A model of optimization

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Among the strange quirks of human psychology is this: While most people know that argument by analogy is invalid, we’re universally vulnerable to how the analogies we choose influence our thinking. For example, those describing corporations and their behavior have, among other metaphors, likened them to jungles, predators, economies, giant human beings, prosthetics, robots, factories, plants, farms, computers, and amoebas.

If you envision your employer as a prosthetic — as a mechanical extension of the will of its owner — you’ll have very different expectations of how it will and should behave than you will if you think of it as a self-directed machine. Among the differences in perspective is how you’ll think about optimization — the subject we’ve been pursuing (beating to death?) the past several weeks. If you consider the enterprise to be a machine, you’ll think about optimization and wonder how many decimal places you can take it to. If you figure it’s an economic system you will, Adam Smith fashion, establish a network of charge-backs and expect the invisible hand to optimize everything without anyone having to worry about it very much.

What’s the best way for you to think about the part of the enterprise you lead? Personal opinion: Push all metaphors out of your head. Relying too much on metaphors is like wearing blinders.


As pointed out in last week’s column, few situations allow you to optimize for just a single variable. Imagine you’re running a small company that manufactures a single product. Imagine, for the sake of argument, that you know, with a certainty, exactly how variations in each of your product’s attributes — price, durability, performance and so on — will affect its attractiveness to the universe of potential customers. And finally, to prove it’s a fictional scenario, imagine you’ve created a system of simultaneous equations that perfectly accounts for all aspects of your business, including the cost of manufacturing and distributing your product and how the cost changes with each variation in the product’s attributes.

By manipulating your system of simultaneous equations you can posit any number of product variations, predict exactly how much each will cost to manufacture, and what selling price will maximize your profits for that product variation. With this excellent command of your enterprise you’ll have no trouble formulating the exact situation that maximizes your profits (I’ll leave the math as an exercise for the reader).

Except ,,, even if you do end up with a single solution that maximizes profits, that solution might not do much to position your company for future success. And since the future is intrinsically unpredictable, you’re still making guesses, even in this idealized scenario.

So much for fiction. No company has this level of understanding. No company has anything remotely resembling this level of understanding, and there’s no point in pretending any company does.

How does this relate to your situation? You don’t run a whole company — you run a department or division in the company. The company doesn’t have a system of simultaneous equations that shows exactly how changes to different departments affect overall profitability. All it has is a budget, and nobody even understands that.

So to take the first step toward optimizing your part of the company, forget about the whole notion of optimization. It’s a chimera.

But don’t give up entirely. Just because you don’t have a system of simultaneous equations to optimize doesn’t mean you have to sit on your hands doing nothing.

Here’s a sane starting point, which I learned from my research advisor back in my electric-fish days: Understand your subject at three levels of description. Learn your personal level of responsibility in depth. Develop a working knowledge of the levels above and below. I studied behavior, which meant I had to understand behavioral theory in depth while developing a working knowledge of neurobiology and sociobiology. Three levels of description.

In a business situation (I’m guessing you aren’t all that interested in the behavior of electric fish) it means you should thoroughly understand what you’re personally responsible for while developing a working knowledge of the responsibilities of those reporting to you (level below) and how your organization contributes to the ones it directly connects to (level above). This more limited understanding of the universe and your place in it won’t let you achieve global optimization. Understanding the level above will, however, help you develop plans to improve your own organization in ways that are likely to contribute positively to the company as a whole.

Understanding the level below means you won’t make those who have to make it happen burst into hysterical laughter.

I’ll wrap up this subject next week … I hope!