The Limits of Competition

(Image from Yale Insights)

During my career I worked for a CEO who thought internal competition was the way to get the most out of workers.

The competition was at its fiercest when it came to devising a new line of business. My team worked round the clock, as did the others, to come up with an idea and the strategy to implement it.

No team "won." We ended up adopting a strategy proposed by a well-known consulting firm.

Internal competition often is counter-productive.

Internal competition often stifles innovation.

That is what we found in a study of companies that pushed internal teams to compete with each other—whether for formal financial rewards like bonuses, or for informal ones like greater prestige, access to executives and influence.

Yes, by some indicators, the teams ended up working harder when they were battling each other. But they failed in another crucial respect: The more teams competed, the less innovative they were. Simply put, they were wary of sharing information with other teams, so they weren’t getting unexpected, inspiring ideas from people in other parts of the company.

In fact, the only teams that excelled in the study were ones that did choose to share information with others, whether out of necessity or strategically.

Competition drives innovation, but it appears not to work if the organization competes internally. [bold added]

How, then, can companies leverage the benefits of competition without sacrificing information sharing between teams?

For one thing, choose an outside target: Instead of making internal teams battle each other, have them try to beat external benchmarks, such as how many patents a rival company produces. Companies should also make efforts to ensure groups share information, such as holding regular meetings or creating a shared database that any team could use.

Competition is one of the foundational elements of capitalism, but it is not the only element. The free flow of information is another, as well as the shared value to seek the good of the whole.