The Science of Success

How Market-Based Management Built the World's Largest Private Company

Wiley, 2007

15 min read

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Charles G. Koch, CEO of Koch Industries, reveals his approach to success: “market-based management.”

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The “science of human action” and “market-based management” (MBM) form the core ideas of the libertarian business philosophy and the successful commercial operating principles of Charles G. Koch, chairman and CEO of Koch Industries Inc. (KII). Following these principles, Koch has enjoyed astounding success: A $1,000 investment in KII in 1960 would now be worth $2 million (with a reinvestment of dividends). During most of this period, Koch himself planned KII’s strategy and ran the company. Here, with a few jargon pitfalls, he details his business methods and operating practices. Koch is known for his heavy financial support of conservative political causes and candidates, but this is not a political book. It is, in fact, more a work of business philosophy than a hands-on manual for Koch’s MBM system, which he describes as an approach and attitude based on a selection of “mental models” and not as a linear path. getAbstract recommends Koch’s thoughtful exposition to all 80,000 KII employees and to business executives who want some clues about emulating KII’s success.

Summary

A History of Koch Industries (KII)

The story of KII begins with Harry Koch, a Dutch immigrant, who ran a weekly newspaper in Quanah, Texas. His son, Fred, graduated from MIT and worked as a chemical engineer before forming Winkler-Koch Engineering Company, which specialized in a “thermal cracking process for converting heavy oil into gasoline.” During the 1930s, the firm set up 15 cracking plants in the Soviet Union. In 1940, Fred joined the Wood River Oil & Refining Company, which became KII’s predecessor. He owned 23% of the firm.

Like his father, author Charles G. Koch graduated from MIT. He worked briefly for Arthur D. Little, the consulting firm, before joining his dad’s company, then known as Rock Island Oil & Refining Company. Initially, Charles ran Koch Engineering, a Winkler-Koch offshoot. He helped expand the firm’s “crude oil gathering” operations, serving as its vice president and, starting in 1966, its president. In 1967, Fred died of a heart attack, and Charles became chairman and CEO of the firm, which he and his brothers renamed Koch Industries Inc. in honor of their father. In 1969, KII gained a 35% interest in the Great Northern Oil Company...

About the Author

Charles G. Koch, holder of three engineering degrees from Massachusetts Institute of Technology, is chairman of the board and CEO of Koch Industries Inc.

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Charles G. Koch