Departmental Optimisation — When Every Department Is Right and the Business Loses

What this simulation shows

Alf Garnett never approached an argument with an open mind. The conclusion was settled before the discussion started, and Mike’s evidence was irrelevant because Mike belonged to the wrong tribe. Once identity places someone on the other side, whatever they say is wrong.

Tajfel and Turner called the underlying mechanism Social Identity Theory: people form group attachments remarkably fast and almost immediately begin favouring their own group, seeking information that confirms its competence and discounting evidence that challenges it. Football supporters recognise this instantly — the officials always do seem harsher on your club.

Businesses assume they are exempt. They are not, and this simulation demonstrates why without needing anyone to behave irrationally.

Warehouse becomes frustrated with Transport for demanding vehicles before loading is finished. Transport complains that Warehouse never appreciates the cost of idle drivers and missed delivery windows. Finance believes everyone spends too freely. Everyone else concludes Finance has never dealt with an unhappy customer. None of these positions is unreasonable. Each accurately reflects the reality experienced inside that department.

Senge’s term for this is mental models: the deeply held assumptions that shape how people interpret what they see. They are necessary — they make complexity manageable — and they create blind spots, because each department builds a coherent view of the business from the information it happens to see and the outcomes it happens to be measured against.

How to use it

Set each of the four departmental controls — Sales, Warehouse, Transport, Planning — to what that department would reasonably ask for. Maximise service on Sales. Maximise loading efficiency on Warehouse. Minimise idle time on Transport. Maximise plan stability on Planning.

Then press Run scenario and read Whole-system performance.

Every department is hitting its target. The system is performing worse than a configuration where none of them are. That is the entire lesson, and it survives repeated attempts to beat it: try to find settings where all four departments are individually optimised and the whole system performs well. The trade-offs are real, not artefacts of a badly built model.

Then use Management controls to intervene. Notice that the interventions which help most are usually the ones that make an individual department’s own metric slightly worse. This is exactly why they are so hard to get agreed.

What to take away

The danger is not that departments hold partial views — that is unavoidable. The danger is mistaking a partial view for the whole system. Sales, Operations, Finance and Technology can each act rationally within their own frame and collectively produce decisions that make no sense for the organisation.

For product managers this is the central challenge and the actual job. The role is not to contribute one more departmental perspective, but to expose the assumptions behind competing views, connect them across the wider system, and help the organisation reach a more complete understanding of the problem — the argument the systems thinking article develops in full.

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