"Over time the cost of processsing 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 5-day service in 1970 to 20 cents for 1-day services in 1984. The same principle applies to the processing of food. And since Olumpic foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimze costs and thus maximize profits".
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Economic theory is broad as professors, students, consultants and business people have been doing research for so long. But, when it comes to business analysis, it all comes down to two important metrics: costs and profits. In the preceding statement, Olympic Foods sends a positive message to its shareholders by claiming the company expects to minimize costs and maximize profits on the back of its almost 25 year experience in the food processing business. Though its claim may well have merit, the company presents a poorly resoned argument, based on several questionable premises and assumptions, and, based solely on the evidence the company offers, we cannot accept its argument as valid.
The primary issue with the company's statement lies in its unsubstantiated premises. Olympic Foods extrapolates from the color film processing business a trend toward lower cost that should supports the expected evolution of its food business. The former and the latter businesses are quite different and are exposed to different dynamics. In fact, film processing is a consumer discretionary business where technology advancements and hard commodities costs are the main profit drivers. On the contrary, food processing is a consumer staple business where cost of soft commodities and distribution are critical factors. Therefore, Olympic Food's premise, lack evidentiary support and render its conclusion unacceptable.
In addition, the company makes several assumptions that remain unproven. For example, although it is correct to assume that almost 25 years of experience in the food business may give the company enough knowledge of that business, it is also worth noting that experience may also limit innovation and, in turn, hindered the ability of the company to adapt its strategy to new market dynamics and lead to lower margins. Furthermore, cost minimization is not per se a good thing. Investments are important to grow market share and, although they may result in higher costs in the short term, they benefit margin in the long term through market share gains and more efficient production.
Though there are several issues in the company statement, with research and clarification, it could be improved significantly. Such as, a more appropriate premise, and a reference to both their short term and long term profit/cost strategy. Finally, strategy and competition should be mentioned, too.
In sum, the company's illogical argumant is based on unsupported premises and unsubstantiated assumptions that render its conclusion invalid. If the company truly wants to change its readers'minds, it would have to largely restructure its argument, fix the flaws in its logic, clearly explicate its assumptions, and provide evidentiary support.
