We study why functional departments within companies, such as the marketing and manufacturing departments, have different preferences regarding what their firm should do. We then analyze why these disagreements lead to overt conflict. Finally, we consider two methods for averting conflict. The first involves a change in compensation policies while the second involves concentrating innovative talent in one department. The latter might give rise to “manufacturing dominant” or “marketing dominant” organizations, or the adoption of a “low cost” or “differentiation” strategy.