The following appeared in a memorandum from the business department of the Apogee Company:
‘When 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 operation from a single location. Such centralization would improve profitability by cutting costs and helping maintain better supervision of all employees’.
On the surface seems to be possible that centralization of Apogee Company could improve its profitability based on the fact that when they had all its operations in one location they had more profits than today. However, for this statement to hold true there two assumptions that would have to be proven.
Firstly, they make the assumption that by centralization they will cut costs. But no evidence is given to support this. Actually, many companies such as Nike and Adidas have moved their factories to Asian countries like Vietnam, China or Thailand in order to reduce their manufacturing costs due to cheaper work force. The salary in those countries are lower, both supervisors’ and employees’.
And secondly, they also assume that helping maintain better supervision of employees would improve profitability, and this is unsupported again. In fact, it is shown by Elton Mayo that employees who have too much supervision are less productive because they don’t feel happy with their job. Therefore, the benefits decrease as the production does it.
Nevertheless, the argument can be strengthen if they state that Apogee Company has not grew and they have de same turnover than in past. This would mean that opening field offices only generated losses for the company.
Overall, the argument is not solid enough to get to the conclusion that they are going to improve profits by centralization because it is based in two assumptions that are not true and are not supported with information. However, the conclusion can be supported whether they had included information about the past situation.