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 improving costs and helping the company maintain better supervision of all employees."
The argument that centralization would lead to higher profitability is based on certain unreasonable assumptions which must be addressed before argument can be justified. Two assumptions stated are that centralization helps to reduce costs and to maintain better supervision of employees. In rest of the passage I would be giving reasons for refuting these assumptions.
The first assumption is that centralization would help to reduce costs. However there are many costs which may increase with centralization. For example, cost of transporting goods to a customer in a different state would be higher in case of centralization than if the company has its office in that very state. Same example may also apply to suppliers who are located in different States. Similarly, it is possible that the company may be able to hire cheap labor in one State or Country than in the State or Country in which it is currently located. Thus we can say that the costs may reduce if the company has its operations in more than one location. However, having said this, it would be important to assert that there are some costs for example costs of maintaining books of accounts which would generally be lower if the operations are centralized. Therefore, stating that centralization would bring down cost is not entirely correct.
The second assumption states that with centralization the company would be able to maintain a better control over the employees. Whereas the statement per se may be correct, but does that mean that the productivity of employees also would be better? This is the question for which the company must find an answer in order to justify centralization of operations. There are many researches and theories which suggest that an excessive control over employees lead to lower productivity. Independence plays a very important role in productivity of an employee. This, however, does not mean that there should be no supervision over employees. The company needs to maintain a balance between supervision and independence of employees to achieve maximum possible productivity. Hence, the factor the company should look at is productivity of employees and not control over employees.
Thus stating that centralization would increase the profitability of the company with lower operation costs and higher control over employees is not entirely correct. The company needs to maintain a balance between various factors to achieve the target of maximum profitability.
"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 improving costs and helping the company maintain better supervision of all employees."
The argument that centralization would lead to higher profitability is based on certain unreasonable assumptions which must be addressed before argument can be justified. Two assumptions stated are that centralization helps to reduce costs and to maintain better supervision of employees. In rest of the passage I would be giving reasons for refuting these assumptions.
The first assumption is that centralization would help to reduce costs. However there are many costs which may increase with centralization. For example, cost of transporting goods to a customer in a different state would be higher in case of centralization than if the company has its office in that very state. Same example may also apply to suppliers who are located in different States. Similarly, it is possible that the company may be able to hire cheap labor in one State or Country than in the State or Country in which it is currently located. Thus we can say that the costs may reduce if the company has its operations in more than one location. However, having said this, it would be important to assert that there are some costs for example costs of maintaining books of accounts which would generally be lower if the operations are centralized. Therefore, stating that centralization would bring down cost is not entirely correct.
The second assumption states that with centralization the company would be able to maintain a better control over the employees. Whereas the statement per se may be correct, but does that mean that the productivity of employees also would be better? This is the question for which the company must find an answer in order to justify centralization of operations. There are many researches and theories which suggest that an excessive control over employees lead to lower productivity. Independence plays a very important role in productivity of an employee. This, however, does not mean that there should be no supervision over employees. The company needs to maintain a balance between supervision and independence of employees to achieve maximum possible productivity. Hence, the factor the company should look at is productivity of employees and not control over employees.
Thus stating that centralization would increase the profitability of the company with lower operation costs and higher control over employees is not entirely correct. The company needs to maintain a balance between various factors to achieve the target of maximum profitability.
