Competition From the Inside Out

When we think about business competition, rivalries between companies typically come to mind: Coke versus Pepsi; Ford versus GM; Airbus versus Boeing. But a focus on external rivalries can blind us to the reality that competition is pervasive inside companies as well. Departments compete for budget, R&D teams compete to develop the company’s next-generation product using different technical approaches, and individuals compete for management accolades and promotions.

Competition — interactions in which individuals or groups vie for resources that are limited in supply — is inevitable. Depending on how it is handled, internal competition can spur excellence and catalyze innovation, enhancing organizational competitiveness in the marketplace — or it can drive toxic conflict, undermining a company’s ability to compete successfully with external rivals.

Companies that regard internal competition as more difficult to manage than external competition often experience negative financial repercussions. According to research we conducted involving more than 150 companies over the past two years, those reporting that internal competition is harder to manage than external competition saw 32% lower revenue growth and 53% lower stock price growth over a five-year period than companies that reported that external competition is harder to manage.

How can a company harness internal competition as a force for good? These six guiding principles for fostering a healthy degree of intracompany rivalry can help businesses enhance rather than undermine their competitiveness in the external market.

1. Unify with common purpose. To engage in healthy competition inside organizations, people need to see themselves as united by a common purpose and a higher calling. At NASA, for example, employees’ strong belief that their work contributes to a greater purpose provides an effective counterbalance to a results-driven and competitive internal culture. Every year for nearly a decade, NASA has ranked No. 1 in employee satisfaction among large federal agencies.

NASA’s history also illustrates what happens in the absence of healthy competitive tension inside an organization. Three decades ago, the agency’s “entrenched groupthink culture,” as described by a 2005 Project Management Institute study, led engineers to dismiss alternative methodologies for quality control and risk management. The resulting engineering failures led directly to the in-flight explosions of the Challenger and Columbia space shuttles.

2. Cultivate relationship networks and camaraderie. When people see each other primarily (or only) as rivals, competition becomes inherently zero-sum and inevitably adversarial.