1. 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.
The author concluded that with long experience of 25 years, Olympic foods will be able to maximize profits and minimize costs because the processing cost has gone down in color film industry. The line of reasoning is that the same approach in film processing industry should be applicable to the other industries. This argument is not sound, however, because it is not necessary that same thing would happen to food industry. It depends upon many other factors.
Firstly, the argument assumed that the color film industry is similar to food industry. One must not forget that an Olympic food is an industry for frozen foods or perishable products. These products require fast transportation and special equipments in order to keep fresh or the entire stock will get junked. These requirements can claim substantial costs and it is very likely that they can never be cut. One the other hand, color film is a consumer product which stays much longer and is not perishable. Therefore, it is possible that the cost-cutting approach is not applicable to the food industry.
Secondly, the author failed to address other factors that are important to a company's success. It is well known that in the long run maximization of profits occurs due to low cost of production. But it's not the only factor they consider. Other factors such as demand for the product, selling price, and overall competition in the market should also be taken into consideration. Today, buyers become the king in the market. If other companies' products are available at lower price with same quality or at similar price with higher quality, then people don't buy the Olympic's product. Therefore, if most consumers choose other companies' products, then the objects of higher profits and lower cost can't be attained.
Finally, the speaker did not include any information on Olympic management approach. Rather, it just mentioned the long experience of 25 years in food industry. While there is rough correlation between long experience and ability to maximize profit, it is not always the case. If the Olympic fails to accumulate valuable management experience, such as time-consuming strategic alliance, learning from failure, etc, then Olympic long experience will not enable it to minimize costs and thus maximize profits.
In sum, the argument is not compelling because it omitted many other factors that must be addressed in order to make proper conclusion. If the author has considered the difference between color film and food industry, selling price, and product quality, the argument would be more convincing.
