Overt Interfunctional Conflict

We study why production and sales departments tend to disagree, with the former wanting long production runs and the latter wanting a broad product line. We then analyze why these disagreements lead to overt conflict in which functional areas fight with each other by presenting arguments that damage each other’s position. We show how the firm benefits from the information generated by this conflict. In spite of these benefits, the equilibrium conflict can exceed its profit-maximizing level. Finally, we show that concentrating innovative talent in only one department can help reduce interfunctional conflict.