"Plan of Action" CR

[goMba]

This is a GMATPrep test question... Need your help in understanding the correct answer for this:

Outsourcing is the practice of obtaining from an independent supplier a product or service that a company has previously provided for itself. Vernon, Inc., a small manufacturing company that has in recent years experienced a decline in its profits, plans to boost its profits by outsourcing those parts of its business that independent suppliers can provide at lower cost than Vernon can itself.

Which of the following, if true, most strongly supports the prediction that Vernon's plan will achieve its goal?

(A) Among the parts of its business that Vernon does not plan to outsource are some that require standards of accuracy too high for most independent suppliers to provide at lower cost than Vernon can.
(B) Vernon itself acts as an independent supplier of specialized hardware items to certain manufacturers that formerly made those items themselves.
(C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied.
(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.
(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business.

OA follows...

[Blue_Lotus]

The prediction/conclusion is that Vernon will achieve its goal of boosting profits

(A) Among the parts of its business that Vernon does not plan to outsource are some that require standards of accuracy too high for most independent suppliers to provide at lower cost than Vernon can.
>> This sounds good , this will help to maintain good level of accuracy , but does not
Show how that will result in profit

(B) Vernon itself acts as an independent supplier of specialized hardware items to certain manufacturers that formerly made those items themselves.
>> This adds no value to our conclusion

(C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied.
>> This says that the probability of independent supplier becoming competitor is low,
That is good but it does not say how Vernon can make profit now.

(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.
>> This is a strategy, adding nothing to our conclusion.

(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business.
>> If managers time and effort are spent on core business , it could be a way of boosting profit. In the premise it is mentioned that there has been a decline in profit and "THOSE parts of business" will be outsourced.
This answer explains as to why Those parts of business may have been inefficient.

Answer therefore is E.

[goMba]

Thanks Blue_Lotus. OA is also E so you are right.

However I am still not completely convinced. May be by elimination i can also take E as the answer but to me seems both D & E require a bit of leap in order to make the ends meet. D is a plan which makes sense that if you call for bids then by choosing the most optimum bid you should be able to achieve your goal of boosting profits. E also similarly makes sense that if managers are freed then they can be more productive thus helping to boost profits. Though even the latter seems to require a bit of assumption that "the managers can be more productive".

I feel there is something missing. If someone can help great else i will take it as is and move on :)

Thanks.

[RonPurewal]

D is a plan which makes sense that if you call for bids then by choosing the most optimum bid you should be able to achieve your goal of boosting profits. E also similarly makes sense that if managers are freed then they can be more productive thus helping to boost profits. Though even the latter seems to require a bit of assumption that "the managers can be more productive".

choice (d) is irrelevant; it merely makes a general statement about the way in which vernon will choose the companies to which it will outsource. note that this choice says nothing about choosing "optimal" bids; for all we know, vernon will actually choose the worst bid.
but, much more importantly, the point here is the main theme of the argument, which is the effect of outsourcing on profit. the way in which the outsourcing companies are selected doesn't really pertain to that theme at all - remember that you need an answer choice that shows that OUTSOURCING WILL BE MORE PROFITABLE THAN NOT OUTSOURCING. there is absolutely no connection between choice (d) and this idea.

you are correct that choice (e) requires the assumption that freeing up top managers' time will somehow contribute to profits - BUT remember that you're looking for the choice that "most strongly supports" the argument. in this case, the other four answer choices are completely irrelevant to the issue, which is the effect of outsourcing on profit.. choice (e), on the other hand, unlike the other choices, really does support the idea that OUTSOURCING WILL BE MORE PROFITABLE THAN NOT OUTSOURCING.
therefore, even though (e) requires additional assumptions, it's still the choice that "most strongly supports" the argument - because it's the only choice that even could support the argument.

[sh.bharath]

Ron, I got your point about E.
I mistakenly selected C. How do you rule out option C sir?

[RonPurewal]

Ron, I got your point about E.
I mistakenly selected C. How do you rule out option C sir?

(c) is a generalization that can't be directly applied to vernon in any legitimate way. so, the short answer is that (c) is irrelevant to the argument.

the only remaining question is why you picked (c), so that we could point out where you went wrong.

[llzzyy234]

Ron, I got your point about E.
I mistakenly selected C. How do you rule out option C sir?

(c) is a generalization that can't be directly applied to vernon in any legitimate way. so, the short answer is that (c) is irrelevant to the argument.

the only remaining question is why you picked (c), so that we could point out where you went wrong.

I also chose (C), the reason is: I think it as a premise that an supplier will not become a competitor of the manufacturer, so it ensure manufacturer can make profit. If I negate (C), then supplier will be capable of competing manufacturer by expanding their business, so the manufacturer will lose profit.

On the other hand, the option (E)
The stem mentions that supplier can provide lower cost product or service.
But option (E) mentions that managers should focus on core task but not inefficient task.
There are some assumptions I think:
1. the core task will not be outsourced.
2. The inefficient task cannot be a core task.
3. If managers focus on core business, they will make more profit.
Should I take these assumptions for granted?

The option (E) doesn't mention the relationship between the outsource and inefficient task and core task directly. There may be an intersection between core task and inefficient task.


Please point out what's wrong with my reasoning.

[RonPurewal]

I also chose (C), the reason is: I think it as a premise that an supplier will not become a competitor of the manufacturer, so it ensure manufacturer can make profit. If I negate (C), then supplier will be capable of competing manufacturer by expanding their business, so the manufacturer will lose profit.

* if you negate (c), you still get an overall generalization, which may or may not apply to vernon's case.
* therefore, you need to make a couple of very shaky assumptions here. i.e., you are assuming that vernon's suppliers will become direct competitors -- and that the quality of the competition will be good enough to have an adverse affect on vernon's profit margins. those are some pretty heady assumptions, much more dubious than the assumptions required in the correct answer choice.
* more importantly, this sort of negation does not apply to the same timeframe as the passage itself. the passage is talking about the immediate economic effects of outsourcing, while choice (c) addresses a completely different timeframe -- a much longer timeframe, on which offshore companies have the opportunity to expand into conglomerates of their own. that sort of thing will have no effect on vernon's profits in the kind of timeframe that the argument is treating.

1. the core task will not be outsourced.

this is reasonably implicit in the definition of "core task".
stop for a second and think about how you would characterize a "core task" (as opposed to ancillary tasks). you will probably come up with something like "a core task is one that must necessarily be done within the company itself".

2. The inefficient task cannot be a core task.

the answer choice explicitly says that the managers' time "would have been better spent attending to vernon's core business", thus implying that the inefficient tasks are not part of the core business.

3. If managers focus on core business, they will make more profit.

the answer choice says that vernon performs the other tasks "relatively inefficiently" -- i.e., less efficiently than the company's core tasks.

The option (E) doesn't mention the relationship between the outsource and inefficient task and core task directly. There may be an intersection between core task and inefficient task.

nope. if the argument says "they spent time doing x when that time would have been better spent doing y", then we know that y is not x.

[gmatwork]

I fell for (C) trap.....I don't how I could have avoided that. After reading the above posts. I do understand that C needs some assumptions in order to be true such as -

a) suppliers do become competitors in future
b) the competition is good enough to hurt profits etc, etc

but as far as (e) goes we are also making an assumption that the additional time will be invested by the executives to the core activities - they might ...they might not?

I am not debating that (e) is wrong but seriously I don't have a solid understanding of how to break the tie between these two types of close choices?

[RonPurewal]

I fell for (C) trap.....I don't how I could have avoided that. After reading the above posts. I do understand that C needs some assumptions in order to be true such as -

a) suppliers do become competitors in future
b) the competition is good enough to hurt profits etc, etc

there's no reason to assume that these are likely to happen -- and certainly no reason to view them as default assumptions.

but as far as (e) goes we are also making an assumption that the additional time will be invested by the executives to the core activities - they might ...they might not?

look at the wording of that choice:

Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business

there's a pretty clear suggestion here that, had these executives not been forced to spend their time on the inefficient tasks, they would have attended to the core business instead.
the only alternative interpretation is "maybe they still would have ignored the core business and done something random instead"; i think you'll agree that this is more than a bit farfetched.

I am not debating that (e) is wrong but seriously I don't have a solid understanding of how to break the tie between these two types of close choices?

if something is clearly the most probable or most reasonable interpretation of a given statement, then you should go ahead and assume it.

[peterm35]

for me, C) did seem very general, but in terms of putting the question into a real life/common sense framework and making it "come alive," it confused me that the passage said "those parts of the business that the suppliers can proved AT A LOWER COST."

E) talk about products "that Vernon performs inefficiently." It is hard to reconcile that in some CR questions subtle variations in wording like this can mean the difference between right or wrong, while here it is OK. I suppose C is wrong because it clearly would not help Vernon "achieve its goal."

How could I have know that lower cost and relatively inefficiently are essentially interchangeable in this context?

[RonPurewal]

Lower cost is one type of relative inefficiency, so the correct answer covers what's discussed.

You don't need exactly the same degree of generality, of course. (Remember, this is NOT a problem on which you're trying to prove an "inference".)
For instance, if I say, "My friend always gets bloating and GI distress from eating cheese", then "She's allergic to dairy products" is a perfectly adequate explanation. No need to specify cheese in particular.

[RonPurewal]

Choice C isn't relevant. If you mistakenly think choice C is relevant, then that's one of those thought processes in which A is related to B, which is related to C, which is related to D, but by the time you get to D you've totally lost any meaningful relationship to A. Always keep the direct goal in mind.

Choice C says that, if Vernon outsources some of its production tasks, then the outsourced labor is unlikely to grow into a huge company that will challenge Vernon. Ok, fine. But this doesn't support the notion that profits will go up (= THE GOAL of the problem).

[explorer31]

Hello!

Apologize for opening up an old thread. However, I have few questions on how to arrive at the conclusion stated by Ron - "Outsourcing will boost the profits than not outsourcing". When I analyzed the argument, my conclusion was - Vernon's plan will achieve its goal which is to "Boost the profits by outsourcing for lower costs than Vernon's". I am trying to strengthen the conclusion by eliminating that "Outsourcing did not achieve its goal of boosting the profits via lower costs but at equivalent or higher costs than Vernon's ..". The reason for this is - outsourcing plan can fail as well which would mean the costs did not end up lower as expected.

I have read through the entire thread and know why each of the answer choices are incorrect/correct. However, I want to understand why the conclusion that I chose is incorrect. Because using my conclusion I was able to arrive at (D) which states that Vernon's plan will achieve its goals of lower costs because Vernon will choose from submitted bids. It sounds like we are trying to force fit (E) to the argument even though its not perfect.
In other words, if my conclusion is incorrect can you please redirect me and help me out on how to avoid the 'distractors' in the cpnclusion language to focus on the right core. Appreciate your inputs!

[Sage Pearce-Higgins]

I agree with you on this one, and I think Ron was being careless in his wording. When we're looking for a conclusion (or here, the aim of a plan, but the same principle applies), we want to look for exactly the words used. As you wrote, the key phrase here is 'plans to boost its profits'.

For this to happen, the outsourcing has to be cheaper than what Vernon Inc. could achieve by keeping the services in-house, so Ron is correct in drawing attention to the contrast between the cost of the operations if they're outsourced, versus what Vernon Inc. could do itself. Answer D is a good trap, as it basically states a principle of outsourcing that few of us could disagree with. However, it doesn't answer the key point: will the outsourcing actually be cheaper than keeping the services in-house? We don't have any information about that from answer D.

It sounds like we are trying to force fit (E) to the argument even though its not perfect.

I'm glad that you noticed that, because answer E is far from perfect. However, out of all the answers, it's the one that 'most strengthens' the plan.