GMAT Essays (AWA)

The following appeared as part of an annual report sent to stockholders by
Olympic Foods, a processor of frozen foods.

"Over time, the costs of processing go down because as organizations learn
how to do things better, they become more efficient. In color film processing,
for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day
service in 1970 to 20 cents for one-day service in 1984. The same principle
applies to the processing of food. And since Olympic Foods will soon celebrate
its twenty-fifth birthday, we can expect that our long experience will enable
us to minimize costs and thus maximize profits."

Discuss how well reasoned you find this argument. In your discussion be sure
to analyze the line of reasoning and the use of evidence in the argument. For
example, you may need to consider what questionable assumptions underlie
the thinking and what alternative explanations or counterexamples might
weaken the conclusion. You can also discuss what sort of evidence would
strengthen or refute the argument, what changes in the argument would
make it more logically sound, and what, if anything, would help you better
evaluate its conclusion.


In a recent announcement to the stockholders of Olympic Foods, the company concludes, that it's long experience (almost 25 years) soon will enable it to minimize costs and thus maximizing profits.
This argument makes several unsupported assumptions, most notable that the companies almost 25 years of experience soon will enable it to maximize profits by minimizing costs. Furthermore they try to strengthen the argument with an example from a very different business. Even this example has some questionable assumptions.
While the argument has some merit, it is flawed in three respects.

Most conspicuously, the author of the argument assumes, that the company's almost 25 years of experience will soon allow it to reduce costs and maximize it's profits. It is entirely possible, however, that the company has already been able to minimize its costs to the least possible, and therefore will not be able to maximize profits this way any further. Moreover one could speculate, that the company's long lifetime could cause need for renewal of production facilities, which could essentially reduce profits. Accordingly the author should provide information, such as concrete examples, where costs could be cut, and that no further investments will reduce profits.

Additionally the argument provides an example from the color film business, where it fails to provide evidence, that parallels can be drawn from between the film processing industry and the frozen food processing industry. This, too, is a gross assumption, as it could very well be that the competition within materials to process color film prints in 1970 were low, and therefore causing more expensive costs. This, however, will most likely not be the case of todays industry of frozen food processing. Furthermore the example compares five-days service in the 1970 to one-day service in 1984, which are essentially difficult to compare without further information. As a result the author should prove to the readers, that parallels can be drawn between firstly the 2 different industries, by for example comparing specific types of expenses that are similar in both industries. And also should the author provide proof, that the exact services are provided despite the difference in days.

Finally the argument fails to account for the assumption, that as organizations learn how to do things better over time, they become more efficient. One cannot deny, that a brand new company containing only well experienced staff, would already from the start be able to things the best possible way. To make a compelling case, the author would need to demonstrate, in which aspects this could actually be true.

In conclusion, the argument that the company's long experience (almost 25 years) soon will enable it to minimize costs and thus maximizing profits, is poorly supported and makes a number of critical assumptions. Not only does the author assume that the company's almost 25 years of experience will soon enable them to reduce costs and thus maximize profits, but he/she also provides and quite questionable example, in which different industries are compared.
In order to make the argument convincing, the author therefore needs to specify costs that can be reduces after this many years, and therefore possible will maximize profits. Furthermore the author will need to give specific examples of costs that are parallel with the industry given in the example.