Institutionalized Competing Interests: Part I

The Hidden Cost of Organizing Around Expertise

Institutionalized competing interests.

It’s a lengthy, convoluted string of words, but it perfectly describes what frequently happens at bigger companies.

Institutionalized competing interests are the major culprit behind crippling technical debt. It’s one of the primary reasons why various company departments struggle to align on priorities. Institutionalized competing interests explain why we’re actively undermining each other instead of effectively collaborating.

Let’s explore Steve Jobs’ return to Apple to show what an organization suffering from institutionalized competing interests looks like.

Steve Jobs’ Return to Apple

When Steve Jobs returned to Apple in 1997, the company was in rough shape. Apple had taken on a $150 million investment from rival Microsoft to survive. One of the first things Steve Jobs did is rarely discussed, but it would completely change the company's trajectory.

Steve Jobs first met with all the executives of the different departments. He asked every leader how their department was performing and what they were working on. They also went through their P&L (Profit & Loss statement) together. The first executive he spoke to had a positive P&L. As did the second, the third, the fifth, and every single one he had met.

There was only one slight problem: their numbers were inaccurate. The company was losing billions of dollars per year, so it was impossible for each executive to have a positive P&L. These executives' bonuses were based on the numbers of their divisions. All executives were involved in silly cost allocation games to make their departments look good on paper, not to present an accurate and actionable picture of the company.

Steve Jobs fired all those executives and moved the whole company to a single P&L. Apple still has this financial construction today. When Tim Cook testified before Congress in 2024, and they asked him how much money the App Store was making, he said he couldn’t precisely answer because “The whole company is on a single P&L.”

Institutionalized Competing Interests Undermine Collaboration and Cooperation

The lesson of this story isn’t that you should move your company to a single P&L but how dangerous institutionalized competing interests can be. Depending on how your organization is structured and incentivized, different departments and executives may be actively undermining each other at the expense of the whole company.

I’ve seen these institutionalized competing interests in action at companies I’ve worked for. I once worked at a company where we didn’t get a bonus because our department didn’t make a profit while the company did.

This was surprising, as our efforts drove record profits for another department within the company. We played a pivotal role in the success of another department, yet our efforts were not recognized and rewarded. How do you think this experience made us feel about helping and collaborating with other departments?

In short, institutionalized competing interests are extremely dangerous because our focus shifts to doing what’s best for our tiny business area, even if it may come at the expense of other business areas.

We’re not rewarded for caring about the company. We’re rewarded for caring about our department. So that’s where our attention and care shift towards.

When institutionalized competing interests are involved, we want to make ourselves look as good as possible, even if it hurts the company. In such organizations, intentionally not collaborating with other departments is sometimes seen as a viable option. If they do poorly, we will look better. I’ve had leaders tell me not to help other departments, as it wasn’t in our best interest to do so.

Why do some companies choose to promote internal competition?

Internal Competition and Rivalry As an Engine for Growth

Some companies believe internal competition helps fuel company growth. They encourage rivalry between teams and departments to push them toward excellence and help grow the business more. The underlying thinking is that competition is a splendid way to squeeze the most out of teams and departments.

A beautiful story that illustrates how competition can completely backfire is the story behind how BCG gave rise to one of its biggest competitors. In the 1960s, Bruce Henderson, the founder of BCG, decided he wanted to increase his company's performance by pitting different teams against each other. He divided the company into three teams (red, blue, and green), which he had to compete with each other.

The experiment was a big success. The blue team, led by Bill Bain and Patrick Graham, outperformed all other departments and was responsible for half of the company's revenue and profits. The blue team won the internal competition, but the experiment created a fertile ground for mutiny. When Bill Bain ultimately left to make his own competing consulting firm, most of the senior members of the blue team joined him at the now-famous Bain & Company.

I want to emphasize that I’m not telling this story to argue that all internal competition is bad. But it may come at a hidden price far greater than the surface-level gains you’re getting.

You may be setting yourself up to create an organization that suffers from institutionalized competing interests, where it’s more important to do what’s best for your department than to do what’s best for the company.

How to Move Beyond Surface-level Departmental Gains?

So, now that we’ve explored the familiar problem of institutionalized competing interests, in the second part, which I will publish in the upcoming weeks, we will explore the following questions:

• Why do we often end up with organizations that suffer from institutionalized competing interests?

• What should we do to prevent building an organization that suffers from institutionalized competing interests?

Internal competition isn’t bad, but you must watch out that looking better than other departments becomes more important than doing what’s best for the company. Unfortunately, this happens far more often than we’d like to admit within organizations.

We’re busy chasing surface-level gains and local optimization instead of figuring out how to climb beyond our departmental valley toward a global optimum.

But boy, do some of our departments look great on paper!