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? In this March 4, 2021 special feature published by MIT Sloan Management Review, the authors share six guiding principles for fostering a healthy degree of intracompany rivalry that can help businesses enhance rather than undermine their competitiveness in the external market. Principle #1: Unify with common purpose.