Koch’s success is dependent on empowered employees who apply principles of human progress. Each of us can contribute our abilities and knowledge to promote a culture that enables Koch to build the capabilities that create products and services benefiting others.
Such a spontaneous order comes about when each of us is in the right role and motivated to make the greatest contribution. Then, when the conditions are right, we can create virtuous cycles of mutual benefit by becoming a preferred partner and continually transforming. This involves pursuing opportunities where we can create superior value for customers who will reward us accordingly and exiting those assets and businesses where we can’t.
The focus on our long-term success also requires us to prioritize the future rather than the current period. This long-term focus is a major reason we remain private and reinvest 90% of our earnings.
Applying key principles – such as risk-adjusted Net Present Value, return on scarce resources (capital, capabilities and people), headwinds and tailwinds – helps guide which products and businesses we are in, the capabilities we need to build, and where and how we invest.
Job one for supervisors at every level is to create an inclusive environment in which employees understand how to succeed by maximizing value creation in harmony with our principle-based framework.
Our first dimension, Vision, has been built for many years on our belief about the role of business in society: to help people improve their lives by providing products and services they value more than their alternatives, and to do so responsibly while consuming fewer resources. When we accomplish this, we create good profit – profit that is a valid measure of the value we create in society.
We have also long emphasized the importance of continually improving to drive, rather than be a victim of, creative destruction. But in recent years, as the speed and magnitude of these changes accelerated, a heightened sense of urgency was required to not only improve but transform our performance.
This led our businesses and capability groups to apply the concept of headwinds and tailwinds to transform their ability to succeed in a variety of environments by modifying their visions and strategies, and building the required capabilities.
Headwinds exist for a product where its long-term opportunities and profitability are being seriously eroded by declining demand or a reduction in the barriers to entry. These winds can be generated by, among other things, competition from new technologies or products, unfavorable changes in consumer preferences or government interventions.
Tailwinds exist for a product where its long-term profitability has the potential to greatly increase. These winds can be generated by, among other things, new technologies, products or strategies, favorable changes in customer preferences or distortive government subsidies and mandates.
Wherever a headwind or tailwind exists it creates competitive forces in the opposite direction. The effects of headwinds are lessened by negative factors, such as those listed above, which deter new entrants, investments and innovations. The effects of tailwinds are lessened by stimulating a flood of new competitors, investments and innovation. The headwinds/tailwinds model we developed for entering or remaining in a business, based on whether we have or can build the right capabilities for whatever conditions exist, has been a major factor in our recent successes.
Other principles we have been emphasizing that have been particularly powerful in contributing to our improvements are:
