Optimizing Each Part of a Firm Doesn’t Optimize the Whole Firm

Posted on by Brandon Klein

Yet look a little closer and it becomes clear that the real problem wasn’t callousness, but mismanagement. The defect in the ignition system was, in fact, relatively minor. The real problem was that it caused airbags not to deploy. Each subsystem was performing to standard, but the interaction between them resulted in disaster.

Unfortunately, most organizations today fall into the same trap: they look at isolated metrics, but fail to see the whole system. They optimize each part of the business separately, and fail to consider how they interact. When we see an operation as a set of isolated metrics to optimize, we can lose our sense of context and decrease overall performance — an efficiency paradox.