Internal competition makes firms stronger

USA Today (Society for the Advancement of Education), Dec, 1994

Economists long have praised the "magic of the marketplace," but a marketplace hardly exists inside most businesses. Instead, each department--from accounting to shipping--enjoys a monopoly, and, if you don't like its service, you can't turn to a competitor.

Things would change under a new approach advocated by William E. Halal, a management professor at George Washington University. He and a small group of associates urge businesses to turn their organizations into marketplaces by making each department a semi-independent business.

"When a business firm becomes a corporate community of entrepreneurs who buy, sell, and launch new products and services internally as well as externally, it gains the same creative interplay that makes market economies so advantageous," he told the World Future society.

Markets are spreading around the globe because they clearly excel over central planning. In nations and organizations alike, planned economies have proved too cumbersome to cope with the upheavals in the new era. "Free enterprise--either internal or external--offers the only economic philosophy enabling organizations to adapt to change rapidly and efficiently." Halal quotes Bell Atlantic chairman Raymond Smith as saying, "Staffs tend to grow and produce services that may be neither wanted nor required." Smith turned his corporate staff into an autonomous business.

Halal notes that he worked with a corporation which was struggling to contain its information costs with little success. "But after it made the information-services unit a profit center, demand for services dropped by half, complaints from internal customers diminished markedly, and the information-services unit brought in revenue from external clients."

Internal markets seem inevitable, he maintains, because "they offer the only feasible way to manage the growing complexity of modern society. A disenchantment has set in with strategic planning becarse top-down 'planning' usually produces more bureaucracy, rather than actual change."