Jim Hannan, Executive Vice President and CEO of Enterprises at Koch Industries

Can you hear me okay? I'll talk about Koch and our vision. We're the second largest private company in America, with 130,000 people in 60 countries. We reinvest 90% of earnings. Our vision is capability-based, not industry-based. We use a management philosophy called market-based management. The pace of change is accelerating, and we face a dual transformation challenge: keep the trains running while transforming everything. For example, at Georgia-Pacific we set up a collaboration center to use data for predictive maintenance. We can now predict equipment failure 45 days in advance. In supply chain, we built a transportation management tool with AI that improves delivery predictability by 30%. We're building knowledge networks, experimenting with minimum viable products, and becoming more borderless. That's what drives Koch's transformation.

About why that matters: all our customers want visibility, but more importantly we can understand what to change about picking delivery time to see less traffic and issues, and work with customers for better performance. This allows customers to make better decisions about staffing, receiving product, stocking shelves. It's a big data exercise with tremendous value. Another area is customer experience. For a long time our relationships were general, but now using data from i360 and our own analytics, we can be micro-targeted. We want a relationship with Sam Homes and only push things that matter to him. We have good data on about 270 million Americans. We work with retailers like Lowe's and Home Depot to help them understand store performance. In the lumber business, it's still phone and fax, and we're trying to disrupt that. We invested in N4 because we need to make this transformation across Koch. Communication: knowledge networks. Example: Koch Disruptive Technologies invested in digital printing on metal. They used the Koch lab to find experts across the company in 24 hours, which helped due diligence and created a preferred partnership. Talent: technology will displace jobs but also create them. We need to enable lifelong learning. Example: a packer learned about robotics and now helps automate facilities. Policy: regulators can't keep up with technology. Example: autonomous vehicles. We need to think about policy impacts. In refining and chemicals, we partnered with Molex to develop sensors for leak detection under insulation, working with EPA for two years to get approval. Bigger disruption: ride-hailing and autonomous vehicles. If we get safe autonomous vehicles, why would we own cars? Mobility as a service could reduce cost by 75%. Second-order effects on productivity and real estate. We have to have a point of view on this because we are in transportation fuel, Molex components, Guardian auto parts, Invista nylon. Creative destruction can put us out of business. We have Koch Disruptive Technologies looking for disruptive technologies. We'll be wrong 7 to 10 times but the ones we're right on will be huge. Two takeaways: we can't sit still, status quo unacceptable; and the value of knowledge must be liquid across the borderless organization. Now I'll open for questions.

It's a good question. I think the revisions in the vision reflect the forces of transformation and disruption. We have to evolve because creative destruction is happening faster. Every business has its own vision, but all should reinforce the Koch vision. Roles and responsibilities need to be more fluid. On alignment: we communicate broadly and one-on-one. I have seven or eight direct reports and I ensure alignment. We do annual reviews with everyone. We fail all the time, but we try to connect individual work to value creation. If you don't understand how your work connects, ask your supervisor. We periodically ask if reports are creating value. In one business, we found 25,000 monthly reports; we stopped 5,000 and nobody asked. Stopping things is important. If you're not contribution-motivated, you won't be fulfilled. On technology: it's an enabler, not a solution. In education, if you're not developing online curriculum with rigor at lower cost, you'll get crushed. You have to ask if activities create value. The cost of education is rising unsustainably; disruption will come eventually.

It took longer to get to that question than I expected. Charles is in his early mid-80s, 84, but there's not an announced plan. Charles is actively involved, in the office, writing books, running Stand Together. He's an incredible guy. He'll work till he falls off the bike. There is a plan, but I'm not going to share it. Thanks for asking.

I think there's a mix, but foundational education is important. I tell young hires: understand your organization's vision, how you contribute, ask if you don't know, and do stuff you like. If you work at something you don't like, your life will suck. Find your passions, connect them to what you do, and create value. That's more important than staying relevant. I say the same to my own kids. I didn't know what I wanted to do in college. Be open to change and what fulfills you.

Great question. Our market-based management philosophy has three buckets. First, culture: we have eight guiding principles that define behaviors we want. We hire based on fit to culture and virtue first, skills second. We work one-on-one between supervisor and direct report, reward contributions to culture, and fire people who don't fit. We reinforce culture in all activities: talent acquisition, training, change management. We hold leaders to a higher standard.

Opinions vary on that. I try to understand the organization's biggest priorities and spend my time there. Each company has a capable CEO, so I work with leaders to challenge priorities, capabilities, strategy. I check in regularly. Then there are sudden urgent things like acquisitions, capital projects, personnel issues. I manage my schedule around that. I'm on many boards, but I focus on discussions rather than slide presentations. We don't project slides in board meetings; we talk. I apply the same principles to everything, including family and working out. It's not always perfect.

I have lots of people with ideas. It depends. In a regulated environment like Singapore, electrification and autonomy could happen sooner. In the US, with mix of rural and urban and different state regulations, it will be slower. Technology for level 4 autonomy might be there in 3-5 years, but mixing autonomous and human-driven vehicles is unlikely. My personal view: before a significant portion of the fleet is autonomous, forget electrification, it's 15-20-25 years due to car turnover and cultural resistance. Thanks.