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

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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.

194 pages, Hardcover

First published January 1, 2007

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About the author

Charles G. Koch

9 books56 followers
Charles de Ganahl Koch (M.S., Chemical Engineering, Massachusetts Institute of Technology, 1960; M.S., Nuclear Engineering, MIT, 1958; B.S., General Engineering, MIT, 1957) has been CEO of Koch Industries since 1967, and is a major philanthropic supporter of libertarianism. With Ed Crane and Murray Rothbard, he co-founded the Cato Institute.

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Displaying 1 - 30 of 95 reviews
Profile Image for John.
282 reviews23 followers
October 7, 2018
Disclosure: I have done business with Koch Industries for over 30 years. The copy of this book was given to me by a Koch employee. It is the only publication by Charles Koch I have ever read.*Note: I have since read another Charles Koch book Good Profit which I have reviewed as well.

Forget all the vituperative broadsides against the Koch brothers, the accusations of their funding the Tea Party, the cover story on Bloomberg Markets, Charles Koch is a genius when it comes to business. He had to have something going for him to plough through undergraduate and post-graduate courses at MIT and to build the Company bequeathed to him into the second largest privately held concern in the world. What is most refreshing about this book is its candid admission of his own mistakes, missteps and lessons learned. Too many business bios adapt the Donald Trump style swagger, the Here's How I Triumphed in the face of incredible odds and became a titan. What Charles Koch does in this book is chronicle his business career, how he built his company, who he trusted, how he motivated his employees. In the back section of the book, he provides an appendix of the businesses that Koch is involved in but an even longer summary of the businesses that Koch has exited. He continually harkens back to examples which highlight the simple principles of integrity, honesty and fairness. While many out there today may not care for Charles Koch's politics and convictions, he deserves the right to vote his conscience and expound his philosophy alongside other philanthropists from across the aisle like George Soros. But again, read this book only if you are willing to ignore politics and can focus on business and personal advice.
Profile Image for Scott Fabel.
126 reviews4 followers
August 4, 2013
A few weeks ago, I had the opportunity to do some consulting for one of the Koch Industries companies, Invista. I taught a course at its Wilmington, DE facility and then again at its headquarters in Wichita, KS. I was struck by the incredible ways in which the employees treated me--and each other! While in Wichita, I learned a lot more about Koch Industries and its business philosophy. I happened to visit the company story while in Wichita, and I saw that the CEO had written this book. I knew that I had to read it to learn more about how he built the company and how he inspires his employees. What I read was nothing short of astounding. Koch Industries should be a role model for other companies.

This book starts by providing a bit of history about how Koch Industries has become the largest privately held company in the United States in terms of revenue. It's no surprise that this was achieved through the implementation of the company's Market-Based Management (MBM) philosophy. The book goes on to describe MBM in great detail.

Personally, I had been exposed to only one aspect of MBM during my time at Invista: the Guiding Principles. There are ten Guiding Principles in MBM, and I was introduced to them because they are printed on all of the coffee cups in the corporate office in Wichita--what a great idea! The ten Guiding Principles are 1) Integrity, 2) Compliance, 3) Value Creation, 4) Principled Entrepreneurship, 5) Customer Focus, 6) Knowledge, 7) Change, 8) Humility (a personal favorite), 9) Respect, and 10) Fulfillment.

These Guiding Principles are described in the book, yet they make up only one part of the overall MBM philosophy. The other aspects of MBM include Vision, Virtue and Talents, Knowledge Processes, Decision Rights, and Incentives. Each aspect of MBM is described in this book, and examples are provided throughout. While I wouldn't say that this book is prescriptive (i.e., it doesn't tell you how to run a business), I would say that it provides a very valuable set of tools that can be used to improve any business. If you like business books, then this book needs to be read--and frequently referenced. You will really enjoy it!
144 reviews2 followers
June 14, 2013
This book was interesting and clearly had good ideas. But like most business books, I found it maddeningly vague. Maybe it's the lawyer in me that wants careful definitions of everything, even when they are unwise or impossible. But I still feel like I am missing something when I read most business type books. This is no exception. That said, his holistic approach to business largely makes sense and has clearly worked well.
378 reviews1 follower
October 7, 2009
I borrowed this book from a friend because I have been looking into many private companies. Koch Industries is the largest private company in the world.

First of all, I really enjoy books that seem to be working with general wisdom, applicable to any sector of society or society at large. I have enjoyed the Jim Collins books for that reason but I really liked Koch’s idea of studying history, economics, philosophy and more to develop his ideas of building a strong company. Actually Michael Polanyi, the philosopher/chemist he mentions a number of times, is an thinker that I have encountered a number of times in reading theology and missialogy as well as some of the Chicago economics.
The basic solution of maximizing long-term profitability by creating real value in society, what he calls principled entrepreneurship, is the kind of sound thinking of any great company. He went on to talk about foundational societal building blocks that are more and more difficult to find and ensure like virtue, trust, humility, openness to challenge, etc. While these are what in the long-term carry individuals and corporations through to real value, they do not always bring immediate success.
I thought the most interesting chapters and the ones I think CD Group has really gone a long way to try and build were on Decision Rights (Roles, Responsibilities & Expectations) and the Knowledge Process. The idea of really building ownership into the employees, so they always see that within their role there is set responsibilities and expectations, true ownership where they can achieve real progress and contribute. He says that R,R&E within the company should be like property rights within society. Throughout the book he tried to make the point that all parties bring unique abilities that can contribute to overall profit if they are willing to work together in humility in the free markets creative destruction. The idea of seeing the company as responsible for piecing together a giant jigsaw puzzle, all working together in a decentralized way within site of one another was very interesting as well.
That said, the book was so simple and matter of fact that it was hard to believe that Koch Industries has achieved this among their 80,000 employees. It made me want to read articles about them to see how they fare on putting all this to work throughout the organization.
71 reviews1 follower
April 24, 2016
Interesting, obviously coming from a highly successful and thoughtful man.
If you are looking for evidence of a crazy man that doesn't share the values of most Americans trying to subvert our form of government through a covert takeover of the republican party there are other books that cover that topic. Why can't he be both?

Not enough meet here to be able to actually draw that many useful things from a management perspective.

Profile Image for Amy.
2,542 reviews383 followers
December 29, 2015
A fast read but a good one. It is easy to understand and filled with helpful principles. I'm looking forward to learning more about it. What they do at KII works and I have seen how Charles Koch's Market-Based Management transfers over to the non-profit. It really creates an exceptional environment to work in.
Profile Image for Benji Visser.
23 reviews2 followers
December 31, 2018
A 150 page pamphlet to bid current Koch employees to keep shares in Koch.

Some really vague business advice on continuous improvement.

The one thing I took away is that large businesses spanning many thick verticals are interesting beasts.

I agree a lot with this review: https://www.goodreads.com/review/show...
Profile Image for Kate Loritz.
11 reviews
February 3, 2020
I worked for a company under Koch ownership and this was my first exposure to the science behind the management and culture. This book is truly what the Koch companies are about and the key ingredient is getting the right people in the right roles...the rest truly does take care of itself. Culture, mindset, and ongoing leadership development are key ingredients. Being open to personal transformation is also a key ingredient. I think this book would go well with "Good to Great" in terms of how to think about the right people and leadership levels. I do recommend this book and although it will not tell you how to do this in your own companies, it will give you a lot to think about in terms of key factors that have, and continue, to make Koch companies highly successful. After reading this, look up the "human action model" on Google and read about the three ingredients for change; this could help you begin transformation within your own function or company.
Profile Image for Omar El-mohri.
286 reviews13 followers
March 30, 2020
The second part of the book looks just like Think And Grow Rich by Napoleon Hill
As of the first part, it’s the typical Charles Koch view of business
Profile Image for Chris Ouyang.
12 reviews4 followers
June 4, 2014
Upon writing this review, Koch Industries is actually the US's second largest private company, behind Cargill. Like Cargill, most people have no idea what Charles G. Koch's Koch Industries does. However, Koch Industries is, perhaps, the world's most maligned private company; whether that's entirely justified or wholly not depends on who you ask. Regardless, it is living, breathing evidence of the successful business philosophy detailed within The Science of Success: How Market-Based Management Built the World's Largest Private Company (SOS).

For full disclosure, I actually read this book before my internship with Koch Industries began; it was handed out for free during an intern welcome weekend, and my copy has been signed by Mr. Koch (within Koch, Charles Koch will always be referred to as Mr. Koch). Not only did I read this book thoroughly for the purpose of understanding the corporate culture that I would be joining that summer of 2013, I listened to Mr. Koch himself speak on SOS's topics candidly, without notes, in person.

The book introduces the different dimensions of Market Based Management, which is Koch Industries' scientific method to running a successful business. I strongly remember certain themes: Have a vision for your firm, align the incentives of each and every employee, and know who has the right to make what decision. "Creative destruction" was also of interest.

What Science of Success really introduces is the jargon of business. Gone are enthalpy constants, drill bit rates of penetration, and other engineering terms I grew to hate anyway. However, the same engineering-stereotype-problem-solving approach, characterized by Mr. Koch's MIT engineering education, permeates SOS, along with strong doses of learned humanities and economics. If college students are exceptional at name-dropping the places they studied abroad, Mr. Koch is borderline divine at quoting literary works, which showed during his speech and in SOS.

Eventually, I learned the phrases, "create value" and other business lingo are not unique to Koch Industries, though mentioned a plethora of times in SOS. Every firm has their own company culture, but for a company with tens of thousands of employees, you'd be hard pressed to find a company culture as codified as Koch Industries; it is laid out, chapter by chapter, in SOS.

Some parts of the book are challenging to synthesize. Also, it's doubtful, in my mind, that Mr. Koch was as deliberate in decision-making throughout the entire history of Koch Industries as SOS wishes he was. That being said, SOS is a synthesis of business philosophy, not necessarily a perfect account of business success. It reads as an informative text, too, with some story elements, and can be slow at times.

All in all, this book is excellent for people who want to understand what drives a business, and at a more intrinsic level, what drives people. But, its academic approach and subject matter, and also the wary eye doubters keep on Mr. Koch and his capital-heavy ventures--refining, extractive minerals, fertilizer, pulp and paper--may cause one to pass on this book.
4 reviews55 followers
March 1, 2017
fast read, not super well written, but the concepts presented in the book are great
Profile Image for Ahmed Salim.
214 reviews19 followers
September 27, 2022
وكتاب الإسبوع..

كتاب "علم النجاح ،كيف شيدت الإدارة القائمة على السوق أكبر شركة خاصة في العالم" .
تشارلز جي كوك
اصدار :دار هنداوي للنشر
عدد الصفحات ١٤٦

يقدم هذا الكتاب فكرة «الإدارة القائمة على السوق»، وهي فلسفة الأعمال والإدارة المميزة التي مكنت شركة «صناعات كوك» من أن تصبح إحدى أكبر الشركات الخاصة وأكثرها نجاحا حول العالم. منذ عام 1961 – وهو العام الذي بدأت فيه الكاتب العمل مع أبيه– زادت القيمة الدفترية (قيمة الشركة في الميزانية العمومية بعد خصم الإهلاك) لشركة صناعات كوك المتحدة ألفي مرة (بافتراض إعادة استثمار الأرباح)؛ وعلى عكس المعتاد بين الشركات الكبرى، واصلت شركة صناعات كوك نموها السريع المقترن بتحقيق أرباح مع زيادة حجمها.
وكثيرا ما نسأل عن كيفية تمكنت من تحقيق ذلك؟

والإجابة بسيطة؛ تتلخص في: «الإدارة القائمة على السوق». يعرف الكاتب «الإدارة القائمة على السوق» بأنها فلسفة تمكن المؤسسات من تحقيق النجاح على المدى البعيد، عن طريق استخدام المبادئ التي تتيح الازدهار في المجتمعات الحرة.
يفكر في ه��ه الفلسفة ويتناولها من منطلق خمسة أبعاد؛ هي: الرؤية، والفضيلة والموهبة ، والعمليات المعرفية، وحقوق اتخاذ القرارات، والحوافز، وأود أن أشير إلى نقطتين رئيسيتين فيما يتعلق بهذه القائمة؛ أولا: يفهم هذه المصطلحات ويستخدمها على نحو يختلف عما هو متعارف عليه في أدبيات الإدارة: فالرؤية – على سبيل المثال - ليست بيانا بالأهداف والتطلعات يوضع مرة واحدة ولا يتغير، بل هي مفهوم ديناميكي، يتطور باستمرار بناء على دراسة متواصلة للكيفية التي يمكنه من خلالها تحقيق قيمة لعملائه ومجتمعه؛ ولهذا السبب، فإن رؤى شركته لا بد أن تخضع للتغيير الدائم، وهو ما يحدث بالفعل.

ثانيا: في حين أنه يصف الإدارة القائمة على السوق من منطلق الأبعاد الخمسة السابق ذكرها، فإن هذا النهج ليس مجرد حاصل جمع تلك الأجزاء؛ فعندما يتوصل

لفهم شامل لهذه الأبعاد والمفاهيم الكامنة وراءها، ويطبقها على نحو متكامل بحيث يعزز كل منها الآخر، يتمخض ذلك عن تحول مستمر. وكما أن الكائنات الحية ليست مجرد مجموعة من الجزيئات، فإن المؤسسات التي تضم كل هذه العوامل لا تكون مجرد مجموعة عادية من الأشخاص والأنشطة والأصول.

يذكر الكاتب: لم يحظ إطار عمل الإدارة القائمة على السوق لدينا بذلك التعريف الدقيق دائما فيما مضى؛ فالواقع أن سنوات طويلة انقضت حتى تجمعت ممارساتنا ونموذج الذهنية اليومية معا بصيغتها المطروحة في هذا الكتاب.

وقد طرح إطار عمل الإدارة القائمة على السوق، الذي ينتهجه حاليا، لأول مرة في أوائل تسعينيات القرن العشرين، ولكنه انبثق الي نماذج كانت قائمة قبل ذلك بكثير. مثل بعض الأوجه الأساسية للإدارة القائمة على السوق مثل التركيز على ريادة الأعمال من أبيه الذي شارك في تأسيس الشركة، التي أصبحت لاحقا صناعات كوك؛ فقد جسّد الكثير من السمات التي تمثل اليوم له أهمية كبرى؛
ألا وهي: قيمة العمل الجاد، والنزاهة، والتواضع، وتكريس الحياة بأكملها للتعلم.

وعن مصدر الإلهام الأهم يقول هو قراءاتي ودراساتي الخاصة؛ فبعد أن انضممت إلى شركة روك آيلاند أويل (سلف صناعات كوك) بفترة قصيرة، نما لدي شغف قوي بأمرين: كان الأول هو المساهمة في بناء شركة كبرى، والثاني كان تحديد المبادئ التي تؤدي إلى الازدهار وتقدم المجتمع، وفهم تلك المبادئ. وبعد دراسة التاريخ والاقتصاد والفلسفة والعلوم وعلم النفس وغيرها من الفروع المعرفية الأخرى، خلصت إلى أن هذين الشغفين في الواقع وثيقا الصلة أحدهما بالآخر، ومن بين الكتب العديدة العظيمة التي قرأتها، كان ثمة كتابان ساعدا في انطلاقي في تلك الرحلة الفكرية؛ وهما: كتاب «لماذا ترتفع الأجور» للمؤلف إف إيه هاربر، وكتاب الفعل البشري، للمؤلف لودفيج فون ميزس، يحدد كتاب هاربر بوضوح الأسباب التي تؤدي إلى الزيادات الفعلية والمستدامة في الأجور، ويميز بينها وبين الزيادات الوهمية. ويوضح أن الأجور الحقيقية تتحدد بالإنتاجية الحدية للعمل، أما في كتاب الفعل البشري»، فيرى ميزس أن اقتصاد السوق القائم على الملكية الخاصة وسيادة القانون، يعزز التحضر والسلام والازدهار.
ويقول الكاتب؛ بصفته مهندسا، كان يفهم العالم الطبيعي الذي يعمل وفق قوانين ثابتة، ومن خلال دراساته أدرك أنه توجد بالمثل قوانين تحكم رفاهة البشر، وتعلم أن الازدهار لا يتحقق إلا في ظل نظام تكون فيه حقوق الملكية محددة ومصونة على نحو واضح وسليم. ويتمتع فيه الأفراد بحرية التعبير والتبادل والتعاقد، وتكون فيه الأسعار حرة حتى توجه العمل النافع؛ فإتاحة الحرية للأفراد كي يسعون وراء مصالحهم، في إطار قواعد السلوك الوسيلة المثلى والوحيدة المستدامة لتعزيز تقدم المجتمعات.
ويستكمل الكاتب: وقد بدا لي أن هذه القوانين جوهرية ليس من أجل رفاه المجتمعات فحسب، وإنما أيضا للمجتمعات المصغرة المتمثلة في المؤسسات، الواقع أن هذا ما توصلنا إليه عندما بدأنا تطبيق القوانين على نحو ممنهج داخل شركة صناعات كوك.

وبخصوص المصدر الثالث للإدارة القائمة على السوق، يذكر أنها الخبرة التي اكتسبناها والدروس التي تعلمناها ونحن نحاول تطبيق مناهج جديدة ونبتكر ونتعثر وننجح ونواصل النمو والتغير. لقد تطورت فلسفتنا ومنهجنا معنا، ونتوقع أن يستمرا على المنوال نفسه في المستقبل.

يفرد هذا الكتاب فصلا لكل بعد من أبعاد الإدارة القائمة على السوق. وأثناء كتابته كان في نيته مخاطبة فئتين من الجمهور: الفئة الأولى هي الجمهور العريض من موظفي صناعات كوك الحاليين والمستقبليين؛ فهذا الكتاب يهدف إلى شرح الفلسفة التي تدفعنا إلى التفكير والتصرف على النحو الذي يشهدونه، وأتمنى ان يساعد موظفينا في تعظيم إسهاماتهم وإدراك كامل إمكاناتهم. علاوة على ذلك، ان كل موظف يستطيع أن يساهم في تجريب وتطوير فهمنا حول كيفية الحصول على الثمار المرجوة، من خلال الإدارة القائمة على السوق.
الفئة الثانية من الجمهور التي أقصدها أكثر شمولية من ذلك، وتتألف من قراء مجال الأعمال؛
فالإدارة القائمة على السوق ليست مجرد قائمة أخرى بالصفات التي تتميز بها الإدارة القائمة على السوق ؛ لأنها ترتكز على نظرية متسقة ووجيهة، متكاملة تماما وتطبق في جميع جوانب المؤسسة.
ويظن مما لا شك فيه أن هذا النهج قد آتي بأفضل وجه في شركة صناعات كوك، وليس هناك ما يمنع حدوث الأمر نفسه في مؤسسات أخرى أيضا.وأن هذا الكتاب سوف يساعد الأفراد أو المؤسسات ذات المبادئ، الذين يسعون لبناء قيمة فعلية طويلة الأمد.إحدى الشركات الناجحة، كما هو شائع في أدبيات الإدارة اليوم: بل هي وسيلة لتهيئة الأعمال تناغما في المصالح مع المجتمع. فلكي تحافظ الشركات على بقائها وازدهارها، لا بد لها من تحقيق قيمة فعلية طويلة الأمد في المجتمع، عن طريق انتهاج السلوك القائم على المبادئ.

ويقول :وإنني على قناعة بأن توليفة فلسفتنا القائمة على السوق وأسلوب تطبيقنا لها كانا المصدر الرئيسي لنجاحنا. لكن أداء الماضي لا يضمن النجاح في المستقبل؛ فمن أجل الاستمرار في تحقيق أفضل النتائج، علينا أن نواصل تطوير فهمنا وتطبيقنا لمنهج الإدارة القائمة على السوق. وكما أن اقتصاد السوق رحلة مستمرة من الاكتشافات التجريبية صوب مستقبل مجهول من الازدهار المجتمعي المتزايد، كذلك الإدارة القائمة على السوق عملية لا تنتهي من التعلم والتطور. يمكن تشبيه الإدارة القائمة على السوق بنجم الشمال؛ ليس في حد ذاتها بل دليل؛ يرشدنا في هذه الحالة إلى تعظيم القيمة باستمرار.
Profile Image for Ian.
186 reviews13 followers
May 17, 2020
Copy and paste several summaries of economic terms into Charlie Koch’s Wikipedia page, and remove the criticism section. That’s this book.

What appears to be a scientific approach to applying market principles to business management is actually a lot of fancy ways to say things everyone knows. After explaining the economic concepts of incentives and comparative advantage, he then says “so hire and retain the right people”. Instead of giving you more details, he then talks about this other company they bought, and how it made them lots of money.

There’s a lot of fluff in business books, but this one is shockingly weak. There is no “science” here, just some irrelevant free market dogma. I expected something about trying to create internal competition with rankings and bell curves, but you don’t even get that.

If you want to learn economics, find another book. If you want to learn business management, find another book. If you want to learn about Koch Industries, just read Wikipedia.
Profile Image for Marci.
41 reviews
March 10, 2011
My company gave me this book and we actually had "book club" at work where we discussed the principles this book discusses and how to effectively use those approaches in our respective areas. I worked in one of the companies that Charles Koch built using these ideas. I found this book to be encouraging and helpful as I made the decision to go back to school full time for my career focus shift to biomedical engineering.

This book really explains the philosophies that Koch Industries adheres to and the events both good and bad that have shaped this company. I highly recommend reading this book! It truely supports freedom of thought, freedom of choice, entrepreneurship, and the value diverse individuals contribute to improving our society. This book really influenced my thoughts and my value system.
Profile Image for Nick.
Author 2 books39 followers
December 23, 2017
I had the privilege of hearing Charles Koch speak at a conference and regardless what you think of his politics, he’s brilliant. I met his head of innovation on separate occasion and she told me about MBM and I wanted to learn more. Unfortunately this book is too high-level. Compared to Ray Dalio’s step-by-step “Principles”, this book falls short of being practical. I am grateful for reading it though as it introduced me to Michael Polanyi’s work.
Profile Image for David.
1,277 reviews24 followers
February 7, 2015
Very, very interesting attempt by Koch Industries CEO to explain the management processes that have made the company grow and prosper. Would like to have had this book written 20-25 years ago -- could have put it to use in a prior incarnation. Also would like to see a follow-up (it's eight years old) on how the management style/philosophy is seen by company insiders.
Profile Image for Gabriella Hoffman.
97 reviews35 followers
August 20, 2017
A great read into understanding why a market-based economy is the supreme economic system in the world. Some times it was dense and terse, but chalk full of great things to takeaway for any young entrepreneur.
345 reviews3,029 followers
August 21, 2018
If you are interested in applied management theory, this is probably the book for you. At first, however, I was not impressed. I thought I had read more updated and sophisticated theory, but after a while the book became more and more fascinating. Suddenly I realized that Koch Industries (KII) actually practice what they preach. You can almost feel it. I have done countless company visits but I’ve never seen anything close to Koch Industries in terms of a coherent corporate culture. It is remarkable.

And it has paid of handsomely. The author, CEO Charles Koch, and a few partners are nowadays the owners of the largest private company in the world. Since he “took office”, some 50 years ago, the book value of the company has increased over 2000-fold. It is quite obvious that Koch Industries has got a huge competitive advantage in how they run their operations. It would be very interesting to see how the stock market would price KII’s ”chain-linked systems”-advantage. And it would be equally interesting to know if Koch & Co would be as successful managing a listed company. I believe they would.

Charles Koch is a devoted reader. Like Charlie Munger, he has created a latticework of mental models from different disciplines, collected from giants like e.g. Ludwig von Mises, Friedrich von Hayek, Thomas Sowell and Karl Polanyi. His holistic approach to these models is summed up in his “Market-based Management”, MBM. “We define MBM as a philosophy that enables organizations to succeed long term by applying the principles that allow free societies to prosper.” Koch has structured his theory in five dimensions: vision, virtue and talent, knowledge processes, decisions rights and incentives. But the secret seems to be to make these dimensions reinforce each other.

My main takeaways are two. Firstly, it is extremely instructive to read about Koch’s intellectual journey in implementing their concepts, especially when the company grew larger. Koch describes the ups and downs during the years in a passionate and humble way, and maybe the journey needed to take several decades to find the necessary balances between different forces. It extends across many areas but the main focus is on operational efficiency and capital allocation. In this regard an attentive “copy- cat” may save oceans of time and money by reading Koch’s book.

My second main take-away is Koch’s huge collection of mental models. Being an avid collector myself, I realize that I’m in Minor League. Koch lists closely to 100 models in the appendix. They are all part of his management theory. Several were new to me. Maybe most fascinating is how he has tried to simplify these as much as possible in order to facilitate the implementation.

The book is written for current and future employees of Koch Industries but also for business readers in general. This dual target audience works fine. Koch’s book is anything but a rush job. Every argument is carefully prepared and easy to grasp, which gives these 150 pages an exemplary less-is- more feeling. Charles Koch is probably more well known for his economic donations to political causes, mainly libertarian, than as a business leader, but the reader will not find anything politically offensive in the book. The book’s title may sound pompous but the author’s stance is actually very modest and he seems to be a believer in people and diversity. It is quite elevating.

Koch’s book has many similarities with another favorite, Jack Welch’s Winning. Koch and Welch are both very action-oriented and it’s understandable why. Strategy guru Richard Rumelt said in this book: “The coordination of action provides the most basic source of leverage or advantage available in strategy.” I don’t hesitate to recommend The Science of Success.
Profile Image for Tom.
295 reviews
September 12, 2020
"We all tend to pursue our own interests, but in a true market economy we can only prosper by providing others with what they value. The economist, Adam Smith, summed up this process when he said, 'It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self interest.' By self-interest, Smith meant what Tocqueville called 'enlightened self interest,' by which people benefit themselves by benefiting others."

"There is a natural aristocracy among men, the grounds of this are virtue and talents." Thomas Jefferson
"Laws control the lesser man; right conduct controls the greater one." Chinese Proverb
"The greatest virtues are those which are most useful to other persons." Aristotle

Read F.A. Hayek's Rules of Just Conduct.

"A truly free society rewards people according to their individual merits, not by what group they are associated with."

Tragedy of the Commons: "'Freedom in a commons brings ruin to all.' People tend to take better care of things they own. This is because the owners of a resource not only reap the benefits of its use, but bear the costs as well. When ownership is unclear, such that no one sufficiently benefits by preserving a resource, as when no one or everyone owns it, the resource tends to be overused, used inefficiently, or even extinguished. . . . . Clear, dependable property rights that allow individuals to enjoy the benefits of ownership while bearing the full costs of their actions are the solution to the tragedy of the commons."

"To the economically illiterate, if some company makes a million dollars in profit this means that their products cost a million dollars more than they would have without profits. It never occurs to such people that these products might cost several million dollars more without the incentives to be efficient created by the prospects of profits." Thomas Sowell

"After two and a half terrible years, Bradford decided to give each family its own plot of land, to reap from it whatever they could. That was the beginning of Plymouth Colony's prosperity. Because they were able to keep what they earned, the Pilgrims had the incentive to work hard and create wealth."

"Human Action: Ludwig von Mises posits that three requirements must be present for individuals to take action. These are: (1) unease or dissatisfaction with the present state of affairs, (2) a vision of a better state, and (3) belief that they can reach the better state. . . . When just one of these requirements is missing, people will not act. Companies that fail to provide conditions that meet all three requirements create a culture of inaction."

"Karl Marx famously summarized communism as a system that takes from each according to his ability, and redistributes to each according to his needs. [Market Based Management, or MBM] says in contrast, from each according to his ability, to each according to his contribution."

"Polanyi believed that discoveries best occur in a system of spontaneous order, of mutually adjusting individual initiatives. He likened this process to a group trying to solve a giant jigsaw puzzle. The rate of discovery is highest when everyone works together in sight of each other, so that every time a piece fits, the others are alerted to opportunities for the next step. The rate of discovery is lower when the solution is centrally directed, or when each person works the puzzle separately."

Profile Image for Rishabh Srivastava.
152 reviews139 followers
December 29, 2019
A short but incredibly information-dense read. Charles Koch shares his framework for managing companies, using words with great economy and precision.

My main takeaways from this book were:
1. Value is subjective, not objective. Understand the subjective value of your customers and employees. To do this, observe and act on their revealed preferences — not their stated preferences
2. Never enter into partnerships – of any kind – without an exit mechanism ("a divorce agreement")
3. You don’t want a decision-making framework to be so cumbersome that it halts progress. The same rigorous of analysis that goes into a $100M project will likely be a waste of time (and cause of frustration) for a $2M project

Additionally, the key tenets of the "Market Based Management" framework espoused by the author are:

1. Vision – determining where and how the organisation can create the greatest long-term value

2. Virtue and talents — ensuring that the people with the right values and talents are hired, retrained, and developed (and people who don't measure up are either redeployed or moved out)

3. Knowledge processes — creating, acquiring, sharing, and applying relevant knowledge throughout the organization. An important part of this is to include and make transparent the cost of opportunities foregone in your internal P&L reporting

4. Decision Rights — ensuring the right processes and people are in place to make decisions and holding them accountable

5. Incentives — rewarding people according to the value they create for the organisation 
Where possible, compensation should be tailored to each employee’s subjective value – providing the highest value to the employee for a given cost to the company. Incentives should take into account the individual’s risk profile, time preference, and the most valued form, amount, and variability of compensation

Perverse incentives: you don’t want employees to benefit from undermine long-term value for the company. Refuse to incentivise activities that do not produce results. Avoid a sense of entitlement regarding compensation (automatic raises, pay based on seniority etc)
A salary should be an advance payment for the future value that an employee is expected to produce for the company
Profile Image for Tony Creech.
107 reviews4 followers
May 7, 2020
The business parts are good. But the later part/appendices of the book is mostly a clip show of old-time success teaching that can sometimes be helpful but are not even close to “science”. Most of it is behaviourism, and pretending that opportunity and luck don’t have a massive contribution to success regardless of your mindset (victim mentality is poison but a growth mindset doesn’t force success). Without his birth into his wildly wealthy family, like Trump, he could follow all these old time tips and still become nothing more than a failed lounge singer. Reality is complicated and science exists to remove these BS rules through validated test and trial. The main book itself is a helpful look into the systems of Managment Koch has created that’s seemed very helpful to them. I’ll re-read this for sure but need to qualify any endorsements
Profile Image for Isaac Gill.
99 reviews4 followers
August 16, 2021
Surprisingly good book. Charles Koch in spite of his extremist tendencies (and veneration of his dad who was even more of an extremist) really has some good thoughts on how to run and grow an organization. Obviously luck played a big role in how Koch Industries came about but that he's been a good steward of capital can also hardly be denied. Market-Based Management (MBM) is pretty interesting and if you're in to management practices it's worth a read. Especially if you're curious about the wildly successful streak achieved by Koch Industries. Would also highly recommend the book "Kochland: The Secret History of Koch Industries and Corporate Power in America" by Christopher Leonard to learn more about the "Koch Method."
Profile Image for Ken Madsen.
41 reviews5 followers
September 12, 2021
This is the precursor to Koch's book "Good Profit"Good Profit: How Creating Value for Others Built One of the World's Most Successful Companies. It sets the foundation and rationale of Market Based Management. The two books are very similar, the big difference is that in Good Profit there are some concrete case studies demonstrating MBM in action.

As with Good Profit, I liked the scientific and philosophical research Mr. Koch did over decades to formulate MBM. This in itself is worth the read.
232 reviews14 followers
July 3, 2020
This is a book that left me thinking "do as I say, not as I do". On the business side the book is interesting and informative. But while reading about the Koch's principles and virtues. etc., I am thinking of southern plantation owners that used the Bible to justify slavery, or priests that giving moving, uplifting sermons after abusing little boys.
The way the Kochs have spent their money, e.g., in the political positions they have pushed forward, are as divorced from what they write an you can imagine. But that doesn't take away from the book as a very worthwhile guide for looking at business.
Profile Image for Joel.
80 reviews11 followers
December 9, 2018
This book set out to be a manual for how to help companies maximize their fullest potential but ended up just being a reference manual from a single company. That being said the author was extremely intelligent and summed up historical, philosophical, and economic theories (many seemingly disparate) into some simple and concise rules about how to lead people and run a company with integrity. That alone made this book worth it.
Profile Image for David.
86 reviews4 followers
April 12, 2019
Unlike the few other how-to-succeed-in-business books I have read, which tend to be just-so stories, this one actually had some substance to it. Charles Koch presents an internally coherent framework for success in business, one that apparently can survive contact with the real world, at least based on the single data point Koch Industries provides. Not exactly entertaining, but I am rating it 4 stars because of how it compares to other books in this genre.
60 reviews
November 3, 2021
This is a book that I need to read every year. I read Kochland a few weeks ago, and it gave a great perspective into starting this book. I developed a business strategy last year that coincides strongly with MBM. What I was missing was the key details to filling out the plan and giving it a greater chance of success. This book laid out a lot of missing ideas or key points that I needed to continue to make my strategy more effective.
Profile Image for Jonathan Mckay.
568 reviews50 followers
March 31, 2022
Applied Hayek

Something in here clearly works, as evidenced by the success of Koch enterprises. But the guidelines are repetitions of basic economics, maidenly vague, or republican talking points many times two out of three. I think Koch has good ideas around using market pricing internal to a company and how to help use compensation as a motivation tool, but those ideas are really just left to the readers imagination.
4 reviews
June 2, 2019
Has some interesting frameworks to follow that I will take to heart in my entrepreneurial endeavors. Definitely heavy on theory but much lighter on how to actually put some of these ideas into practice. One risks over-intellectualizing a bad decision by referencing tenets from the book when they may be putting the right idea into practice in the wrong way.
273 reviews1 follower
September 30, 2019
Most of it was information that most already know. Pretty good book for someone who is in management, though. One thing that I did learn was a really good rule of thumb about starting a lawsuit: "Don't sue! A third goes to the lawyer, a third goes to the government, and you lose your business!"
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