One Businessman’s Secret to Success

Although known mostly for his conservative political activism, Charles Koch is also the CEO and chairman of a privately owned company that he has grown from a $21 million valuation in 1961 to $100 billion today. In his new book, Good Profit, Koch introduces a management framework called Market-Based Management, or MBM, which consists of five elements:

Vision. Create products and services that profit the consumer and society as a whole. The title of his book, Koch writes, comes from this viewpoint; good profit is good for all.

Virtue and Talents. Hire people that adhere to the values of the company first and foremost, before focusing on specific skills or knowledge.

Knowledge Processes. These are processes that enable the sharing of knowledge. Organizational structures that encourage collaboration, both internally and with external partners, are vital. Measurement processes, such as benchmarking, are also key. Finally, knowledge-sharing also depends on open two-way communication between employees and supervisors — specifically in allowing employees to “challenge their bosses respectfully if they think they have a better answer.”

Decision Rights. This is the business equivalent of the economic concept of “property rights” — in other words, ownership. The importance of ownership is another familiar but important component of good management. The more employees feel an ownership stake in what they are doing, the more care and conscientiousness they will apply to the task.

Incentives. Motivate employees to “maximize their contribution.” Koch uses Maslow’s hierarchy of needs, specifically the culminating need of “self-actualization,” as inspiration. Employees must feel that when the company benefits, they benefit. For Koch, there is no self-actualization motivation in automatic raises, including COLA raises.

The unfettered free-market politics of Koch, which is detailed in the first part of the book….

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