Koch on Management

I’ve been reading Charles Koch’s The Science of Success recently. Koch himself, of course, is likely one of the greatest benefactors of the libertarian movement around the country. (In the interests of full disclosure, I should mention that I’ve done work for at least two organizations he has helped to fund.)

Anyway, back to the book. A fair amount of it is an interesting, well-written personal account of how Koch Industries applies management principles that a lot of other good management books talk about: clear sense of mission, high ethical standards, and the like. At Koch, these are codified as “Market-Based Management.”

The book really shines, I think, in its discussion of Human Resources. Koch industries does three things that I think are interesting:

1) When a new person enters a team, the firm redesigns the roles for every member of that team so that the new person fits in best.

2) Koch Industries pays close attention to Howard Gardner’s theory of multiple intelligences in designing roles and picking people. (This is the idea that there are eight different but complimentary types of intelligence, six of them important in Koch’s business, and that nearly everyone is above average in at least one of them.)

3) It use a version of Jack Welch’s famous “rank and yank” system. (Top rated employees (As) who energize those around them get significant rewards , those in the middle (Bs) stay on and get treated well, those at the bottom (Cs) get told to shape up or ship out.)

Although nearly every employer at least does one of these things, I don’t know of any other company that does all three of these things. The first two are touchy-feely supportive. The last one, in many cases, brutal to the “C performers” targeted. (Firing some Cs (or, as we called them, 5s) was one of the worst management tasks I’ve ever taken on myself.)

As Koch explains, however, they’re all mutually reinforcing ways of making sure that all employees have the ability to do their jobs well, do things they’re good at, and have co-workers who can support their efforts.

I would tend to believe that this, more than anything else, leads to Koch Industries’ apperent success in replicating the market’s vibrancy within the firm. More market-based economies do better, I’ve always believed, because they do a better job letting people realize their potential. Sometimes this involves pain when a person ends up in a job that they can’t do. A lot of the time, it’s wonderful.