduction of it improve its performance. This company is selected on the account that Koch (2007) said market based management is applicable to all kinds of organisations and not only businesses but also governmental, charitable, social and other groups. Market Based Management is the exceptional management tactic developed and executed by Koch Industries, Inc. It is a company philosophy that is embedded in the science of human action and functional through five dimensions: Vision, Knowledge Processes, Virtues and Talents, Decision Rights and Incentives. Koch Industries' MBM Guiding Principles articulate the rules of just conduct and describe the main values which direct the day by day business activities.

Koch (2007) indicated that before a company can effectively apply Market Based Management, its executives must gain special knowledge through an enthusiastic dedication to understanding and holistically applying Market Based Management to attain outcomes. Gaining this special knowledge requires self-modification that begins with understanding the fundamental notions. It also involves seeing how the ideas contribute to long-term effectiveness, and then constantly applying them over time.

A market-based management values has been employed in many industries and organizations whether officially through the use of the MBM structure or just by using market-based thinking (Bozeman and Wilson, 2004). They went on to say that MBM is based on constructing an environment where workers can feel protected to communicate views and query decisions, because the values and the culture permits it.

Overview of Komfo Anokye Teaching Hospital

In 1954, a new five hundred ten (510) bed capacity hospital complex for the Ashanti region which then had a population of 500,000 people was established. The name was later changed to the Komfo Anokye Hospital in honour and memory of the powerful and legendary fetish priest, Komfo Anokye. The Priest was the Spiritual Adviser of Osei Tutu I, founder of the Ashanti Kingdom. The hospital became a Teaching hospital in 1975 for the training of Medical Students following the establishment of the School of Medical Sciences (SMS) at the Kwame Nkrumah University of Science and Technology in Kumasi.(KNUST) Over 900 doctors have since been trained. Today, the hospital has developed into a 1000 bed capacity facility registering over 450,000 Out Patient Department attendances and 43,000 admissions annually.

The mission of the hospital is "to provide quality services to meet the needs and expectations of all clients. This will be achieved through well-motivated and committed staff applying best practices and innovation". The hospital has been divided into twelve major Directorates as part of a management decentralization programme aimed at giving some level of autonomy and control to the operational levels of the hospital. Consequently, the Directorates have their own management teams which are in charge of their day to day running. These management teams are allowed to set their own priorities, prepare their budgets and implement their programmes in line with the general policies and objectives of the hospital. The directorates comprise the following: Internal Medicine, Oncology, Obstetrics and Gynaecology, Child Health, Surgery, Polyclinic, Accident and Emergency, Administration ( Finance, support staff), Technical Service, Domestics Services, Diagnostics (Labs, X-ray and Radiology), and DEENT (Dental, Eye, Ear Nose and Throat). This allows the Executive Management made up of the Chief Executive and his five Directors to concentrate on strategic planning, general policy formulation and monitoring of the hospital's activities. Of the twelve Directorates, ten are Clinical and two Non-Clinical.

The five dimensions of Market-Based Management

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Market Based Management has five dimensions; the first one according to Koch is vision. For an organisation to be doing well, the development of a successful vision needs recognizing how a business can make better value for client and most fully benefit by it. The procedure begins with a practical evaluation of the business's core potential (new, improved or existing) and a preliminary determination of the chances for which these competences can create the most worth (Koch, 2007). Based on the vision, a business needs to develop and implement strategies that will enable it to maximize its long-term value. This needs setting priorities. In a complex business, deciding the order in which to do things can be just as important as deciding what things to do. Komfo Anokye Teaching Hospital has a vision of making the hospital center of excellence to meet international standards. This institution is dedicated to creating real and lasting value and willing to embrace change. It set priorities and commit to modernization and development. This vision guides all the activities of the organisation because the vision has been communicated internally.

The second dimension of MBM is the virtues and talents that shared fundamental traits which have distilled into ten guiding principles. Virtue and talents help to ensure that individuals are with the correct skills, values, and capabilities are employed, retained, and developed. Businesses applying market based management reward workers according to their virtue and their inputs. Businesses struggle to find the individuals who can produce the most value through a variety of experience, perspectives, knowledge and abilities. It is therefore essential to ensure that every worker is attached into a task that will make the best use of his/her unique skills and talents. In Komfo Anokye Teaching Hospital, every employee has been placed in a department where his/her expertise can be properly tapped.

The third dimension of MBM is the knowledge processes; it is ensuring that knowledge is best obtained, distributed, and applied. Knowledge processes are market economies that make it mainly because they are well-equipped to produce useful knowledge. Acquiring, creating, sharing, and applying appropriate knowledge, and tracking and measuring profitability. The main methods of this knowledge creation are market signs from trade to prices, profit and loss and free speech. Knowledge increases success by indicating and guiding resources to most valued uses. Besides allowing producers to build goods that create better value for customers, new knowledge also assist producers do so with smaller amount resources (Cowen and Elliq, 1995). This is also in existence in Komfo Anokye Teaching Hospital, in that there is a constant flow of information from one department to another, seminars, conferences, workshops which help staff to obtained, distributed, and applied the knowledge.

Also, Market-Based Management observes an analogous position within an organisation for decision rights. Rather than assets, workers own definite responsibilities, roles, expectations, and powers. When these are obviously defined, workers will recognize what they are liable for and for what they will be held answerable. Decision rights should reproduce a worker's established relative advantages. A worker has a relative advantage among a group of workers when he/she can carry out an activity more efficiently at a lesser opportunity cost than others. Decision rights constitute a worker's liberty to act separately in carrying out the tasks of a given role. They normally take the form of limits for diverse types of capital expenditures, operating expenses and contractual commitments. The right to make some decisions, but not others, is supported on the degree to which a worker has established the skill to achieve outcomes in diverse areas. Komfo Anokye Teaching Hospital practice decentralization system where every head of department, unit heads, and sectional heads take decision that would benefits their respective office, however, they are held responsible and recognize what they are liable for.

The last dimension of Market-Based Management is incentives. The ideal incentive for every worker is what best motivates that worker to maximize value for the business over his or her career. Where possible, compensation should be tailored to each worker's subjective value, offering the highest value to the worker for a given cost to the business. Incentives should take into account the person's risk profile, time preference and the most-valued form, amount and variability of compensation. Komfo Anokye Teaching Hospital rewards workers according to their hard work that create value for the organisation. For example, every year executives of Komfo Anokye Teaching Hospital reward the best worker with a brand new car. It is an attempt to align the concerns of workers with those of the organisation and society at large. Incentives to workers lead to productive lives, appreciating their whole potential, and finding fulfillment in their job and organisation as well as society benefits.

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It is clear from above that Komfo Anokye Teaching Hospital practices all the five dimensions of market-based management only that it is not officially documented that the hospital is using MBM system.

Ten Guiding Principles of Market-Based Management

According to Koch (2007) there are ten guiding principles that provide solution to the internal culture of a business: integrity - carry out all affairs lawfully and with great integrity, for example, workers of Komfo anokye teaching hospital ensure that all clients should expect the same services. Value creation - produce real, long-term value by moving on economic freedom. Recognize, develop, and apply MBM to get better outcomes and remove waste, compliance - Striving for 100% compliance on the part of employees, for example, workers of Komfo anokye teaching hospital compliance with international standard of health care delivery to their clients. Principled entrepreneurship - show the sense of discipline, urgency, work ethic, judgment, accountability, economic and critical thinking skills, initiative, and the risk-taking attitude essential to create the greatest input to economic freedom, knowledge - look for and use the most excellent knowledge in decisions making and proactively share the knowledge while accepting challenge, measure outcomes whenever practical, for example, executives of Komfo anokye teaching hospital have exchange programmes with Leeds University, Kwame Nkrumah University of Science and Technology, also, a lot of in-service training, workshops, etc all to increase the knowledge base of the workers. Customer focus - understand and build up associations with those who can most efficiently advance economic freedom, KATH sees patients as their customers and do everything possible to satisfy them. Change - embrace change; foresee what could be, test the status quo, and make inspired destruction, for example, there are a lot of changes that has went on in KATH, typical example is that the hospital had moved to paperless where computer is used instead of papers. Respect - treat others with respect, dignity, honesty, and compassion. Be glad about the value of diversity. Support and observe collaboration, workers of KATH respect all manner of persons as stated in their mission statement. Humility - practice intellectual honesty and modesty. Regularly seek to recognize and profitably deal with actuality to produce value and attain personal development, and fulfillment - produce outcomes that produce value to understand the complete potential and find accomplishment in the work. When put into actions all these principles join to create positive culture and a dynamic (Koch, 2007).

Internal marketing

Preston and Steel (2002) said internal marketing sees workers as internal customers and work as a produce that should please the requirements and needs of customers to attain businesses to its explanations in this area. The executive must walk in to accomplish the plans of internal marketing by using tools such as continuous support and richness of idea of workers relative to their roles (Keller, 2002). Porter (1985) breaks down organisation into primary and support activities. He said primary activities are those directly involved in the production of goods and services for sale to the external customers, for example, buying raw materials, processing, marketing, sales, and after sales services. Support activities provide the infrastructure that enhances the productivity of the primary activities, for example, legal, information services, accounting works, research and development and human resources. In Komfo Anokye Teaching Hospital, the workers are categorised into clinical staff, who are doing the core activities of the organisation that is health care delivery and the second is the non-clinical staff, who is acting as support staff to the clinical staff.

Importance of Market-Based Management to Organisations

When market-based management system is implemented, it helps the organization to tap the tacit and dispersed knowledge of many workers. Tapping the knowledge and creativity spread throughout a business is necessary, yet exceptionally complicated in practice, as showed by the increasing number of businesses that have discarded total quality management in dissatisfaction (Stanfield, 2007).

Also, market-based management offers the business more than a list of supplementary management tools. However, it offers an overall structure or paradigm for understanding managerial problems (Ellig, 1996). The market-based management structure helps us evaluate and examine the tools of total quality management, just-in-time inventory, and other thoughts for improving managerial performance.

Holian (2007) stated that the core of the market based management philosophy is creating real, sustainable significance for clients and society at large. It promotes innovations that generate value by making individual's lives better and contributing to success in business. Value creation needs consuming smaller amount resources, and providing clients with goods that are value higher. This leaves extra resources on hand to satisfy other requirements in the business.

The market based management principles enables workers to continually look for opportunities to grow and improve. If a business is rooted in guiding philosophy such as humility, integrity and respect, the market based management structure tries to carry some of the workings of the free market in the business.

Market based management philosophy allows workers to take decisions and reap the benefits or penalties that comes out from it. Workers are given the right to take decision based on their established capability to make preferences that result in returns or lower costs that exceed the business's opportunity cost, which Koch (2007) defines as the proceeds from investing in the most excellent alternative. He also noted that any worker who is not adding value does not have a real career in the market based management, although an employee on the assembly line may think about his weekly paycheck real enough. Failure is not automatically penalized, except a worker ignored some required detail or put self-centeredness ahead of the business. Organisational failures are unavoidable, and any effort to get rid of them only guarantees overall business failure.


The Market-Based Management philosophy enables workers to continually search for opportunities to improve and grow. Rooted in guiding principles like integrity, humility and respect, the Market-Based Management structure attempts to bring some of the workings of the free market in the business, building on the belief that freedom is a commanding engine for generating well-being, finding and growth (Koch, 2012). A more basic problem is that while decentralization offers benefits such as more efficient use of specific knowledge, conservation of central executives' time, and so on, however, it also brings costs such as agency problems, coordination failure, rent-seeking, etc.