Why is every team hitting its targets while profit falls?
Marketing brings in enquiries, Sales wins orders and Delivery meets deadlines. Yet profit is down. Each team’s figures may be accurate without showing what happens between them — including the price and delivery commitments that created the final cost.
The commercial effect of local optimisation
A function can improve the measure it controls while adding work elsewhere. A sales target based on signed revenue may favour generous service terms. Delivery then absorbs the response times, exceptions and support required by those terms. If those costs are not included when the deal is approved, both teams may meet their targets and the company may still earn less.
Targets and the authority to change the outcome
Suppose Sales is measured on contracts won and Delivery on completing jobs within an agreed timeframe. Sales offers additional response cover to secure a large deal. Delivery recruits temporary staff to meet the promise. Neither team necessarily misses its KPI, but the extra contract contributes less than expected. This is an illustrative situation.
Making the cost visible is only the first step. Delivery cannot correct the terms of an agreement it has no authority to change. Sales cannot evaluate a proposed exception properly without cost and capacity information. The management decision is where approval of non-standard commitments should sit, and whether the teams share the authority as well as responsibility for the outcome.
Before introducing a shared profit target, establish which decisions each function can influence. Otherwise shared accountability may leave the original incentive and approval problem untouched.
When local targets hide an end-to-end loss
Marketing may deliver more qualified enquiries, Sales may improve win rates, and Delivery may complete a larger share of jobs on time. Yet more complex commitments can create exceptions, rework or support that are invisible in each team's own measure.
There need not be a negligent department. If a function is evaluated only on its output, it has limited reason or authority to change the cost experienced by the next function. Ownership boundaries and missing feedback make this a predictable system result.
What to trace
Pick a sample of completed commercial episodes and follow the original enquiry, proposal, promises, handover, change requests and actual delivery effort. Ask where new information would have changed qualification, pricing, terms or a decision to accept the work.
Do not assume that cross-functional coordination must always increase. A small business may rationally accept some rework because building a separate management layer would cost more than the problem. The test is whether leadership understands that trade-off.
Related: growth and coordination costs and rising cost-to-serve.
Look at the work that moves between teams.
Coordination costs
More people and more specialised functions can add hidden cost between teams.
Revenue growing, profit not
A business can improve a visible commercial metric while the economic result weakens.
Measure the effect on downstream work
An efficiency gain only matters if another part of the business can use it.