Capabilities

Koch’s long-term success has come from a focus on building Capabilities that enable us to create superior value and to apply them where we can create the most value both for others and for ourselves. Being capability-bound, not industry-bound, allows us to create virtuous cycles of mutual benefit in multiple businesses and industries.

Creating superior value requires many capabilities — especially ones that are complementary and mutually reinforcing. This starts with our overarching capability, Principle Based Management, that guides all the others through its five dimensions: Vision, Virtue and Talents, Knowledge, Comparative Advantage, and Motivation.

Principle Based Management has led our businesses to transform their ability to succeed in a variety of environments by modifying their visions and strategies to fit the conditions they face. Just as important is exiting when a business doesn’t have and can’t add the necessary capabilities.

Building superior capabilities requires employees who create their own virtuous cycles — who self-actualize. We have numerous advantaged facilities and technologies, but these don’t last without contribution-motivated employees who continually transform themselves and Koch. Employees who create knowledge and contribute to our principle-based culture are our ultimate capability.

To succeed in the future, we prioritize improving our capabilities and building and acquiring new ones. This necessitates strengthening our internal capabilities, collaborating with others who have complementary capabilities, and acquiring organizations with superior ones.

A virtuous cycle of mutual benefit is the process by which we continually build capabilities that create value for others. VCMBs are a never-ending, mutually beneficial process of opportunity generation. We create these cycles when, and only when, we have the capabilities to become a preferred partner of those important to our success. Equally important is developing our ability to continually transform our capabilities.

Koch’s growth and success is a result of applying principles of human progress to build the capabilities that enable these cycles. Continuing to succeed in a rapidly changing world, where creative destruction is happening at a faster and faster pace, demands an even greater sense of urgency for creating these cycles.

We become a preferred partner when someone prefers working with us rather than their alternatives. Typically, this happens when we differentiate ourselves in providing what they value. In turn, we prefer them when they help us maximize our long-term success in harmony with our principle-based framework.

Virtuous cycles start with employees. An organization must have people who create their own virtuous cycles — employees who are committed to Our Values, enabling them to self-actualize. They are contribution motivated and have a talent that will help us succeed. Such employees take the initiative to discover their aptitudes, apply them to maximize their contributions, and then transform themselves by doing it again and again.

Koch becomes the preferred partner for these employees when we help them find work for which they have a passion and can make the greatest contribution — by actualizing their potential. This is the essential responsibility of every supervisor. It is realized by knowing and building trust with employees, helping find roles for which they have a comparative advantage, and motivating them to maximize the value they create.

The primary focus of all of us as employees is our customers — providing them with products and services they prefer to their alternatives. We seek those customers for whom we can create the greatest value and who appropriately compensate us. When this happens, we become their preferred supplier and they become a preferred customer, resulting in mutual benefit.

Others we need as mutually preferred partners are:

• Suppliers who create the most value for us and for whom we can become a preferred customer by enabling and rewarding them.

• Communities that enable our long-term success by valuing our presence as we help improve the quality of life they offer.

• Investment partners with aligned vision and values with whom we can develop a mutually beneficial relationship.

• Lawmakers and regulators with whom we can work in the spirit of mutual benefit so that laws enable, rather than hinder, people’s ability to succeed by helping others.

• People throughout society by practicing good stewardship, consuming fewer resources and removing barriers to having a life of meaning.

Read Charles Koch’s “Continually Transforming Koch Industries Through Virtuous Cycles of Mutual Benefit” for a deeper dive.