Don't Buy This If You Are Going To Work For Koch

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	• The Science of Success: How Market-Based Management Built the World's Largest Private Company Charles G. Koch Wiley, 2007 - 208 pages average customer review:based on 69 reviews view larger image
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highly recommended

Don't Buy This If You Are Going To Work For Koch

I only say that because you'll receive a free copy once you sign on with the company. I bought the book after I accepted a job there and lo and behold I had two copies of The Science of Success.

As far as the book goes, it was pretty good, the only thing that it was really weak on were examples of how Koch Industries actually used MBM to make money. After having worked there I really can't tell you how they have used MBM to make money either because during the two day MBM training you only hear one example and you'll be left saying, "Why of course we made money off of that because we're in oil!"

Other than that it does a very good job of outlining the economic principles that have made up the Koch management structure. Each company within Koch is very nimble and small and we really weren't bogged down in bureaucracy (mostly just accounting rules) like most companies are. The book also gives a very good look into the culture at Koch which was the strongest asset and the best thing I took away from working there.

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Sparse Elegance

This is not a self-help book. It is an excellent slim introduction to free market economics and economic thinking masquerading as a business book.

While I picked up the "Science of Success" to see how he applied economic thinking to running a business, I was blown away the authors clarity and elegance in describing economic thinking.

I also found his business system - MBM (Market Based Management) The Science of Human Action Applied to Organizations - to be interesting. It was not a how-to guide though.

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A Practical Business Classic and a Must-Read

The Science of Success is going to be a business classic. If you're in business, especially if you want to make your business work better you need to read this book.

Check that. You need to read and re-read and re-read this book. And you need to try out what you learn in experiments in your workplace.

That was one of the first things I got from this book, the idea of seeing trials of new ideas as "experiments." It's a powerful concept because it immediately washes away all the "risk of failure" that makes it hard to try new things in so many companies.

Koch's idea is amazingly simple. When you try something new, you see your trial as an experiment. Then you measure the results and learn from them. Whatever you learn, you've succeeded.

It's like that old story about Edison trying a gazillion different things as a filament for the electric light bulb he was try to invent. Time after time he tried. And, one after another, the filaments he thought would work didn't. "I haven't failed," Edison told a person who questioned how he could stand all that failure. "I've found a gazillion things that don't work."

One reason this is a great book is that there are those incredible insight like that all through it. You find yourself thinking, "Wow. That sure makes sense." You reach for your highlighter. You drape the book in sticky notes.

The book is also great because it reminds you of basic concepts that you knew once. For example, you probably learned about "sunk costs" and "opportunity costs" in college.

Koch will remind you of the definitions, but he does something more and more important. He shows you how to use those concepts in your decision process. Let's see how he does that.

On page 33 he reminds you that a sunk cost is "an unrecoverable past expenditure." And he tells you "Such costs should seldom be taken into account when determining what to do in the future because, other than possible tax effects, they are irrelevant to what can be recovered."

The money you put into developing that new product? It's a sunk cost. It's not an investment. You won't get it back. That means that it's irrelevant to whether or not to kill the new product or put more money into marketing it.

Koch shows you how the economic concepts of sunk cost and opportunity cost ("the value of the most valuable alternative that must be foregone to undertake a given act") should affect your decision making.

Another reason this book is great is that it brings together a very intelligent business owner's lifetime study of economics and human behavior and how they apply to making a company work. This isn't an academic treatise either. Koch has used these principles to run his company, where he is the primary owner.

You many not be familiar with the name Koch Industries, but you surely know some of their brand names like Stainmaster, Dixie Cup, and Georgia Pacific. Koch Industries is the largest private US company. It got that way, in part, because Koch used the principles in this book to run the company. In 1960 Koch had revenues of about $70 million. In 2006 they were $90 Billion.

In other words, this is not just theory. Koch has actually, truly, really put his money where his ideas are. In The Science of Success, he lays out what he's learned over a lifetime of study, thought and, more important for you, experimentation. Here's how he's structured the book.

Chapter 1 is short history of Koch Industries. You'll learn about how the company evolved and get introduced to the experiments that worked and many that didn't.

Chapter 2 is about Market-Based Management (MBM), which is what Koch calls his system. That's something of a misnomer. He's not referring to "market-driven" management. "Market-based" refers to "based on free market principles." This chapter also introduces the Science of Human Action.

The Science of Human Action is "the study of how humans can achieve their ends through purposeful behavior." It's the action steps connected to economic principles and psychological truths.

In the chapters that follow, Koch defines five dimensions along which you apply MBM. They are Vision, Virtue and Talents, Knowledge Processes, Decision Rights, and Incentives. There is a wealth of good ideas under every single heading.

There are two downsides to this book. At times, Koch writes like the engineer that he is, but the ideas and concepts pull you right through the rough spots.

The other downside is a result of the value that's here. It took Koch a lifetime to write this book and you won't get more than a fraction of the potential value from it unless you read it more than once. I'm staring my fourth read.

No matter what business you're in, no matter where you are in your career, you should read this book. It's a new business classic, on a par with Peter Drucker's Managing for Results. It's got the same strength of intellectual underpinnings, the same solid logic, and the same rich simplicity. The biggest difference is that The Science of Success is written by a man who built a great company using the concepts he's writing about.

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reviews: page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10

Praise for THE SCIENCE OF SUCCESS

"Evaluating the success of an individual or company is a lot like judging a trapper by his pelts. Charles Koch has a lot of pelts. He has built Koch Industries into the world's largest privately held company, and this book is an insider's guide to how he did it. Koch has studied how markets work for decades, and his commitment to pass that knowledge on will inspire entrepreneurs for generations to come."
?T. Boone Pickens

"A must-read for entrepreneurs and corporate executives that is also applicable to the wider world. MBM is an invaluable tool for engendering excellence for all groups, from families to nonprofit entities. Government leaders could avoid policy failures by heeding the science of human behavior."
?Richard L. Sharp, Chairman, CarMax

"My father, Sam Walton, stressed the importance of fundamental principles?such as humility, integrity, respect, and creating value?that are the foundation for success. No one makes a better case for these principles than Charles Koch."
?Rob Walton, Chairman, Wal-Mart

"What accounts for Koch Industries' spectacular success? Charles Koch calls it Market-Based Management: a vision that nurtures personal qualities of humility and integrity that build trust and the confidence to enhance future success through learning from failure, and a culture of thinking in terms of opportunity cost and comparative advantage for all employees."
?Vernon Smith, 2002 Nobel laureate in economics

"In a very thoughtful, creative, and understandable way, Charles Koch explains how he has used the science of human behavior to create a culture that has produced one of the world's largest and most successful private companies. A must-read for anyone interested in creating value."
?William B. Harrison Jr., Former Chairman and CEO, JPMorgan Chase & Co.

"The same exacting thought, rooted in the realities of human nature, that the framers of the U.S. Constitution put into building a nation of entrepreneurs, Charles Koch has framed to build an enduring company of entrepreneurs?a company larger than Microsoft, Dell, HP, and other giants. Every entrepreneur should study this book."
?Verne Harnish, founder, Young Entrepreneurs' Organization, author of Mastering the Rockefeller Habits, CEO, Gazelles Inc.

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