The Science of Success

Phil Kerpen of Americans for Prosperity draws our attention to a new book on business management and philosophy, The Science of Success, by Charles Koch, chairman and CEO of Koch Industries.

In The Science of Success, this giant of both the for-profit and nonprofit worlds shares the management philosophy behind his many successes, an ingenious application of free-market principles to the internal functioning of organizations. He calls his approach market-based management (MBM).

With the support of excellent research in the fields of science, philosophy, and economics, Koch describes in clear terms how the principal insights of free-market economics can be applied, through MBM, within organizations of all sizes. While he focuses primarily on his own company, and therefore on the for-profit sector, there are lessons here that are highly valuable for the public and non-profit sectors as well.

In another review, Daniel Fisher of Forbes emphasizes Koch’s philosophical bent, exercised in the tough world of business.

Since taking over his father’s refining business in the early 1960s, this M.I.T.-trained engineer has grown Koch Industries more than 2,000-fold, expanding into petrochemicals, fertilizer, trading and, most recently, the $21 billion purchase of Georgia-Pacific. Along the way, Koch notes, there have been huge failures, including a foray into shipping and an attempt to build a cattle-feed-to-steaks agribusiness.

Both fit with Koch’s libertarian philosophy of allowing people to make decisions and reap the rewards or penalties that result. Employees are given “decision rights” according to their demonstrated ability to make choices that result in lower costs or returns that exceed the company’s “opportunity cost,” which Koch defines as the returns from investing in the best alternative.

The Witchita Eagle has a profile and report on the book here, including excerpts.

It’s a been a while since we’ve read a book about management philosophy, and the Science of Success looks to be a good reason to return to the subject.