Deepak Malhotra

Gillian Ku

J. Keith Murnighan

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
 Have you ever made a decision in the heat of competitive battle only to ask yourself later, “What was I thinking?” If so, you’ve experienced competitive arousal, a desire to beat rivals at any cost. This adrenaline-fueled, emotional state can lead to expensive mistakes in business decisions, including overpaying for acquisitions or managerial talent when other players enter the fray.
 To combat competitive arousal, Malhotra, Ku, and Murnighan recommend two steps. First, understand the affliction’s three drivers: 1) intense rivalry (especially in a small field), 2) time pressure, and 3) the presence of an audience (including media attention and colleagues’ scrutiny). Then take preventative action; for example, reduce time pressure during a high-stakes negotiation by insisting on a short time-out.
 Manage the risk factors for competitive arousal, and you focus your competitive energies on winning contests where you have a real advantage—and away from those where winning comes at too high a price.
 The Idea in Practice
 To avoid falling prey to competitive arousal, consider these practices:
 <h2>Understand the Drivers of Competitive Arousal</h2>
 Competitive arousal comes from these drivers:
 <ul>
 <li>Rivalry. Going head-to-head with one or two opponents creates strong feelings of excitement and anxiety, which intensify arousal.</li>
 </ul>
 <ul>
 <li>Time pressure. An externally mandated or self-imposed deadline increases psychological arousal, which then prevents you from finding and applying relevant information to make a decision. So, you may overrely on simple decision rules (such as “Strategies that worked before will help me now”).</li>
 </ul>
 <ul>
 <li>Presence of an audience. Imagine the media or your colleagues watching your every move during a high-stakes decision. When you’re in the spotlight, it’s hard to avoid a rush of adrenaline and to resist the urge to show you’re a winner.</li>
 </ul>
 Any of these drivers fuels competitive arousal. When they’re all present, the risk of making a bad decision increases exponentially.
 <h2>Manage Competitive Arousal</h2>
 You can’t avoid dealing with rivals, making quick decisions, and operating in a spotlight. But you can minimize the potential for competitive arousal and the harm it can inflict.
 First, consider circumventing competition entirely. For example, noncompete clauses can help you avoid hyper-rivalry with firms eyeing your star employees.
 Second, mitigate the drivers. For instance:
 To defuse rivalry:
 <ul>
 <li>Remember: competitors aren’t evil; they’re simply parties with their own interests—like you. You’ll view them with a cooler eye.</li>
 </ul>
 <ul>
 <li>Be willing to step away from the bargaining table if you can’t control your competitive fire in an intense rivalry. Put someone else in charge of the negotiation who’s less emotionally invested and who can act as a devil’s advocate regarding the worth of the deal.</li>
 </ul>
 To reduce time pressure:
 <ul>
 <li>Ask yourself: “Do I really need to make this decision today?” If not, extend or eliminate arbitrary deadlines.</li>
 </ul>
 Example:&nbsp; 
 An executive used to negotiate important deals over breakfast because he was at his best early in the day. But he realized this gave him insufficient time to consider and respond to unexpected proposals. He had often agreed to price concessions he later regretted. He abandoned the breakfast-only rule. 
 To deflect the effects of an audience:
 <ul>
 <li>Spread responsibility for critical decisions across team members, so no one will stand alone in the spotlight.</li>
 </ul>
 <ul>
 <li>If you anticipate that an acquisition will make headlines, calculate the price above which you’re unwilling to go before word of your potential bid hits newsstands. Include premiums you’re willing to pay; for example, paying extra to eliminate a competitor.</li>
 </ul>
 </div>
</article-ideainbrief>Have you ever made a decision in the heat of competition only to wonder, when faced with the consequences, “What was I thinking?” Such charged decision making is driven by an adrenaline-fueled emotional state we call competitive arousal. It’s all too common in business—and all too often leads to costly mistakes.

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Reprint: R0805E
In the heat of competition, executives can easily become obsessed with beating their rivals. This adrenaline-fueled emotional state, which the authors call competitive arousal, often leads to bad decisions. Managers can minimize the potential for competitive arousal and the harm it can inflict by avoiding certain types of interaction and targeting the causes of a win-at-all-costs approach to decision making.
Through an examination of companies such as Boston Scientific and Paramount, and through research on auctions, the authors identified three principal drivers of competitive arousal: intense rivalry, especially in the form of one-on-one competitions; time pressure, found in auctions and other bidding situations, for example; and being in the spotlight&#8212;that is, working in the presence of an audience. Individually, these factors can seriously impair managerial decision making; together, their consequences can be dire, as evidenced by many high-profile business disasters.
It&#8217;s not possible to avoid destructive competitions and bidding wars completely. But managers can help prevent competitive arousal by anticipating potentially harmful competitive dynamics and then restructuring the deal-making process. They can also stop irrational competitive behavior from escalating by addressing the causes of competitive arousal. When rivalry is intense, for instance, managers can limit the roles of those who feel it most. They can reduce time pressure by extending or eliminating arbitrary deadlines. And they can deflect the spotlight by spreading the responsibility for critical competitive decisions among team members.
Decision makers will be most successful when they focus on winning contests in which they have a real advantage&#8212;and take a step back from those in which winning exacts too high a cost.

When Winning Is Everything

Reprint: R0805E In the heat of competition, executives can easily become obsessed with beating their rivals. This adrenaline-fueled emotional state, which the authors call competitive arousal, often leads to bad decisions. Managers can minimize the potential for competitive arousal and the harm it can inflict by avoiding certain types of interaction and targeting the causes of a win-at-all-costs approach to decision making. Through an examination of companies such as Boston Scientific and Paramount, and through research on auctions, the authors identified three principal drivers of competitive arousal: intense rivalry, especially in the form of one-on-one competitions; time pressure, found in auctions and other bidding situations, for example; and being in the spotlight —that is, working in the presence of an audience. Individually, these factors can seriously impair managerial decision making; together, their consequences can be dire, as evidenced by many high-profile business disasters. It’s not possible to avoid destructive competitions and bidding wars completely. But managers can help prevent competitive arousal by anticipating potentially harmful competitive dynamics and then restructuring the deal-making process. They can also stop irrational competitive behavior from escalating by addressing the causes of competitive arousal. When rivalry is intense, for instance, managers can limit the roles of those who feel it most. They can reduce time pressure by extending or eliminating arbitrary deadlines. And they can deflect the spotlight by spreading the responsibility for critical competitive decisions among team members. Decision makers will be most successful when they focus on winning contests in which they have a real advantage—and take a step back from those in which winning exacts too high a cost.

When Winning Is Everything

Summary.

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