went to a local bar to dance and drink beer. She was part of a team, and she loved it.
Faragher soon discovered, however, that Koch’s employees were all on one team, but not all teammates were created equal. There was, in fact, a stark division of power. The differences were not just the obvious ones that defined so many companies, such as the breach between the unionized workers and their managers. At Koch, even the white-collar workers belonged in two camps. In one camp, there were the operations people. These were workers who ran the machines. In the other camp, there were the engineers, like Faragher. They were not considered part of operations. They were more like support staff.
Karen Hall explained that the engineers on her team were like “consultants” to the operations people. The engineers were there to offer their advice and their expertise. But the engineers were not in charge. At the end of the day, the operations people decided what would be done. “They pay attention to us, but we don’t run the place,” Hall said.
Heather Faragher, then, didn’t have any real authority over how the wastewater plant was run. She could just advise and consult with the operations people, who were the ones with the real power.
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The operations team that Faragher reported to was run by a twenty-seven-year-old man named Brian Roos. He was a quintessential Koch man. He joined the company in 1990, shortly after graduating from the University of Minnesota with a degree in mechanical engineering. Like so many Koch employees, his real education happened after college, once he joined the company. Roos started as an engineer in the maintenance department and then was moved to the new clean-fuels area. He became a supervisor and eventually was promoted to a senior management position.
Except, at Koch Industries, there was no such thing as a senior manager. Within the confines of Market-Based Management, Roos was known as a process owner, or someone who acted like they had an ownership stake in the company.
The refinery at Pine Bend was divided into five groups, which were known as “profit centers.” Each profit center was like a separate piece of property owned by a boss who was responsible for everything that happened within their domain. Koch measured the financial results in each profit center, which, in turn, determined how much money would be steered toward that profit center in the future.
Brian Roos was the process owner over the Utilities Profit Center, a division that included the refinery’s wastewater treatment plant, boiler house, cooling system, and other equipment that kept the cracking units running efficiently. Roos spent a lot of time with Heather Faragher, explaining to her how things worked at Koch. She sometimes sat with him in the company cafeteria, where Roos spent long lunches outlining free-market principles that undergirded Koch Industries’ philosophy. Roos had an earnestness, a sincerity, that was similar to Charles Koch’s. He was a true believer. But under the dictates of Market-Based Management, there was an important divide between his role and Faragher’s. Faragher was not part of a profit center. Environmental engineers like Faragher were lumped into a category of nonprofit groups.I The nonprofit groups were like a second-tier workforce supporting the “core” profit centers. This distinction helps explain a lot that went wrong at Koch during the 1990s.
When process owners like Roos read Introduction to Market-Based Management, they were warned against using the nonprofit support services too much. Because services like accounting and environmental engineering were essentially “free” to people like Roos, there was a danger that those services would be overused. The pamphlet likened the nonprofit groups to government agencies that handed out free services: there was a danger that the nonprofit groups might become bloated and overly expensive. The nonprofits might therefore drag down the performance of the very profit centers that they were supposed to serve. As they grew in size and cost, the nonprofit service centers would suck resources away from the parts of the company that actually made money.
“The predictable result was often a corporate overhead cost spiral,” the pamphlet said.
To counter this cost spiral, Charles Koch created an internal market system: divisions such as Roos’s had to essentially pay to use the nonprofit groups. That way, the process owners would have to think twice about sucking up support resources. Of course, in some cases, these “nonprofit” resources were all that stood between successful business and criminal conduct.
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Heather Faragher spent a lot of time