3: Competition
British steel manufacturers dominated the industry for over a century, but by 1880 the American makers were reaching astonishing levels of productivity, with foundries and mills that were achieving output that was double to triple that of English mills of similar size, and continuing to widen the gap.
The author attributes this progress to competition, particularly Andrew Carnegie's system of creating competition among his workers and facilities. The notion was that so long as a mill was producing the quota management demanded of it, its workmen would be content to labor at a moderate rate. But remove production quotas and instead compare the output of one plant to another, and there arises a rivalry that increases production, as all plants vie to outperform the others.
In consolidating information about an organization that include multiple facilities, Carnegie's reports made a side-by-side comparison of similar operations, matching furnaces against furnaces and mills against mills, which made it clear that some were more efficient than others. Once could appreciate at a glance the quantity of ore, fuel, supplies, and labor were used to achieve a quantity of output - which made it immediately evident that, for example, one furnace was producing more steel with less labor than another. It was clearly doing something better, and something that other operations should imitate.
Another side effect of this arrangement of data was to drive competition among mills, as the management, foremen, and workers in one mill could clearly see that they were being outperformed by their rivals - which gave them a sense of whether they were leading or lagging, along with the incentive to compete to receive the esteem of a leader or at least avoid the stigmatization of a loser.
(EN: This method is well-known but only vaguely understood by modern management, who wish to use competition and fear among teams or workers by comparing output, but who fail to present sufficient analysis of inputs and methods. It has quite the opposite effect on morale an motivation because the workers know that they are receiving scrutiny for poor performance, but never learn the reasons why or receive any coaching to improve their performance. My sense is people will gladly apply themselves to achieving better output if they know what to do - but if merely criticized for performance without instruction for improvement, it is merely disheartening and pointless.)
The one drawback the author mentions is secrecy: a plant that is being rewarded for performing well is not inclined to share the secrets of its success with "rivals" even if those rivals are internal. William Jones is mentioned specifically, who was a brilliant manager and process innovator, but who was very secretive about the methods by which he achieved this success - so the benefit of his brilliance was not spread beyond the operations he managed.
Scott suggests that the notion of competition is deep-rooted in evolution: that creatures strive to out-do others to secure a mate and to obtain the best resources necessary to their survival. This instinctual need to outdo others of our kind stimulates us to attain our highest level of performance.
So it can be seen that a salesman measures himself not only against merely meeting a quota, but against every other salesman in his office, seeking to be the best. Retailers court markets in the same way - by attracting the customers who wish to have the best quality or the lowest prices.
It's conceded that the second-rate man who accepts he has no competence, does not seek to outmatch his superiors - this man seeks merely to imitate to approach their level of performance. But any man who feels fully competent at his work next seeks to become the best at his work. We first imitate, then differentiate ourselves.
He supports the notion of competition as a natural instinct by looking to sports and leisure activities. In these instance, there is no financial incentive to excel, but men apply themselves merely for the sake of gaining the pride of outdoing others, even at nonproductive activities.
Even if a man is playing golf alone, he attempts to do better than "par for the course" and measures himself against the performance of an imaginary opponent. Or he may attempt simply to do better than his previous performance, or to set records. Even if others do not grant him recognition and esteem, his self-esteem drives him to achieve.
(EN: Scott discusses this as being "human nature" but my sense is that it is cultural, as competition is a major force in some cultures, namely western Anglo culture, but not in others. As such the assumption this is a universal trait is bigoted and inaccurate.)
Competition may be consciously employed by businesses - they may encourage men or units to compare their performance to that of others, and may provide a variety of incentives such as monetary rewards, promotions, or public recognition. The evidence of a firm that consciously employs competition is obvious.
Competition may also arise among employees and teams without the conscious effort of their firm - as one man simply chooses to compare himself, or one manager chooses to compare his team, to others and to set about the task of outperforming them. The firm, and even those with whom they have chosen to compete, may not be aware of the arrangement.
The author concedes that competition is not necessarily or entirely beneficial, and some firms fear the detrimental aspects will outweigh the benefits to the degree that they do not encourage competition, or even actively discourage it. But given that individuals may choose to be competitive without encouragement, and in some cases even they are not aware of their competitive motives, it is better to leverage competition consciously in order to mitigate the negative side effects.
- Competition may be moralizing to those who win, or expect to win, but it is demoralizing to all others
- Competition breeds contempt among the workforce: those who win become snobbish and elitists, and those who lose become bitter and vengeful
- Competition focuses on some parameters to the neglect of others: a competition for speed will result in a sacrifice of quality or an increase in waste.
- Competition encourages dysfunctional behavior: men who are desperate to win are not above cheating or sabotaging the efforts of others
- Where men predict that competition is ongoing (such as trying to beat last year's performance), they will sandbag themselves to ensure future goals are attainable rather than doing their best work
The author insists that these side effects can be eliminated or minimized, but only if the competition is carefully managed. In general, he is of the opinion that a well-managed competition is the best method for improving performance. Going back to his original example, Carnegie's competitions among his men and operations is the only factor that has been identified for the rapid improvements in the American steel industry.
As an aside, Scott speaks of handicapping a competition - as a person who must compete with a rival who is far superior may feel he has no chance to win, and will have no incentive to compete. As such, some managers see fit to handicap certain individuals or units to give them a chance for success. This must be handled carefully, as the pride of victory is diminished when it is achieved through unfair advantage. (EN: This is only true for men of good character, less moral types desire the ends may be indifferent to the means by which they achieve it. Were it not so, cheating would be unheard of.)
Competition is implicit and inevitable. Firms produce goods and services for buyers, and it is natural for a person who is purchasing something desired to have the best for his money. Hence, to succeed a seller must provide the best - which is to say, must provide something better than other sellers in the market. There is no escaping that reality.
Quotas are also implicit and inevitable: a firm must sell a given amount of product to cover its operating expenses, pay its creditors, and provide a return for its investors. The salesmen are hired to sell their portion of this necessary amount and the workers are hired to produce this necessary amount, both within the constraints of the amount that a firm expects to pay (to incur additional expense is to require more product to be sold).
Succeeding in in competition and meeting quotes are necessary for the survival of the firm and the continued employment of its workforce. Excelling in competition and surpassing quotas provides positive benefits for all involved: more goods to the market, more wages to the workers, more profit to the investors. (EN: This presumes that management apportions the profits of victory accordingly - the chief problem in the present day is that the "prize" won by the effort of the workers is given to someone else, often the investors or management.)
Scott returns to the notion of good management: "To announce a contest is a simple matter, to organize and execute [a contest] such that they [who compete] are benefitted is much more difficult." All human effort is undertaken to achieve something, and it is generally something for oneself. If a person is asked to compete but offered no incentive, of if the incentive is not seen as being worth the effort, he will have no interest in participating in the competition.
Not all incentives are financial. The author cites a number of instances in which the "prize" for the competition was something as trivial as placing someone's name on a placard or recognizing them in the company newsletter. It is noted, however, that esteem and recognition are most appealing to younger employees - the more seasoned ones have sufficient self-esteem to require no recognition, but the greenhorns desire to be perceived as competent, and winning or faring well in a competition feeds their desperate need to be praised for their performance.
He also mentions the incentive for competition, even for those who do not win. If mere participation is meaningful and rewarding, then the outcome is unimportant to those who participate. A competition can even be arranged so that everyone who achieves a given goal is rewarded, which avoids the problem of elitism among the winners, though it does create disparity between those who have and those who have not met the goal.
He refers again to the way in which competitions are mis-handled by management and the consequences can be dire. In some instances, it can be productive and healthy, and in others it can be counterproductive and damaging. Unless it can be managed to have a positive outcome for the whole, and not just for the few, a competition should not be arranged.