The Book of Koch and Bull Stories

August 12, 2012 § Leave a comment


Power laws (Koch, Richard)

The corporation traces its origins to the chartered companies of the 1600’s, and possibly even earlier, to universities, churches and trade guilds that flourished since the time of Justinian. But it was only at the end of the 19th century that the corporation took its modern shape. Mass production and distribution were suddenly made possible by the invention of electricity and improvements in transportation technology, and the increased size, diversity and geographical distribution of the employee bases  made it a complex challenge for an organization to align the interests and activities of all its employees around a set of common goals.

This challenge, felt uniformly by every firm in every industry, called for a new kind of skill that had previously never been required in business. It was no longer enough to have sufficient funding, good technology and proficient labour at your disposal– you needed to be able to manage these resources well. Firms started paying good money for people who could do this, and soon enough, the masses were clamouring to be trained in management science. But was it really a science in the sense that physics was a science? Could that word be used to describe a motley collection of heuristics, techniques, best practices, war stories and anecdotes? The pioneering gurus of management were therefore keen to establish a solid theoretical foundation for their subject. And so, the search began to arrive at laws and formulas that were every bit as universal, as indisputable and as simple to articulate as E=mc2, and which explained how to take decisions with incomplete information and to solve unstructured human problems. A wave of consultants and gurus cropped up like so many messiahs, from Frederick Taylor to Michael Porter and beyond, each attempting to encapsulate management into a set of simple, catchy laws.

It should come as no surprise that these management gurus, having owed their very existence to technological progress, looked directly to engineering statistics for inspiration when it came to postulating these laws. The emphasis was heavily on measurement, trends, correlations, graphs, bar charts, and two-by-two matrices. And yet there were no slick formulae. Techniques like game theory and goal programming were invented; but few of these graduated from labs and white papers into the big bad world of real time management. Unfortunately, life behaves very differently from the physical universe, and obstinately refuses to reduce itself to simple formulae. The data and techniques are, at best, an aid to progressively refine intuition, which, at the end of the day, is what managers actually use to take decisions. The most successful managers know this – and so do the better management gurus. Richard Koch, unfortunately, is not one of them, at least on the evidence of this book.

Frederick Taylor – the guru who started it all (courtesy Wikipedia)

A couple of years before Koch wrote this book, he had popularized Vilfredo Pareto‘s principle (though Joseph Juran had beaten him to it by half a century), and hailed it as a power law – Pareto’s principle plotted the relationship between land ownership in a country and its population, but Koch showed that there were many other variables in other contexts that exhibit the same form in their relationships. The success of his book clearly having adversely affected his judgment, Koch then went the whole hog and wrote the book under review, in which he rashly attempts to prove that every popular scientific theory  in existence has significant business implications.

This was a bad idea to begin with, and Koch launches into it with an odd combination of gusto and laziness. A prototypical management consultant of the eighties, he simply hires a ‘researcher’ to read up and select 50 laws across scientific disciplines, largely using buzzword potential as the main criterion. He has then attempts to derive business insights from each of these laws, somewhat like an occultist interpreting tarot cards and tea leaves. The ‘insights’ he conjures up are obvious platitudes, the scientific analogies are highly contrived, and his understanding of the science is distressingly superficial. For instance, here he is, talking about why diversity is good for survival (he is commenting on Darwin’s Theory, by the way):

In 1950s Britain, government mass produced housing for poorer people. Municipal councils built massive tower blocks, all the same shape and pattern (oblong, high, undifferentiated) with all the ‘individual’ dwellings looking identical. Result: misery, alienation, crime.

Darwin’s Theory yields other gems, too. I will quote just one more, this one a genuine, though obvious, ‘business insight’ but very tenuously related to Darwin:

Winners have an evolutionary duty to have a superabundant sex life that produces a large number of offspring…what does this mean in business? It means taking the winning product or service as far afield geographically as you possibly can…

Still, biological theories relate to life, and as such are perhaps better suited to analogies with human systems than physical laws. Here is Koch, expounding on Newton’s law of gravitation. The connection with business, Koch informs us airily, is in ‘the gravity of competition’

Competition is a grave affair. It is the economic equivalent of gravity. Just as gravity depresses objects, and stops stars going straight, so competition depresses returns on capital. Margin gravity depresses managers and investors.

It depresses me as well. Incredible as it sounds, what Koch does with Newtonian physics is nothing compared with what he does with quantum physics and relativity, which are complex theories that are difficult to explain satisfactorily in normal language because the reality they describe is very different from that perceived by us. To apply concepts borrowed from them to business is, in a word, surreal.

Here’s how Koch begins to tackle quantum physics, with the story of Erwin Schrodinger and his  famous  feline: “What I think Schrodinger’s parable of the cat does succeed in doing is to question the relevance of quantum thinking to phenomena outside the quantum world, and to inject some cautious common sense into any attempt to extrapolate from the micro world.” So far so sensible.But then well begun turns out to be somewhat less than half done, when Koch throws all caution to the winds and lets rip the memorable line, “Don’t commit major resources until you have lived like an electron…”

Apparently, an electron’s life consists of taking every possible path all the time, and so must that of a manager who wishes to succeed at his job. Ouch.

There is no book so bad that it does not have something good in it,” said Miguel Cervantes, recalling Pliny. Well, the only saving grace in Koch’s effort is the unintentional humour that leaps out of every page.

Given the vague and slightly fluffy nature of their subject, management gurus have, over the years, plundered ideas from many fields: sports, warfare, religion, politics, philosophy, psychology, sociology and even zoology. And many of these analogies are valid, within a certain well-bounded context. But if the guru doesn’t quite understand the original material, and twists it liberally to suit his purpose, his book is just a waste of time.

“Immerse yourself in your market,” trills Koch rapturously, if incoherently.  “Don’t understand it. Define it. Change it. Create it. Live it.” This, of course, is precisely what he does with science, in this book.

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