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Charles Koch's Wisdom Can Make You Profits

Charles Koch's Wisdom Can Make You Profits
Charles Koch is chairman of the board and CEO of Koch Industries, Inc. (http://www.goodprofitbook.com)

By Tuesday, 20 October 2015 12:46 PM Current | Bio | Archive

Charles Koch’s new book, “Good Profit, How Creating Value for Others Built One of the World’s Most Successful Companies,” is a must-read for anyone seeking to understand the management philosophy of one of America’s great business leaders.

The story of Koch Industries’ success, recounted in detail in this book, is so enormous and astonishing that at first glance the reader might mistake it for a work of fiction.

It is a story that begins inauspiciously in 1961, when young Charles Koch joined a $21 million Wichita-based company founded by his chemical-engineer father, Fred Koch. In 1967, after his father died, Charles was named chairman of the board and CEO of Koch Industries Inc., a position he still holds.

Spin the clock to the present day, and we behold the still privately held Koch Industries to be valued at $100 billion. Although it has exceeded the S&P 500’s five-decade growth by 27-fold, Koch is not resting on its laurels. Indeed, its goal is to keep doubling its value on average every six years!

Even more amazing — especially for those cynical readers suspicious of the wealthy and capitalism in general — is the fact that Koch’s success was driven totally by the force of right and effective thought and action.

It is a success based on an amalgam of psychology, ethics, economic theory, brilliant management techniques, as well as an uplifting personal philosophy. Called the Market-Based Management® system, it is the distillation of five decades of research, interdisciplinary studies and experience.

The goal of MBM® is to generate not just profit for an organization, but "good profit." This is defined as earnings that result from long-term value created for everyone: customers, employees, shareholders and society.

Charles Koch gives us many anecdotes in “Good Profit” explaining the six decades-long road to achieving the remarkable MBM® environment, one that crystalizes into a five-dimensional concept.

To be sure, there were some bumps in the road along the way. Koch worried that the company would lapse into bankruptcy in the 1970s. But careful thought, ethics and experimentation (not to mention Charles Koch’s nine-hour work days) won out.

Editor's Note: To order 'Good Profit' at a great price from AmazonClick Here Now.

The book serves not just as an informative personal history of Charles Koch, Koch Industries and MBM®, but an easily grasped blueprint that serves as a plan of action not just for Koch Industries, but for any organization wishing to adopt the MBM® worldview.

Accordingly, Koch in “Good Profit” muses as to how MBM® could be applied to help various organizations such as the National Football League.

Readers will be informed why they need to craft a vision to take into account rapid disruption and the vagaries of consumer values.

The book also eschews the typical structured, hierarchical, authoritarian corporate framework in favor of an “environment of knowledge” similar to a community of scientists that solicits and cherishes respectful challenges from everyone in the company to foster continual improvement. (Here, at last, we see the explanation of why Koch Industries with its 100,000 employees worldwide does not suffer from the bureaucratic aches and pains of its Fortune 500 colleagues.)

The Koch plan also bestows ownership and “decision rights” to employees enabling those with the best relevant knowledge — “comparative advantage” as he calls it — to personally make and enact decisions rather than leaving them in the hands of perhaps more staid long-lived occupants of high-ranking corporate positions. Humility and respect among employees should be outweigh proclamations of sheer ability or performance by those less personable.

Intriguingly, contributions by Koch employees are not limited by budgets, corporate policy or any other bureaucratic limitation. Instead, the contribution process is maximized by meritoriously structuring incentives so that employees’ compensation is limited only by the value they create.

Above all, it was refreshing, almost poignant, to read Charles Koch’s emphasis on uncovering and nurturing virtue in the corporate workforce. I have not seen the word “virtue” used so extensively since the ancient philosophical discourses of Socrates, Plato, and their Greek brethren.

Interestingly, wisdom was considered the pre-eminent virtue in the ancient world, and “virtue” was often understood in terms of “excellence.” This “excellence” included knowledge — not just the knowledge of myriad facts, crafts and skills, but knowledge of human nature too.

Thus, the pre-scientific wisdom of Aristotle and the judgmental wisdom of Solomon were two sides of the same coin, and that coin purchased its owner an insight into the true order of things, of how the world really works.

So I think that the "virtue" Charles Koch refers to in his book harks back to a fundamental wisdom almost lost to us in today’s accelerating, materialist, hyper-capitalist world — a wisdom not lost, as it turns out, to the enlightened employees of Koch Industries.

If all of corporate America would follow their example, then the simple greed of “bad profit” would yield to the wisdom — indeed, the righteousness — of "Good Profit."

Editor's Note: To order 'Good Profit' at a great price from AmazonClick Here Now.

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The virtue Charles Koch refers to in "Good Profit" book harks back to a fundamental wisdom almost lost to us in today’s accelerating, materialist, hyper-capitalist world — a wisdom not lost, as it turns out, to the enlightened employees of Koch Industries.
Charles Koch, good profit, book
Tuesday, 20 October 2015 12:46 PM
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