Big Pharma: Heroes or Villains?

25 12 2011

What is ‘Big Pharma’?

Many people have argued that alternative and complimentary medicines are suppressed because they threaten the status quo for ‘big pharma’.  Before we accept this claim, let’s unpack the idea of big pharma a little to understand the incentives at play and when it may be right not to trust big pharma.

Let me start by making it clear – big pharma, as a label for the largest pharmaceutical companies, deserves a healthy dose of outrage; but before we toss the baby out with the bathwater, but lets see when – and why.

Big pharma is just another name for ‘big business’: a big business is an organism that has grown beyond the people that founded it, such that rather than having emotions, conscience or guilt, it has KPI’s like turnover, cashflow and return on investment. Big pharma is in the business of making money and as such should generally be expected to default to that option unless constrained by law. The collective conscience of shareholders only tends to kick in when dirty laundry is put out on show. Ok, so firstly, I think we can agree, a business is not a charity.

Next we take this lack of compassion and combine it with size and complexity – we see we now have an organism susceptible to plain outright crookery – from the white collar sort, like insider trading – to the very tangible – such as the dumping of toxic waste. These practices usually require the corruption of people – but not always – it is very easy for companies to do bad things without any individuals having malicious intent; it could simply be negligence or incompetence, or it could simply be that profit sometimes comes before fairness.

Take for example the problem of selling DVD’s in the world market. They are small and lightweight and easy to ship worldwide. This usually means that the price would be similar worldwide, if dealers in one country were to raise prices, residents would simply import the product. However, the enormous wealth differentials that exist between, say, the USA and Mexico, mean that the company could set a high price to extract maximum value from the US market, but then essentially price themselves out of the Mexican market. If they lowered the price, they would sell more product but with much reduced profit margins.

This problem is thrown into stark relief in the case of drugs, where the most profitable option is often to cater to the richer countries. This is sound business – set your price high, keep your factory trim, reduce shipping costs, keep high margins. However, if the drug can radically improve health outcomes, this policy could be seen as unethical.

This is the sort of problem big pharma face routinely; they are not selling entertainment, they are sometimes selling life itself, and often find they need to play profits against ethics in they way I describe above. It is thus hardly surprising that the general public have a distrust and general suspicion toward Big Pharma. In addition to drug import controls, there are many other situations where governments have had to step in to ensure the pharmaceutical companies ‘do the right thing’, such as the case with antiretroviral drugs (for HIV) coming into Africa.

Now think for a moment on this thought experiment: what would happen if a small publicly traded company discovered a cheap and easily reproducible cure for cancer? Would they really be able to hold on and extract full value for their shareholders? History actually suggests they wouldn’t – the drug would become public property, or would simply be nationalised if the company tried to resist. Inventions like the major vaccines and the first antibiotics were often not patented, and we see if we look at the pharmaceutical industry that their biggest profits come predictably not from miracle cures but from drugs that cater to the maladies of the richer classes. The top targets are heart disease, heart-burn, stroke, mental health and asthma. Once you  add disorders like diabetes you have accounted for the most profitable chunk of the industry.

This trend raises fresh concerns, because there are many severe ailments that are simply not attractive to profit making operations, the poster-boys being malaria, TB and HIV/Aids. Drug companies can be bullied into doing work in these areas, but it tends to fall to governments and charities to fund research in the afflictions of the poor, or on the so-called ‘orphan diseases’ – ailments that affect too few people to ever make a profitable market.

Economists will also argue that profit making businesses, being creatures under the strict control of incentives, will be unlikely to aim for ‘cures’ because cures are ‘one-offs’. While this criticism has some sad validity (in the board-room if not in the clinic), we have to remember that the big drug companies only exist because they make profits; in an imagined world where the first dollars were always spent on the most dire diseases and we only get to do botox and erectile dysfunction once those are all solved we would have no private industry at all, so far fewer trained scientists, far less public knowledge and certainly no map of the genome. We have to remember that to some extent at least, the aging american taking their cocktail of pills every day for the last 50 years has in some sense subsidized the field doctor in rural Africa. Yes, they also subsidized Wall Street excesses, but perhaps it’s a deal worth making.

Publication Bias

Another area where drug companies increasingly in need government intervention is in drug trials; specifically, they are presently allowed to pick and choose what to publish; this sounds OK at first, because, surely, you assume, the drug company has to make a bulletproof case before the drug is licensed? Well, if you do 100 trials, you may well find 50 good results, and publish those, and simply sweep the duds under the carpet. What’s more is those duds could have revealed possible side effects or interactions that could actually turn out to be real issues later on down the road. This is going to be a big one in the next few years.

The Big Picture

When criticizing the pharmaceutical industry it is easy to get caught up in the weeds, for there are weeds, but let’s also try to remember that this century has seen unparalleled improvements in life expectancy world-wide, and the improvements in child mortality in the third world do owe a lot to the sometimes cold-hearted business models intrinsic to western medicine.

Before I move on, and being a scientist, I wanted to make another point about big pharma. While it’s true that big money is involved, we have to remember that the Pareto principle applies here too – the majority of the profits come from the minority of the research. There are legions of perfectly good people, motivated by no more that the desire to help people in distress working in healthcare all around the world. Drugs are highly integrated with other therapies at the clinical level and the people actually running trials ‘in the trenches’ face-to-face with the patients (and often dealing with terrible trauma)  are rarely shareholders in big pharma, and many would not even think for a second they are part of what people would call big pharma. Yet it is they who have gradually built up our current understanding of the human body, not the men in suits.

Conclusion

To me, the idea of executives at the top 5 drug companies has become conflated with the idea of the ‘canon’ of western medicine. The idea that the whole world of ‘proven medications’, the result of countless years of hard graft (and the learnings from millions of deaths), can be dismissed because it’s under the control of ‘fatcats’ is a sick tragedy. Western medicine is simply a name for ‘what has been statistically been proven to help’, and the idea that even a tiny fraction of the scientists who developed it would be working to suppress good ideas from outside the ‘fold’ sounds frankly paranoid. Yes big pharma has some warped incentives that cause it to focus on the wrong things and leave the poor out in the cold, but all for-profit publicly-traded businesses do that! Ask yourself for a minute – even if a cure for heart disease were found that threatened the profits to Pfizer and friends, could they really recruit a worldwide network of conspirators who think a cure for cancer is something worth selling their very souls for to suppress?

It hard enough to run a real business, let alone running one so effectively in complete secrecy in the face of so much scrutiny. If they have that much skill and power, they should go legit, they would make a real killing!





Musical Notes Explained Simply

25 10 2011

Have you ever wondered how the musical notes we use were chosen?

I mean when I was growing up I was learning one thing in music class  (do-re-me-fa-so-la-ti-do!) and another in science class (440Hz) and never the twain did meet…

So what gives? I always suspected the musical community were being scientific, but their language was all Greek to me.

Years passed and only rarely did I get the chance to wonder at this question – and meantime my science education was getting the upper hand – I learned how sounds travel through the air and how the ear works – how deep, low notes are the result of compression waves in the air, perhaps a few meters apart, while higher pitched sounds where compression waves much more tightly packed, perhaps millimeters apart. I also learned a note could have any frequency, and so no reason to pick out any ‘special’ frequencies.

However,  just recently I realized, in a flash of light, that with an infinite number of notes to choose from, musicians had very deliberately selected only a few to make music with, and I suddenly wanted to know why. Was it arbitrary? Was it the same in different cultures? Why did some notes seem to go together and others seem to clash? And of course, as The Provincial Scientist, I wanted to know if our early musicians had done well in their choices.

As it is now the era of the internet I set about to find out more and thought it was so interesting, it would be a crime not to report what I learned on my blog. So here is what I learned…

In Search of Middle C

The best place to start is probably a vibrating string. The vibrating string is clearly key to pianos, harps, guitars and, of course, the entire ‘string’ section of an orchestra. If you stretch a string and pluck it, you are starting an amazing process – as you pull on the string, you create tension, you literally stretch the string and store energy in the fabric of the string. When you let go, the string shrinks under that tension, which pulls it straight. Alas, when its straight it has picked up some speed and the momentum keeps it going until the string is stretched again – thus the string swings back and forth – and it would continue forever were it not for frictional losses – energy is lost in heating the string, but some is also lost in buffeting the air around the string. The air is pushed then pushed again with each cycle creating compression waves that ripple out into the room – and into our ears. Thus we hear the string.

You can see the vibrating string doing it’s magic here:

You can see in the video that the string swinging back and forth is an awful lot like a wave moving up and down the string! Indeed it is!

The speed at which the wave moves (or string vibrates back and forth) – and thus the note we hear – is determined by a few simple factors – the tension in the string, and the weight of the string and the length of the string. The greater the tension, the greater the force trying to straighten the string, but the greater the weight, the more momentum there is to make it stretch out again.

It is therefore easy to get a wide range of notes from a string, start with a long, heavy wire and only tension it enough to remove all the slack. The note can then be gradually increased by decreased the length or the weight of the wire, or by increasing the tension. These are the tricks used in pianos, guitars and so on.

So far so good. But if you have several strings to tune up, what notes should you pick – from infinitely many – to make music with?

The human ear is an amazing device and can hear notes ranging anywhere from 20 to 20,000 compressions per second (the unit for per second is called Hertz or Hz for short). That is a lot of choice!

As I am sure you guessed, the key is to understand why some notes seem to ‘go together’, and the answer lies back in the vibrating string.

Overtones of Overtones

Firstly, it turns out that when you pluck a string, you actually get more than one note. While the string may swing back and forth in one elegant sweep, it may also get shorter waves, with half or a third or quarter the wavelength hiding in there too. This video shows how one spring can vibrate at several speeds:

Although the video shows the string vibrating at one speed each time, it is actually possible for a string to carry more than one wave at a time (this amazing fact deserves its own blog posting, but we will just accept it for now).

So when a string is plucked, the string ‘finds’ ways to store the energy with vibrations – it finds a few frequencies that carry the energy well, these are called ‘resonant frequencies’, there will be several, but they will all be multiples of one low note. As these higher notes are all multiples of a single low ‘parent’ note, they also have consistent frequency relationships between one another, 3/2, 4/3, 5/4 and many many others.

So clearly, once you have one string, and you want to add a second, you could tune the second string to try to match some of the harmonics of the first string. The best match is to pick a string whose fundamental note is at 2x the frequency of the first string. This string’s fundamental note will match the first string’s 2nd harmonic (also called its first overtone). The second string’s harmonics will also perfectly match up with pre-existing harmonics from the first string. The strings are what is called consonant, they ‘go together’.

Now although the second string will have some frequencies in common with the first string, it turns out that there is an even stronger reason why these notes will go together – it is because when you play several strings at once, you are no longer just playing the strings, the instrument you are playing is the listener’s eardrum. The eardrum will vibrate with a pattern that is some complex combination of the wave-forms coming from the two (or more) strings. When you add two notes together, it is like adding two waves together and you get an interference pattern – the interference may create a nice new sound:

If we add a low note (G1) to a note one octave higher (G2) we get a totally new sound wave.

If, as in this example, one string vibrates at exactly twice the frequency of the other, the two notes will combine to make a handsome looking new waveform, with ‘characteristics’ from both the original waves – but if the frequencies are not a neat ratio, you will get something a bit messy:

This waveform may not repeat, and is unlikely to be consonant with any other notes you may care to add.

Sometimes, when your second string is fairly close in frequency to the first (say 1.1 x the first string’s frequency) then a second phenomenon rears its head, beating. This leads to the creation of entirely new (lower) frequencies that the ear can hear [click here to listen to a sample]. The sum now looks like this:

Beating can sound awful, though of course, the skilled musician can actually use it to create useful effects.

Beautiful Ratios

We have seen that once you have selected one note, you have already greatly reduced the ‘infinite’ choice of other notes to use with it – because only some will be consonant. Although the best consonances are at exactly 2x the first frequency, we see that once you have picked two strings, the choice for the third string is more limited. Should you be consonant first the first string or the second? Can you be consonant with both? You can be fairly consonant with both, but only by being 2x and 4x their respective frequencies. If you picked all your strings as multiples of the first string, the ‘gaps’ between the notes would be very big, akin to playing a tune with only every 12th key on a piano. So how can we fill in the gaps?

Well, early thinkers quickly realized that you can’t actually select a perfect set of notes – some combinations will mesh well, others will be just a little bit odd. This realization was probably a bitter pill for early musician-scientists to swallow.

In the end, they came up with many competing options, each designed  to maximise the occurrence of good ratios  – a good example is the just intonation scale:

Note: C D E F G A B C
Frequency ratio to the first note: 1 9/8 5/4 4/3 3/2 5/3 15/8 2

Here, the musician picks two notes that are consonant (C and the next C one octave higher) and then divides the gap into seven steps. Each note is a special ratio of the lower note – we get neat ratios of 5/4, 4/3 and 3/2 showing up which is good, however the ratios between adjacent notes are much less pleasing!

Aside: You will also see that the steps from B to C and E to F are rather small! Now take a look at your piano and note these notes correspond to the white keys on the keyboard that have no black keys between them! This is no coincidence…

Is the ‘just intonation’ division perfect? No, the notes are not all consonant! Remember than with 8 notes in this group, there are 7+6+5+4+3+2+1=28 ratios (or note pairs), and there is no known way to choose them to all be consonant. That is why, although most musical cultures divide their music notes into ‘octaves’ (nicely consonant frequency doublings), there have evolved many different ways to make the smaller divisions.

Western music has tended to divide the octave into 7 notes (the heptatonic scale) , you could really use any number. Let’s stick with 7 for now.

Another popular way to divide the octave is the Pythagorean tuning:

Note: C D E F G A B C
Frequency ratio to the first note: 1 9/8 81/64 4/3 3/2 27/16 243/128 2

This scale is based on prioritizing the 3/2 overlap of harmonics and moves three notes very slightly.

It is key to remember there are dozens of ways to do this, depending on what you are trying to optimise – do you want to match the greatest number of harmonics, or some smaller number of stronger harmonics? It may even be that personal taste could come into play.

The Wonderful Piano

Have you ever wondered why you hear someone is playing something in C-minor or F-major? What is the deal there? Well, these are also ‘scales’ – alternative ways to cut up the octave, but from a specific family that lives on the piano.

You see, the piano could also divide the octave into 7 notes, and indeed it was once so divided, but with time musicians realised they could open up more subtlety in their music by adding in more notes. So they decided to add the ‘black notes’, the extra black keys on the keyboard!

So in addition to the 7 notes A,B,C,D,E,F & G, they added C#, D#, F#, G# and A# – they called them ‘half tones’ or accidentals. Of course, there are already two half steps (B-C and E-F) which is why there is no B# or E#. These extra notes gave us 12 smaller steps, and of course choosing 12 consonant notes was even harder than choosing 7!

So, after some hard thinking by scholars including  J.S. Bach, a very sensible decision was made – to divide the octave into 12 ‘equal’ steps, which gives us the so-called ‘equal temperament‘, the most popular way to tune a piano. To do this, each note is 21/12 or 1.05946… times higher in frequency than the last one, such that twelve steps will eventually give you a doubling.

However, our musical notation is older than the piano and generally only allows for 7 notes per octave, so how do you write music for 12?

Despite that there are 12 notes, composers have tended to still feel some combinations of 7 notes ‘go together’ better than others and so have persisted to write music using only 7 notes, though of the many hundred’s of ways you could choose the 7 notes, they have selected 12 combinations, the 12 “Major scales“:

The Major Scales (down the left). Each uses only 7 of the 12 notes on the piano keyboard. The shaded vertical lines correspond to the black keys on the piano.

Personally, realising what these scales were was a breakthrough for me. Looking the above map helped me to realize several things:

  1. Many long pieces of music will completely ignore nearly half (5/12ths) of the keys on the piano! To play a tune based on a certain ‘scale’ is sometimes said to be played in that ‘key‘.
  2. The scale of C-Major ignores all the black keys, and is probably the oldest/original scale.
  3. Each scale is displaced 5 ‘steps’ from the previous scale (there is a #1 beneath each #5)
  4. The empty squares occur in vertical groups of 5, and move up 5 spaces each time you move a column to the right.

Aside: Note that there are also the 12 “minor scales“. These scales actually use the same 12 subsets of keys as the major scales, but are ‘shifted’  – they have a different starting point (base note, or ‘tonic‘).  This may seem a trivial change, but because the gaps (steps in frequency) are not all evenly sized in these scales, the major and minor scales have their two ‘small’ steps in different places, which is supposed to change the feel or mood of the music (or even the gender!)

The Number 5

The number ‘5’ in the pattern we saw above was noticed by musicians long before me, and it shows up in other places too.

For example, we saw in the ‘just intonation’ scale above, that the note G had a frequency ratio of exactly 3/2 with the note C. This means that when you hear both together, every third vibration of the higher note will coincide with every second vibration of the lower note. They are thus highly consonant – and they are 5 steps apart on the stave.  This relationship is called the ‘perfect 5th‘. It is again no coincidence that the 5th note of each scale is the base note (tonic) of the next scale. Stepping in 5’s (ratios of 3/2 in frequency) 12 times takes you through exactly 5 octaves and eventually back to the first scale.

Of course, the scales repeat for every octave, so you don’t really need top go up 5 octaves! This cycling behavior allowed the invention of a learning tool called the ‘circle of fifths‘, which helps us to understand  the relationships between the scales.

Yet another aside: The ‘perfect fifth’ is called perfect if it is truly a ratio of 3/2 – but recall that pianos have their 12 notes ‘evenly spaced’ (a geometric progression) so the ratio of G to C on the C-Major scale will not be exactly 3/2 – it is actually 0.113% off!

But What About Middle-C?

Ok, so we have seen how some notes ‘go together’, and how once you have one note, you have clever ways to find families of notes that compliment that note – but that leaves just one question – how do we pick that first note?

The leading modern convention is use the note A that comes after (above) middle-C, and to set it at 440Hz exactly.

The question is, why?

Well firstly, I shall point out that the 440Hz convention is not fully accepted. For example, anyone who wants to hear, for example, the Gregorian chants the way they originally sounded, would need to use the conventions of the time. Thus there are pockets of musical tradition that do not want to change how their music has always sounded.

However, when it comes to performing a concert with many instruments, it is useful if they all adopt the same standard. The standard is thus sometimes called the concert pitch, and though 440Hz for A is common, this number has been seen to vary from 423Hz to as high as 451Hz.

So the short answer is, there is no really good reason; the choice of 440Hz really just ’emerged’ as a more common option, and when they standardized they rounded it off. While this answer is ultimately trivial, I find a little amusement in the fact that all the music we hear sounds the way it does for no particular reason!

Conclusion

Before I go, there is a video I want you to look at. I think it shows beautifully how 12 different frequency oscillations can exhibit some beautiful harmony (or harmonics!)

All Done! Ready to Read Some Music?

The next step is to learn to read musical notation – luckily someone has already written an excellent tutorial with pretty pictures.

All I can hope is that the weird things they teach you in this tutorial will be a little less weird now we have covered the baffling origins of the notes!

Jarrod Hart (Los Olivos, CA, October 2011)

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A couple more useful references:

http://www.mediacollege.com/audio/01/sound-waves.html

http://www.get-piano-lessons.com/piano-note-chart.html

http://www.thedawstudio.com/Tips/Soundwaves.html





Why big ideas evade big businesses – An Analysis

18 07 2011

Big companies usually sell many products – and this collection of products is in constant flux – new ones come, poor ones are chopped and the population may grow or shrink accordingly.

The sheer number of products is however not directly correlated to the revenues or profits though, this is determined by the quality of each product. The main benefit of having a large family of products is that allows diversification (thinks eggs in baskets) – but the down side of having many products is all the additional overhead.

The real health of a product portfolio is not the number of products but an aggregate of the health of the individual products – for each product we consider the margins, the security of those margins, the revenue, the trends in revenues and the prospects of the target market.

Thus a large company should be constantly nurturing and pruning its portfolio, adding products with good margins, and killing off products that do not give the target ROI.

The process, if done well, can result in a company slowly morphing as its follows the money. A company that fails to follow the money is doomed to either die or settle at a marginal profitability protected only by their slim margins and depreciated assets.

It is in this sense that new products make you future proof – the first player in the game gets to makes the rules while new technologies can often be patented to block competition – leading to higher margins. The first entrant may also corner the market  and then benefit from an economy of scale that makes competition for the scraps pointless.

Of course, launching new products requires investment – you need to spend money to make money. And big business has the money entrepreneurs can only dream of.

So the question is this: why is it that small start-ups keep upsetting the apple cart?  Why can’t big business with all its money, all its brainy MBA’s and all those shiny laboratories corner all the good ideas?

Allow me to hazard a guess as to why this is.

Firstly, because of risk:

  1. Once you have a lot of money, it’s no longer a good strategy to “bet the farm”. You have too much to lose.
  2. Once you have money, a better strategy is to spend some of it on risk analysis, and find ideas that are a surer bet – this leads you to products whose success you can predict – which are more likely to be those similar to your existing products.

The problem is, that in the population of all ideas, the game changers are probably at the risky end. See my illustration:

As you can see, big business is stuck in the white sector. The problem is there will always be a risky idea – that big business will pass up – that will turn out to be pure gold.

Now let’s think about the competition. The competition is the world of entrepreneurs – all those people out there itching to start something up.

What we have to realise is that while big business is, on average, smarter than the entrepreneur, it does not have the monopoly on thinking, and though the ideas that come from the general populace may on average be lower in quality, the sheer volume of thinking that gets done and the sheer number of things that are tried out, mean that great ideas will happen. And we won’t hear much about the hundreds that don’t.

My next drawing shows the frequency of idea birth for the two communities – the little curve shows the ideas born and investigated  by big business while the big curve shows the ideas pursued by the wider public. Although big business only pursue nice valuable ideas, the sheer size of the public idea base, combined with their access to riskier options, means the wider community still has the lion’s share of the truly game changing ideas!

So this is my theory about why big business is less innovative than small business. Small business benefits from darwinian selection – it is really a multitude, most of which die – whereas big business cannot afford to die, so its strategy is always to hedge.

So what to do about it? Clearly this should give heart to the entrepreneur – yes, you have an advantage, yes, you will win! Alas, reading more deeply, your advantage is your dispensability – so the trick is to see its a game of numbers, so the real key is to keep trying. You can keep failing and rise to try again, but big business can’t take that risk.

But what if you are big business?   In this case, watch out for promising start-ups and buy them! Connect with the entrepreneurial community by getting involved with things like “open-innovation“, where you publicize what you have and what you need and work with inventors and other companies to solve market needs. Otherwise take your business where entrepreneurs can’t follow – where money is still a huge barrier to entry – land management, mining or pharmaceuticals spring to mind.

And what if you’re an big $ investor? Well in that case, get in touch with The Provincial Scientist 🙂

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Disclaimer: it may be the era of micro-electronics and software that is to blame. When the fuss about these has died down, maybe big business will rule securely as the aristocracy once did.





Death by KPI. The unintelligent design of the modern company… and what to do about it.

25 04 2011

KPI!

A beginner’s guide to KPIs…

Background, Context and all that…

Some of you luckier readers will be wondering what on earth a KPI is. Alas, many of my readers will know, and rarely will they have a happy tale to tell about them. Let me tell you mine.

You see, to me the story of the KPI is none other than the story of the modern trend to remove the human element (that most fallible of elements) from big business. I propose that there has crept up upon us, starting when we came down from the trees and now coming to its final fruition with the industrial revolution, a situation in which the workings of our society, our organisations, governments, armies or companies, are simply too complicated to be designed or managed by any one person, whatever force his or her personality might possess.

No, the time of the one big man, the head honcho, the brain, scheming away in his tower, is over – and we enter the era, nay the epoch, of the human hive.

For now we see that in order to achieve great things, it is the ability to sort and organise mankind, rather than the ability of each man on his own, that matters most.

I could wander from my thesis awhile to describe a few side effects, for example, to point out the age of ‘middle management’ is here to stay, or to philosophize about the world where no one is actually ‘driving’ and the species is wandering like a planchette on a Ouija board and how this explains why no one seems to be able to steer us away from the global warming cliff just ahead…

But no, I will not be pulled off course, I will return to our good friend, the KPI.

So it seems we have these complex organisms, such as the venerable institution that is the company, that have evolved to survive in the ecosystem that is our global economy. Money is the blood, and people, I fancy, are the cells. And just as no particular brain cell commands us, no particular person commands a company. Just as the body divides labour among cells, so does the company among its staff. We train young stem cells into muscle, tendon and nerve. We set great troops of workers to construct fabulous machines to carry our loads just as our own cells crystallize calcium to make our bones.

Having set the scene thus I must move on, for where are the KPIs in all this?

As clever as the cells of our bodies may be, to choose depending on the whims of circumstance to turn to skin or liver or fat, that is but nothing compared with the cleverness with which the cells are orchestrated to make a cohesive body, with purpose and aim,  with hopes and dreams, and of course sometimes even the means to achieve them. And the question is: how is that orchestration achieved?

Being a devout evolutionist, its is clear to me that it was by no design, but rather by the constant failure of all other permutations that led to the fabulously clever arrangement, and so it is with the organism that is the company.

It is this conviction that leads me to claim, contrary to the preaching of many business schools, that good companies are not designed, but evolve, and by a process of largely unconscious selection. Like bacteria on a petri dish, companies live or die on their choices, and by every suceeding generation, the intelligence of these choices is embroidered into the DNA of the company.

Yes, I am saying that the CEO of Microsoft, or Rio Tinto of Pfizer, is no more sure of his company’s recipe for success than any one cell in your brain is at understanding how it came to be that you can read these words. Ok, maybe that is unfair. They probably have a good shot at reproducing success in other companies, but they only understand how the company works, not why.

It is well to remember that very few of the innovations present in a modern successful company were developed within that company – the system of raising money from banks or through a system of stocks and shares, the idea of limiting liability to make these investments more palatable, of development the of modern contract of employment to furnish staff; nay the very idea that a group of people can actually get together and create the legal entity that is the ‘company’ has been developed over centuries.

Even within the typical office we see many innovations essential to run a business that could never have been ‘designed’ better by single mind – the systems to divide labour into departments – finance, marketing, sales, R&D, logistics, customer service; the reporting hierarchies and methods for making decisions; the new employee checklists, the succession plans, the new product stage-gate system, the call-report database, the annual budget, the balance sheet, the P&L – these are all evolved and refined tools that incorporate generations of brain power.

Whether it is the idea of share options or the idea of carbon copies, the list of machinery is endless and forms the unwritten DNA of the modern company. The company of today has little in common with the farmstead of 300 years ago, and indeed, just like the bullet train, it would not work too well if taken back in time 300 years. It only works in its present setting. It is part of a system – an ecosystem.

Now a business tool that has been evolving for some time, slowly morphing to its full and terrible perfection is the Key Performance Indicator or KPI.

The Key Performance Indicator

There is a saying in engineering circles: you cannot improve what you do not measure.

This philosophy accidentally leaked to the business community, probably at Harvard, which seems a great place to monetize wisdom, and so there is presently a fever of ‘measurement’ keeping middle managers in their jobs, and consultants on their yachts.

This sounds reasonable – but let’s pick at it a little.

When the engineer installs a sensor in a reactor to measure its pressure, it is usually just one element in a holistic system of feedback loops that use the measurement in real-time to control inputs to that reactor. Thus we can see that measurements in themselves are not enough, there needs to be an action that is taken that affects the measured property – a feedback loop.

Likewise any action taken in a complex system will tend to have multiple effects and while you may lower the pressure in a reactor, you may raise it somewhere else, thus the consequences of the action need to be understood.

And lastly, if the pressure in the reactor is now right, the value of the knowledge has diminished, and further action will be of no further benefit.

So just like a body, or a machine, a company needs to be measured in order to be controlled and improved, and it occurs to me that these key measurements, the KPIs, need to fulfil a similar set of requirements if they are to be of value.

A few years ago I decided to write a list of KPI must-haves, which I present here:

  1. the property measured must be (or correlate with) a company aim (eg profitability)
  2. measurements need to taken to where they can be interpreted and acted upon, using actions with predictable effects, creating a closed loop
  3. the secondary effects of that action need to be considered
  4. repeat only if the benefits repeat too

Now let’s take a look at some popular KPIs and see if they conform to these requirements.

Production KPIs

There are a multitude of KPIs used the ‘shop floor’ of any enterprise, be it a toothpick factory, a bus company, a florist or a newspaper press. Some will relate to machines – up-time metrics, % on time, energy usage, product yield, shelf life, stock turns – indeed far too many to cover here, so I will pick one of my favourites.

Availability” is a percentage measure of the fraction of time your machine (or factory or employee) is able to ‘produce’ or function. If you have a goose that lays golden eggs, then it is clear that ‘egg laying activity’ will correlate with profits, so point #1 above is satisfied, and measuring the egg laying frequency is potentially worth doing. If you then discover that your goose does not lay eggs during football matches you may consider methods to treat this, such as cancelling the cable subscription. A few trials can be performed to determine if the interference is effective, proving #2. Now all you need to do is worry about point #3; will the goose fly away in disgust at the new policy?

What about #4? Indeed you may get no further benefit if you continue to painstakingly record every laying event ad infinitum. KPIs cost time and money – they need to keep paying their way and may often be best as one-off measures; however, what if your goose starts to use the x-box?

So that is an example of when the KPI ‘availability’ may be worth monitoring, as observing trends may highlight causes for problems and allow future intervention. So surely availability of equipment is a must-have for every business!?

No. There are many times when plant availability is a pointless measure. Consider for example an oversized machine that can produce a year’s supply in 8 minutes flat. So long as it is available for 8 minutes each year, it does not matter much if it is available 360 days or 365 days. Likewise, if you cannot supply the machine with raw materials, or cannot sell all the product it makes, it will have forced idle time and availability is suddenly unimportant.

The simplest way to narrow down which machines will benefit from an availability or capacity KPI is to ask: is the machine is a bottleneck?.

For other types of issues, let’s look at some other KPIs.

Quality KPIs

Quality KPIs are interesting. Clearly, it is preferable to ship good products and have happy customers. Or is it?

In any production process, or indeed in any service industry, mistakes will be made. Food will spoil, packaging will tear, bits will be left out. It is now fashionable to practice a slew of systems designed to minimise these effects: to detect errors when they are made, to re-check products before they are shipped, to collect and collate customer complaints and to feed all this info back into an ever tightening feedback loop called ‘continuous improvement‘.

KPIs are core to this process and indeed KPIs were being used in these systems long before the acronym KPI became de rigueur. To the quality community, a KPI is simply a statistic which requires optimization. The word ‘Key’ in KPI not only suggests it represents a ‘distillation’ of other numerous and complex statistics, but implies that the optimising of this particular number would ‘unlock’ the door to a complex improvement.

Thus, a complex system is reduced to a few numbers, and if we can improve those numbers, then all will be well. This allows one to sleep at night without suffering  nightmares inspired by the complexity of one’s job.

The reject rate is a common quality KPI – it may encompass many reasons for rejection, but is a simple number or percentage. It is clearly good to minimize rejects (requirement #1) and observing when reject rates rise may help direct investigations into the cause thereof satisfying requirement #2.

However, from rule #2 we see that this KPI is only worth measuring if there will be follow-up: analysis and corrective action. This must not be taken for granted. I have visited many plants that monitor reject and when asked why, they report that head office wants to know. What a shame. Perhaps head office will react by closing that factory some time soon.

The failure to use KPIs for what they are intended is perhaps their most common failure.

Another quality KPI is the complaint rate. Again, we make the assumption that complaints are bad, and so if we wish to reduce these we should monitor them.

Hold the boat. How does the complaint rate fit in with company aims? We already know that mistakes happen, and them eliminating quality issues is a game of diminishing returns, so rather than doggedly aiming for ‘zero defect’ we need to determine what an accept complaint rate is.

So here is another common KPI trap. Some KPIs are impossible to perfect, and it is a mistake to set the target at perfection. Think of your local train service. Is it really possible for a train system to run on time, all the time? The answer is an emphatic no!

The number of uncontrolled inputs into a public transit system – the weather, the passengers, strike actions, power outages and the like will all cause delays, and while train systems can allow more buffer time between scheduled stops to cater to such issues, this type of action actually dilutes other aspects of service quality (journey frequency and duration). Add to that finally the fact that a train cannot run early so losses cannot be recovered.

The transport company will of course work to prevent delays before they occur, and lay on contingency plans (spare trains) to reduce impacts, but the costs and practicality mean that any real and meaningful approach needs to accept a certain amount of delays will be inevitable. A train company could spend their entire annual profit into punctuality and they would still fall short of perfection.

So it is with most quality issues, the law of diminishing returns is the law of the land. Thus the real challenge is to determine at what point quality and service issues actually start to have an impact on sales and cashflow. This is another common pitfall of the KPI…

The correlation between the KPI and profitability is rarely a simple positive one, especially at the limits.

Some companies get no complaints. Is this good? No, often it is not! This company may be spending too much money on QC. The solution here is to work with and understand the customer – what issues would they tolerate and how often? If you did lose some customers by cutting quality, would the financial impact be greater than the savings?

However, and on the other hand, don’t make the opposite mistake: once a reputation for poor quality is earned, it is nearly impossible to shake.

Financial KPIs

As companies become bigger, there is a tendency to divide tasks according to specialized skill and training. Thus it can happen that the management of a big mining company may never set foot in a mine, may not know what their minerals look like, nor may they know how to actually dig them up or how to make them into anything useful. In other words, they would be useless team members after a nuclear apocalypse.

However, this is no different from our brain which is little use at growing hair, digesting fat or kicking footballs.

It is thus necessary that the organism (the company) develops a system to map in a flow of information from its body to its mind and then another mapping to take the decisions made in that mind and distribute them to the required points of action.

Indeed to blast in a quarry, or to kick the football are indeed best done by organs trained and capable and no less important than the remote commanders in the sequence of events.

And just as our bodies have nerves to transmit information about the position of our lips and the temperature of the tea to our mind, so the company has memos, telephones and meetings. And KPIs are the nouns and subjects in the language used.

Furthermore, some KPIs need to be further distilled and translated from the language of the engineer (Cpk), the quality manager (reject rate) or the plant manager (units shipped) to that of the accountant (revenue) , the controller (gross margin) and eventually that of the general manager and the shareholder (ROI). This is perhaps the main duty of middle management, bless their cotton socks.

Unfortunately, the mapping of everyday activities to financial KPIs is fraught with danger. The biggest concern comes from the multiple translation issue. That is to say, KPIs can suffer from a case of Chinese whispers, losing their true meaning along the way, resulting in the worse result: a perverse incentive.

Yes, ladies and gentlemen, this does happen.

Let’s say you want to improve your cash situation. You may choose to change the terms in your sales contracts for faster payment, in essence reducing the credit you allow your customers. This may have the desired effect, lowering the KPI  called “receivables” and this looks good on the balance sheet – but let’s look at requirement #3 in the KPI “must have” list. What are the ripple effects of this move? It is clear this will not suit some of your customers, who, considering recent economic trends, probably also want to improve their cash situation; thus you may lose customers to a competitor willing to offer better terms.

And so we see the clear reason for perverse incentives is the consideration of KPIs individually instead of collectively. There has to be a hierarchy upon which to play KPIs against one another. Is revenue more important than margin? Is on-time shipping a part-load preferable to shipping “in full” a little late?

So we see again that the systems used to distill company indicators the choice of which decisions are centralized and which are localized need to be developed and constantly refined using an iterative process. The art of translating the will of shareholders into a charter or mission statement and then translating that into targets for sales, service and sustainability is a task far too complex to perfect at first attempt.

KPI Epic Fails

While on the subject of KPIs I cannot resist the opportunity to bring to mind a few fun examples of KPIs gone badly wrong.

The Great Hanoi Rat Massacre

The French administration in Hanoi (Vietnam) were very troubled by the rat population in Hanoi around the start of the last century, and knowing as they did about rat’s implication in the transmission of the plague, set about to control the population. A simple KPI was set – “number killed” and payments were made to the killers on this basis. There was immediate success with rats being brought in by the thousand and then the tens of thousand per day. The administration was pleased though somewhat surprised by the sheer number. There surprise gradually transformed into disbelief as time wore on and the numbers failed to recede.

You guessed it. The innovative residents of Hanoi had started to breed rats.

The Magic Disappearing Waiting List

Here’s a more recent example from the National Health Service in the UK (the NHS).

A health service is not there to make a profit, it is there to help the population, to repair limbs, to ease suffering, to improve the length and quality of life – and to do this as best it can on a finite budget. So the decisions on where to invest are made with painstaking care – and needless to say, KPIs are involved. Not only big picture KPIs like life-expectancy, or cancer 5-year survival rates, but also on service aspects, such as operation or consultation waiting times.

It will therefore not be surprising to you to learn that the NHS middle management started to measure waiting times and develop incentives to bring these down, or even eliminate them. This sounds very reasonable, does it not?

Now ask yourself, how do you measure a waiting time? Say a surgery offers 30 minute slots – you may drop in and wait for a vacant slot, but as the wait may exceed a few hours it is just as well to book a slot some time in the future and come back then. So one way to measure waiting times is to measure the mean time between the call and the appointment. This of course neglects to capture the fact that some patients do no actually mind the wait and indeed may choose an appointment in two weeks time for their own convenience rather than due to a lack of available slots. Lets put that fatal weakness aside for the minute as I have not yet got to the amusing part.

After measurements had been made for some time, and much media attention had been paid to waiting times, the thumb-screws were turned and surgeries were being incentivized to cut down the times, with the assumption they would work longer hours, or perhaps create clever ‘drop-in’ hours each morning or similar.

Pretty soon however, the results started coming in, the waiting times as some surgeries were plummeting! Terrific news! How were they doing it?

Simple: they simply refused to take future appointments. They had told their patients: call each morning, and the first callers will get the slots for that day. This new system meant nobody officially waited more than a day. Brilliant! Of course it is doubtful the patients all felt that way.

How The Crime Went Up When It Went Down

If you work for the police, you will be painfully aware that measuring crime is difficult. And so it is with the measurement of many ‘bad’ things – for example medical misdiagnoses or industrial safety incidents.

Let’s look at workplace safety; while it may be fairly easy to count how many of your staff have been seriously injured at work, it is much harder to record faithfully the less serious safety incidents – or more specifically, the ones that might have been serious, but for reasons of sheer luck, were not. The so-called ‘near-misses’.

Now to the problem. Let us say you are a fork-lift driver in a warehouse and one day, it a moment of inattention, you knock over a tower of heavy crates. Luckily, no-one was around and more luckily, no damage was done. So what do you do? Do you immediately go to the bad-tempered foreman with whom you do not get along and tell him you nearly killed someone and worse, nearly caused him a lot of extra work? Or do you carefully stack the crates again and go home for dinner?

The police suffer a similar predicament. The reporting of a crime is often the last thing someone wants to do, especially if they are the criminal. Now let’s say you are an enterprising young administrator just starting out in the honourable role as a crime analyst at the Met. You want to tackle crime statistics in order to ensure the most efficient allocation of funds to the challenges most deserving thereof. Do bobbies on the beat pay for themselves with proportionately reduced crime? Does the ‘no broken windows‘ policy really work? Does the fear of capital punishment really burn hot in the mind of someone bent on murderous revenge? Such are the important questions you would wish to answer and you have a budget to tackle it. What do you do?

You set out to gather statistics of course, and then to develop those tricky little things, the KPIs.

Now let’s say a few years pass, and after some success, you are promoted a few times and your budget is increased. Yay! You have always wished for more money to get more accurate data! Another few months later and the news editors are aghast with the force. Crime is up! Blame the police – no, blame to left – no blame the right! Blame the media! It’s video games – no, it’s the school system!

No, actually it’s a change in the baseline.  The number of crimes recorded most likely went up because the effort in recording them went up. The crime rate itself may well have gone down.

The opposite can also happen. Say you run a coal mine and you will be given a huge bonus if you can get through the year with a certain level of near misses. Will you really pressure your team to report every little thing? I think not.

So the lesson here is: watch out for a KPI where you want the number to go one way to achieve your longer term aims, but where the number will also depend on measurement effort.

The Profit Myth

Most KPIs are dead dull. The very mention of KPIs will elicit groans and be followed swiftly by a short nap. The ‘volume of sales’ KPI is no different. The issue with the volume KPI is probably made worse by the clear fact that actually thinking about KPIs is a strong sedative. Surely selling more is good? Well, if you can fight through the fog of apathy, and actually think about this for a second, it is easy to see this is often not so.

To see why, it is important to understand price elasticity. It if often true that lowering price will increase sales, so an easy way to achieve a target ‘volume’ (number) of sales is to drop price. That way to can make your volume KPI look good, as well as your revenue KPI, and so long as there is still a positive margin on all the units sold your earnings KPI (aka profit!) will see upside. There can’t possibly be any downside, can there?

Of course, astute financial types can find this fault easily, and perhaps the question of ‘how’ would make a good one for a job interview. It turns out more profit is not always good (seriously!). Whether more profit is really worth taking depends on the ratio of the increased earnings to the increased investment that is needed to make them.

There is another KPI I mentioned earlier the “ROI” or return on investment. When I discussed it I implied that it was only of interest at the GM level, but really the reason only the GM tends to see this KPI is because it is difficult to calculate, and often only the GM has the clout to get it – but it should be considered by all. To me, it is the king of KPIs for a publicly listed company. And it turns out the ROI may actually go down with increasing profit.

If making more widgets requires no further investment, then the maths is easy, but that is rarely true.

The question is this: is it better to have a large ‘average’ business or a smaller one with higher profit margins? It turns out, from an investor’s perspective, that the latter is fundamentally preferable.

The ROI treats a business a bit like a bank account: asking what interest rate does it offer? The business should be run to give the highest interest rate‘(%), not the highest interest ($). It is always possible to get more interest from a bank account – just put more money in the bank.

Translating a Mission Statement into company KPIs

I mentioned above that the ROI is a pretty darn good KPI – so can we use it alone? Of course not. Recall that the KPIs are mere numbers we measure that try to tell us how we are doing against the company mission statement, and while the company mission statement may unashamedly describe vast profits as a goal, this is almost universally not the whole story.

The organism that is the modern company has one particular need besides profit today, and that is profit tomorrow. The ROI does not capture this need, so more KPIs are required, and trickier ones – ones that capture sustainability, morale, innovation and reputation (brand value). This is the turf of the mission statement.

Even though the more cynical of my readers will know the mission is usually ‘make lots of dosh’, and anything beyond that is window dressing, I would venture that the mission statement is the first step to figuring out which KPIs to put first.

Let’s dissect a few examples. In my own 2-minute analysis I decided they fall into four types:

  1. To appeal to employees:
    McGraw Hill:
    We are dedicated to creating a workplace that respects and values people from diverse backgrounds and enables all employees to do their best work. It is an inclusive environment where the unique combination of talents, experiences, and perspectives of each employee makes our business success possible. Respecting the individual means ensuring that the workplace is free of discrimination and harassment. Our commitment to equal employment and diversity is a global one as we serve customers and employ people around the world. We see it as a business imperative that is essential to thriving in a competitive global marketplace.
  2. To appeal to customers (aka the unabashed PR stunt)
    A recent one from BP:
    In all our activities we seek to display some unchanging, fundamental qualities – integrity, honest dealing, treating everyone with respect and dignity, striving for mutual advantage and contributing to human progress.
    I couldn’t leave the is one out from Mattel:
    Mattel makes a difference in the global community by effectively serving children in need . Partnering with charitable organizations dedicated to directly serving children, Mattel creates joy through the Mattel Children’s Foundation, product donations, grant making and the work of employee volunteers. We also enrich the lives of Mattel employees by identifying diverse volunteer opportunities and supporting their personal contributions through the matching gifts program.
  3. To appeal to investors. This is usually a description of how they are different or what they will do differently in order to achieve big dosh.
    CVS:
    We will be the easiest pharmacy retailer for customers to use.
    Walt Disney:
    The mission of The Walt Disney Company is to be one of the world’s leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world.
  4. For the sake of it – some companies clearly just made one up because they thought they had to, and obviously bought a book on writing mission statements:
    American Standard’s mission is to “Be the best in the eyes of our customers, employees and shareholders.”

Now a great trick when analysing the statement of any politician, and thus any mission statement, is to see if a statement of the opposite is absurd. In other words, if a politician says “I want better schools”, the opposite would be that he or she wants worse schools, which is clearly absurd. Thus the original statement has no real content, it is merely a statement of what everyone would want, including the politician’s competitors. Thus to judge a politician, or a mission statement, it is important to look not at what they say, but at what they say differently from the rest.

Mission statements seem rather prone to falling into the trap of stating the blindingly obvious, and as a result become trivial, defeating the point. Such is the case with American Standard. Of course you want to be the best. And of course it is your customers, employees and shareholders who you want to convince. Well no kidding!

So discounting those, we can see that a good mission statement will focus on difference. If we look at CVS, their mission is to be easy to use. This may seem like a statement of the obvious, but I don’t think it is – because they have identified a strategy they think will get them market share. Now they can design KPIs to measure ease of use. This is the sort of thinking that led to innovations like the ‘drive-thru’ pharmacy.

If we look at Disney, you can go further. “…[To] be one of the world’s leading producers and providers of entertainment…” OK, so they admit being #1 is unrealistic, and if you want to be taken seriously, you need to be realistic. But if you are one of many, how do you shine? “Using our portfolio of brands to differentiate” They realise they can sell a bit of plastic shaped like a mouse for a lot more than anyone else can. There is a hidden nod to the importance of brand protection. So KPIs for market share and brand awareness fall right out. They finish off with “the most creative, innovative and profitable entertainment” Well you can’t blame them for that.

Very rarely, you see a mission statement that not only shows how the company intends to make money, but may also inspire and make pretty decent PR. I like this one from ADM:

To unlock the potential of nature to improve the quality of life.

I have no idea how to get a KPI from that though!

Summary

In this article I have tried to illustrate how measuring a KPI is much like taking the pulse of a body – it’s a one-off health check, yes, but more importantly it can be a longer term measurement of how your interventions are affecting company fitness in the longer term.

I also try to describe some common pitfalls in the use of KPIs and presented four simple tests of their value:

  1. the KPI must correlate to a company’s mission
  2. the KPI must form part of a corrective feedback loop
  3. perverse incentives can be avoided by never considering any single KPI in isolation
  4. repeat the treatment only if the benefits repeat too

I have personally used this checklist (with a few refinements) over the years to some good effect in my own industry (minerals & materials) and though I am confident many of my readers will have more refined methods, I live in hope that at least one idea here will of benefit to you.





The Economics of Advertising Warfare

19 03 2009

Picture the scene. Acme Corp’s toothpaste business AcmeDent is a profitable enterprise; and so is that of their biggest rival Ace.

One day, however, they hire a new marketing and sales manager, let’s call him Bob. He is ambitious and full of ideas – ready to shatter preconceptions, break the mold, think outside of the box, etc, etc.

After a few days in the office he realises that the market is saturated. People are just not going to start brushing at lunchtime. The only thing for it is to increase market share. He calls a team meeting.

“We either have to increase sales or increase our margins. We have already cut ourselves to the bone cost-wise, and increasing price will lose market share. If we cut prices, we lose market share – so it looks like stale-mate.” But Bob, being new, felt this was old fashioned reasoning. Surely we could do something to get market share? “Any ideas?”, he asks.

The room is quiet. No one wants to say anything risky in front of the new boss. Looking around at his team, his eyes settle on Sheila, the head of brand management. “What are you doing to get market share?”

Now Sheila wanted Bob’s job. She’s not is a good mood, but knows to be cautious. “Well Bob, as you will know from the report I prepared for you, our advertising budget is tight; your predecessor seemed to think we just needed to match Ace’s spend.”

“What? Why?!” Bob sits up. He can smell an opportunity.

“Don’t ask me, I asked for more. He was very conservative.” There’s a murmur around the table. They all know Sheila is being polite. Before being headhunted, Bob’s predecessor had a reputation for being tighter than duck’s arse.

A few weeks later, the new ad campaign cranks into life. Bob is surprised by how much it cost, but he knows 10% more market share will make it more than worth while. He starts to study his sales figures with care. Will it work?

The end of the quarter looms. What will the results show? Bob reads the business news – Ace’s chairman has made some comments. They are very critical and accuse Acme of “destroying the market”.

“Ha!” Bob exclaims out loud. Excellent, they are hurting.

The results roll in. They are good. 12% additional market share, mostly taken from Ace. No wonder they’re moaning.

That night, he sees the new TV ad from Ace. He has to admit it’s good.

“Why didn’t we think of that?” he booms to Sheila the next morning. “It’s a great idea.”

Sheila is unruffled. “We did think of it; we just thought it would be too expensive.”

“Hell!”, Bob is on a roll with the benefit of hindsight, “we’ve seen that advertising can gain us market share – of course it’s worth it. What you can do if I double your budget?”

“Well…”

Ace’s campaign works and Acme loses most of their new-found market share. The next month brings Acme’s bigger and better campaign – tying together TV, print, competitions, star endorsements, the whole shebang. Again is works like a charm. Market share is back up.

Freshly sun-tanned from two weeks on the Keys, Bob is feeling pretty pleased with himself at the AGM. The CEO will surely make a point of congratulating him on a job well done. He is getting on too, and will surely be eyeing up replacements.

The meeting starts well and soon enough they came to the the financial performance of AcmeDent toothpaste.

“Bob,” the CEO starts, “what the hell is going on here?”

Bob is taken aback by the look of displeasure on the CEO’s face. Oh, well he has a reputation for being grumpy, maybe this is him having a joke. “Well, you see, we have increased market share by 10% this year, our revenues are at an all time high…”. He searched the CEO’s still stony face.

“But what about profits? What are they?”

“Well, you see, this year we made significant investments, so it doesn’t look great, but rest assured, next year…”

“Investments?”

“Yes, we invested in major advertising campaigns…”

The CEO is shaking his head slowly.

Bob is suddenly feeling a nervous. “Well, we had to spend money to get the market share, but now we’ve got it, we will see a profit next year.” That should calm him down.

“But what about Ace’s latest trick? While you were away, they’ve started a new fad amongst teenagers for luminous teeth or something.”

“Well sir, it is a bit of an arms race…”

“A race to where exactly?”, the CEO looks very serious now.

“Well…”

“Bob, can’t you see, they have to match our advertising spend to protect their business. All you’ve done is pissed both company’s profits down the plughole.”

The CEO leans over to his assistant, “How much to get the other guy back?” he whispers.