History Koch Industries Inc. 1925 - Winkler-Koch Engineering is formed in Wichita, Kansas 1940s -...
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The Science of Success
History Koch Industries Inc. 1925 - Winkler-Koch Engineering is formed in Wichita, Kansas 1940s - Koch begins acquiring different companies, most dealing
History Koch Industries Inc. 1925 - Winkler-Koch Engineering is
formed in Wichita, Kansas 1940s - Koch begins acquiring different
companies, most dealing with the refining of oil and wood. 1961 -
Charles G. Koch became chairman and CEO of Rock Island Oil &
Refining Company, Wood River & Refining Company 1967 Fred C.
Koch dies.
Slide 3
Koch Industries Inc. 1968 - Rock Island Oil & Refining
Company is renamed Koch Industries, Inc 1980s Koch begins to
diversify, acquiring companies that deal with natural gas, nitrogen
and coal. 1993 The first Market-Based Management (MBM) handbook is
published.
Slide 4
Koch Industries Inc. 2006 - Forbes magazine names Koch
Industries, Inc. as the largest private company in the U.S. 2007
The Science of Success: How Market-Based Management Built the
Worlds Largest Private Company was published. Today Over $100
Billion in Revenue and over 60,000 employees world-wide.
Slide 5
Charles G. Koch Charles Koch born on November 1, 1935 in
Wichita, Kansas Owns 42% of Koch Industries Brothers Frederick R.
Koch David H. Koch William I. Koch
Slide 6
Charles G. Koch Net Worth: $31 Billion Of which $25 billion
comes from Koch Industries Tied 6 th with his brother David Koch on
the top 100 billionaires in the world Chairman of the board and
chief executive officer of Koch Industries, Inc.
Slide 7
Education Bachelor of Arts / Science Massachusetts Institute of
Technology Master of Science Massachusetts Institute of
Technology
Slide 8
Norming
Slide 9
Increased cohesion More collaboration Emerging trust
Appreciation of differences Open communication
Positive/Constructive feedback
Slide 10
Market Based Management(MBM) A philosophy that enables
organizations to succeed long term by applying the principles that
allow free societies to prosper. 5 dimensions of MBM: 1. Vision 2.
Virtue and Talent 3. Knowledge processes 4. Decisions Rights 5.
Incentives
Slide 11
Where there is no vision, the people perish. Proverbs
29:18
Slide 12
Vision A system of spontaneous order that maximizes choice,
creating sustainable prosperity and societal progress
Slide 13
Vision in Business Determine where and how the organization can
best create value long-term through a process of experimental
discovery An effective business vision begins and ends with value
creation for the business. The vision must be specific enough to
guide action.
Slide 14
Vision guidelines for Business Enlightened Self-interest
Embracing change Experimental Discovery Anticipation and Innovation
Setting Priorities
Slide 15
Enlightened Self-Interest Self-interest is either cooperative
or aggressive Businesses must encourage cooperation while punishing
destructive self-interest People in the team benefit themselves by
benefiting other members of the team
Slide 16
Embracing Change Over time competition erodes the profitability
of every product or innovation. Business must strive to slow down
this decay Business must continually replace products that have
reached the end of there life-cycle.
Slide 17
Experimental Discovery The driving force for embracing change
How business adapt to the future Experiments must be limited in
size and scope, to help minimize risk. Experimental discovery
creates a process that encourages new improvements, strategies, and
innovations.
Slide 18
Anticipation and Innovation Companies and customers gain when a
company anticipates new opportunities. When a business rate of
decline overcomes the owners ability to innovate the business
should be sold.
Slide 19
Setting Priorities A business needs to develop and implement
strategies that enable it to maximize its long-term value.
Slide 20
There is a natural aristocracy among men. The grounds of this
are virtue and talents. Thomas Jefferson
Slide 21
Norming and Virtues Rules of just conduct. How we act and how
we except others to act. Norms of Behavior + Shared Virtues = A
Groups Culture
Slide 22
MBM Guiding Principles 1. Integrity - conduct all affairs
ethically 2. Compliance - %10,000 compliance. Stop, think, ask. 3.
Value Creation create real, long term value by economic means.
Eliminate waste. 4. Principled Entrepreneurship demonstrate the
need to generate the greatest contribution to the company and
society.
Slide 23
MBM Guiding Principles 5. Customer Focus Understand and develop
relationships to satisfy need. 6. Knowledge Seek, use, and share
the best knowledge. 7. Change Embrace It. Drive creative
destruction. 8. Humility Practice intellectual honesty and
constructively deal with reality.
Slide 24
MBM Guiding Principles 9. Respect Appreciate diversity and
encourage teamwork. 10. Fulfillment Produce results the make you
realize your full potential.
Slide 25
The greatest obstacle to discovery is not ignorance but the
illusion of knowledge. Daniel Boorstin
Slide 26
Overview Market economies are successful because they are
superior at creating useful knowledge Sharing & implementing
knowledge Measuring and Tracking Profitability
Slide 27
Trade People Make exchanges because they expect to improve
their well being Sources of gain from trade: Goods move from people
who value them less to people who value them more Specialization
allows greater consumption, production, and variety. High volume
production leads to lower production cost
Slide 28
Trade Trade within a business: A Company must quickly come up
with ways to become aware of changes taking place in the
marketplace
Slide 29
Measures Profit & Loss- What products produce profit?
Marginal Analysis- Profit of adding one extra unit of product
Benchmarking- examining practices from other places around the
world Opportunity Cost- Cost of giving up the next best thing
Slide 30
Profit Centers Helps track products & profits directly tied
to them Profitability of individual employees should also be
measured Not all units within an organization can be tracked as
profit centers. Services within a business that dont generate own
revenues (Research Dept.)
Slide 31
Free Speech Societies that value freedom & prosperity
facilitates the discovery of knowledge Knowledge can be created by
challenging others ideas Republic of Science example
Slide 32
Truth At Koch Industries, truth is what gets results consistent
with the principles they set for themselves Challenge process:
continually questioning & brainstorming to find a better
solution Challenge process Uses constructive improvement rather
than opposition
Slide 33
There is a natural aristocracy among men. The grounds of this
are virtue and talents. Thomas Jefferson
Slide 34
Norming and Virtues Rules of just conduct. How we act and how
we except others to act. Norms of Behavior + Shared Virtues = A
Groups Culture
Slide 35
MBM Guiding Principles 1. Integrity - conduct all affairs
ethically 2. Compliance - %10,000 compliance. Stop, think, ask. 3.
Value Creation create real, long term value by economic means.
Eliminate waste. 4. Principled Entrepreneurship demonstrate the
need to generate the greatest contribution to the company and
society.
Slide 36
MBM Guiding Principles 5. Customer Focus Understand and develop
relationships to satisfy need. 6. Knowledge Seek, use, and share
the best knowledge. 7. Change Embrace It. Drive creative
destruction. 8. Humility Practice intellectual honesty and
constructively deal with reality.
Slide 37
MBM Guiding Principles 9. Respect Appreciate diversity and
encourage teamwork. 10. Fulfillment Produce results the make you
realize your full potential.
Slide 38
Markets maximize benefits [when they are] supported by
externally enforced property right rules that prohibit taking
without giving in return -Vernon Smith
Slide 39
Decision Rights Ensuring the right people are in the right
roles with the right authority to make decisions and holding them
accountable. Change over time Decision rights can be thought of as
property rights in an orginization
Slide 40
Division Of Labor Specialization of roles that improves the
productivity in an organization. The power of the division of labor
is diversity Variations in skills, knowledge, culture Human
Cooperation
Slide 41
Roles, Responsibilities, and Expectations Used to Define
general areas of responsibility and accountability Used to avoid
inaction and finger pointing. Focus on maximizing contributions
Focused on value creation
Slide 42
Principled Entrepreneurship Wide spread value creation Decision
rights are earned Interaction in face to face discussion Knowledge
Sharing
Slide 43
The only combination of rewards and feedback that seems to
improve motivation is rewards that depend not only on doing the
task, but upon how well it is done plus informational feedback.
-Charles Murray
Slide 44
Human Action Three requirements must be present for individuals
to act: 1. Unease or dissatisfaction with the present state of
affairs 2. A vision of a better state 3. Belief that they can reach
the better state By Ludwig von Mises
Slide 45
Perverse Inventive Incentive that has an unintended and
undesirable result which is contrary to the interests of the
incentive makers or company. Examples: 10 percent across the board
reduction in budgets or people.
Slide 46
Aligning Incentives Incentives that make the employee benefit
and the company also benefit from the incentives.
Slide 47
Marginal Contribution Portion of value created that can be
assigned to a specific change, factor or individual.