The remarkable success of Koch and its employees has always been rooted in proven principles of human progress. The better we’ve understood and applied these principles, such as mutual benefit, comparative advantage and creative destruction, the more we’ve prospered by benefiting others. This has been true for nearly 60 years, and our future success depends on continuing to improve our ability to do so. This booklet is designed to help each of us better understand and apply these principles for the benefit of the company, ourselves and all those with whom we interact.
In that respect, this message is not so much an introduction as it is a reminder about the importance of proven principles. We all need to know how they have made us successful in the past and use that understanding to help improve how we apply them in the future. The need for a heightened focus on principles is why we’ve decided to update Koch’s Vision and framework, as we last did in 2018.
But first, some perspective…
More than a decade ago, after many years of high performance, we began to recognize that we were falling behind. We weren’t building new capabilities fast enough and many of our investments weren’t performing as we hoped; thus, our returns were deteriorating. So, we began to address the problems; however, those efforts only brought about minor improvements, as we continued to operate in much the same way as in the past.
Around five years ago, we concluded that to truly change our performance we had to transform ourselves, starting with all of us in senior management. It also required taking our application of principles of human progress to a whole new level. So, in 2017, we made what I called at the time “important leadership changes” at the most senior levels of our company, dividing and resetting responsibilities by comparative advantage in order to become much more effective in “driving improvements and advances.”
The following year we made some significant changes to Koch’s Vision and Our Values (formerly Guiding Principles). For most employees, this was their first exposure to concepts such as virtuous cycles of mutual benefit, preferred partner, continual transformation (as opposed to continual improvement), self-actualization and stewardship. Soon after, we introduced the importance of headwinds and tailwinds. Together, these were keys to accelerating transformation across all of Koch.
I am happy to report that all our business groups quickly acted on these changes and began to transform, as did many of our capability groups and countless employees throughout Koch. The sum of these transformations led to record results by a very wide margin, as well as building new capabilities that have greatly expanded our future opportunities.
The need for this transformation process is never-ending. If we allow it to stop, the forces of creative destruction and entropy will overwhelm us and we will fail. But if we dedicate ourselves to understanding and applying the principles of human progress to continually transform ourselves and our organizations, we can accomplish more and have better lives than we ever imagined.
That is why we have drawn on the learnings from the improvements we’ve made over the last five years to once again modify our framework and give it a new name: Principle Based Management. We have also updated Koch’s Vision to the same end.
We believe this additional emphasis on principles will enable us to make our framework even more effective in empowering employees, capturing opportunities, identifying and closing gaps, and addressing headwinds and tailwinds. It will also help those outside Koch understand how and why we do what we do.
This booklet covers these changes and will be followed by stories of how and where principles have been applied to greatly enhance our performance. You will see their power in transforming our companies, capabilities, investments and employees throughout Koch.
One of the most important measures of success for these efforts will be the degree of your own self-actualization. My goal is for you to more fully develop and apply your talents and passions so you can realize your potential and maximize your contributions to Koch’s long-term success.
In other words, I want you to be all that you can be. That’s not only the secret to success, it’s the secret to a life of meaning.
Charles Koch
