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18 Jun 2017, 18:03
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Question: The following appeared in a memorandum from the business department of the Apogee Company:
“When the Apogee Company had all its operations in one location, it was more profitable than it is today. Therefore, the Apogee Company should close down its field offices and conduct all its operations from a single location. Such centralization would improve profitability by cutting costs and helping the company maintain better supervision of all employees.”
Answer:
The argument claims that Apogee Company would improve profitability by cutting costs and helping the company maintain better supervision of all employees if it closed down its field offices and conducted all its operations from a single location. The conclusion of the argument is based on the premisse that when the Apogee Company had all its operations in one location, it was more profitable than it is today. The conclusion of the argument relies on assumptions for which there is no clear evidence. Hence, the argument is unconvincing and has several flaws.
First, the argument readily assumes that Apogee Company lost its profitability due to operational decentralization, however it fails to mention other factors which could affect the loss of profitability. For example, a drop in sales could have been the reason for profitability loss and operational decentralization is actually a business strategy taken to increase sales by setting its operations into new markets. The author fails to mention whether there was a drop in sales revenue. The measure of spreading the company to field offices might have been taken as an alternative to increase sales.
This argument also relies on the idea that such centralization would cut costs and help the company maintain better supervision of all employees, however it is easier to lead and track the performance of smaller teams, thus to deliver high performance having various small nucleus can be a more effective team management than running a numerous team. Also the costs of acquiring or renting a big building structure to accommodate all the employs can be higher than having then spread into several small buildings if you one take into account price per square meter which can be more expensive according the region and other transportation necessities as providing employees with parking facilities and transportation costs.
Finally, one must understand that regardless the fact that it may cause a rise in costs the company might be willing to take a risk in order to penetrate news markets and increase sales, even if it means an immediate fall in earnings their investments could be forecasted to pay-off within a period of time.
In conclusion, while at first it may seem to make financial sense to conduct all its operations from a single location, it truly does not make financial sense. Furthermore, profitability result from a multitude of factors besides costs. So a broader analysis should be made to come up with the real reasons of the loss in profitability. Before any decision is made, all these things must be considered, not simply close down its field offices and conduct all its operations from a single location.
“When the Apogee Company had all its operations in one location, it was more profitable than it is today. Therefore, the Apogee Company should close down its field offices and conduct all its operations from a single location. Such centralization would improve profitability by cutting costs and helping the company maintain better supervision of all employees.”
Answer:
The argument claims that Apogee Company would improve profitability by cutting costs and helping the company maintain better supervision of all employees if it closed down its field offices and conducted all its operations from a single location. The conclusion of the argument is based on the premisse that when the Apogee Company had all its operations in one location, it was more profitable than it is today. The conclusion of the argument relies on assumptions for which there is no clear evidence. Hence, the argument is unconvincing and has several flaws.
First, the argument readily assumes that Apogee Company lost its profitability due to operational decentralization, however it fails to mention other factors which could affect the loss of profitability. For example, a drop in sales could have been the reason for profitability loss and operational decentralization is actually a business strategy taken to increase sales by setting its operations into new markets. The author fails to mention whether there was a drop in sales revenue. The measure of spreading the company to field offices might have been taken as an alternative to increase sales.
This argument also relies on the idea that such centralization would cut costs and help the company maintain better supervision of all employees, however it is easier to lead and track the performance of smaller teams, thus to deliver high performance having various small nucleus can be a more effective team management than running a numerous team. Also the costs of acquiring or renting a big building structure to accommodate all the employs can be higher than having then spread into several small buildings if you one take into account price per square meter which can be more expensive according the region and other transportation necessities as providing employees with parking facilities and transportation costs.
Finally, one must understand that regardless the fact that it may cause a rise in costs the company might be willing to take a risk in order to penetrate news markets and increase sales, even if it means an immediate fall in earnings their investments could be forecasted to pay-off within a period of time.
In conclusion, while at first it may seem to make financial sense to conduct all its operations from a single location, it truly does not make financial sense. Furthermore, profitability result from a multitude of factors besides costs. So a broader analysis should be made to come up with the real reasons of the loss in profitability. Before any decision is made, all these things must be considered, not simply close down its field offices and conduct all its operations from a single location.
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