A new way of thinking - Koch Industries
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Discovery THE QUARTERLY NEWSLETTER OF KOCH COMPANIES JANUARY 2018
A new way of thinking
In October, Koch Industries’ chief financial screen yet,” explained Feilmeier. “That
officer, Steve Feilmeier, announced the usually means we will absorb more risk,
formation of KII’s newest business group: but it also means we will capture more
Koch Disruptive Technologies. opportunity on the upside.”
“Our vision for KDT,” Feilmeier said, “is
KNOWING THE NUMBERS
to originate and invest in entrepreneurs
and companies that are developing Globally, Feilmeier estimates that
disruptive technologies … technologies venture capitalists invested about $140
that can transform Koch’s core billion in 20,000 entrepreneurs last year.
capabilities, create new capabilities or
In addition, there was considerable
expand Koch into new platforms.”
funding from families, friends,
KDT was officially launched on Nov. 1, universities and companies.
with Chase Koch, former president of Koch
Unlike many investors, Koch does
Agronomic Services, as its leader. (See the
not limit itself to industry areas in Would you have invested in
editorial on page 12 for Chase’s perspective this contraption? It was the first
which it already operates. It also seeks
on this new opportunity.) Macintosh computer. Today, Apple
investment opportunities outside its
Inc. is worth around $870 billion.
industries for whom it can create value.
WHAT’S THE DIFFERENCE?
“We want to find opportunities that
Unlike Koch Equity Development, which
not only create value for Koch, but “The rate of change we’re seeing in the
typically invests in companies and
also create value for the other party,” marketplace is breathtaking. That can be
concepts that are well-established or more
Feilmeier said. “That’s our priority. frightening,” Feilmeier admits.
sizeable, KDT will seek out opportunities
It’s also a big part of what makes us
that are in their earlier, high-growth “But we also see massive opportunities
different from many of the funding
stages of development. for Koch if we can identify and work with
sources who compete with us.”
KED, for example, paid $2.5 billion for promising entrepreneurs and technologies
its interest in Infor, a business software NO MATTER WHERE YOU TURN around the world.”
company formed in 2002 that has tens
“Today, every business we’re in is facing
of thousands of customers. It also makes
some sort of disruptive technology,”
structured investments in companies that
concludes Feilmeier. THIS ISSUE...
are undergoing transitions — such as the
$650 million invested in Meredith Corp.’s “Chase Koch saw it in agronomics and 2 “I owe Charles Koch an apology”
$1.84 billion offer to acquire Time, Inc. fertilizer while he was at KAES. Flint 5 Transformations across Koch
Hills is seeing it in the world of fuels and
“This is all about talking to those 9 2017 Year in Review
chemicals. Georgia-Pacific is seeing it in
innovators in Austin, or Boston, or 12 Perspective: Chase Koch
how customers make their purchases.
Tel Aviv who aren’t on the world’s radar
Letters and other submissions become the property of Koch Industries, Inc., and may be reproduced in whole or in
Postal Pipeline part, including the author’s name, for any purpose and in any manner. Letters may be edited for length or clarity.
I owe Charles Koch an apology and a compliment. I owe him an apology because I let the
media and other people’s views of him color my own view of him.
I then had an opportunity to hear his interview on the Freakonomics broadcast, which led
me to purchase his 2015 book, “Good Profit,” an outstanding business book. I finished
the book wondering how the MBM® process can be applied to government.
Although Mr. Koch and I don’t share the same political affiliation, I am confident we
would have much in common in our desire to see the tenets of MBM adopted more widely.
Hats off to you, Mr. Koch. You have gained a new fan.
Darryl Lansey
Brambleton, Virginia
For some time it’s been my pleasure, as Thank you for Discovery. It is always quite interesting to read, not only seen from a Molex
a non-employee, to receive Discovery. perspective – but also from a Danish angle.
Even though I’ve been retired for 20
I am a keen follower of MBM. A large part of these thoughts, guidelines and ideas are
years, I find each issue contains a gem
very close to Danish management styles.
of wisdom, knowledge and insight, not
restricted to the business world, but In Denmark, we use a management term which translates to something like “freedom
embracing life itself. under responsibility” — which in essence sums up accountability, responsibility,
humility and many other factors.
Thanks for editing a well-balanced,
informative and nicely designed It is very interesting to compare different takes on the same ideas.
publication. Best regards from the Kingdom of Denmark.
Al Higdon Michael Friis Jespersen
Founding partner (retired) Key account manager
Sullivan, Higdon & Sink Advertising Molex
Wichita, Kansas Aalborg, Denmark
The October issue of Discovery was very informative and gives rise APRIL 2017
Discove
JULY 2017
ry
to a lot of optimism about the future of this company.
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Charles messages in this underw campaign ion that MBM ® do intern
including analytics. logy. already for impro
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include either a link to a Koch website,
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“For political our variou THIS ISSUE
technology, $14 billion usually import
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by advertisingted agencies s to look or the hashtag
such as kochind.com, possib
ansformation
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Guardian Industries
Kingsburg, California
EDITORIAL BOARD
Susan Armitage
Philip Ellender
Jeff Gentry
Greg Guest
schoolwork while in school. The focus paid off with good grades
Jim Hannan
and the opportunity for a full-time role in Koch Minerals.
Amy Hennes
Three and a half years later, here I am. Charles Koch
Steve Lombardo
The Fred and Mary Koch Foundation allowed me to accomplish
Walt Malone
my goal when I went off to college: graduate with a job from Brad Razook
I was cleaning out some old drawers at
Koch Industries. Dave Robertson
my house when I found letters from the
Peter Ventimiglia
Fred and Mary Koch Foundation for the Thanks.
scholarship I received during the five years EMAIL US
Jacob Puetz
I attended Kansas State University. Discovery@kochind.com
Business systems analyst
That scholarship was greatly appreciated. Koch Minerals IT www.KOCHind.com
It was one of many reasons I could focus on Wichita, Kansas
© 2018 Koch Industries, Inc.
Koch is an EOE. M/F/D/V.
2
Thanks to the dedication and generosity Editor’s note: In late August 2017, Hurricane Harvey hit the coast of Texas. This
of employees from Koch Industries, Category 4 storm caused more than $200 billion in damage and destroyed or severely
Junior Achievement of Kansas inspired damaged the homes of more than 200 Koch company employees. The following is a
and prepared 28,032 students during the letter from one of those employees.
last school year.
I just wanted to thank everyone — the Koch family as well as employees —
The heart of Junior Achievement is who played a part in granting us funds during our time of need. Please know
the in-class volunteering program, for that the funds we received were used for the purpose they were asked for.
which local business volunteers bring
I always thank God for my job, but the job includes all my fellow employees,
their real-world experience into the
known and unknown, who have contributed to the Koch Employee Relief Fund.
classroom. A recent survey of JA alumni
It’s a blessing to have your company, as well as coworkers, come to your aid.
showed this has an incredibly positive
effect on our students. I thank you again for being my “angels,” and please keep up the “good deed,”
for there is always someone in need. God bless you all!
Twenty-four Koch company employee
volunteers completed JA classes and Brenda Gobert
programs last year. We would also like to Engineer assistant On the Cover – KDT is the lead
recognize Chris Graham of Koch Companies Flint Hills Resources investor in $150 million of funding
Public Sector for his dedication as a Port Arthur, Texas for INSIGHTEC, developer of a
focused ultrasound alternative
member of the Wichita Advisory Board.
to neurosurgery.
Marci L. Werne
District director
Junior Achievement of Kansas
Thank you so very much for Koch
Wichita, Kansas
Industries’ remarkable gift to the
American Red Cross in support of
Hurricane Harvey relief.
As Harvey battered communities
across Texas and southwest
Louisiana with powerful winds,
historic rainfall and unprecedented
flooding, your meaningful
commitment helped us deliver
immediate aid to people facing
heartbreaking losses.
Great lesson on failure. Youth Entrepreneurs has taught more I cannot thank you enough for
Success and failures than 27,000 high school students. Koch Industries’ generosity, which
are part of life. Failures are big empowers the Red Cross to bring
teachers. Successes are temporary ongoing care and crucial recovery
moments of accomplishment. The assistance to individuals and
real success of an individual lies in families left devastated by Harvey.
Now this I support 1,000 percent!
making others successful.
Teaching how to create jobs, not
– Saumitra Yadav just have one. Gail J. McGovern
– Edwin Burgos President and CEO
charleskoch.com American Red Cross
Washington, D.C.
3
International News
Photographs © Adrian Smith + Gordon Gill Architecture/Jeddah Economic Company
How high is up?
Guardian Glass is already famous for said Mohammad Al Ibrahim, general the world’s expectations regarding what
producing the specialized glass used in manager for Guardian Glass in the can and cannot be built.”
some of the world’s tallest buildings, Middle East and Asia. “It also needs to
Scheduled for completion in 2019, the
including the Burj Khalifa in Dubai block daytime heat while allowing lots
Jeddah Tower is expected to be at least
(currently the world’s tallest building) and of natural light.”
50 floors taller than the Burj Khalifa.
the observation deck of the Empire State Guardian’s solution to that challenge (As with other buildings of exceptional
Building in New York. combines SunGuard® Silver 20 and height, the exact number of floors has
But a construction project underway in SunGuard® Neutral 60 coated glass. not been announced.)
Jeddah, Saudi Arabia, is setting an entirely That glass will be manufactured at It will encompass 5.3 million square
new standard for the construction industry Guardian’s Al Jubail plant in Saudi meters of floor space, have 59 elevators,
— and Guardian Glass is once again Arabia, then delivered to United Arab 439 apartments, 200 hotel rooms,
helping make it possible. Aluminium Company in Jeddah, where a ground-level shopping mall and
In November, the developers of the Jeddah it will be assembled into structurally 2,205 parking spaces.
Tower (above), the world’s first kilometer- glazed curtain walls.
The Jeddah Tower will set new records
tall building, announced that Guardian Those components will then be sealed for overall height, highest occupied floor,
Glass would be providing 400,000 square a second time using high-performance highest architectural top, highest tip and
meters of Guardian SunGuard® coated glass structural sealant. highest sky terrace. That terrace, about
for the building’s façade. (That’s enough 2,000 feet above ground level, will be
“We proved with the Burj Khalifa, which
glass to cover about 55 soccer fields.) circular with a glass floor, also provided
opened in 2010, that we can handle
The design requirements for glass on by Guardian.
challenging projects,” said Kevin Baird,
a building of that size are daunting — president and CEO of Guardian Glass. “The view from there will be spectacular.
especially when it comes to dealing with “But this is an unprecedented project. You will be able to see all the way out to the
the fierce winds at its upper elevations. Red Sea,” Al Ibrahim said. “But if you’re
“Its size and height require an exceptional
“Our glass needs to withstand a 2.5-meter afraid of heights, I wouldn’t look down.”
level of expertise and attention to detail.
radius sway without breakage or leakage,” In essence, we are helping to transform www.jec.sa
4
Three-way SRG Global is also partnering with Helmee
intersection Punching How’s it look? Imaging, based in Finland, to tackle an Bumper-to-
Out-of-the-box
even tougher problem: inspecting chrome-
Last year at this time, Flint Hills the clock If you were looking at a rack holding 200 plated parts. bumper
painted car parts, would you be able to
Resources and Molex had just announced
plans for a cooperative research and
Like many Koch companies, INVISTA
inspect them all for a speck of dirt one-
Helmee uses CSDTM (Covered Stereo
Deflectometry) to visually inspect mirror-
thinking connectivity
tenth of a millimeter wide (about the width
hires contractors at its plants to work on like or high-gloss finishes with far greater
development agreement with the U.S. of a human hair) in less than a minute? Fresh peaches are a real treat, but it takes Although most of the talk about
turnarounds and other projects. A simulation of what the Vision precision in much less time.
Environmental Protection Agency. System “sees” when inspecting sturdy boxes to transport them safely from cars these days revolves around
That’s what the new Vision System being
Tracking the hours they work with the an automotive part. These two technological breakthroughs orchards to your local grocer. driverless vehicles, the other recent
All three parties were interested in developed by SRG Global is doing at a test
amount of work accomplished has not are just the first steps in a journey. “Our transformations in automotive
experimenting with remote sensors site in Líria, Spain. Georgia-Pacific knows how to make great
always been easy. The Vision System is equipped with 24 goal is to create a system that can not only technology have been nothing short
as a way of inspecting and monitoring boxes, but predicting when those boxes will
Until now, the company has relied specialized cameras. It can be installed on detect but diagnose patterns in faults,” of amazing.
refining facilities. Until now, INVISTA has often relied on be needed, where, and in what numbers is
on manual inspections to detect pits, the actual production line and is able to Ramos said, “and then recommend
outside vendors to manually aggregate hard work. Thanks to help from i360, GP GPS systems that give directions,
After signing an agreement in July and inclusions, dents, runs and paint buildup. inspect parts just as fast as the machinery
contractor data for input into Koch’s changes to the manufacturing process to
working together on extensive pre-test has found a new solution to that problem. wireless connections that make
Testing at the U.S. EPA’s timekeeping system. Vendors then charge can produce them. correct the errors.
“That kind of work is not only slow, it’s phone calls hands-free, sensors that
preparations, actual testing began at the Research Triangle Park Using historical data on weather patterns
EPA’s North Carolina open-air test site
in November.
campus began in November.
INVISTA for their time and effort.
Robotic Process Automation, or RPA, has
monotonous and very often inaccurate,”
said Antonio Ramos, director of operational
Initial tests have shown the new process is
much more accurate. It misses fewer flawed
“This may develop into a fully closed-
loop system, where adjustments to the
Dealing with hidden waste and peach production, i360 and GP have
detect lane drifting or roadway perils,
automated parallel parking functions
excellence-EU for SRG Global. “We get it developed a model that generates a weekly
changed all that. parts and reduces the number of good parts manufacturing process occur automatically and satellite radio technology with
Using the EPA’s release equipment, Preschler, FHR’s innovation director in Sometimes making major improvements The solution to that problem was in report predicting peach production by
wrong 15 to 25 percent of the time when that are incorrectly identified as defective. based on the findings from the Vision Among more than 400 automotive vehicle technology exhibitors, Molex was included
Corpus Christi, “is technology-driven hundreds of channels are just a
Molex and FHR began experimenting with INVISTA now sends vendors an automated doesn’t require a big project. Intelligently plain sight. region. This new approach will be used to as a “Must-see” by Autoconnectedcar.com.
we inspect manually, which means a lot of That helps SRG Global greatly improve its System.” few examples.
a variety of sensors, sensor placements, continuous monitoring, which means not template, co-developed by INVISTA and using the right tools can quickly provide support decision-making during the 2018
good product gets scrapped.” customer satisfaction scores. As contractors travel around the
release modalities and other variables. only more accurate measurements, but Koch Business Solutions, with the majority new insights that lead to simpler solutions growing season. As new functions are invented and
complex, information from their security
The goal was to find what sensor (and the probability of fewer emissions.” of the required contractor information for eliminating waste. established functions become more
badges indicates each individual’s GP hopes it can better optimize its box
widely adopted, the capacity of in-
Building on a blockchain
sensor placement) works best. By using Molex technology, leaks can be pre-populated. The vendor completes the During its $1.3 billion expansion project general location. With the help of Koch’s production and logistics, reduce waste and
detected sooner and more safely, and remaining information and then sends it vehicle networks is being pushed like
After analyzing data from those tests — in Enid, Oklahoma, Koch Ag & Energy internal audit group, that information improve customer service.
perhaps even prevented. Employees will back to INVISTA by email. never before.
Solutions was paying for a lot of rental was restructured and analyzed.
Computational fluid dynamics
which have been very encouraging so far If it works as hoped and cost savings are
be able to avoid needless exposure to equipment, including vehicles, cranes and To help address that challenge, digitalized, decentralized, synchronized,
— modifications were made and a new “In Corpus Christi, there are three achieved, GP and i360 will use what they
risky environments and refiners will have generators. The KAES team wanted to know Molex has created a comprehensive real-time ledger of transactions shared
sensor prototype was created. It will be different facilities,” explained Anthony have learned to improve forecasting for
a more cost-effective tool for achieving whether all that equipment was in regular automotive Ethernet solution that across a computer network.
tested beginning in February. Much of the work at Koch-Glitsch involves repeated many times, with delays occurring “There’s no longer a need to fabricate Au, senior manager for data analytics. other types of produce boxes.
greater compliance. at every stage. use by its construction firm. is now leading the industry. It was It allows companies to share information
“Many EPA executives have taken a very developing new products for refining and the part in metal and then apply lengthy “So if you finish a project at the West
“Flint Hills will win if this new technology petrochemical facilities. In the past, the time physical testing procedures. A computer unveiled at the Consumer Electronics in a secure manner. It also eliminates
keen interest in this experiment,” said To help solve that problem, Koch-Glitsch Working with Koch’s internal audit plant, and then go to the East plant,
allows it to operate more safely and needed to design, fabricate and test new simulation can accurately predict how Show in Las Vegas earlier this month. duplicated record keeping, lowers
Chip Hilarides, FHR’s sponsor for the started using 3-D printing for its prototypes. group, the team used data analytics and there is some transfer time involved.
efficiently,” Preschler said. “Molex will concepts could stretch over several years. the part will behave in a variety of actual visualization tools to match equipment “What we’ve developed is an end-to- reconciliation costs and enables more
project. “What we’re doing represents This allowed new designs to be created more “Once we had the badge data, it
win if it gains a proven product, approved working conditions. with fuel records. Since equipment that end network that allows manufacturers efficient dispute resolution when trading
an entirely new approach to LDAR (leak After each round of testing, designs were quickly than with traditional manufacturing became a simple matter to calculate the You may have heard about
by the EPA, that can be offered to other wasn’t being fueled wasn’t being used, to keep using legacy protocols, crude oil and other commodities.
detection and repair).” modified based on results. This meant techniques, but the overall cycle time was “That cuts out the need for many of frequency distribution of transit time for cryptocurrencies such as Bitcoin.
customers. And the EPA will win because still long and unacceptable. this information — combined with ongoing while also opening the door to new The new venture was announced in
The EPA’s LDAR regulations can be further fabrication of new prototypes, the traditional design, fabricate and different routes. This made it possible to Koch Supply & Trading is exploring
of the probable reduction in emissions.” tracking — made it possible to identify and applications,” said Dave Atkinson, November 2017 following months of work
difficult to execute, especially when they followed by additional testing. test cycles.” identify outliers and highlight areas of ways to repurpose one of the
But what if computers could also simulate director of business development,
“There are still lots of tests to run,” eliminate underused equipment, saving potential waste.” technologies underlying Bitcoin — by KS&T and the other eight consortium
require manually monitoring more than INVISTA’s RPA “bot” then enters the Given the complexity of the problems being the behavior of a new design? That’s where Koch-Glitsch is not the only Koch
Hilarides cautioned, “but we’re hopeful KAES on rental charges. connected mobility solutions. called a blockchain — to help address members from around the world.
50,000 points every 30 days in a highly information into INVISTA’s tracking solved, this cycle of discovery was often Computational Fluid Dynamics has become company benefiting from these In other words, FHR began to realize
complex refining process. that we’ve come up with something new system automatically. The bot requires less At FHR’s Corpus Christi refinery, the “Our Ethernet backbone is secure, the complexities and administrative The intent is to move away from traditional
a game-changer. technologies. John Zink Hamworthy that some trips, instead of taking 20
that can really benefit the industry. than 30 seconds to process an entry, where question wasn’t equipment, it was people. prioritized and reliable, with very high burdens associated with trading and cumbersome paper contracts and
“LDAR is very people-dependent,” Combustion and Molex are using minutes, were taking 90 — time that
a vendor needs three minutes or more. “CFD makes it possible bandwidth and lots of flexibility.” physical energy commodities. operations documentation and to use
explained Hilarides. “There’s a lot of “We’re also excited about marrying this similar approaches to address questions On any given day, there can be thousands of was paid for, but during which no work
for us to design a part and secure, smart contracts and authenticated
high-effort, low-reward work that technology with some of the other new “We’ve been using RPA this way since ranging from burner performance to contract workers on-site in Corpus Christi. was accomplished. The demo that Molex showcased at CES KS&T has joined other trading
test it ‘virtually’ by using transfers of electronic documents.
is very repetitive and sometimes capabilities at our plants — such as early last year,” said Josh Remacle, digital electromagnetic fields. Confirming that all those contactors are featured its custom Ethernet gateway/ houses, integrated energy companies
computer simulations,” “You wouldn’t think a little extra time
uncomfortable,” — such as when employee badge tracking — to create an workplace leader for KBS. being efficient and ensuring that time backbone, which runs at 10 gigabytes and banks to develop a blockchain- If successful, the platform will reduce
said Bob DiFulgentiz, “It not only helps us develop better moving between one unit and another
employees must wear 40 pounds of gear even safer work environment. isn’t being wasted as they move between per second. based digital platform to modernize administrative operational risks and costs
“After seeing positive results at INVISTA, president of Koch Chemical products more quickly,” DiFulgentiz would make much difference,” said Au.
and climb a 200-foot ladder to make an different production units is challenging. and transform the transaction of physical energy trading, improve the
“When you start putting a lot of smaller we’ve automated 346 processes for nine Technology Group. said, “we also use it to trouble- It has the ability to diagnose
inspection that reveals no issues. “But we discovered there were tens of management of physical energy reliability and efficiency of back-end
pieces together like this,” said Hilarides, Koch companies so far, which has already shoot problems in furnaces and Whenever transit times become unduly automotive problems remotely and
thousands of hours of wasted transfer commodities trading. trading operations for all supply chain
“What we’re proposing,” said Deb “you can get some really big results.” saved 54,000 hours.” distillation columns.” long, FHR ends up paying for a significant includes components such as an
time per year. That’s very significant.” users, and open the door to innovative
amount of unproductive hours. interactive touchscreen, custom LED Although still in development, this
A 3-D resin prototype (left) funding and financing solutions.
lighting and media modules. new technology is essentially a
5
and cast metal product. 7 8
JANUARY
11
Charles Koch, the Charles Koch
Foundation and Koch Industries
announce a $26.6 million gift to the
Thurgood Marshall College Fund.
20
The Wall Street Journal publishes Charles Koch’s
Inauguration Day op-ed, urging support for criminal justice
YEAR in reform and an end to cronyism.
REVIEW
FEBRUARY MARCH APRIL
2
Two new Koch leadership positions are
created, with Brad Razook (left) as EVP
and CEO – Resources, and Jim Hannan
named EVP and CEO – Enterprises.
26
11
Koch acquires all of Guardian Koch receives the U.S. EPA’s highest
Industries. This is the fourth- honor: the ENERGY STAR® Partner
largest acquisition ever for Koch of the Year Award.
(after GP, Molex and INVISTA).
27
21 The Washington Post publishes Charles
17 Koch Agronomic Services and a
Koch Equity Development Koch’s evaluation of President Trump’s
subsidiary of Monsanto announce
invests $2.5 billion in software first 100 days in office.
a joint agreement to develop data-
provider Infor.
driven digital tools for farmers.
MAY 5
The Charles Koch Institute’s
annual Koch Internship Program
begins its sixth year of summer
sessions. More than 1,300 interns
have benefitted from the program.
2
KS&T announces plans to sell its
Rotterdam refinery (originally acquired
by Koch Petroleum Group in 1998).
23
GP announces it is investing more
22 than $400 million at its tissue and
GP celebrates the completion of a towel facility in Palatka, Florida.
$388 million energy improvement
project at its Brewton, Alabama, mill.
9
JUNE
JULY AUGUST SEPTEMBER
7 17
KAES announces an agreement to Molex signs an agreement with modem
sell its gas-fired power generation maker ESTeem, greatly expanding
facility in Odessa, Texas. wireless communication opportunities
for both companies.
27
Start-up activities begin following the 21
$1.3 billion expansion of the Koch 25th anniversary of the opening of the
14
Fertilizer facility in Enid, Oklahoma. Koch Tower in Wichita.
KS&T Mexico, supported by Vopak, brings
the first-ever imports of ultra-low-sulfur
diesel to the Mexican market.
29
GP agrees to sell its paper chemicals
business to Ecolab, Inc.
OCTOBER NOVEMBER
9 13
Koch announces the formation of The Market-Based Management®
Koch Disruptive Technologies, a new team launches an all-new site for
business group to be led by Chase Koch. Koch company employees.
28
INVISTA announces an agreement to sell its
Apparel & Advanced Textiles division.
26
Meredith Corp. announces it will buy
Time Inc. for $1.84 billion with the
help of a $650 million investment
9 from Koch Equity Development. 10
14
The Washington Post publishes an op-ed co-written
by Charles Koch & Apple’s CEO, Tim Cook. They
urge congressional action on DACA legislation.
31
Koch companies earn a total of 78 awards for safety,
environmental excellence, community stewardship,
innovation and customer service in 2017, bringing the
total since January 2009 to 1,316.
DECEMBER
Looking Back
Noteworthy
Machine Platform Crowd – Harnessing
Our Digital Future by Andrew McAfee and Top left: In 1955, control valves were
Erik Brynjolfsson operated manually. Top right: The Wood
River Pipeline control room in 1980.
In 1960, the most
Bottom left: Koch Pipeline’s award-winning
valuable companies control center in 1998.
in the S&P 500 had
an average life span
A “Heroic Achievement in
of about 60 years.
Today, the average is
Information Technology”
less than 20.
Why is that?
According to the For most of the twentieth century, and a large computer set-up, additional air
authors, both of managing a pipeline system was a very conditioning capacity was required to make sure
whom are tech low-tech affair. Valves on crude oil things didn’t overheat,” Hobbs recalled. “It was
experts from MIT, pipelines were turned by hand and there so cold down there our operators had to wear
one of the biggest was little real-time coordination between coats while they worked.”
reasons is the systems — even when they were owned
An even bigger transformation came a year
creative destruction brought about by how by the same company.
later, when KPL received approval to use
we use technology.
“Initially, our Kansas, Oklahoma and satellite technology for remote communications.
Unlike humans, technology isn’t biased, Texas crude lines were all operated “That replaced all the leased multi-drop phone
overconfident, or prone to accept only the manually,” recalls Dan Hobbs, a former lines we used to use,” Hobbs said.
information that confirms what we want Koch Pipeline employee who is now a
(Multi-drop systems relied on a single phone
to be true. And widespread platforms — director of innovation for FHR.
line to connect multiple stations. They were
especially the internet — make it easy for
Koch Pipeline, like its competitors, prone to “collisions” when multiple stations
technology and new ideas to spread.
relied on telephone land lines for tried to communicate at the same time.)
“Understanding the implications of these communication, even though telephone
Throughout this period — from the late
developments for business can make the circuits weren’t always available.
1980s until the late ’90s — KPL was rapidly
difference between thriving and merely
But in the 1980s, KPL began to change expanding, acquiring new pipeline systems
surviving. Or between surviving and
the way it managed most of its pipeline in the U.S. and Canada.
perishing,” they write.
assets. It was a transformation driven by
By 1998, the control center had expanded to nine
But success and longevity are not just a two things: computers and satellites.
consoles, 50 controllers and five supervisors
matter of having technology.
monitoring 35,000 miles of pipelines.
“The lesson we’ve learned from studying ICE STATION ZEBRA
thousands of companies over our careers In 1988, Koch Pipeline received corporate KATAPULTING AHEAD
is that while technology creates options, approval for a centralized pipeline control
The third step in KPL’s transformation was the
success depends on how people take center that would use computer systems to
development of a state-of-the-art pipeline
advantage of those options. remotely monitor KPL’s assets.
monitoring program called Katapult.
“The success of a venture almost never At the time, Koch had four regional
Katapult used artificial intelligence to analyze
turns on how much technology it can monitoring systems based in Oklahoma,
more than 125,000 data points per minute.
access, but on how its people use that Kansas and Minnesota — one in Medford
Its performance simulations gave Koch
technology, and on what values they imbue (for hydrocarbons), Tulsa (acquired from
operators the ability to pinpoint possible
in the organization.” Santa Fe Pipeline), El Dorado (refined
leaks within seconds.
products), and Cottage Grove (crude and
refined products). Katapult also helped identify potentially
hazardous situations before they occurred.
Having more power and Those four regional control centers were
consolidated in Wichita in a room in the In 1999, Katapult was declared a winner of
more choices means
basement of Building D. It was furnished the Computerworld Smithsonian Award for
that our values are more with 250 phone receivers and a new SCADA “heroic achievement in information
important than ever. system for gathering and managing data. technology.” Katapult is now part of the
Smithsonian’s Permanent Research
– McAfee and Brynjolfsson “Because we were originally located
Collection on Information Technology.
inside a computer room with a raised floor
11
Perspective
Chase Koch THE NEW NORMAL
President, Koch Disruptive Technologies Businesses across Koch are embracing technology now more
than ever.
Just 10 years ago, Nokia was the company that Georgia-Pacific is using new lathing technology to process
defined the mobile industry. It was on the cover wood more efficiently. Molex is combining hardware with
of Forbes magazine, boasting about one billion software to launch new drug delivery devices that increase
customers. Today, it is non-existent. dosage precision and improve health outcomes. KCTG is
During that same decade, Amazon’s value using 3-D modeling to manufacture more-efficient
increased more than 3,100 percent. It has burners with fewer emissions.
become a daily part of hundreds of millions But technology is transforming more than
of lives and is the dominant online retailer. just manufacturing.
How can two iconic companies have such
wildly different outcomes? I believe the Our legal team is experimenting with
answer is simple. Artificial Intelligence to accelerate and
improve our legal processes. Koch
Amazon embraced a core value of Supply & Trading is experimenting
“customer obsession” and reinvented with blockchain technology to remove
our purchasing experiences. It made friction from the trade settlement
significant investments in technology process at lower costs. GP is building a
and other capabilities, and by doing new direct-to-customer e-commerce
so, transformed from a bookstore into an platform. The list goes on.
“everything” store.
So, what is KDT’s role in all of this
Nokia ignored the customer’s desire for technology-driven transformation?
something better, which turned out to
be a touchscreen smartphone. By the Our role is to find and invest in high-
time Nokia woke up and tried to change, growth technology companies that
Apple had already eaten Nokia’s lunch. can transform Koch’s core capabilities,
create new capabilities or expand Koch
Koch Industries’ vision is to create into new platforms.
products and services that customers value higher than their
alternatives while consuming fewer resources, and to do this There are a few questions we consistently ask when comparing a
faster than our competitors. That’s a huge challenge, especially new opportunity to the existing market alternatives: How does the
given the accelerating pace of change in today’s world. technology transform the cost structure? How does the technology
transform the customer value proposition (including features,
As my father stated in April’s Discovery, Koch Industries benefits, convenience and experience)? Can the company capture a
must make this vision a reality through a technology-driven significant portion of the value it creates?
transformation that touches every business, capability, customer
and employee of Koch Industries. And we must do this faster than TWO-WAY STREET
we ever have before.
No customer relationship will last without mutual benefit. KDT has
NEW BUSINESS, NEW CUSTOMER two sets of customers — entrepreneurs, and Koch businesses and
capabilities — and seeks to create value for both.
In my role as the business leader for Koch Agronomic Services, I
often met with growth-stage technology entrepreneurs who were For entrepreneurs, our goal is to be the preferred capital solutions
eager to learn more about Koch and explore partnering with us. provider, offering selective access to Koch as a “laboratory” and
capturing opportunities with integrity, speed, efficiency, certainty
A few themes consistently surfaced in our discussions. They and confidentiality.
wanted to understand more about Koch’s global platforms and
where their technology could be applied. For Koch businesses and capabilities, we want to develop access to
new networks and talent, unique knowledge, and opportunities that
As they learned about Koch Equity Development’s successes with are complementary to what Koch is already doing.
Infor, Solera and Molex, they became more curious about access
to our unique capital resources. The private nature of Koch, which Like any Koch business, KDT will test, evaluate and refine its vision
fosters a long-term mindset and the ability to move quickly, also and focus areas over time.
piqued their interest. When it comes to finding new ways of using new ideas, I’m
All of this feedback created the opportunity to build a new confident our future can be every bit as exciting as Amazon’s
business that not only served both their needs and ours, but was already has been. In fact, because of our Guiding Principles and
aligned with Koch’s vision. We took the leap, and Koch Disruptive ability to reinvest 90 percent of profits, our potential is far greater
Technologies was established. than most.
To achieve that potential, let’s make sure we all work together to
find opportunities that can make a real difference.
12
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