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-dayservice 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 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits."
Discuss how well reasoned . . . etc.
The argument presented is rife with possible inaccuracies or misinterpretations. The premise of the argument is that due to experience companies can learn to become more efficient and hence lower costs of goods and services provided. However, the author does not hold his argument above reproach and misses details that would bolster his line of reasoning.
First, we can't assume that all companies use their experience to learn, and furthermore, use their procured knowledge to become more effective. More so, even if companies keep ever improving their efficiency, the author does not address the possibility of there existing ceiling of efficiency. Further, the author ties the improvement of efficiency with minimizing costs and the minimization of costs with maximization of profits. Both cited points can be countered. Ultimately, even if the premise discussed is correct, the author's logic might not be correct in the case of Olympic foods.
We would like to believe we become wiser with age or experience. Sometimes that's not the case. Many giants like Xerox have faltered because albeit industry names at one point, the companies did not use that experience to develop new technology or product lines. Furthermore, even if a company develops knowledge, it has to actually apply it for it to be meaningful. In the case of Kodak an early entry into digital cameras, was offset by reluctance to commit to the technology hence dooming the firm.
Secondly, the author does address the concept of diminishing returns. Even if improving efficiency was tied to experience, there are natural limits. This is especially true in the case of food services where plants, cattle, etc. take time to grow, harvest, or ripen. While the example of photo processing might work, the process of growing an apple might not be able to be sped up. More so, I could argue that the photo example is a case of technology improvement not experience. The author does not defend his argument from one that argues that technology improvements trump experience.
Even more, the argument of experience leading to efficiency builds the foundation of arguing that improved efficiency will lead to lower costs. The lowering costs can be used to maximize profits. This has traditionally been the case but it is by no means a fact. Think of the case diamond industry, De Beers would be forced to lower costs in a competitive environment. However, it benefits from being a monopoly. As a monopoly it maximizes profits in a better way than by minimizing costs. At is to say if Olympic foods holds some sort of advantaged position in its field, it might not behoove it to lower costs by willfully becoming more efficient or by being forced by market forces to improve efficiency.
Lastly, the author cites that Olympic foods is nearing its 25th anniversary as a company. At no point is there an attempt to address that the company has used its previous experience to become more efficient or to minimize production costs. More so, it could be argued that even if the company has become more efficient, at 25 years of age, the company might have already reached the an efficiency ceiling as I addressed early in this report.
In conclusion, although the author would like to believe that ultimately experience leads to efficiency, efficiency lowers costs, and the lowering of costs maximizes profits, it does not all necessarily add up. Every single one of his major logic points are not fully developed. The author should consider revising his argument to improve the strength of his conclusion.
"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-dayservice 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 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits."
Discuss how well reasoned . . . etc.
The argument presented is rife with possible inaccuracies or misinterpretations. The premise of the argument is that due to experience companies can learn to become more efficient and hence lower costs of goods and services provided. However, the author does not hold his argument above reproach and misses details that would bolster his line of reasoning.
First, we can't assume that all companies use their experience to learn, and furthermore, use their procured knowledge to become more effective. More so, even if companies keep ever improving their efficiency, the author does not address the possibility of there existing ceiling of efficiency. Further, the author ties the improvement of efficiency with minimizing costs and the minimization of costs with maximization of profits. Both cited points can be countered. Ultimately, even if the premise discussed is correct, the author's logic might not be correct in the case of Olympic foods.
We would like to believe we become wiser with age or experience. Sometimes that's not the case. Many giants like Xerox have faltered because albeit industry names at one point, the companies did not use that experience to develop new technology or product lines. Furthermore, even if a company develops knowledge, it has to actually apply it for it to be meaningful. In the case of Kodak an early entry into digital cameras, was offset by reluctance to commit to the technology hence dooming the firm.
Secondly, the author does address the concept of diminishing returns. Even if improving efficiency was tied to experience, there are natural limits. This is especially true in the case of food services where plants, cattle, etc. take time to grow, harvest, or ripen. While the example of photo processing might work, the process of growing an apple might not be able to be sped up. More so, I could argue that the photo example is a case of technology improvement not experience. The author does not defend his argument from one that argues that technology improvements trump experience.
Even more, the argument of experience leading to efficiency builds the foundation of arguing that improved efficiency will lead to lower costs. The lowering costs can be used to maximize profits. This has traditionally been the case but it is by no means a fact. Think of the case diamond industry, De Beers would be forced to lower costs in a competitive environment. However, it benefits from being a monopoly. As a monopoly it maximizes profits in a better way than by minimizing costs. At is to say if Olympic foods holds some sort of advantaged position in its field, it might not behoove it to lower costs by willfully becoming more efficient or by being forced by market forces to improve efficiency.
Lastly, the author cites that Olympic foods is nearing its 25th anniversary as a company. At no point is there an attempt to address that the company has used its previous experience to become more efficient or to minimize production costs. More so, it could be argued that even if the company has become more efficient, at 25 years of age, the company might have already reached the an efficiency ceiling as I addressed early in this report.
In conclusion, although the author would like to believe that ultimately experience leads to efficiency, efficiency lowers costs, and the lowering of costs maximizes profits, it does not all necessarily add up. Every single one of his major logic points are not fully developed. The author should consider revising his argument to improve the strength of his conclusion.
