Companies are often torn between the benefits of focusing on one major

Question

Companies are often torn between the benefits of focusing on one major product or service and the drawbacks of relying too heavily on one primary source of income. While narrow focus can provide a company with an advantage over competitors that offer a wider range of products or services, an undiversified income stream can leave a
company susceptible to major fluctuations in cash flow.
We can see this tension realized when, for example,________________.

Which of the following best completes the passage below?

Which of the following best completes the passage below?

(A) a local messenger service known for its speedy deliveries is forced to lay off twenty percent of its work force after a rise in local taxes encourages many local businesses to move out of state

(B) an advertising agency loses one of its clients

(C) a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team

(D) a construction company opts to use non-union labor to increase its profits

(E) a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients

pqhai · Accepted Answer

The question asks us to find an example that is similar to the situation in the stimulus.

ANALYZE THE STIMULUS:

A company focuses on  ONE MAJOR PRODUCT  ==> relies too heavily on  ONE PRIMARY SOURCE OF INCOME  ==> an undiversified income stream leave a company susceptible to major  FLUCTUATION IN CASH FLOW

Basically, we need to follow a pattern:   one product ==> one source of income ==> fluctuation in cash flow.

ANALYZE EACH ANSWER:

• a local messenger service  known for its speedy deliveries  is forced to lay off twenty percent of its work force after a rise in local taxes encourages many local businesses to move out of state
  Correct.   This company focuses on its major product. Its cash flow would be affected if some unfavorable factors happened.

• an advertising agency loses one of its clients
 Wrong.  The loss of one client does not affect too much to the company's cash flow.

• a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team
 Wrong.  This company actually diversifies its business.

• a construction company opts to use non-union labor to increase its profits
 Wrong.  Nothing about one product & one source of income.

• a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients 
 Wrong.    SHELL GAME.   you may pick E because of a word " a specialty " and you assume the company has  ONLY ONE  product. But actually, this company diversifies its business because it focus on  using local ingredients . If one store has problem with its local ingredient, it does not affect other stores in different areas.

Hope it helps.

Bunuel · Answer

OFFICIAL EXPLANATION

The tension indicated in the argument is that between the benefits of focusing on one primary product or service and the inherent risks of relying too heavily on an undiversified income stream. The correct answer choice must exemplify this tension.

(A) CORRECT . This example correctly identifies a company with a clear, narrow focus – a local messenger service - that enjoys a competitive advantage because of its reputation for speedy deliveries. At the same time, its undiversified income stream becomes problematic when a factor outside of its control – the relocation of local businesses out of state – forces it to lay off employees.

(B) This example does not specify any particular focus of the advertising agency nor does it demonstrate any major cash flow consequences due to the loss of the client.

(C) In contrast to the predicament described in the passage, this example describes a company that is interested in diversifying its holdings.

(D) The fact that the construction company is attempting to increase its profits does not illustrate the tension described in the passage.

(E) Though the specialty sandwich store that uses local ingredients might be called a very focused company, there is no evidence presented that this focus has had any adverse effect on cash flow.

Rock750 · Answer

A it is

Benefits of A : one speciality service: speedy deliveries ( one major service)
drawbacks of A: A rise in local taxes encourages many local businesses to move out of state ---> Income Down ---> Company is forced to lay off ppl

HumptyDumpty · Answer

The situation: Specialization can put a company at advantage, but also at disadvantage. Disadvantage: one source of income makes the company susceptible to changes on the market.

A:

The messanger must lay off considerable part of workforce because he has lost clients due to a third factor. He cannot cushion the negative effect of the change on the market due to some reason: he is susceptible to the change, because he has no other major source of income: he is specialized in some field. Thus, he suffers the drawback of being specialized.

B:

The reason and consequence of the loss are relevant, not the loss itself: too little information to conclude whether the agency is susceptible or not.

C:

The reason for such intention could be current risky susceptibility to changes on the market, but also will to increase profit and many more. There exist many alternative explanations for C.

D:

Leave alone the significance to the problem, one would have to look for any relationship first.

E:

Incorrect like C, because there exist multiple reasons other than susceptibility to the market change for such behaviour, and incorrect like D, because it is unrelated to the changes on the market in question.

ddg · Answer

Corporate are torn between
A) benefits of focussing on one product b) drawbacks on relying on one primary source of income

---> means they are torn between whether to rely on one product 
 or on relying only on one source of income by focussing on that product alone and not on other services (maybe?)
 (ask!!!)

While
 A) narrow focus can help the company in shelling out a perfect and innovative (maybe?) product in comparison to other rivals 
there is also a factor
 B) depending on one source of income doesn't allow diversified cash flow (causing the company maybe trouble in future?)

inference (positive? possible?)  = don't focus on only one?; have diversified view?;

inference (to drive home the point to NOT focus?)  = example of companies who suffered because of this??

Ask yourself which is being asked? positive inference (of changes a company can make to deal with this?) or a negative inference (where companies are shown to suffer because of being torn between...?)

HOW CAN WE SEE THE TENSION REALIZED? MEANING ---> example of where a company suffers because of this? Author might have used an example to justify his

A) is the only one that gives a straightforward example of negative inference. ( = tension REALIZED)

sgrover18 · Answer

Hi All,

The MOST important factor in the question ( as per my understanding) is that we need to complete the sentence which begins with "  we can see this TENSION is realised when  " --> What we are expected to do is give an example of a situation where a company has some concerns because of its style of operating ( Niche)

Now lets look at the answer choices :

(A) a local messenger service known for its speedy deliveries is forced to lay off twenty percent of its work force after a rise in local taxes encourages many local businesses to move out of state --> Now this is a "Local" service known for " speedy deliveries. Without going too much into detail, we need to notice that certainly there was a TENSION

(B) an advertising agency loses one of its clients --> All you business minded people will now argue losing a client is a tense situation as well. Sure it is but do we have any information about the advertising agency or the client ? Let me give you more examples:

1.  A big advertising agency , a very small revenue customer --> Is the agency niche in its operations ? They may be into all sorts of advertisements print, radio, mobile. Losing one of the lets say 10k + customers, and that too a very small customer. Do you think it fits into the analogy required for the argument.

2.  If the sentence read --> An advertising agency lost one of its biggest clients. This client contributed to 70 % of the agencies' revenue. Then this could have been a very strong contender
 
(C) a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team ---> Will this lead to any sorts of tension ?

(D) a construction company opts to use non-union labor to increase its profits --> plans to increase profits surely do not qualify as concerning issues

(E) a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients --> Same as C. No apparent tension.

This questions becomes extremely simple if we catch of hold of that very important word. you do not even need to get into the exercise of classifying the industry as a niche one or not. That almost becomes irrelevant.

I hope you find this approach useful.

Regards,
Shradha

rsrighosh · Answer

I thought messenger service meant messenger "app" service like chatting apps

That's the reason I chose wrong answer.

napolean92728 · Answer

The correct answer is:
 (A) a local messenger service known for its speedy deliveries is forced to lay off twenty percent of its workforce after a rise in local taxes encourages many local businesses to move out of state

Here's why (A) is correct:
The passage discusses the  trade-off between focusing narrowly on one product/service  and the  risk of relying too heavily on a single source of income . It mentions how this makes companies  vulnerable to fluctuations in cash flow .
Option (A) illustrates exactly this scenario:
 
 The  local messenger service  is highly specialized (narrow focus). 
 It is impacted financially due to  external economic factors  (businesses moving out). 
 Because of its lack of diversification, this change has a  major negative impact  (layoffs).  
This shows the  tension  between the benefit of specialization and the  risk of income vulnerability , making (A) the best completion.

Elimination of other options:
 (B) an advertising agency loses one of its clients 
 
 Too vague. Losing a client is common and doesn't directly demonstrate the problem of  relying on a single product/service  or lack of diversification. 
 No indication that the agency was overly dependent on this one client.  
 (C) a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team 
 
 This shows  diversification , not the risks of  lack of  diversification. 
 It does not support the “tension” mentioned in the passage.  
 (D) a construction company opts to use non-union labor to increase its profits 
 
 Irrelevant to the discussion. This is a cost-cutting decision, not about product/service focus or reliance on income streams.  
 (E) a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients 
 
 This shows  expansion and scaling  — potentially a move toward diversification, not a downside of narrow focus. 
 Doesn't illustrate a  negative consequence  of depending on one product or income stream.

Su1206 · Answer

I understand that A encapsulates the two conditions (Reliance on 1 USP and uncertainity in cashflow due to under-diversification). But, so does B. How to conclusively rule out B.

DmitryFarberMPrep · Answer

It's hard to imagine a perfect answer to the question, since the prompt has set us up to expect an illustration of the actual tension between the benefits and risks of specialization. Answer choice A doesn't really show us why the company benefited from offering just this one thing--what is the gain from not offering other services? However, A does at least clearly show an example of a specialized company that suffered when its one product was threatened. If the company HAD offered more services, then perhaps it wouldn't have gotten hit so hard by this one particular change.

B, on the other hand, doesn't address anything about specialization or risk. We just know the company is an ad company--was it particularly specialized? And we don't know that it was a big problem to lose one client. Businesses lose clients all the time! This situation doesn't illustrate the risk that comes from specializing in exactly one product or service.

Usernamevisible · Answer

For option A, even if the company had diversified income, taxes would have still impacted it and this is also visible when the option reads as A - after a rise in local taxes encourages "many" local businesses to move out of state - so this does not at all talk about single product getting its cashflow impacted. even if it was multiple product the cashflow would be impacted

Companies are often torn between the benefits of focusing on one major

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Companies are often torn between the benefits of focusing on one major

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards