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The uses and misuses of competition

The uses and misuses of competition

There is an interesting analogy to be made between today’s corporations and the mystery surrounding the construction of the ancient Egyptian Pyramids. How could a society build such colossal monuments some four and a half millennia ago?

 

The Greek historian Herodotus recounts that the Pyramids were built with “400,000 slave workers over 20 years.” Along with Biblical depictions of the Pharaos as ruthless despots, this has led to popular narratives portraying the Pyramids as the fruit of the effort of many unwilling slaves whose sole motivation to work was the whip.

 

However, archeological excavations have suggested otherwise. First, the Pyramids were not built by slaves or foreigners, but rather by regular Egyptian citizens. The inhabitants of Egypt at the time were deeply religious, and must have believed that by building their Pharaoh’s tomb, they would facilitate his rebirth as well as their own and that of Egypt.

 

Second, they did not operate as a homogeneous group of unskilled labor. In fact, workers operated in dozens of groups, each of which was responsible for a specific part of the Pyramid complex. These groups were further subdivided into several units that competed against each other in a race to get the work done.

 

The incredible thing about this story is not the fact that Egyptians managed to lift twenty-ton limestone blocks. It is how they achieved this: through efficient social mechanisms. Egyptian authorities did not only instruct workers on an individual basis: they made them cooperate with each other. Not only that, but they also made them compete. This competition was carefully contained: its effect was to reduce slack and increase efficiency, without compromising the social coherence of the Pyramid-building project. Being ancient history, it is unsurprising to say that we still know little about the specifics of this building process.

 

More surprising is the fact that there is still relatively little coverage of the way competition and cooperation are managed within today’s organizations.

 

In practice, organizations generally consist, to varying degrees, of a multitude of competitive and cooperative processes. One cannot generalize as to whether competition is a ‘good’ or ‘bad’ thing in itself. Neither competition nor cooperation should be pursued for its own sake; there is always a balance to be achieved between the two.

 

Clearly, competition can have undesirable effects. This is perhaps best illustrated by the case of Enron, where people were constantly competing against each other for year-end bonuses, and where “occasionally, when one trader got up to go to the bathroom, another trader would go over to his computer and either steal his trade or change his position on a trade.” As if that was not enough, every year the bottom 15% of lowest-performing traders would lose their job and be replaced by new ones. This fostered increasing paranoia among traders, who began forming secret cliques in their bid to outperform others, leading to illegal market manipulations by traders.

 

In 2005, Steve Jobs allegedly pitched the Macintosh and iPod units against each other in an internal competition to develop the next iPhone. The Macintosh unit won, and its manager, Scott Forstall, became the SVP of iOS software. Today, Apple sells an average of 34 000 iPhones per hour. Who is to say that competition is bad for the organization?

 

Within well-defined boundaries, competition can promote collective interest by providing an incentive for individuals to invest additional efforts in their attempt to obtain exclusive resources. The result is that everyone benefits from their work. One could accordingly argue that competition is beneficial when it leads to positive externalities.

 

But there can also be downsides. Competitive rivalries can lead to a discrepancy between individual and collective interests. When a unit in Microsoft developed a new way to display text on screen called ClearType, other unit managers did not hesitate to block the development of the new technology, and some also aggressively bargained to gain control of the project.

 

If left unchecked, competition can easily turn into a race to the bottom, where players will do anything to sink their rivals. As such, competition may be good for collective interest, but only up to a certain point, after which it risks becoming a war of all against all.

 

Moreover, social psychologists have suggested that when people are ranked and compared with each other, competition will likely be more intense among the leading contenders of a contest. This implies that those ‘in the middle’ do not really care as much about being the best, and leaves us pondering whether the people at the bottom can be demoralized by their comparatively poor performance. We are just starting to discover that the way competitive processes are designed can lead to very unequal psychological effects.

 

Some situations are such that people can both cooperate and compete with each other at the same time. Nothing indicates that one category of action is inherently “superior” to the other; competition and cooperation can take many forms, both good and bad, on many levels.

 

Many organizations rely on competitive financial allocation, whereby sub-units must “sell” their projects to obtain financing. Others create structures to coordinate the exchange of resources by relying on internal market-like mechanisms. Still others, such as Apple, attribute business or product charters based on a process of internal selection.

 

This shows that thinking in terms of “coopetition,” or simultaneous competition and cooperation, has its advantages. First, this kind of thinking lends itself particularly well to social network analysis and the study of multiple interactions. Second, it allows a holistic or systemic approach to the study of organizational relations, which from a practical perspective can help managers avoid narrow-minded focus on either competition or cooperation.

 

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