- 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.”
Citing facts drawn from the color-film processing industry that indicate a downward trend in the costs of film processing over a 24-year period, the author argues that Olympic Foods will likewise be able to minimize costs and thus maximize profits in the future. In support of this conclusion the author cites the general principle that “as organizations learn how to do things better, they become more efficient.” This principle, coupled with the fact that Olympic Foods has had 25 years of experience in the food processing industry leads to the author’s rosy prediction. This argument is unconvincing because it suffers from two critical flaws.
First, the author’s forecast of minimal costs and maximum profits rests on the gratuitous assumption that Olympic Foods’ “long experience” has taught it how to do things better. There is, however, no guarantee that this is the case. Nor does the author cite any evidence to support this assumption. Just as likely, Olympic Foods has learned nothing from its 25 years in the food-processing business. Lacking this assumption, the expectation of increased efficiency is entirely unfounded.
Second, it is highly doubtful that the facts drawn from the color-film processing industry are applicable to the food processing industry. Differences between the two industries clearly outweigh the similarities, thus making the analogy highly less than valid. For example, problems of spoilage, contamination, and timely transportation all affect the food industry but are virtually absent in the film-processing industry. Problems such as these might present insurmountable obstacles that prevent lowering food-processing costs in the future.
As it stands the author’s argument is not compelling. To strengthen the conclusion that Olympic Foods will enjoy minimal costs and maximum profits in the future, the author would have to provide evidence that the company has learned how to do things better as a result of its 25 years of experience. Supporting examples drawn from industries more similar to the food-processing industry would further substantiate the author’s view.