The Effective Manager And The Principle Of Sub-Optimization - Part 1

0:00Welcome to Manager Tools. This is Sarah. And I'm Mark. Today's podcast, The Effective Manager and the Principle of Sub-Optimization, Part 1 of 2. As always, this content has been crafted by humans, and we're certified by Proudly Human. The questions this cast answers are, what is the principle of sub-optimization? I've never heard of that. Why do I need to understand it? Oh, you'll learn that. And how can it help me as a manager? Well, for one thing, you won't be a jerk. If you want answers to these questions and more, keep listening. Nobody teaches you how to manage people. You're just suddenly responsible for them, and you're expected to figure it out while your team's performance and morale hang in the balance.

0:50The Effective Manager Conference changes that. One focused day, four proven tools. Real practice time, a plan that you can implement starting Monday. Find our next conference at manager-tools.com forward slash E-M-C. All right, folks, when you become a manager, you start getting exposed to systems, processes, principles, things that organizations rely on to understand and to help them succeed. Now, today we're talking about one of those hidden principles and one that too few managers and executives really understand. It is the principle of sub-optimization. It's one of my favorites. It's absolutely fundamental in all organizations all the time and in society all the time.

1:40Every budget cycle, every manager and every executive feels like he or she got less than they needed or deserved. And it also seems like somebody else got more or that you or your division or your department didn't get what they needed, right? Now, keep that idea in your head for a second, okay? Now add this idea. New professionals joining the organization are sometimes surprised that they're somewhat limited in terms of what they can do. They certainly can't bring their whole authentic self to work, let alone make political protests at the office. Those situations sound very different, but both of those scenarios and many thousands and millions more are the way they are for good reason, because they're both subject to the principle, which I like to call the law of suboptimization.

2:36Perfect. All right. So our outline today, we're going to start by discussing the principle of suboptimization. the definition that is. Then we're going to go over several examples, either professional or organizational examples. Then talk about pigs and hogs and budgets. Yeah. That's my favorite outline topic of the year. Pigs and hogs and budgets. I like it. It's got personality. And then the last bit is perfectionists beware. Yeah. So can I take the first part where I define it? Define it. Because this is a, yeah, it's a particular favorite of mine. So let's define the principle or the law of sub-optimization.

3:18It's easy to define in words. Improving or maximizing the efficiency of an individual part of a system independently will not generally lead to an optimal outcome for the system as a whole and may actually make the overall system worse. Now, folks, if that sounds a little confusing, it was dense, what Mark said. No, did it sound confusing? No, it sounded dense in its meaning, but we're going to work through that in the next little bit. Exactly, exactly. Folks, the problem with this principle of sub-optimization, which is too much to repeatedly, because I mean, principle of sub-optimization is a lot of words.

4:10And as we've already seen, I mean, we'll stumble over them consistently. We're going to call it PSO here. It's an acronym we made up. It's not an acronym that's actually speaking to the system, but we need it because, geez, it's a mouthful. So the problem with PSO is that it doesn't make sense, right? I mean, we're engaging in activities that are leading to an optimal outcome for the system, but might make it worse overall. Right. And the natural thinking of people is anytime we can optimize any part of all the subsystems or individuals that make up those subsystems, why wouldn't that be better for the entire thing?

4:56Exactly. It's nonsensical. Exactly. And folks, the first counterexample that popped into our heads was the example of a major league sports team. I mean, let's face it, why wouldn't that team want the best player in every single position on the team? I mean, if it's our team, we would want that. We would dominate the league. And yeah, we would. But this is where it becomes really obvious as to why PSO is at play in our organizations. Yeah. Now, you think about that. Everybody goes, yeah, yeah. If you had a bunch, you had the number, best person at each team, you'd dominate, right? It appears that in this case, in this scenario, PSO, Principle of Self-Optimization, isn't useful.

5:48But wait. But wait, there's more. Let's think about the systems involved for a minute. What do you think would happen to viewership at an NBA game, both in person and on TV, if one team won all of their games by lopsided margins? Right? Yeah. What do you think? Because they had somehow beaten the principle of suboptimization. And what if no other team ever won the championship ever again? What would that do to the fan base? The fan base, by the way, that pays for the tickets and television rights that fund the players' salaries. Mm-hmm. Suddenly becomes a game that's no longer that interesting to watch.

6:37It's not. Yeah, you know the outcome. It becomes uninteresting. Every single time. And folks, it's not like those owners of the league themselves sat back and dreamed about it. These scenarios have been tested. And if any one team had every best player, Eventually, the league decays and it dies. Or, as in the case of most major leagues, they do what they need to do in order to ensure the law of sub-optimization remains in stasis and they institute a salary cap so that no team can have the payroll that would be required to pay what would surely be all of the highest salaries in the league. You know, in fact, mentioning salaries, here's a great positive example of PSO in football.

7:37Most people don't know this, but Tom Brady, the greatest quarterback, he's widely regarded as the GOAT, the greatest of all time. There are people who argue, but there are people who argue that Michael Jordan isn't the greatest basketball player of all time, or that Wayne Gretzky isn't the greatest hockey player of all time. But Tom Brady, I don't think was ever the highest paid player or for that matter, the highest paid quarterback in the league. And there was every right to pay him the most. Yeah, absolutely. And you have to ask why. Because Tom Brady asked the Patriots to pay him less so they would have more money to pay for offensive linemen and receivers so that he could win more games.

8:22In other words, he sub-optimized himself in service to the larger organization. Look, think about it further. In 2026, the only major sports leagues in the USA without a salary cap, baseball, is facing a labor dispute at the end of the season over what appears to be dominance by one team, the Dodgers, based on PSO. They're saying, hey, this doesn't make sense to have one team winning all the time. Leagues generally want sub-optimization of each team so that all teams have a relatively equal chance of winning. Now, I'm going to say clearly, Dodger fans like me totally respect that. And if the league puts in a solid cap, totally respect it.

9:13We'll still win. But I will point out, and by the way, folks, Sarah is laughing somewhat derisively because, of course, her Toronto Blue Jays lost to the Dodgers last year in the World Series. But as I have said repeatedly, I'm pretty sure on air and certainly among my friends, I would have been the biggest fan of the Blue Jays if they had beaten the Dodgers in the greatest World Series that there has ever been. What a hell of a fight. It was down. I mean, the Dodgers were behind in game seven, behind or tied until Will Smith hit his own run. So what's interesting about this is people are mad at the Dodgers because of their, quote-unquote, dominance, right?

9:58But it's fairly late. We're recording this in September in the 2026 season. The Milwaukee Brewers have the best record in baseball, better than Dodgers right now. But they rank 19th out of, I think, 32 or maybe it's 24, maybe it's 30 teams in the league in total payroll. So you would argue there's still pretty of... They're still managing to balance out PSO somehow. Yeah, they are. Exactly. And folks, this idea that the leagues want to sub-optimize each team also speaks to the fact that each of the players probably could not be individually optimized in every situation of every game. I mean, because only one person can score on each trip down the floor.

10:51I mean, in basketball. I switched us in sports here. But it's not like all three of the best players can score simultaneously. Only one can at a time. Or five. Yeah, or five. Exactly. Yeah, exactly. And other great scorers, other great scorers, other than the one who is scoring like right now, are being sub-optimized in order to allow the one who is scoring to make the basket. Yeah. And if you say, well, wait, wait, the team is being optimized, we'd say you're totally right. But the team is the ultimate organization here. Actually, the league is the ultimate organization, right? But the individual is the one that's being sub-optimized.

11:34Even passing the ball among an NBA team that ignores the principle of sub-optimization, and we're all going to optimize ourselves individually, we're all superstars, a dream team, if you will, they would realize pretty quickly that if I pass the ball, if I let somebody else score, I'm no longer going to be the best guy at my position. And that's not going to be good. And since you're thinking about it, what about the egos of those top five best NBA players on one team? How would each of those players respond to having to be sub-optimized in order for the team to be optimized overall. Probably the same way managers do when there's limited resources.

12:20Yeah, you feel like you're getting, you know, you're getting screwed. It's not fair. We're not sure we'd want to be the coach of that team with a bunch of superstars on it. All the best superstars. Let alone its general manager deciding on salaries for next year where they're not a salary cap, right? Exactly. And folks, we can move out of even sports analogies. The analogies exist everywhere. The movie, A Beautiful Mind, it won Best Picture, Best Director, Best Sporting Actress, Best Screenplay at the Academy Awards. Tells the story of John Nash, who was in that movie, Mark, played by Russell Crowe.

13:01Yeah. Yes, exactly. A Nobel Prize winning economist and his creation of game theory. And game theory, folks, is a fantastic example of PSO. Nash proved mathematically that when individual actors try to optimize their own outcome in a situation, the overall outcome is suboptimized. In the movie, this was done cheekily with five men attempting to meet and engage with five women. Nash realized that the men would all attempt to connect with the most beautiful woman. And while only one would actually succeed, the other four, having shown a preference for her, would be rejected by the other four women because they clearly.

13:48Why wouldn't they? They were thinking of themselves as number two. They had been proven to be a second choice, and no one wants to be a second choice. So in order to all succeed in the situation, they had to be willing to cooperate. A more efficient and effective outcome would only occur if those men cooperated together and instead of all going for the same woman, chose to engage with other people. Right. Now, folks, before you write me an email and say this example is sexist, all we're doing is recounting an example from one of the greatest movies of the last 50 years. It's really, really good.

14:33And Russell Crowe, his descent into madness is incredible and terrible. And Jennifer Connelly's portrayal of his wife is so caring and understanding and, oh, it's horrible. but folks remember i think this happened in like 1950 yeah okay so that was the standard extra in fact i'll go one step further when i submitted this to uh microsoft copilot as i do after i wrote the podcast it flagged the word actress as being identity questionable not appropriate we don't say that anymore in 2026 we say actor right and i i like that change frankly but when she won when she won her award it was back before we were smarter than we the way we are now and she was called best actress so there you go the word literally says actress on it so yeah it does kudos to you Jennifer now look there are other famous examples um of PSO but I have one particularly that is incredibly well known we're not going to get into all the details of it but it's called the prisoner's dilemma up.

15:44And what it proves is the best outcome of two perpetrators of a crime faced with confessing or not do best when they trust their fellow prisoner. And by the way, they don't know how the other one's going to act. They're separated, segregated. They do best when they trust their fellow prisoner and do not confess. If they each attempt to optimize for themselves, which totally makes sense, and they will confess as they'll get a lesser sentence, but they will have a high to medium level sentence if they both confess. But if both trust their accomplice and don't confess, and again, there's high risks in not confessing if the other one does confess, both get the minimal sentence possible.

16:32In this case, optimizing for the group versus the individual produces the best overall outcome. And I think I've made a hash of that, but we don't want to teach you the entirety details of the different sentence links and so on in the math. But if you do the math, it's pretty straightforward math to prove that, yeah, I should not confess ever, and we will both get minimal sentences. Now, is it possible that if you don't trust the other guy And you think he's going to confess, whereas you don't, and then you'll get the higher. Yes, that happens. And we generally are using this guidance for the generally high trust environments that exist within our organizations today.

17:16Exactly. And folks, we could go into so many more examples. I mean, literally, Mark and I this morning, driving around in Monterey, California. Yeah. We noticed that in the leftmost lane in traffic, where you're not allowed to turn left. There's no left turns on Lighthouse Drive in Pacific Grove, California. Even though you can. I mean, logically, like rationally, physically, you can turn left. There's nothing wrong with turning left. Yes, but every 100 meters, there's a sign painted on the ground that says, No left turn. And at every light, it says, No left turn. Right. Because they're sub-optimizing for overall traffic.

17:57And then this morning, when one individual was in that lane turning left and all the traffic behind them slowed to a crawl because you're not supposed to turn left from that lane. And there's a reason for it. It becomes immediately clear why these laws, these rules exist for the betterment of the whole at the expense of the one person. To optimize the whole. Exactly. Who will have to go around the block if they're doing it right. And there's a broader application in terms of PSO relative to traffic in general, traffic on a highway. If everyone would just slow down, you know, from 60 to 40 in a traffic jam, the traffic jam clears up much more quickly.

18:40But people attempt to optimize their own individual situation and, in fact, make it worse for themselves and worse for the entire organization, if you will, of the traffic. Yeah, zipper lanes, you don't want to let somebody in so you can get one car ahead, which slows the entire thing down. There's so many traffic examples. That's perfect. When two people on your team consistently clash, it's usually not a personality problem. It's a behavioral style mismatch with no shared framework for navigating it. The MTDisc gives you and your team a common language for understanding behavioral differences and adapting across them.

19:21Only$30 per assessment. For more information, visit manager-tools.com forward slash MTDisc. That's M-T-D-I-S-C. I can imagine many of you are listening to this podcast thinking, okay, those are tons of examples that have nothing to do with me. Nothing to do. They do have something to kind of do with you, but not at work, surely. But folks, that starts us off with some simplistic examples, which are somewhat less complicated than the organizational examples because of the things that occur to us or things that happen to us while we're at work. with so many divisions and subdivisions and departments and teams and project groups and tiger teams and matrix organizations and salary differences and profitability margins.

20:21I mean, there are so many examples internally as well. So let's go into some like business examples to help the audience. Yeah. Here is a really simple, large-scale example of PSO, principle of sub-optimization, at the business level for a large organization. Simple question here. Does every business unit get to keep all of its profit every year? It would make sense to do so to help that unit continue to maximize its success. But because of PSO, corporate headquarters often and frankly routinely use profits, which again would be a measure of optimization, to fund other business units, thereby hopefully maximizing the corporate outcome versus just that one business unit's success.

21:14Pretty standard stuff. Pretty standard, exactly. And folks, this exists at every level of the organization, from corporate all the way down to the individuals themselves. Why? Because individuals are part of the larger system. If every individual was optimized just for themselves, self. We would begin to see the value of managers as guardrails here. The organization would descend into chaos because everyone would be out there trying to achieve their own success at the expense of the team, the organization as a whole. I mean, the example I think, Mark, that I use when we're talking in the effective manager conference is we can't all be cowboys.

22:00We can't all just be out for number one and expect the organization to succeed. We will succeed at the detriment of the organization succeeding. Yeah, exactly. And then if you succeed big enough individually to the greater detriment of the organization, pretty soon the organization doesn't exist. Yeah. It's like a cell in the human body working against the body. It doesn't hold water. In fact, If you think about it a little bit further, folks, and I've talked about this before, individual optimization is literally the exact opposite of why organizations exist. The very purpose of the organization is to sub-optimize each individual in the service of the organization's system-wide goals.

22:48Individuals, for instance, give up their right to free speech in large organizations. They give up the right to work on whatever they want to work on because the organization needs them to do different things in concert with others to achieve the system's goals. Absolutely. Folks, we're asked to report upwards on our work, and that takes time away from the actual work. We're asked to attend meetings so others can know what we're doing and resolve conflicts, which again, takes us away from our own most desired work. Sarah, can I just interrupt here? Yeah. Unless their most desired work is going to a meeting.

23:32Hypothetically, a potential possibility. Yeah, that's a possibility. But no one that listens to this podcast or that I've ever met in my entire life would rather go to meetings. But it's, yeah, no, it's theoretically possible. You're right. Yeah. And folks, now, I might also admit here that probably maybe there would be more people who desired going to more meetings if the meetings that they were running were done so more successfully and less poorly than the meetings that are run today. So you're right, Mark. I think that there is this potentiality that there are some people in the world who would really, really like going to meetings if those meetings were really, really well run.

24:16But unfortunately, so few of them are that I think that person is imaginary now. Yeah, imaginary. Imaginary. Is this not no one's meetings? Not real. Yeah, exactly. But imaginary. Imaginary. Good one. Thanks so much for joining us, folks. We hope you join us again next week as we continue this topic. Now, help us help others and tell your friends. And of course, follow, rate, and review our podcast. And remember, five stars only, please.