The Power Laws: The Science of Success PDF
Preview The Power Laws: The Science of Success
The Power Laws Page i Advance praise for The Power Laws "This book boils down the insights from science, from Newton to now, to compile a practical manual for success in business and life. It's a terrific tourdeforce." James A Lawrence, Executive VicePresident, General Mills "Intriguing and very unusual. Koch is saying things that really need saying, but that you don't hear said elsewhere. Both intellectual and practical, the book is above all highly readable and thought provoking." Dr Jules Goddard, Fellow, London Business School "Exciting stuff! The Power Laws touches on many of the most important debates going on in academic and business circles, and yet goes beyond them in generating ideas for anyone in business. A major shift in the way we think about the corporation and management is imminent, and this book makes a major contribution to fresh thinking." Dr Marcus Alexander, Director, Ashridge Strategic Management Centre "The theory of business genes alone is a good reason for buying this book. And we get sixteen other major scientific principles thrown in as well! The content is academically respectable and often stateoftheart, but what is particularly impressive is how accessible it all is. Clear and simple, but also authoritative and bursting with insight." Dr Peter Johnson, Fellow, Exeter College, Oxford "I never knew that science could be so useful in business! A real revelation." Chris Outram, Senior Partner, OC&C Strategy Consultants Page ii Evolution by Natural Selection—Business Genes—Gause's Laws—Evolutionary Psychology—the Prisoner's Dilemma—Newton's Laws—Relativity— Quantum Mechanics—Chaos—Complexity—The 80/20 Principle—Punctuated Equilibrium—The Tipping Point—Increasing Returns—The Paradox of Enrichment—Entropy—Unintended Cnsequences Fisher's fundamental theorem of natural selection—the experience curve—timebased competition—Ulam's dilemma—Mendel's laws of hereditary—DNA and its structure—memes—lifelines—the HardyWeinberg law—ecological niches and MacArthur's warblers—owners and intruders—the endowment effect—the ultimatum bargaining game—cultural evolution in animals—neuroplasticity—game theory—the red queen effect—the evolutionary arms race— Ridley's theory of social coagulation division of labor—Ricardo's theory of comparative advantage—theory of coopetition Linus' law—Diamond's principle of intermediate fragmentation—black holes—Gödel's incompleteness theorem—the medium is the message—Heisenberg's uncertainty principle—the principle of complementarity—Schrödinger's cat—sensitive dependence on initial conditions—the butterfly effect—fractal similarities—the principle of impotence—the hinge factor—first mover advantage—emergence—selforganizing systems—the edge of chaos—Zipf's rank/size law—Simon's theory of clumps and lumps—GutenbergRicher law—Parkinson's laws—Cyert & March's theory of organizational slack—landscapes—Zipf's principle of least effort—Juran's rule of the vital few—Von Foerster's theorem—the 50/5 principle—Mendeleev's periodic table control theory—Fermat's principle of least time—trichotomy law—plague theory crossing the chasm—exponential growth—Fibonacci's rabbits—big bang—Say's law of economic arbitrage—Freud's reality principle—law of diminishing returns—Moore's law—Metcalfe's law—the theory of industry sweet spots—Murphy's laws—theory of the second best—system dynamics Page iv To Lee Page v The Power Laws The Science of Success Richard Koch Page vi First published by Nicholas Brealey Publishing in 2000 36 John Street London WC1N 2AT, UK Tel: +44 (0)20 7430 0224 Fax: +44 (0)20 7404 8311 1163 E. Ogden Avenue, Suite 705229 Naperville IL 605638535, USA Tel: (888) BREALEY Fax: (630) 898 3595http://www.nbrealeybooks.com © Richard Koch 2000 The right of Richard Koch to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. ISBN 1857882490 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publishers. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form, binding or cover other than that in which it is published, without the prior consent of the publishers. Printed in Finland by WS Bookwell Page vii CONTENTS The Power Laws (in Order of Appearance) xiii Acknowledgments xvii Overture: On Appreciating a Wonky World 1 In Search of a Few Universal Principles 1 The Progress from Order to Chaos 4 A New Gestalt for Business? 7 The Old Régime Has Its Place 9 Escaping Obsolete Mental Models 11 Part One—The Biological Laws How Economic Information Drives Progress 13 Introduction to Part One 14 1 On Evolution by Natural Selection Vary, Reinvent, Multiply, and Vary Again 15 The Universe Is Run by Selection 15 The Origins of Darwinism 16 Natural Selection: A Simple but Subtle Theory 17 Six Universal Principles Implied by Evolution by Natural Selection 23 Darwin's Economic Primer 25 Where Does Evolution by Selection Work in Business? 27 Fisher's Fundamental Theorem of Natural Selection 32 The Experience Curve—Explaining Evolutionary Improvement 34 Page viii TimeBased Competition 35 Ulam's Dilemma—Is Natural Selection Unfair? 36 Evolving to Avoid Failure 37 Summary 39 Action Implications 40 2 On Mendel's Genes, Selfish Genes and Business Genes Find the Best Business Genes and Vehicles 42 What Darwin Couldn't Explain 42 Mendel's Laws of Heredity 43 DNA and Its Structure 44 The Selfish Gene 46 The Theory of Memes 47 The Theory of Business Genes 50 A New Perspective On Business 56 Business Genetics for Executives—Six Action Rules 59 Summary 61 Action Implications 62 3 On Gause's Laws Differentiate 64 Gause's Principle of Survival by Differentiation 64 Gause's Principle of Competitive Exclusion 65 Coexistence, Dominance, and BiStability 65 Ecological Niches and MacArthur's Warblers 66 Finding Unique Niches 66 Who Can Invade Whom? 67 BiStability Is Better Than Coexistence 68 The Danger of Having One Key to Success in an Industry 70 Differentiation Is a Set of Actions to Take You to Uniqueland 70 Summary 71 Action Implications 72 4 On Evolutionary Psychology Manage and Mutate Stone Age Man 73 Page ix Meet the Flintstones—in the Office 73 Punctuated Equilibrium 73 The Neurology of Stone Age Man 75 Owners and Intruders 86 The Endowment Effect 86 The Ultimatum Bargaining Game 88 Are We Really Hardwired? 89 How to Manage and Mutate Stone Age Man 92 Summary 95 Action Implications 95 5 On Resolving the Prisoner's Dilemma Cooperate with the Best Cooperators 102 Game Theory 102 The Prisoner's Dilemma 103 Ridley's Theory of Social Coagulation 107 Business Collaboration As a Means to Defeat the Evolutionary Arms Race 112 The Theory of CoOpetition 115 The Cathedral Versus the Bazaar 118 Higher Still and Higher, the Bounds of Cooperation Rise 121 The Prisoner's Dilemma and Your Career 123 Summary 123 Action Implications 125 Part One Concluding Note 127 Part Two—The Physical Laws Newtonian and TwentiethCentury Physics 131 Introduction to Part Two 132 6 On Newton's Laws of Motion and Gravity Escape from the Gravity of Competition 133 Newton's Impact On the World 133 Are Newton's Power Laws 'Old Hat'? 135 Page x Action and Reaction 137 The Gravity of Competition 138 Corporate Gravity: How Near and Large Is Your Competitor? 139 Escaping Corporate Gravity 144 Summary 145 Action Implications 147 7 On Relativity Think ServiceTime 148 Farewell, Clockwork Universe 148 Einstein's Special and General Theories of Relativity 149 Can Relativity Be Applied to Business? 152 A Relative World View 156 Summary 162 Action Implications 163 8 On Quantum Mechanics Pursue Both/ and 165 The Most Majestic Triumph of TwentiethCentury Science 165 Schrödinger's Cat 167 How Relevant Is Quantum Theory to the NonMicro World? 169 Quantum Theory Used As a Battering Ram 172 Summary 176 Action Implications 178 Part Two Concluding Note 179 Part Three—The NonLinear Laws Interdisciplinary Science 181 Introduction to Part Three 182 9 On Chaos and Complexity Exploit the Fractal Nature of Business 183 Page xi The Third Great Scientific Breakthrough 183 Chaos 184 Insights from Chaos into the Physical World 186 Chaos, Chance, and Business 190 Complexity and Emergence 196 The Edge of Chaos 198 Complexity and Business 203 Summary 211 Action Implications 211 10 On the 80/20 Principle Achieve More with Less 214 More with Less 214 The 80/20 Principle 216 The Ubiquity, Universality, and Usefulness of the 80/20 Principle 220 How to Use the 80/20 Principle in Business 222 The Simple Firm 230 Charm 231 The Power of Weak Ties 232 Von Foerster's Theorem 233 The 50/5 Principle 234 Mendeleev's Periodic Table of Elements 234 Control Theory 235 Fermat's Principle of Least Time 236 Trichotomy Law 237 Summary 239 Action Implications 239 11 On Punctuated Equilibrium, the Tipping Point, and Increasing Returns Identify Sweet Spots in Emerging Networks and Dominate Them 243 Punctuated Equilibrium 243 Plague Theory 245 The Power of the Unexpected 248 Page xii Crossing the Chasm 248 Exponential Growth 250 Say's Law of Economic Arbitrage 254 The Law of Diminishing Returns 256 Metcalfe's Law 260 The Theory of Industry Sweet Spots 262 So What Has Changed in the 'New Economy'? 264 Summary 270 Action Implications 271 12 On the Paradox of Enrichment, Entropy, and Unintended Consequences Sustain Success by Creating New Value Every Day 273 The Power Laws of Caution 273 The Paradox of Enrichment 274 The Law of Entropy 278 The Law of Unintended Consequences 280 Summary 286 Action Implications 287 Part Three Concluding Note 289 Part Four—So What? 291 Introduction to Part Four 292 Finale: On the Gospel According to the Power Laws Practice a Few Routes to Success That Really Work 293 The Scientific Laws Driving Progress 293 The Power Laws Change Our Perspective 298 The Gospel According to the Power Laws 306 Index 309 Page xiii THE POWER LAWS Each of the 12 chapters of this book covers a major power law or a cluster of major power laws, of which there are 17. 1 Each chapter contains a clear message that works brilliantly well in business, and often in life generally. If you turn back to the Contents page, you can see the major power law(s) described for each chapter, followed by the main action implication. When you read the chapters themselves, you will also find other, less major, power laws described, together with some other action implications (and, of course, a detailed explanation of the major action implication). There is a total of 93 power laws, which are listed below. In the text, Major Power Laws are in bold italics with the initial letter of each word capitalized, and Minor power laws are also in bold italics, but with only the first word capitalized. In Order of Appearance Evolution by Natural Selection 15 Fisher's fundamental theorem of natural selection 32 The experience curve 34 Timebased competition 35 Ulam's dilemma 36 Mendel's laws of heredity 43 DNA and its structure 44 The theory of memes 47 Lifelines 49 The Theory of Business Genes 50 Page xiv The HardyWeinberg law 58 Gause's Principle of Survival by Differentiation 64 Gause's Principle of Competitive Exclusion 65 Coexistence, Dominance and BiStability 65 Ecological niches and MacArthur's warblers 66 Evolutionary Psychology 73 Punctuated Equilibrium 73/243 Owners and intruders 86 The endowment effect 86 The ultimatum bargaining game 88 Cultural evolution in animals 90 Neuroplasticity 90 Game theory 102 The Prisoner's Dilemma 103 Red queen effect 104 Evolutionary arms race 105 Ridley's theory of social coagulation 107 Division of labor 107 Ricardo's law of comparative advantage 109 The theory of coopetition 115 Linus's law 119 Diamond's principle of intermediate fragmentation 120 Newton's first law of motion 133 Newton's second law of motion 133 Newton's third law of motion 133 Newton's law of universal gravitation 133 Black holes 139 Einstein's special theory of relativity 149 Einstein's general theory of relativity 149 Gödel's incompleteness theorem 157 The medium is the message 160 Quantum Mechanics 165 Heisenberg's uncertainty principle 166 Bohr's Principle of complementarity 167
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