The following appeared in a memorandum from the business department of the Apogee Company:
“When the 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 operations from a single location. Such centralization would improve profitability by cutting costs and helping the company maintain better supervision of all employees.”
The author concludes that the Apogee Company would be able to gain a profit by the centralisation of the function of the company because it was more profitable when all their operations were in one location.
The author's line of reasoning is that the company would be able to let the firm more profitable in this age by materialising the same situation that is used to be when it was more profitable.
This assumption is unconvincing because it suffers from two critical flaws.
To begin with, what the centralisation can contribute to the profit is based upon the questionable assumption.
However, if company deploy their business in various places where it is quite far from headquarters, centralising is not necessarily effective way to improve profitability.
For example, the company have to pay a fee for transportation to have a meeting their clients every time that leads to the cost increase.
Secondly, the author assumes that centralisation is also meaningful to maintain better supervision of all employees.
However, the author provides no evidence to support this assumption.
Moreover, it is doubtful that all employees would work hard in the situation that the company observe how all employees work.
Employees might feel the awkward if they were kept under surveillance.
In conclusion, to strengthen the conclusion that the centralisation would improve profitability by cutting costs and helping the company maintain better supervision of all employees, the author would have to provide concrete evidence with the structure of the cost that the company spend.
Additionally, the author would also have to show the evidence why all employees would work effectively when employees are under the supervision directly.
Without this evidence, I am not convinced that centralisation is all the way to cut the cost and maintain better supervision.