”Kuan-Tzu” not only explained some ideas of the arts in Chinese traditional political affairs, but also proposed a direction about how to build capacity for modern government. This article attempts to explore the philosophies included in ”Kuan-Tzu” and its historical context from organizational behavioral point of views ,discussed the components of policy formulation, and analyzed how Kuan implemented the policy.Three conclusions are proposed. First, morality must be distinguished from management reasonably in order to improve effectiveness and efficiency in Chinese management practices; secondly, an organization should balance its performance and cohesion to keep both survival and growth. Finally, public administrators should consider how to reduce transaction cost in the process of capacity-building for government.