The following appeared in a memorandum from the director of research and development at Ready to Ware a software engineering firm The package of benefits and incentives that Ready to Ware offers to professional staff is too costly Our quarterly profits ha

The argument states that at Ready-to-Ware, a software engineering firm, the benefits and incentives offered to professional staff package is too costly. Stated this way, the argument fails to mention several factors, on the basis of which it could be evaluated. The conclusion of this argument relies on evidence for which there is no clear evidence. Hence, the argument is unconvincing and has several flaws.

First, the argument readily assumes that the fall in quarterly profits since the introduction of the benefits and incentive package two years ago is soley attributable to the increased cost of this package. This statement is a stretch and says nothing about the contributing factors to the business’ poor performance. For example, a stronger competitor may have entered the same market, rivalling the software products offered by Ready-to-Ware at a similar time to the introduction of the package. This would likely see Ready-to-Ware’s sales fall due to increased competition which, ceteris paribus, would cause its profits to fall. Alternatively, the company may have lost customers due to switching to other providers of the same product. The result would be the same in this case, a fall in profits, all else equal. Lastly, if the business’ costs increased eg due to greater cost of compliance with regulation surrounding data security, then profits would also fall if sales did not increase to offset this. Clearly the author has failed to mention how significant the cost of the package in the context of the company’s overall revenue and cost drivers. The argument would be improved if the author provided evidence that sales and other costs hadn’t changed significantly and/or benefits and incentive costs are a key component of costs.
Second, the author claims that the package was ineffective in attracting high-quality professional staff. This is again a very weak and unsupported claim as the argument does not provide any evidence supporting this or even define was is meant by ‘high-quality professional staff’. There are numerous reasons why the package failed. One example could be that while the package was an improvement in the last, there are more generous packages available from competing software engineering firms who are larger and may invest more in attracting and recruiting talent. In fact, it is not all that clear the extent to which the benefits and incentives package was marketed and, the extent to which this effort was successful. While the author claims that the company made improvements on the package, he/she does not disclose the extent to which this was marketed. For example, if the was little budget to market this package during recruitment efforts than this could be more of a viable explanation for the failure to recruit quality employees. Lastly, the author does not define what is meant by ‘high-quality professional staff’ which, again, makes the argument unsupported, arbitrary and therefore, not compelling. If the argument provided evidence that the package was a lucrative one within the industry and/or the recruitment team at the company invested a significant amount of time/money to market the package then it would be strengthened.

Finally, the argument states that for Ready-to-Ware to become more profitable again, it should offer reduced benefits package that was in place two years ago and use the savings to fund its current research and development initiatives. This part of the argument fails in many ways. Most strikingly it assumes that the combination of cost savings from the old package and research and development initiatives will make the company profitable one more. Research and development efforts typically involve a large amount on investment, or capital outflow, in early years before profits are realised. There is also a large uncertainty about whether these efforts will succeed or fail. On the other hand, while it is plausible that the old benefits package costs less and would reduce costs there are a host of other factors which could offset these cost saving. For example, falling sales and new entrants/competitors could lead to poor results, and lacklustre profitability once more. If the author provided data showing a strong return on investment historically for the firm and its competitors and also provided evidence that the economic environment currently favours these types of investments, the argument would be more convincing.

In conclusion, the above argument is flawed for the above-mentioned reasons and is therefore unconvincing. It could be considerably strengthened if the author mentioned all the relevant facts. In order to assess the merits of a certain claim it is essential to have full knowledge of all the contributing factors. In this case the author makes several unsupported claims about profitability without discussing key drivers/contributors.