Fostering Internal Competition: Counterintuitive to Productivity?

first place medal
(CC) Monica_b182/Flickr

Many managers think that fostering internal competition incentivizes employees to continually do their best, but for some workers, this practice can actually hamper productivity.

Researchers at the Wharton School at the University of Pennsylvania studied internal competition with several experiments using Amazon.com’s Mechanical Turk platform and came up with results that even I found surprising: the workers who weren’t ranked or given feedback actually completed more work than the participants who got feedback on their accuracy.

“This indicates that when people are great and they know it, they tend to slack off,” said Iwan Barankay, a Wharton management professor who led the study. “But when they’re at the bottom, and are told they’re doing terribly, they are demotivated.”

But what about top performers — don’t they want to know where they stand? Here’s what Barankay had to say about that scenario:

There is also the hope that giving feedback about rank helps retain the top performers. But that’s not the case. Perhaps this is because top performers move on to new challenges and low performers have no viable options elsewhere. Of course, in some instances, providing feedback will be a motivational tool that entices people to work harder. But overall it does not appear that way. So the question becomes: Is [ranking employees] worth it?

For some companies, internal competition is absolutely worth it. When Jack Welch was the CEO of GE, he was famous for his “forced ranking” system, in which top executives fired the bottom 10 percent of their workforce on a regular basis. And Goldman Sachs adopts an “up or out” promotion system wherein employees are progressively weeded out until they become promoted to partner.

Forbes notes that managers can foster internal competition for good, however: 40 percent of an employee’s yearly bonus at Grote Consulting, for example, is based on how well he or she mentors a teammate with potential.

What do you think — does a workplace culture of internal competition enable or hamper productivity?

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