When every function hits Its target, but the company loses margin

It's Monday morning at a mid-sized Italian manufacturing company. The Operations director presents excellent results: line utilization at 95%, production times on target, efficiency aligned with objectives. The Sales director confirms 8% volume growth for the quarter. Procurement reports optimized inventory, lead times within parameters, purchasing costs under control.
Every functional performance indicator is green. Every manager has achieved their targets.
Yet the CFO observes a troubling figure: operating margin has declined from 14.2% to 11.8% in six months. Nearly three percentage points evaporated, with no clear explanation.

This is not an isolated anomaly. It represents a paradox pervading contemporary manufacturing: functional optimization generating systemic underperformance. This is not about execution gaps or competency deficits. The problem is structural: each function optimizes local metrics while the overall system erodes value.
Operations maximizes plant utilization by producing what saturates lines most quickly, regardless of product profitability. Sales closes orders that increase volumes even when they compress margins. Procurement pursues the best spot price without considering the impact on future production mix.

Individually, each decision appears rational. Collectively, they destroy enterprise value.
The problem doesn't lie with people or functional objectives. The problem is the absence of systemic governance for interdependent decisions.

This type of inefficiency is particularly insidious because it operates below the threshold of visibility. It generates no obvious alarms. It produces no glaring errors to correct. It creates no clearly wrong decisions to reverse.
It manifests as silent erosion: an accumulation of micro-decisions that appear individually rational but, when aggregated, generate significant and persistent damage.
Research indicates that decision inefficiencies cost Italian manufacturing companies between 5% and 7% of annual revenue. Not from catastrophic strategic errors, but from the daily accumulation of sub-optimal choices that no one recognizes as such in the moment they're made.

An even more revealing data point: 20% of managerial time is absorbed by inefficient decision processes. Fragmented analyses that produce no operational conclusions. Meetings that end without clear decisions. Comparisons between alternatives that never materialize, due to the absence of common language or shared visibility.
In a mid-market company with ten managers, this equates to two full-time resources dedicated to decisions that generate no value or, worse, invisibly destroy value.

The real cost, however, is not the time. It's what happens next: margins that compress quarter after quarter with no apparent cause. Competitiveness that erodes without understanding the dynamics of deterioration. Missed opportunities because productive capacity is allocated to low-margin products.
In a context where Italian industrial production registered a 3.5% contraction in 2024 (the twenty-third consecutive month of decline) and raw material cost volatility persists, this decision fragility becomes progressively more expensive.

In manufacturing, three decision categories are profoundly interconnected:

1. Production capacity allocation: what to produce given limited capacity constraints
2. Raw material management: when and how much to purchase, balancing cost, risk, and liquidity
3. Pricing strategy: how to price, optimizing margins, volumes, and competitive positioning

These decisions, while closely correlated, are typically made at different times, by different functions, based on different data, optimizing different objectives.
Sales determines prices in response to competitive pressure and customer relationship dynamics, without visibility into the impact on production saturation or overall portfolio profitability.
Operations allocates capacity based on commercial urgency and production ease, without clear understanding of which products actually generate more value for the company.
Procurement acquires raw materials reacting to price fluctuations or immediate needs, without considering how these choices will condition future production mix or operational flexibility.
This is not about bad faith or incompetence. It's simply that the decision architecture was not designed to enable dialogue among these choices. Each function has its own data, tools, and objectives. And operates in the best possible way within these boundaries. But the overall result is sub-optimal. Sometimes, destructive.

Decisions are interdependent, but the decision framework is fragmented. We optimize components, not the system. We measure local efficiency, not global value creation.
When every function achieves its targets while margins decline, it becomes impossible to identify what to correct. Because there is no specific "what" to correct. It's the decision system as a whole that requires redesign.

The good news: this type of inefficiency, precisely because it's systemic and not tied to specific errors, can be corrected with rapid and significant results.
Manufacturing companies that implement an operational system for decision governance—a framework that considers the production portfolio as an integrated system and compares alternatives before deciding, making inter-functional trade-offs explicit—register measurable results:

• +2-3 percentage points in operating margin
• -25-40% in planning time
• +18% in profitability per product line

These results do not stem from major technology investments. They don't require personnel replacement. They don't involve process upheaval.
They derive from a change in how decisions are structured, compared, and made. From the shift from local optimization to systemic visibility. From identifying interdependencies among choices that are currently made in isolation. From making trade-offs, impacts, and probabilities explicit before action.

The difference doesn't reside in tools, but in the approach to decisions: not as isolated events, but as components of an interconnected system where each choice influences others, creating an enterprise decision layer positioned above data, people, and processes.

The competitive advantage of Italian manufacturing will not emerge from larger plants or more advanced technologies. It will emerge from the ability to make interconnected decisions considering the system as a whole, not optimizing functional silos sequentially. The critical question is not "has every function achieved its objectives?" but "are the decisions we're making creating or destroying overall value for the company?"

This systemic perspective represents the frontier of manufacturing competitiveness. Not because it's conceptually new, but because few organizations have implemented it effectively.