Strategies for managing internal competition

Internal competition evokes mixed feelings among senior executives. It is typically seen as wasteful, bad for morale, and indicative of a lack of strategic direction; but at the same time it can also be very beneficial-as a way of creating flexibility in the face of technological uncertainty, and as a way of challenging the status quo. This article draws on a five-year study in ten companies to provide advice to executives on how to realize the benefits of internal competition. It describes two distinct forms of internal competition (competition among technologies and competition among lines of business) and the appropriate strategies for managing each one. It also identifies the criteria for deciding whether to allow competing units to coexist or whether their activities should be consolidated.