By Peter Hannaford on 5.29.07 @ 12:05AM
Thanks to its stellar commitment to free enterprise and democratic capitalism, Koch Industries doesn't have to toot its own horn.
The Science of Success: How Market-Based
Management Built the World's Largest Private Company
by Charles G. Koch
(John Wiley & Sons, 194 pages, $22.95)
That's Koch pronounced "Coke" and it's the surname of the family
that heads one of the -- if not the -- world's largest
private company, Koch Industries, Inc. Chances are you have never
heard of it. If so, that's no accident. The company does not go in
for self-pats on the back or horn-tooting. It doesn't need to,
inasmuch as it does not have to answer to Wall Street's Greek
chorus that sets "expectations" for quarterly earnings for publicly
traded companies. It considers itself beholden to its customers,
suppliers, employees, and shareholders in about equal
proportion.
Though publicity shy, Koch Industries now owns, through
acquisitions, a number of brand names, such as Stainmaster, Dixie
Cups and Northern Tissue (toilet paper and paper towels). It is
very big in petroleum refining and transportation and has been for
years. Today it does about $90 billion a year in 60 countries with
a workforce of 80,000.
Its beginnings were humble. After Fred C. Koch graduated from
MIT in 1925, he was invited by a classmate to join forces in a new
company they named Winkler-Koch Engineering in Wichita, Kansas.
Within two years Fred Koch had developed a thermal-cracking process
for converting heavy oil into gasoline. This was an improvement
over the process being used at the time by the major producers. The
latter engaged in endless lawsuits. Finally, Koch joined a new
refinery company and, through growth and mergers, it became in
1967, Koch Industries, Inc. One of his sons, Charles G., then 32,
became the chairman and CEO of the company.
Charles Koch now tells the story of this impressive company and
the combination of policies, philosophies, and common sense that
make up its "secrets" of success in a new book, The Science of Success. Koch wraps all of
these elements together into a copyrighted "brand" and an
accompanying acronym -- in best MBA-course style. It is
"Market-Based Management (MBM)."
He almost puts the reader off in the Preface when he writes
(about the "five Dimensions of MGM"), "When these dimensions and
their underlying concepts are understood holistically and applied
in an integrated, mutually reinforcing manner, the effect is
continuously transformative." Huh? Forget this argle-bargle and
skip right to the meat of the book, which is written in a clear,
straightforward style by a man wholly committed to free enterprise
and democratic capitalism. He understands well a business's
responsibilities to both when it wants to adhere to such a
commitment.
In distilled form, here are some of his guiding principles:
* Give credit where it is due.
* Experiment. ("The key is to recognize when we are
experimenting and limit the bet accordingly.")
* Run the company "...as a meritocracy."
* Recognize that even a private company operates in a world with
many elements that can affect its future. ("To survive we decided
we must build a world-class public sector capability, which we
did.")
* Embrace change. ("We constantly pursue innovations and
opportunities through internal and external acquisition. Similarly,
we shed businesses and assets that are unprofitable or worth more
to others. We believe it is essential to drive creative destruction
internally, otherwise creative destruction will drive us out of
business.")
He goes on to tell us how and why Koch Industries buys and sells
elements in its firmament, how it stays competitive, why and how it
keeps its people happy and productive, and how it stays
consistently profitable for its shareholders (not only members of
the family but most of the people who work for the company).
There are a few annoyances (catch-phrases such as "The Science
of Human Action," which means Common Sense; and endless sidebars
which may be interesting, but break up the reader's concentration
on the text). Nevertheless, The Science of Success overall
is a good primer for anyone starting a business and as a refresher
for those already in it. And, for policy mavens, intent upon
proving the validity of the free enterprise system, this is proof
positive.
topics:
Transportation, Trade, Business, Law, Oil
