TCS Daily

Is There a Science of Success?

By Arnold Kling - March 28, 2007 12:00 AM

"The challenge is to get beyond the glib stage in which employees understand the words and concepts but haven't yet been able to apply them to achieve profitable results."
-- Charles G. Koch, The Science of Success

Several years ago, after selling a business, I wound up writing a business book. Looking back, I would say that writing a business book was not my comparative advantage. I would say the same about Charles G. Koch.

Recently, I read Radicals for Capitalism, Brian Doherty's entertaining and informative history of the libertarian movement. In it, he mentions Koch, both as a behind-the-scenes funder of libertarian causes and a believer in applying Austrian economic theory to business. I was curious about the latter, so I bought Koch's book, The Science of Success (SOS).

I would recommend that a professor teaching an introductory economics class in a business program, particularly to undergraduates, consider assigning SOS as a supplemental reading. In my "Economics for the Citizen" course at George Mason, I like to start out the course with a project in which students design their own business. Reading this book might be a good follow-up to that project.

However, business books are most often read by middle managers. Therefore, my mindset in reading and reviewing SOS is that of a middle manager. From that perspective, I find it maddeningly sketchy and terse.

Five Elements

Koch's management advice consists of five dimensions:

1. Vision

2. Virtue and Talents

3. Knowledge Processes

4. Decision Rights

5. Incentives

I will briefly summarize these elements and add my comments. However, particularly since my main criticism of the SOS is that it is too skeletal, my minimal overview may do more harm than good in conveying the ideas.

By vision, SOS means figuring out your company's role in the economic system. You need to understand how it is that you make a profit.

I have no doubt that developing a vision is difficult and important. I have seen many entrepreneurs who are excited about creating a product or service or solution but who lack clarity on how to make money at it. But SOS offers nothing in terms of nitty-gritty advice or examples about what to do or not do in order to develop a vision.

By virtue and talents, SOS means focusing on personnel. It advocates a sort of triage. High-quality employees need to be cultivated, nourished, and retained. Decent employees should be encouraged to develop, but need not absorb management focus. Employees who do not contribute need to be turned around quickly or fired. As SOS puts it (p. 91), "any employee who is not creating value does not have a real job...their performance puts other team members and the entire organization at risk."

I agree strongly with this point. It is easier for a manager to work around a troublesome or ineffective employee than it is for the employee's co-workers. My sense is that most managers are too slow to pull the trigger. You feel like having to fire an employee represents a failure on your part. Maybe it does. Fire him anyway.

However, in real life, personnel issues are not always clear-cut. Employees are neither all-round winners nor all-round losers. The great problem-solver may lack self-discipline. The creative innovator may say things that hurt others' feelings. The reliable, well-organized project manager may be hung-up on issues of perks and status. It is these imperfect packages that managers have to deal with on a day-to-day basis.

By knowledge processes, SOS means moving information within the organization. Again, it is easier to advocate open inquiry than to articulate the processes that promote or impede it. One anecdote that Koch gives concerns an attempt to apply W. Edwards Deming's quality management techniques -- an attempt that misfired.

"The electricians there were spending a large portion of their time measuring activity and drawing charts instead of doing electrical work. Our people referred to this as "charts for Charles." Many employees thought I wanted charts or descriptions of activity as an end in itself, rather than a means to improve results. Unfortunately, measurement and chart-drawing became the focus rather than improving performance and eliminating waste." (p. 39)

This is perhaps the most helpful anecdote in the whole book. Otherwise, specific examples and pitfalls are few and far between. As with its other chapters, the chapter in SOS on knowledge processes insults the complexity and subtlety of the topic by its short, breezy treatment.

The topic of decisions rights is where SOS attempts to address the issue of decentralization in a large organization.

"Clear decision rights allow employees to allocate, consume or conserve the company's resources as they attempt to create value. They also enable employees to know what they are responsible for and to be held accountable, just like owners. Decision rights expand for those who consistently make sound, value-adding decisions and contract for those who do not." (p. 126)

This question of how to decentralize decision-making is one of my favorite issues in organizational behavior. In the chapter on incentives, SOS gets at the dilemma.

"the problem typically takes one of two forms. In the first, employees are extremely risk-averse, generally due to leadership failing to reward profitable risk-taking, while excessively penalizing losses from prudent risk-taking...

"In the other extreme, employees take imprudent or even unauthorized risks. In these cases, individuals hope to make a great deal of money for themselves by going for broke, even if it puts the company at risk...This behavior is minimized by selecting and retaining employees, foremost, on values and beliefs, appropriately setting and enforcing decision rights and having effective controls." (p. 148-149)

Shouting in the Boxer's Ear

Training a middle manager is like training a boxer. Once the boxer steps into the ring, my guess is that your ability to provide coaching is rather limited. He is not going to have the energy or attention span to process new instructions. Perhaps if you have trained him to respond to a certain phrase, shouting that phrase in the boxer's ear might elicit a response. Otherwise, chances are it will not.

The writers of best-selling business books tend to be consultants with a knack for coming up with simple, memorable phrases, like "think win-win" (Stephen Covey) or "drive out fear" (Deming). The consultant-writer uses powerful metaphors, colorful examples, and quirky aphorisms to develop an association in the middle manager's mind between the phrase and a set of behaviors. The hope is that when the middle manager steps into the ring of everyday business, the phrase will help to trigger the desired behavior.

SOS does a poor job of shouting in the boxer's ear. Koch might have tried hiring a professional business writer to try and come up with more compelling ways to convey his ideas.

For anyone writing a business book, let me offer my own aphorism:

The biggest secret knowledge in business is the stuff that ought to work, but doesn't.

Articulating what works, even for someone as successful as Charles Koch, can have surprisingly little value. Taken out of context, what works will seem obvious. What readers need to know is the larger context, especially what ought to work, but doesn't.

So from my perspective, the anecdote about "charts for Charles" is worth more than 90 percent of the rest of SOS. It tells me how something that ought to work -- tracking performance on easy-to-read charts -- can fail.

When I had my web-based business, we found ourselves in 1998 and 1999 up against some competitors with frightening amounts of venture capital. However, we soon noticed that they put most of their efforts into trying things that we already knew did not work. Our most valuable intellectual property was this knowledge of "what ought to work, but doesn't."

For SOS to be useful to middle managers, the writing needs to be more compelling and memorable. The ideas need to be fleshed out with more details and examples -- each of the five dimensions deserves close to 100 pages. Above all, it needs more anecdotes that would enable the reader to distinguish what works from what ought to work, but doesn't. In my view, SOS as written exemplifies the latter. Given Koch's business success and unique Austrian-economics perspective, SOS ought to work. But it doesn't.

Arnold Kling is author of Learning Economics.


business isn't science
Interesting article but a bit of a mix up on the terms surely. He discusses science and business and writing books, etc. but it seems confusing. Science is really important in terms of success if you're trying to send a rocket into space, or building a big bridge, but that's not the same as being successful in business, or being a prof of business. There are many highly successful business people who have no clue about the scientific method, and aren't even totally rational, but do have a good feeling about the wants and desires of others. Some examples would be Richard Branson of the Virgin Group, or some guys that made fortunes from starting religions like Scientology, and the various maharashis. Isn't there an expression in English; It's more art than science.?

There are fundamental rules
Which don't alway work because the system is very complex.

But one sigificant fundamental rule was touched upon and that is use your employees to build your business.

People are full of ideas and want to express them. They know their jobs the best. With proper guidance from management and managers who give credit where credit is due, people will work magic.

I like the book "It's Your Ship" and "Kaizen".

The difficulty for entrepreneurs and type A personality types is giving others credt and understanding the business exists to serve its customers, not the CEO.

Science of Success if pure gold
Yes, Koch could have and should have written a longer book. More anecdotes would have been helpful. That said, what he did write is pure gold. His approach to applying free market principles to the management of a business is pretty revolutionary. I don't know if Koch is the next William Edwards Deming, but he might be. The results from his management principles at Koch Industries have been pretty astonishing.

That's what I was thinking...
My husband is in medicine and that's the operative phrase; more art than science.

"People are people" is another. Both are very true and of little use, at least in a large organizational sense.

I think the key element is FOCUS! Agents of change are vital... at times. Those that stabilize are also vital... at different times.

I visualize the bell curve; few at each end of polar opposite natures and a huge middle affected by the focus of first one side-change, and then the other-stable. In any sphere of concern it goes back and forth in a comforting wave like action. Something like watching seaweed on the ocean floor. On the macro level it can seem hypnotically steady, reassuring. On the micro level, it's very different. Imagine the microorganisms... WHOOAHH!!!

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