Search Results for: science

A Tale of Two Drugs

Longreads Pick

A cancer drug offers no obvious advantages over an alternative drug, but is also twice as expensive. Why? The writer looks at how drug companies determine prices:

“Because of medical insurance, co-pay reductions, and expanded access programs for the uninsured, relatively few Americans pay more than a few thousand dollars per year for even the most expensive drugs. The primary customers in the United States are not patients or even individual physicians, although physicians can drive demand for a drug; rather, the customers are the government (through Medicare and Medicaid) and private insurance companies. And since the insurer or government is picking up the check, companies can and do set prices that few individuals could pay. In the jargon of economics, the demand for therapeutic drugs is ‘price inelastic’: increasing the price doesn’t reduce how much the drugs are used. Prices are set and raised according to what the market will bear, and the parties who actually pay the drug companies will meet whatever price is charged for an effective drug to which there is no alternative. And so in determining the price for a drug, companies ask themselves questions that have next to nothing to do with the drugs’ costs. ‘It is not a science,’ the veteran drug maker and former Genzyme CEO Henri Termeer told me. ‘It is a feel.'”

Published: Oct 22, 2013
Length: 18 minutes (4,609 words)

The Making of McKinsey: A Brief History of Management Consulting in America

Duff McDonald | The Firm, Simon & Schuster | 2013 | 12 minutes (3,000 words)

 

The American Century

In 1941 Time Inc. publisher Henry Luce coined the term “American Century” in a Life magazine editorial. He was describing the country’s global economic and political dominance leading up to World War II. But Luce was also correct in the literal sense: The American Century had actually started several decades before.

The building of the railroads and coincident spread of the telegraph in the United States in the middle and second half of the nineteenth century helped create the world’s first truly “mass” markets. If an executive had ambition, his company didn’t have to serve just local customers. It could serve an entire continent and beyond, if it had the wherewithal to get the organization and logistics right.

The economic historian Alfred Chandler documented the momentous changes in what came to be known as the Second Industrial Revolution in his seminal book Scale and Scope—the title of which referred to the simultaneous revolutions in both scale (in manufacture) and scope (in distribution) in American enterprise. Those twin revolutions transformed the United States from an agrarian society to an industrial powerhouse in the span of a single generation. In 1870 the nation accounted for 23 percent of the world’s industrial production. By 1913 that proportion had jumped to 36 percent, exceeding that of Great Britain.

By 1920, when only a third of homes in the country had electricity and only one in five had a flush toilet, the country’s business establishment was embarking on a course of radical, unprecedented expansion. This brought with it a dilemma that has preoccupied business leaders ever since: how to grow big while maintaining control over the enterprise. Moving from a single-product, owner-run enterprise into a complex and large-scale national one is a difficult task. First, you have to build production facilities massive enough to achieve the desired economies of scale. Second, you have to invest in a national marketing and distribution effort to ensure that sales have a chance of matching that scaled-up production. And third, you have to hire, train, and trust people to administer your business. Those people are called managers, and in the first half of the American Century, they were in very short supply.

The benefits to successful first-movers were gigantic. In industries where only one or two companies took the plunge early, they dominated their field for a very long time to come; this group includes well-known names like Heinz, Campbell Soup, and Westinghouse. A ten-year merger mania, from 1895 through 1904, also brought the creation of a number of corporate entities the likes of which the world had never seen—1,800 companies were crunched into 157 megacorporations, including stalwarts like U.S. Steel, American Cotton, National Biscuit, American Tobacco, General Electric, and AT&T.

The key business problem identified during this transition—and one that underwrote McKinsey’s success for several decades—was that a single, central office could no longer adequately administer such far-flung empires. Power had to be ceded to the extremities. The question was how. It was a quandary that beguiled some of the great thinkers of the time, including political scientist Max Weber, who argued that a systematic approach to marshaling resources through bureaucracy was a necessary and profound improvement over pure charismatic leadership.

In his book American Business, 1920–2000: How It Worked, Harvard professor Thomas McCraw pinpointed the issue: “In the running of a company of whatever size, the hardest thing to manage is usually this: the delicate balance between the necessity for centralized control and the equally strong need for employees to have enough autonomy to make maximum contributions to the company and derive satisfaction from their work. To put it another way, the problem is exactly where within the company to lodge the power to make different kinds of decisions.”

Companies such as DuPont, General Motors, and Sears Roebuck were the first to address this problem systematically. According to Chandler, DuPont sent an emissary to four other companies experiencing similar issues—the meatpackers Armour and Wilson and Company, International Harvester, and Westinghouse Electric—to ask what they were doing. And the answers were remarkably similar: The innovators moved from the centralized system to a multidivisional structure with product and geographic breakdowns. The concept left operating division chiefs with total control over everything except funding resources. Top managers took a more universal view of the business, monitoring the divisions and allocating capital accordingly.

The most successful companies of the era, such as General Electric, Standard Oil, and U.S. Steel, all employed some variant of this model. But by and large, they had developed these ideas on their own, a process of trial and error that was costly and time consuming. They would have much preferred hiring outside experts to help them with it, if only such experts existed. This was a huge commercial opportunity that called for an entirely new kind of service.

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Stepping into the Breach

Unwittingly, the federal government did its part to create the modern consulting business. Starting in the last part of the nineteenth century, Washington made periodic regulatory efforts to curb the power of big business, including the 1890 Sherman Antitrust Act, the Federal Trade Commission Act and Clayton Act of 1914, and the Glass-Steagall Act of 1933. The intended effect of these measures was to prevent corporations from colluding with one another to fix prices and otherwise manipulate the markets. The unintended effect, according to historian Christopher McKenna, was to accelerate the creation of an informal—but legal—way of sharing information among oligopolists. Who could do that? Consultants.

Regulatory efforts paid another rich benefit to the likes of McKinsey: Restricted from cutting backroom deals with each other, firms were thus obliged to actually compete, which meant they needed to make their operations more efficient. Here again, consultants were the answer.

But perhaps the circumstance that most aided the creation of the consulting industry was the entry of a new, key player into business itself. Empire builders with names like Carnegie, Duke, Ford, and Rockefeller had built huge, vertically integrated companies, but they had neither the time, the talent, nor the inclination to create and carry out management systems for those entities. These were the conquerors of capitalism, not its administrators. And yet, as Chandler pointed out, “their strategies of expansion, consolidation, and integration demanded structural changes and innovations at all levels of administration.”

Into the breach stepped a new economic actor who was neither capital nor labor: the professional manager. Gradually, he replaced the robber baron as the steward of American business. Alfred P. Sloan, the legendary president of General Motors, was the first nonowner to become truly famous for his managing skills. His decentralized, multidivisional management structure gave GM the agility to outmaneuver the more plodding Ford Motor Company and snatch the industry lead. Ford may have revolutionized manufacturing, but Sloan realized that the car-buying market had become big enough to be segmented into people who bought Buicks, Cadillacs, Chevrolets, Oldsmobiles, and Pontiacs. By the late 1920s, the car market was maturing, and people wanted choice. Sloan also gave them the ability to buy a car on credit—a groundbreaking idea at the time. Before the decade was over, GM had surpassed Ford as the market share leader, a position it didn’t relinquish until the 1980s.

Sloan and his ilk were perfect customers for McKinsey: Lacking the legitimization of actual ownership, professional managers felt great pressure to show they were using cutting-edge practices. And who better to bring those practices to their attention than consultants who were talking to everyone else? This was the beginning of a decades-long separation of ownership from control in corporate America, and the consultant was an able ally to the professional manager in this tug-of-war—an ally who wasn’t gunning for the manager’s job. Thus began the era of managerial capitalism.

For more than two centuries, economists had argued that companies operated in some sense at the mercy of Adam Smith’s “invisible hand” of the market. But the revolution in management thinking in the United States offered up an alternative idea: the “visible hand” of management, which made things happen, as opposed to merely responding to external market forces.

The academy helped move this ideology along. Before 1900, there was only one undergraduate business school in the country, the University of Pennsylvania’s Wharton School of Finance and Economy, founded in 1881 with a $100,000 donation from financier Joseph Wharton. The Tuck School of Business at Dartmouth followed in 1900. Over the next decade, pretty much every major institution started explicitly preparing its students for careers in management.

Although the rise of today’s industrial-farm-style MBA programs is really a postwar phenomenon, Harvard founded its Graduate School of Business Administration in 1908, with a second-year business policy course designed to give the student an integrative approach to addressing business problems, including accounting, operations, and finance. The purpose of the course, according to the school, was to give the student an ability to see those problems from the top management point of view. Much of James McKinsey’s academic writing centered on this very issue and later informed the practice of his firm.

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McKinsey’s Oeuvre

As a young academic, McKinsey was a prolific writer, if not an especially engaging one. His first four books were dry tomes on the nitty-gritty of accounting and taxes: Federal Incomes and Excess Profits Tax Laws (1918), Principles of Accounting (cowritten with A. C. Hodges, 1920), Bookkeeping and Accounting (1921), and Financial Management (1922). But with his fifth effort, he broadened his horizons significantly. Budgetary Control (1922)—the first definitive work on budgeting—turned accounting on its head, promoting it as an essential tool of managerial decision making. “Budgetary control involves the following,” McKinsey wrote. “1. The statement of the plans of all the departments of the business for a certain period of time in the form of estimates. 2. The coordination of these estimates into a well-balanced program for the business as a whole. 3. The preparation of reports showing a comparison between the actual and the estimated performance, and the revision of the original plans when these reports show that such a revision is necessary.”

It seems commonsensical, but McKinsey’s new way of looking at the use of the budgeting process sparked nothing short of a revolution. “No other mechanism of management of similar scope and complexity has ever been introduced so rapidly,” wrote one commentator just ten years later. “It is estimated that 80 percent of budgets installed in industry have been put in since 1922.”

Up to that point, budgeting was a one-way exercise: Accountants added up all of a firm’s expenses and then tossed in a sales projection almost as an afterthought. In McKinsey’s view, companies should start by developing their business plan, figure out how to achieve it, and then estimate the costs of doing so. In this new context, budgeting wasn’t just a ledger activity; it could also be used to identify excellence in performance (i.e., those who outperform their budget), to spot weaknesses (those who underperform), and to take corrective action. “[While] there are many who do not yet plan scientifically … ,” he wrote, “there are few who will deny the merits of the system.”

Two subsequent books fleshed out McKinsey’s ideas: 1924’s Managerial Accounting and Business Administration. The former taught students how accounting data could be used to solve business problems. Using the data of traditional recordkeeping, he suggested the possibility for much greater control over a company’s destiny, including the establishment of standard procedures (how things should be done and to whom information should be reported), financial standards (ways to judge operating efficiency), and operating standards (including nonfinancial measures, such as quality). To today’s business student, this kind of comprehensiveness seems obvious. But at the time, the idea of planning, directing, controlling, and improving decision making by means of regular and rigorous reporting of company results was novel. The latter book contained the seeds of McKinsey’s General Survey Outline—a thirty-page system for understanding a company in its entirety, from finances to organization to competitive positioning. It became part of his consultants’ toolkit sometime in the early 1930s.

It is hard to overestimate the impact of the General Survey Outline (GSO). It served as the foundation of his approach to understanding a company and provided novice consultants with a clear road map to do so themselves. The survey also shaped consultants’ thinking: The emphasis in the GSO was more on whymanagers did things, as opposed to how they did them. Using the GSO, consultants started every engagement by thinking of the outlook for the industry of their client, the place of the client in the industry, the effectiveness of management, the state of its finances, and favorable or unfavorable factors that might affect the future of the firm. No detail was too small to take note of, whether it was a study of all firm policies—including sales,production, purchasing, financial, and personnel—or an analysis of whether the layout of equipment in a company’s plant provided for the most efficient flow of the production operations. By the time the young consultant had completed the survey for his client, he knew the company and its business cold.

“You can see McKinsey’s intellectual development,” says John Neukom, who worked at McKinsey from 1934 to the early 1970s and wrote a brief memoir of his time at the firm. “He had lost interest in the details of accounting. By the time I arrived, he had lost interest in the budgetary procedure and was now excited and interested in analyzing companies and seeing how companies worked. He was clearly diagnosing the total problems of the company.” In a 1925 speech at a conference for financial executives in New York, McKinsey offered the kind of pointed insight for which he is remembered: “Usually, I find that the executive who says he does not believe in an organization chart does not want to prepare one because he does not wish other people to know that he had not yet thought through his organization properly. For the same reason many men are opposed to budgets. They are unwilling for anyone to see how little they have thought about what they are going to do in future periods.”

Armed with that insight—and the general philosophy that management can shape a company’s destiny—he decided to set up shop and sell it.

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Bastards Require No Diplomacy

In the mid-1920s, McKinsey began doing business under the banner of James O. McKinsey and Company, Accountants and Management Engineers, the progenitor of the modern-day McKinsey & Company. Strangely for a company that prides itself on getting the details right, the actual date of its founding is unknown—a firm training manual from 1937 suggests 1924, while John Neukom’s memoir says 1925. Whichever it was, McKinsey’s timing was excellent. The economy was booming, and the need for consulting services was seemingly endless.

It is worth noting that the word “consultant” was not in the name of his firm. Rather, the term “management engineers” reflected the prevailing ethos of the time: that science held the answers to most serious questions, and even human commerce could profit from the rigors of this kind of data-driven analysis. McKinsey’s standard working pads have always been crosshatched graph paper, another nod to engineering. The fact that McKinsey himself employed no actual engineers was beside the point.

Intellectual underpinnings aside, the firm’s real-world roots were in red meat. McKinsey’s first client was Armour & Company, one of the country’s largest meatpackers. The treasurer of Armour had read Budgetary Control and wanted McKinsey to help rethink the meatpacker’s approach to budgeting and planning.

The first partner McKinsey brought on board was A. Tom Kearney, who had been director of research at Swift & Company, another Chicago meatpacker. Kearney was a warmer, more congenial complement to McKinsey’s formal and pointed demeanor. Another early partner was William Hemphill, the same treasurer of Armour who had hired McKinsey in the first place.

McKinsey continued to teach at the University of Chicago for a time, but he eventually switched full-time to the firm. One reason he seems to have juggled so many responsibilities is that he didn’t waste time with niceties at the office. In Hal Higdon’s 1970 history of consulting, The Business Healers, one associate recalled him saying: “I have to be diplomatic with our clients. But I don’t have to be diplomatic with you bastards.”(Marvin Bower later modeled his own approach to constructive criticism after McKinsey’s tough love approach.)

McKinsey was blunt, but he was also a quick and agile thinker. He once diagnosed a client’s problems just by looking at the company’s letterhead. A Midwestern maker of air conditioners had stationery that announced “Industrial Air Conditioning Installations—Coast to Coast from Canada to Mexico.” In an era before salespeople traveled by airline, McKinsey observed that travel expenses were probably eating up the majority of the company’s profits and that employees should confine themselves to a radius of five hundred miles around Chicago. He was right.

Even the Depression couldn’t stop the growth of the firm. By 1930, McKinsey’s professional staff totaled fifteen. In 1931 he drafted the General Survey Outline, and the next year he opened a New York outpost in the offices of a defunct investment house at 52 Wall Street—six offices with a reception area. The New York–based consultants busied themselves working not only for local industrial companies but also for investment banks like Kuhn, Loeb & Co. In 1934, the Chicago office moved to the forty-first floor of the new Field Building on 135 South LaSalle. By the mid-1930s, McKinsey’s partners were charging $100 a day for their services—a giant figure, though nothing compared with the founder himself, who was billing five times that, the highest rate for a consultant in the country.

From The Firm by Duff McDonald. Copyright © 2013 by Duff McDonald. Reprinted by permission of Simon & Schuster, Inc.

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Illustration by Kjell Reigstad

A Longreads Guest Pick: Tim Cigelske on Clive Thompson's "Is Google Wrecking Our Memory?"

Tim is Director of Social Media at Marquette University and writes about beer and running for DRAFT Magazine.

“Whenever I hear people talking about how technology is ruining our attention spans and turning our collective brains to mush, I like to tell them about #longreads. This article is a perfect example. I saw a link on Twitter to an excerpt of Clive Thompson’s book Smarter Than You Think: How Technology Is Changing Our Minds for the Better. I immediately saved it to Pocket to read later. In this chapter, Thompson provides background on how we’ve always used outside resources to boost our ‘transactive memory,’ or ability to recall specific facts. The most powerful aid, it turns out, is pooling our brain power with other people. Today, technology is simply multiplying that ability. Now go share with someone else.”

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Photo: Simon McConico

Ground Control to Mr. Meline

Longreads Pick

When a beloved teacher is killed, his students figure out a way to pay tribute to him by sending him into space. A story of loss, mental illness, and an inspiring educator:

“For as long as Nae’Ana Aguon could remember, she wanted Mr. Meline as a teacher. Her older brother had been in Mr. Meline’s class years earlier, and she had visited the classroom, a classroom like no other at Spanaway’s Camas Prairie Elementary: telescopes, models of NASA shuttles, Star Trek posters, a mobile of the solar system. And every year Meline’s class built a comet—rocks, dirt, dry ice—then studied the comet with the intensity of a science team in a sci-fi film who’d discovered it in some exotic location.

“Mr. Meline didn’t disappoint when Nae’Ana reported to room 33 on the first day of school in early September 2012. He handed out a word search, a jumble of letters from which the students excavated NASA-related terminology. And then the launch: not of a rocket, but of the man.”

Source: Seattle Met
Published: Sep 17, 2013
Length: 26 minutes (6,665 words)

Caught Up in the Cult Wars: Confessions of a New Religious Movement Researcher

Susan J. Palmer | University of Toronto Press | 2001 | 38 minutes (9,328 words)

The below article comes recommended by Longreads contributing editor Julia Wick, and we’d like to thank the author, Susan J. Palmer, for allowing us to share it with the Longreads community.  Read more…

Easy Money

Longreads Pick

The writer on his experience being on the game show “Who Wants to Be a Millionaire?”:

“Did I mention on my questionnaire that I could perform a serviceable impression of Chewbacca? Did I offer that up to them as proof of my willingness to give them whatever they wanted in exchange for a chance at their money? Yes. Yes, I did. The rest of my interview in the cramped bowels of the Apollo Theatre was merely a formality. I would be good on the show because of X, Y, and Z. When I was twelve, I was an actor in a sex-ed video starring Bill Nye the Science Guy. I would spend a million dollars on the world’s greatest first-anniversary present for my wife. Can I do the Chewbacca now? Of course I can. It is a great and unholy sound, and for several seconds all talk in that room came to an end. A guy who recognized the noise for what it was clapped from somewhere back in the line. I boarded the train back to Brooklyn, uncertain that I had succeeded, though I needn’t have doubted the Wookiee’s allure. Two weeks later, I received a postcard informing me that I was part of the ‘contestant pool,’ and a week after that a producer called to tell me that my episode would shoot in seven days’ time.”

Source: The New Yorker
Published: Sep 21, 2013
Length: 23 minutes (5,816 words)

Sexting, Shame and Suicide

Longreads Pick

Fifteen-year-old Audrie Pott took her own life after nude photos of her were circulated around school by high school classmates. Three boys were later arrested and charged. It’s “a shocking tale of sexual assault in the Digital Age” that’s becoming less uncommon as a number of high-profile cases similar to Pott’s makes headlines while many others go unreported:

“‘It’s a perfect storm of technology and hormones,’ says lawyer Lori Andrews, director of the Institute for Science, Law and Technology in Chicago. ‘Teen sexting is all a way of magnifying girls’ fantasies of being a star of their own movies, and boys locked in a room bragging about sexual conquest.’

‘But as of yet the law provides little protection to the rights of those violated. Section 230 of the Communications Decency Act effectively means that no Internet provider can be forced to take down content for invading a person’s privacy or even defaming them. ‘I could sue The New York Times for invading my privacy or Rolling Stone for defaming me,’ Andrews says. ‘But I couldn’t sue and get my picture off a website called sluttyseventhgraders.com.’

“The flip side of this ugly trend is that when gang-rape participants and bystanders record and disseminate pictures of an assault, public outrage is inflamed and cops and prosecutors have evidence they can take to court. This can mean rape victims get more justice than in years past. Arguably, the Steubenville rape would never have been prosecuted without the video. However, since so many of the incidents involve juveniles, punishment is neither swift nor certain.”

Source: Rolling Stone
Published: Sep 17, 2013
Length: 24 minutes (6,029 words)

The Social Life of Genes

Longreads Pick

How our environment, our sense of support, and our feelings of loneliness can activate or turn off specific genes in our bodies that affect things like how we fight or heal wounds. An examination of the “social science of genetics”:

“Scientists have known for decades that genes can vary their level of activity, as if controlled by dimmer switches. Most cells in your body contain every one of your 22,000 or so genes. But in any given cell at any given time, only a tiny percentage of those genes is active, sending out chemical messages that affect the activity of the cell. This variable gene activity, called gene expression, is how your body does most of its work.

“Sometimes these turns of the dimmer switch correspond to basic biological events, as when you develop tissues in the womb, enter puberty, or stop growing. At other times gene activity cranks up or spins down in response to changes in your environment. Thus certain genes switch on to fight infection or heal your wounds—or, running amok, give you cancer or burn your brain with fever. Changes in gene expression can make you thin, fat, or strikingly different from your supposedly identical twin. When it comes down to it, really, genes don’t make you who you are. Gene expression does. And gene expression varies depending on the life you live.”

Published: Sep 3, 2013
Length: 24 minutes (6,182 words)

The Woman Who Counted Fish

Illustration by Kjell Reigstad

Jon Mooallem | Wild Ones, Penguin Press | May 2013 | 11 minutes (2,605 words)

 

Below is the opening chapter of Jon Mooallem’s book Wild Ones, as recommended by Maria Popova. Read more…

Longreads Guest Pick: Leigh Cowart on David Quammen's 'The Short Happy Life of a Serengeti Lion'

image

Leigh Cowart is the Sex and Science Editor at NSFWCORP. She exists solely on rage and strange cheeses.

Telling you how good David Quammen’s “The Short Happy Life of a Serengeti Lion” is feels like a spoiler. No, I’d much rather slide my copy of National Geographic across the table and let you discover, for yourself, one lion’s brutal, ceaseless struggle for sovereignty. With prose visceral enough to implant memories, and devoid of any anthropomorphic dilution, Quammen has delivered a true feat of intimacy. Simply put, to read his words is to know lions.

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