Discovery Newsletter: Perspective, Charles Koch April 2017

April 1, 2017

Today’s Koch Industries was built through a series of significant transformations that began 55 years ago. It’s worth reflecting on this for a moment if we want to understand our newest (and equally challenging) transformation.

Koch’s first transformation, beginning in the early 1960s, was moving from a philosophy of maintaining the status quo to one of adding capabilities and growth. This brought about a transformation in our crude oil gathering and tower internals businesses. We eventually became the industry leader in both. It required adding talent as well as numerous organizational changes.

Our next major transformation began in 1970, when we went from a minority shareholder to the full owner of Great Northern Oil Company, holder of the Pine Bend Refinery. This gave us a third set of capabilities. Besides providing the opportunity for growth in oil refining, Pine Bend gave us the capability to enter other chemical process industries. Crude oil gathering enabled us to diversify into other types of gathering, distribution and trading. Tower internals led us into other kinds of process equipment and plant engineering and construction.

The formal development of Market-Based Management®, our unique management philosophy, was responsible for the third major transformation of Koch. It took many years of trial and error to develop and successfully apply MBM®, but it is now an essential framework for our success and continues to evolve.

Our fourth transformation was an era of large acquisitions, including INVISTA in 2004 and Georgia-Pacific in 2005. These two not only taught us how to do such acquisitions, but led us into the challenging world of consumer products. This experience also paved the way for the later acquisitions of Molex and Guardian.

TRANSFORMATION #5

Today we are facing one of our biggest transformations — a technology-driven transformation that touches every business, every capability and every customer of Koch Industries.

New technologies are also fundamentally changing the ways we create value in our various capabilities. They are transforming the economics of everything we do, including talent acquisition, marketing, trading, communication and business development. Thanks to the acquisitions of Molex, EFT, Infor and i360, we now have better information and systems than we’ve ever had in the history of the company.

It’s up to us to learn how to use that information productively.

Of course, the same is true for every company, not just Koch. If we are to compete in a knowledge-based future, we have no choice but to embrace comprehensive change better and faster than our competitors.

This does not mean we are going to walk away from all the businesses and capabilities that Koch employees have built over the years. Far from it. We plan to apply technology to profitably improve (and adopt) what we already have while figuring out how we can combine our capabilities and technology to create new products and enter new businesses.

One of our goals is to use technology as a way of connecting people with better knowledge, so plants can be optimized and made safer and more reliable. As Molex has shown, technology is also a powerful tool for helping us do an even better job of improving our award-winning environmental performance.

Given this new reality, it is not an overstatement to say that every job at Koch is bound to change in some way. And I expect supervisors at every level to lead in facilitating these changes.

OUR RESPONSIBILITY

Although our latest transformation is driven by technology, don’t limit yourself by thinking this is just the latest thing in IT. Whether you like it or not, it affects everyone.

If we are to succeed as a company, all of us need to figure out how we’re going to improve and transform ourselves.

“What we’re faced with now may be the biggest change of all.”

We need to make the effort to adjust and learn new things so that we can be more effective and create more value for our customers.

Because innovations are coming from everywhere, we need to become more discerning while expanding our knowledge networks. Not all technology is profitable for Koch, nor does it always need to be brand new to be useful. Many of our best transformations are being made possible by new combinations of existing technologies that have been developed outside as well as inside Koch.

We also have a responsibility to share our knowledge with others in Koch (Principle 6). This integration is important, because there are far fewer benefits if half of our businesses are unaware of the progress being made elsewhere. Profitable knowledge sharing requires that we communicate effectively.

Without question, our world is not only changing, it is changing at a record pace. This is why we cannot settle for the status quo or afford to make the same assumptions we’ve made in the past.

If we don’t change, we won’t survive. That’s why transformation is essential.