The Science of Success: How Market-Based Management Built the World's Largest Private Company

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The Science of Success: How Market-Based Management Built the World's Largest Private Company by Charles G. Koch Wiley * 2007 * 201 pages * $22.95

Reviewed by William H. Peterson

The Science of Success and its remarkable author bring to mind a sonnet strategy of Shakespeare: "Let me not to the marriage of true minds

Admit impediments."

Meet then corporate thinker, entrepreneur, investor, hard-headed visionary, and impediment overcomer, Charles G. Koch. Koch, CEO of Koch Industries, Inc., with his rule of highly principled direction, has built the world's largest private firm, a mainly energy enterprise of 80,000 employees and $90 billion in annual sales, one that invested $21 billion in 2005 to purchase the publicly traded paper and wood giant Georgia Pacific.

Koch thinks and usually creates successful long-run company outcomes. His vision includes running an entrepreneurial meritocracy, a fused individual and team effort, and shrewd reinvesting of earnings for growth. He has been phenomenally good at that, and this book is all about his philosophy that has made it possible.

He calls his system Market-Based Management (MBM), a unique scientific approach to business management rooted in what our author describes as "the Science of Human Action." The system has five dimensions:

* Vision: Determining where and how the business can create the greatest long-term value.

* Virtue and Talents: Helping ensure that people with the right values, skills, and capabilities are hired, retained, and developed.

* Knowledge Processes: Creating, acquiring, sharing, and applying relevant knowledge, and measuring and tracking profitability.

* Decision Rights: Ensuring the right people are in the right roles with the right authority to make decisions and holding them accountable.

* Incentives: Rewarding people according to the value they create for the business. (He turns Marx around by proposing the maxim "From each according to his ability, to each according to his contribution.")

What Koch has done is to take key insights about what works for an economy and apply them to his business ventures. The MBM prowess of our author on the firing line is in outthinking and so staying ahead of competition, thanks in part to a team of profound manager-thinkers bent on creating "the greatest longterm value." By establishing a corporate climate that rewards efficiency and innovation-as the larger economy should do-Koch has seen his enterprises grow and prosper.

His ideas did not emerge out of a vacuum. Koch cites as particularly important two great books whose authors were both closely associated with FEE. One was F. A. Harper's Why Wages Rise; the other, Ludwig von Mises's Human Action.

Harper's book is hailed for spotting the causes of real, sustainable wage gains. …