GMAT : Analysis of An Argument
2. 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 maintains better supervision of all employees.
In this argument the author concludes that the Apogee Company should close down field offices and conduct all its operations from a single centralized location because the company had been more profitable in the past when all its operations were in one location.
For a couple of reasons, this argument is not very convincing.
First, the author assumes that centralization would improve profitability by cutting costs and streamlining supervision of employees. This assumption is not supported with any data or projections.
Moreover, the assumption fails to take into account cost increases and inefficiency that could result from centralization for instance, company representatives would have to travel to do business in areas formerly served by a field office creating travel costs and loss of critical time.
In short, this assumption must be supported by a thorough cost-benefit analysis of centralization versus other possible cost-cutting and/or profit-enhancing strategies.
Second, the only reason offered by the author is the claim that Apogee was more profitable when it had operated from a single centralized location. But is centralization the only difference relevant to greater past profitability? It is entirely possible that management has become lax regarding any number of factors that can affect the bottom line - such as inferior products, careless product pricing, inefficient production, poor employee expense account monitoring, ineffective advertising, sloppy buying policies and other wasteful spending. Unless the author can rule out other factors relevant to diminishing profits, this argument commits the fallacy of assuming that just because one event (decreasing profits) follows another (decentralization), the second event has been caused by the first.
In conclusion, this is a weak argument. To strengthen the conclusion that Apogee should close field offices and centralize this author must provide a thorough cost-benefit analysis of available alternatives and rule out factors other than decentralization that might be affecting current profits negatively.