April, 2009

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Not a cop out – honest

Wednesday, April 22nd, 2009

This may seem like a cop out, but the quote that had the most effect on me in this book came in the first four lines of the preface. Fred Koch said, “Keep your obligations and promises. Try, if possible, to do business with honorable people. All the contracts and lawyers in Christendom cannot make a dishonorable man hew to the line.”

In our first session of the semester, we discussed Aristotelian virtues and whether or not virtue should be enforced within society. For the most part, I remember that there was a general consensus that there were few, if any, virtues that could be or should be cultivated by government. In spite of this general consensus, I left the meeting believing that integrity is a public virtue that should be cultivated by government. I still believe that.

In order for Koch’s principles of MBM to work at any level – personal, organizational, or societal – I believe that integrity must be one of the foremost virtues adhered to. Without integrity/honesty, the purpose of the existence of government cannot be fulfilled. Property is not protected without this virtue and people will not “hew to the line.” In my studies, I have come to believe that one cause of state failure is lack of enforcement of property rights. If my property can be taken at the whim of some dishonest person, I have little incentive to work.

I believe that there is a lesson for me in Koch’s book. I ought to be always honest and strive to make that a principle of my leadership style and encourage others to adopt this attitude as well. In order to create a successful organization with any sort of longevity, there must be integrity throughout the organization before any of Koch’s other principles can be applied.


Spontaneous Order in the form of Long-term Profits

Tuesday, April 21st, 2009

Koch’s MBM “purposeful action” creates the base for how companies can maximize their own long-term value similar to Hayek’s system of spontaneous order that maximizes choices. MBM principles guide actions rather than forcefully enforce them. Businesses capacity to create long-term profits is the result of “human action but not human design” just like spontaneous order. As Koch puts it “we know a business is being guided by an effective vision to the extent it creates profit over the long term”. He also mentions that “history has shown that an organization is continually profitable is satisfying people’s needs”. Even though the future is uncertain, companies need to do their homework to identify which products or new ventures might be profitable in the future so they can invest intelligently just like Hayek’s description of experimental discovery. In the same way a government can enforce property rights and beneficial rules that allow for the well functioning of a market system an organization must have a vision that makes possible the identification of how and where it can create the greatest long-term value.


Shoulda, Woulda, Coulda.

Tuesday, April 21st, 2009

Last week I had one of those moments when you realize–one day late–the perfect thing you should have said during that conversation you had with that one important person the day earlier.  The stupid thing I said was during my third phone interview with a fairly respectable internship in Washington DC.  Considering it was my third interview, I was getting a little overly confident, and proudly stated that, “many non-profits have a huge problem in that they are run too much like old-lady church charities and not enough like aggressive, successful businesses.”  I don’t regret the statement so much as the follow-up question and subsequent follow-up answer: “Can you name specific non-profits that do or don’t use those principles, and what it is about them that stands out to you?”  I then rattled off some kind of crap about accountability, financial planning, and due diligence.

Shortly after I read the following statement from The Science of Success, “An effective business vision begins and ends with value creation, which is the only reason a business should exist.  In a true market economy, for a business to survive and prosper long-term it must develop and use its capabilities to create real, sustainable, superior value for its customers and for society.”  I realized that this is where many non-profits don’t mirror businesses–they fail to create real, sustainable, superior value.  Rather than focusing on customer-driven value creation, many focus on volunteer-driven service projects–or creating unwanted, unneeded value.

aw nuts.  Wish I would have thought of that answer…

On a broader note, this idea of purpose-driven planning and striving for value creation does not contrast with Hayek’s or Postrel’s notion of danger associated with grandiose planning.  On small scales (such as personal, or within a company culture), initiative and vision are essential to growth, change, and progress.  MBM never mentions forcing their idea’s on any individual.  This is not based on using one person’s idea to make all of society better (whether those ideas are correct or not), but rather using those ideas and initiatives to propel one person or company (or family or small group) toward a common goal–leaving everyone else in society free to do the same thing if they choose.


Koch’s Guide to Taking Over the World

Tuesday, April 21st, 2009

Jamie Wilson– Koch’s MBM program is a rehash of what was written in Leadership and Self-Deception and can reasonably be applied in the same manner. MBM is more of a system that controls the behavior of those at the top of the hierarchy rather than limiting the freedoms of those at the bottom. It teaches managers and decision-makers how they should create a climate where value can be multiplied. Therefore, it does not conflict with any of Hayek’s or Postrel’s arguments concerning government interference and over-regulation. If anything, it amplifies what they taught, because Science of Success is all about empowering the workers through securing liberty.

The take-home message from this book echoes what was learned from both Ender’s Game and Leadership and Self-Deception: be very sincere and careful when dealing with underlings and minions. Just like in Nicomachean Ethics, there exists a golden mean that we must achieve to produce the best results. By following the guiding principles of MBM (which happen to be the same ones that were taught to all of us in kindergarten), we can assure ourselves of continued success in whatever arena we enter. For aspiring rulers of this world, there is no better formula to follow.

Feedback is where the ball starts rolling

Tuesday, April 21st, 2009

I would argue that MBM has been created from a societal context that has direct applicability to business, not the other way around.  Koch Industries is not bringing structure to social systems, but using the natural tendencies of human beings to maximize the rate of increase of prosperity.  By better understanding the actions and reactions of individuals through incentives, Koch’s market-based approach is allowing individuals to understand themselves better, and place themselves where they are most valued. 


“Only a person’s action, not what he says, gives us an indication of how he values something.”  Whether we act with a purpose in mind, or from our own subconscious behavior, we all act.  Koch is still in line with Hayekian principles, because the “purposeful action” as described by Koch is protecting the lines of feedback and communication, not restricting them.  This feedback is the mechanism that promotes learning, and easily allows for adaptation to change.  By protecting feedback, Koch is not forcing any certain philosophy on anyone, but allowing each person to reach their unique potential, which in the end benefits everyone. 

“Embrace change…and drive creative destruction.”

Tuesday, April 21st, 2009

There is a person in my life who is very dear to me.  This person is what anyone would outwardly call virtuous.  They are temperate, gentle, agreeable, truthful, at times witty and the right amount of proud.  Recently I have seen this once blossoming and generally well loved person crumble under the weight of unforeseen change.  They are depressed, jobless, have few goals, and are deteriorating because of their unwillingness to pick themselves up where they stand and go forth.  This person did not loose a lot of their virtues through their deterioration.  They have stuck to their benevolence.  I couldn’t help but think of them as I pondered virtues and success.

In Nicomachean ethics, Aristotle outlines many wonderful virtues.  The greatest difference I see between Koch’s values and Aristotle’s is that Aristotle seems to be shotting for an achievable end.  When one achieves this end, they are good and have virtue.  The means to get to this end were not necessarily virtues.  Once this end is achieved I feel that the task according to Aristotle is mostly done.  One has gotten to goodness and there they will remain.  Koch’s introduction of things such as value creation, knowledge, and change are essential in my opinion.

For the downtrodden one I love, their was a path laid for happiness and everything possible to travel this path was being pursued.  At the first real dip in this path and the first fall, they let themselves fall apart.  It is essential for successful and unsuccessful people have some bit of entrepreneurial spirit, embrace change, and value fulfillment if they are going to progress.  Koch says that success can often be the biggest enemy as it can lead to complacency.  This is true and however one may get down there has to be a serious value and plan for how to get back up.  Whether it’s a business, family, classroom, or individual the end of one’s journey is important, yes.  An end cannot be achieved without means and it is the means that will determine the end.  I take great personal meaning in Koch’s ideas of always improving one’s worth by what one can create to stay afloat.  It is a constant battle to improve ones self and adaption will be necessary.

Calculated Risks Inspire Progression

Tuesday, April 21st, 2009

At first glance I would have to say that MBM’s “guiding principles” are a very complete list of everything necessary to succeed in life.  However, after reflection on my life and our readings over the past semester I would have to say that it is missing one very important item—a sense adventure.  This sense of adventure that I am referring to is similar to that feeling you got as a little kid while riding your bike and your buddy dared you to go of that “little” jump.  Deep down inside you knew that it may be a bad idea, but you still wanted do the impossible.  Even though this principal may not have been mentioned explicitly by Koch, I believe that he has this sense of adventure. 

A story told on page 11 illustrates this point very well.  At this point in 1965, Charles Koch’s father was still in charge of the business.  He was scheduled to leave the country on a business trip and Charles approached him about buying two trucking companies in North Dakota.  The father gave permission to buy only one of the companies, but as soon as he was out of the country Charles went ahead and bought both companies.  The following statement illustrates the point well.  Charles says: “When I informed him of this, my father was initially furious, but eventually forgave us since both acquisitions ended being highly profitable.”  From this statement one can see that Charles Koch has this necessary sense of adventure that leads one to take calculated risks.  Later on in the book, Koch says, “Encouraging experimental discovery and not penalizing well-planned experiments that fail fuels an engine of small frequent bets that generates powerful discovery and learning.  This is vital to innovation, growth, and long-term profitability.”  From the reading of this book I have learned the importance of controlling, yet not hindering, the adventure in my heart.  

Snuggies and Pet Rocks

Tuesday, April 21st, 2009


#2: Personal Message

I keep thinking of ways to make a quick dollar, whether it’s hanging out at Costco to buy up as many Nintendo Wii’s as I can to sell them on eBay for double the price or coming up with some cheap new fad product (like the Snuggie or Pet Rock) that will go out of style in a month but will have an awesome profit over the short term.  While I’m sure that ‘get rich quick business ideas’ like these would be fun and possibly make me a lot of money, I am losing my desire to pursue them.  Why is that?  They don’t add value anywhere.


Over the past few months I’ve really started to pay attention to value.  I want to actually create something of value.  I want my business ventures to benefit people’s lives in one way or another.  I want to provide a high quality product/service that improves the quality of my customer’s lives.  As Koch explains, “[Value creation] is the only reason any business should exist.”  In order for a firm to survive in the long run (and therefore make any REAL money) it has to create value for its customers.  “Parties will not voluntarily enter into a contract unless the both believe they will be better off.  Therefore, you can only profit over time in a system of voluntary exchange (a market) by making others better off.”   There is a difference between making a buck and providing long-term value to society. 


This ties in nicely with our first discussion on Nicomachean Ethics.  We asked if the aim of politics should be to make people virtuous.  I say that politics does not need to do that.  If a company desires to be a ‘going concern’ in the long run, then it will have to be virtuous.  It will have to focus on adding real value to its customers (after all, this is a virtue).  The first Fortune 100 companies did not remain on the list because they stopped adding real value.    

Bringing the personal and the macro to the business

Tuesday, April 21st, 2009

I greatly enjoyed The Science of Success and the underlying principles of Market-Based Management.  I have always wanted to be a businessman, but have been so hesitant because I know that “business” often asks you to lower your standards a little to progress your own self-interest.  Another one of my hesitations is that I love the principles of Macroeconomics and am disappointed with businesses’ ability to apply those principles to grow their own value and create their own comparative advantage.  Charles G. Koch just showed to me that both of my businessman desires can now be fulfilled through MBM.

Koch dives into market principles in society, in an organization, and in an individual.  A purely free-market, while having many advantages, has its disadvantages.  People get nasty when they are only after their own self-interests.  They disregard virtuous conduct and often lose their integrity.  Koch has developed a system in his own company where people can seek their own self-interests (creating value, principled entrepreneurship, and fulfillment), while also maintaining virtuous conduct (integrity, compliance, humility, and respect.)  Thus his employees create great value for the company as well as develop themselves by finding Aristotle’s “Mean” in all aspects of their lives.

This book is the accumulation of everything we have learned this semester in Koch Scholars.  Whether we like it or not, we are all going to deal with businesses many times each day in our lives and many of us will become businessmen or women.  It will be wise to remember the laissez-faire/moral conduct principles we have learned in Koch Scholars.


Different Strokes

Tuesday, April 21st, 2009

Chris Martin

In the chapter on Virtue and Talents, Koch explains the ABC process within the Koch companies.  There’s something Socratic in this heirarchy of talent and ability within the company, and it’s naive to think that all human beings behave and contribute equally, whether or not they are created that way.

Koch makes it clear that a C rating for an employee is not a condemnation of that employee.  On page 90, he writes, “Inability to create value at one company does not mean the same will be true elsewhere.  Employees may be much more successful in another organization that has needs or a culture better suited to their talents and values.”

There’s a maxim that Economics is extremely useful as a form of employment for economists. (From http://mungowitzend.blogspot.com/2009/04/top-20-list-things-economists-say.html#links)  Among the most valuable lessons from MBM is not necessarily that MBM itself should be applied across society, but that applying economic principles may result in effectual improvements.

Employees that don’t fit in Koch Industries may fit well somewhere else and contribute largely to the aggregate knowledge of society.  KII can fire people in a way that is beneficial for the company and encourages the ex-employee to find a better fit somewhere else.  The idea of a government “firing” people doesn’t vibe with the science of liberty.