The Science of Success by Charles G. Koch

David Strom

5/16/2007 12:01:13 AM - David Strom

Charles G. Koch is the most important businessman you have never heard of.

For that matter, Koch is likely to prove to be the most significant figure in American business in our lifetimes, and that is saying a lot.

Koch is not the wealthiest man alive—Bill Gates still has that title locked up—but his business achievements are certainly the most remarkable. While Gates has amassed his fortune by being the best businessman in an emerging and vital industry, Koch has built the world’s largest private company ($30 billion or so in value) in bread and butter industries such as oil refining, animal feed, and paper products where the competition is fierce and product substitution is easy.

Under Charles Koch’s leadership, the family business (appropriately named Koch Industries) has increased in value at a steady clip—ten times faster than the Standard and Poor’s 500. In Good to Great (another outstanding business book) Jim Collins used a benchmark of growing three times faster than the Market as the mark of a great company.

Koch has bested that growth rate by about 300%. Not bad.

But what makes Charles G. Koch the most important figure in American business today, or perhaps ever, is not the uniqueness of his achievements at all; it is the fact that Koch argues, mostly successfully, that his achievements are not a fluke at all, or even due to some special genius on his part. Instead Koch argues that his secret, if you could call it that, is that he has followed a Science of Success.

And better yet, Koch has written one of the definitive books on business in order to share his insights with the next generation. The Science of Success ((c) Koch Industries, 2007: John Wiley & Sons) will quickly become must reading for MBA students and others interested in making a go of it in business.

Readers looking for an easy-to-follow recipe for success will be disappointed, however. Success may have a science, but it still doesn’t have the easy-to-follow recipe that every self-help book reader is looking for. Instead Koch shares with his readers the basic principles of what works and why, drawing heavily upon the insights of great thinkers such as Thomas Hobbes, Michel Polanyi, F. A. Hayak, Ludwig Von Mises, Peter Drucker—well, you get the idea: anyone and everyone who has had any insight into the human condition and what makes us tick.

Koch synthesizes his insights into an intellectual structure he calls Market Based Management™. And while Koch delineates a coherent set of principles and benchmarks to aid the aspiring manager along the path to success, the basic principle is one that ought to be familiar to anyone who has lived through the triumph of market-based societies over socialist and fascist regimes: markets are a very powerful force, and when unleashed are unmatched at productivity and the improvement of the human lot.

Charles Koch’s great insight—the foundation of the amazing success of Koch Industries—is that this fact is as true within firms as it is in the economy as a whole. Using a competitive market model as a management structure unleashes the same forces as you see when market economies compete against planned economies.

And most large corporations are planned economies. Autocratic, intolerant of creativity and dissent, and run largely for the benefit of an elite few.

Looked at in this way, is it any wonder that a student of Austrian economists could run circles around the largest publicly-traded companies in the world? Matching Koch Industries up against a large publicly-traded company in today’s world is like matching up the Free World against the Socialist World. He couldn’t help out competing them, because his company was managed using Market Based Management™ (MBM).

My one quibble with the book, if you can call it that, is not so much with the substance of what Koch so generously teaches, but with his unspoken assumption that the tools he is giving us will be enough to vault us to success.

In other words, he takes too little credit for the success of Koch Industries. While it is true that his insights—if understood and acted upon by corporations—will revolutionize how business is done, it is also true that many of his readers will not be up to the task of implementing MBM. It would require the elites who benefit from the nearly socialist structure of today’s large corporations to yield power, and I fear that many will never do so.

It will be left to the disciples of Koch and Market Based Management™ to consign them to the dustbin of history through their superior productivity and success.