The Idea in Brief
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:
Understand the Drivers of Competitive Arousal
Competitive arousal comes from these drivers:
- Rivalry. Going head-to-head with one or two opponents creates strong feelings of excitement and anxiety, which intensify arousal.
- 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”).
- 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.
Any of these drivers fuels competitive arousal. When they’re all present, the risk of making a bad decision increases exponentially.
Manage Competitive Arousal
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:
- Remember: competitors aren’t evil; they’re simply parties with their own interests—like you. You’ll view them with a cooler eye.
- 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.
To reduce time pressure:
- Ask yourself: “Do I really need to make this decision today?” If not, extend or eliminate arbitrary deadlines.
Example:
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:
- Spread responsibility for critical decisions across team members, so no one will stand alone in the spotlight.
- 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.
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.
Consider Boston Scientific’s disastrous acquisition of medical-device maker Guidant. In December 2004, Johnson & Johnson announced plans to acquire Guidant for $25.4 billion. Soon after, Guidant recalled 170,000 pacemakers, 56% of its total production. Not surprisingly, J&J threatened to pull out. Guidant responded by suing J&J to complete the deal, and J&J countered with a reduced offer of $21.5 billion.
Suddenly, Boston Scientific—J&J’s longtime rival—offered $24.7 billion for Guidant. This triggered a bidding war, even as Guidant’s financial and public relations woes worsened. The bidding finally ended in January 2006 with Boston Scientific’s offer of $27.2 billion—$1.8 billion more than J&J’s initial bid.
Was this a good deal? In June 2006, Boston Scientific had to recall 23,000 Guidant pacemakers and advise 27,000 patients who’d already had them implanted to consult their doctors. Boston Scientific’s share price, which was near $25 at the start of bidding, fell below $17. Fortune later called the Guidant acquisition “arguably the second-worst ever”—behind only AOL’s infamous purchase of Time Warner.
The Guidant case exemplifies the decision errors that can result when managers and executives, overcome by competitive arousal, shift their goals from maximizing value to beating an opponent at almost any cost. Fortune’s investigation of the Guidant acquisition reveals the role that competitive arousal played in the bidding war. “What emerges is a roller-coaster tale of bet-the-franchise corporate brinkmanship, miscalculation and overreaching,” Fortune’s writer noted. “It is a stark lesson on how the single-minded pursuit of victory can blind even brilliant execs to the true costs of a deal….it sheds new light on [an industry that] is marked by deep personal animosity and ferocious combat in the marketplace and the courtroom….”
As we’ll show, there is strong evidence that competitive arousal has fueled many other high-profile business mistakes. In a variety of contexts—be they auctions, negotiations, legal disputes, mergers and acquisitions, employee promotion contests, or the pursuit of hot managerial talent—decision makers can easily become fixated on beating their competitors. There is nothing necessarily irrational about incurring a cost to win; people enjoy winning—especially against their rivals—even at a price. There may actually be strategic benefits in doing so: If winning a contract will damage a competitor for the long term, it may make sense to pay more than fair value for that victory. But cases like that require a clear, upfront analysis of the limits of acceptable losses and the benefits that winning will yield. When analyses are conducted in the heat of the moment, competitive arousal crowds out clarity. The result is often a Pyrrhic victory.
In this article, we describe the causes of competitive arousal, when it is most likely to derail strategy and destroy value, and how managers can avoid or reduce its pernicious effects. We identify three principal drivers of competitive arousal in business settings: rivalry, time pressure, and audience scrutiny—what we call the “spotlight.” Individually, these factors can seriously impair managerial decision making. Together, their consequences can be all the more dire.
The High Cost of High Stakes
Rivalry
As the Guidant case suggests, competitive arousal is most common—and most dangerous—when rivalry is intense. In our research, we theorized that head-to-head rivalry would interfere with rational decision making more than any other kind of rivalry. Our first test of the theory was a large field study of auctions of artist-designed, life-size fiberglass cows. The proceeds of the auctions would go to charitable causes. In November 1999, 140 cows were auctioned live in Chicago and on the internet, generating almost $3.5 million—seven times initial estimates. Other cities soon followed suit, auctioning fiberglass cows as well as pigs, moose, fish, and bears. We collected bidding data from these auctions (including chronological listings of how much was bid and by whom) and conducted pre- and postauction surveys. We found that people were more likely to bid past their preset limits when they were competing against a few rather than many other bidders: A small field—particularly a field of just two—created intense feelings of rivalry, more bidding, and more overbidding. We’ve seen this same phenomenon in laboratory experiments: People tend to overbid more when they face only one bidder (even when we control for their perceived chances of winning); they also report more psychological arousal (in the form of excitement and anxiety), which fuels their overbidding.
“We don’t care if they are willing to pay $100 million more than everyone else. We won’t sell to them….we’re not going to let them score one last win.”
Rivalry can derail one-on-one negotiations, too. Consider a large Asian conglomerate that recently contemplated selling its telecommunications holdings. Because one potential buyer had been a competitor, there was personal animosity between the two companies’ executives. As the conglomerate considered the sale, one of its owners told us, “We don’t care if they are willing to pay $100 million more than everyone else. We won’t sell to them. We don’t want to give them the satisfaction….Now we have what they want, and we’re not going to let them score one last win.” It did not seem to matter that the seller and the buyer would no longer be competitors once the assets were sold; what did matter was their past enmity and the chance to thwart an archrival.
Time Pressure
A ticking clock—in auctions, negotiations, disputes, and other competitions—can overwhelm people with the desire to win. In live auctions, bidders must make decisions rapidly as the auctioneer calls out, “Going once! Going twice!…” Job seekers often confront “exploding” offers. Home sellers get bids that can expire in a matter of hours. Potential acquirers often face bidding deadlines.
Years of research has provided compelling evidence that time pressure seriously impairs decision making by increasing psychological arousal, which decreases the ability to find and apply relevant information and leads to an overreliance on simple decision heuristics, such as pursuing a strategy simply because it has worked in the past. In our auction studies, we found that people were more likely to bid past their preset limits as the deadline approached (this finding held even after we controlled for the size of their bids and the number of other bidders). When time was running out, bidders seemed increasingly fixated and limited in their thinking, clinging to the hope that their next bid would clinch the deal. Although one more bid may indeed increase the chances of winning an item, it can also result in overpaying for it.
Sometimes the rules of the game include deadlines, so time pressure is unavoidable. Other times, though, decision makers create unnecessary pressure for themselves. One executive told us that he used to negotiate important deals over breakfast because this provided an informal atmosphere at a time of the day when he was at his best. After years of using this approach, he came to understand that a breakfast meeting did not give him enough time to seriously consider and respond to unexpected proposals and requests. During these breakfasts, he realized, he had often agreed to provisions and price concessions that he later regretted.
The Spotlight
Psychological research shows that the presence of an audience, particularly one that’s highly engaged, increases psychological arousal and can reduce performance on physical tasks as well as on tasks that require problem solving or creativity. This means, for example, that live auctions incite considerably more competitive arousal than internet auctions. When an auctioneer or a bid spotter has singled you out with a challenge to increase your bid, and the audience is watching your every move, it’s hard to avoid a rush of adrenaline and the urge to bid even higher. In contrast, online bidding is more private; the “spotlight” is dimmer. As a result, online bidding tends to be more temperate and rational. In the fiberglass-animal auctions, for example, internet overbidders exceeded their limits, on average, by $1,134; live-auction bidders overbid by an average of $5,609—almost five times as much. We also found that when these auctions garnered less media attention, which dimmed the spotlight further, fewer people overbid. This finding held even after we controlled for a host of macroeconomic variables, such as stock market performance and consumer confidence index.
In negotiations, bidding wars, and business disputes, the strength of the spotlight can vary considerably. Some disputes are public affairs; others are shielded by gag rules. The brighter the spotlight, the greater is the potential for competitive arousal and bad decisions. The Blackstone Group, a prominent private-equity and investment management firm, provides an example. In early 2007, under the glare of the business-media spotlight, Blackstone acquired Equity Office Properties Trust, the largest owner of office buildings in the United States. Blackstone’s final offer of $23 billion in cash and an assumption of $16 billion in debt surpassed Vornado Realty Trust’s final offer by $3 billion and was the largest private-equity deal ever. Would Blackstone have been willing to pay such a premium without the tremendous media attention? Our research on competitive arousal suggests that the spotlight may have been influential in this case. In its coverage of the deal, the Wall Street Journal highlighted the increasing tension created by the sometimes incompatible goals of wanting to score a much publicized win and wanting to make a sound economic decision. “The culture of private-equity giants like Blackstone,” the Journal wrote, “is built on two competing foundations, the reluctance to lose any deal—particularly one as big as this—and an equal unwillingness to pay too much for any deal.”
A Perilous Mix
Rivalry, time pressure, and a bright spotlight can each fuel competitive arousal. Collectively, they can lead to decision disasters. We demonstrated this in a recent experiment, in which participants who were outbid in an online charity auction received one of three messages: a default message informing them that they had been outbid and could continue bidding by returning to the auction’s website; a charity message appealing to their sense of compassion (“We hope you will continue to support this charity”); or a competitive message fueling their desire to win (“The competition is heating up… are you up for the challenge?”). Bidders who received the competitive message were 50% more likely to bid again than those who received default or charity messages if two conditions were simultaneously met: high time pressure because it was the last day of the auction and high rivalry because only one other bidder remained.
In another case, involving a company we consult for, we saw rivalry, time pressure, and a spotlight conspicuously reinforcing one another. The company had hired us to advise it in its first business-to-business reverse auction. As with many such auctions, our client and its unidentified competitors were prequalified to bid in a computer-based auction in which the lowest bidder was contractually bound to provide services at that price. A company vice president was in charge of making the key decisions, but 10 of his colleagues were watching, placing him under intense scrutiny. The format of the auction gave him precious little time to make his bids, even though the stakes were many millions of dollars. Before the bidding ended, the VP had bid well below his previously calculated, rational limit. Luckily, the company lost the auction. The VP later admitted that he had stopped when he did only because he was unsure who the remaining rival was; had he known it was his company’s biggest competitor, he said, he probably would have continued to bid.
The pitched battle for Paramount Pictures offers yet another example of how the combination of these potent factors can distort decision making. In late 1993, longtime rivals Sumner Redstone (then the CEO of Viacom) and Barry Diller (then the CEO of QVC) locked horns in a public pursuit of Paramount. After a series of bids and counterbids, Viacom triumphed. Research by Pekka Hietala, Steven Kaplan, and David Robinson suggests that Viacom overpaid by $2 billion and that QVC would have overpaid by $688 million had it won. Indeed, Redstone himself admitted to Time that as a result of the bidding war he paid about $1.5 billion more than he had intended to. The magazine described how the decision-making process looked behind the scenes: “Time was running out on the Viacom executives and advisers who hunkered down to a Sunday-afternoon skull session….Unless Viacom came back fast and hard, everyone present knew, the fight would soon be over….one thought dominated all those at the meeting: how to throw a knockout punch that would be, as one of them put it, a ‘Diller-killer.’” This hardly reads like a description of rational decision making. Rather, a long-standing rivalry, mounting time pressure, and a glaring media spotlight seem to have converged to drive the overpayment. The root of the problem can perhaps be found in the title of Sumner Redstone’s autobiography, published a few years after the Paramount acquisition: A Passion to Win.
How Lawyers Can Fuel Competitive Arousal
Managing Competitive Arousal
The risk factors for competitive arousal are ever present: Managers and executives must constantly deal with rivals, make quick decisions, and operate in the public eye. They can minimize the potential for competitive arousal as well as the harm it can inflict by following two broad strategies: avoiding certain types of competitive interaction and mitigating the risk factors.
Circumventing competition.
Managers can prevent competitive arousal altogether by anticipating potentially harmful dynamics and then creatively restructuring the deal-making process. Consider how NBC revised its approach to deal making after a protracted and costly negotiation with Paramount over the TV rights for Paramount’s hit comedy series Frasier. The show had aired on NBC for eight years and had done spectacularly well. As the contract period neared its end, Paramount demanded a three-year contract with a 10% price-per-episode increase, despite the show’s (arguably) waning popularity. NBC executives wanted a lower price and a one-year contract (or a provision allowing them to forgo the third year if ratings faltered) and were confident that no other network could profitably pay even that amount for Frasier.
But Paramount was in a peculiar position: Its parent company, Viacom, had recently acquired NBC’s chief rival for the Frasier deal, CBS. This created a difficult (and unexpected) competitive dynamic for NBC. Even though NBC executives were sure that CBS could not profitably outbid NBC for Frasier, CBS might persuade Viacom to force Paramount to sell to CBS just to score a win against NBC. This implied threat may have been sufficient to stimulate competitive arousal among NBC’s executives, but several other risk factors were also present: The media were all over the story. The lead negotiator for NBC, Mark Graboff, had recently been hired away from CBS, and Frasier was his first negotiation on the job, putting him under both external and internal spotlights. And time pressure was intense—negotiations continued not only beyond the contract’s expiration date but also past the deadline set for an exclusive negotiation period between Paramount and NBC.
NBC got the show but appears to have paid more than it was worth. Frasier did well for one more year but then, consistent with the network’s initial analysis (and biggest fears), had its two worst years. Alas, NBC had not managed to negotiate the provision allowing it to forgo those disastrous years.
As a result of this experience, NBC restructured its deal-making process. In particular, the company began to include a “no self-dealing” clause, barring producers negotiating with NBC from shopping their shows to networks they own (or to those owned by their parent company). We’ve seen other companies avoid damaging bidding wars and escalating competition by using rolling contracts, which can be renewed prior to expiration without lengthy renegotiation, limiting the possibility that competing bidders will enter and trigger irrational price wars. Similarly, noncompete clauses can help firms avoid hypercompetition with rivals that might otherwise threaten to steal their star employees. And, having learned from bitter experience, some companies avoid B2B reverse auctions altogether because bidding wars can drive competitors to make irrationally low bids.
Mitigating the risk factors.
It’s not possible to avoid potentially destructive competitions and bidding wars completely. However, by targeting the underlying causes of competitive arousal, organizations can head off the escalation of irrational behavior.
Defusing Competitive Arousal
Defusing rivalry.
The desire to win at any cost is most powerful when the competitor is an erstwhile nemesis or is seen as evil. In such instances, it is helpful to remember that competitors are simply parties with their own interests. Like you, they are probably smart, reasonably rational, and somewhat emotional, and they probably see you as the nemesis. Of course, it is not always easy to control your feelings about rivals, but adopting your competitor’s perspective can promote cool, rational decision making, even in tough competitions.
When rivalry is intense, organizations should consider limiting the roles of those who feel it most. For instance, the COO of a large family-owned business, one of our clients, is a seasoned manager who was once a top political administrator in his country. His role in the company is to act as a devil’s advocate and thereby temper the CEO’s competitive arousal. His stature allows him to speak truth to power even when no other executive or board member feels comfortable doing so. In more than one instance, the COO has persuaded the CEO to step aside as the lead decision maker or negotiator when the CEO’s feelings of rivalry seem to be undermining his judgment. As this COO understands, when an arousal-prone negotiator can’t control the competitive fire in an intense rivalry, it may be in everyone’s interest to remove him or her from the bargaining table.
Managers for the National Hockey League saw the wisdom in this approach, albeit belatedly, during a highly publicized labor dispute in 2005 and 2006. Most observers realized that the rivalry between commissioner Gary Bettman and Players’ Association executive director Bob Goodenow made effective negotiating impossible. The two had a history of contentious, win-lose negotiations and even disagreed on details as trivial as how many meetings they had conducted. As a result, their seconds-in-command (chief legal officer Bill Daly for the owners and senior director Ted Saskin for the players) took over many of the substantive discussions, preventing the conflict from escalating further.
Another way to dilute the impact of rivalry is to quantify early on—before competitive arousal kicks in—how much you are willing to lose in order to “win.” In negotiations, auctions, legal disputes, and the like, this involves identifying not only the benefits that can accrue from the deal (assets, synergies, reputational advantages, and so on) but also the costs that you are willing to incur in the name of pride and ego.
One way to dilute the impact of rivalry is to quantify early on—before competitive arousal kicks in—how much you are willing to lose in order to “win.”
We recently worked with an executive to do exactly this. He was planning to sell his 50% stake in a company to his partner. They had come to hate each other and could no longer work together effectively. When we asked how much he would accept for his share in the company, he declared that he would not sell for less than $8 million. After some financial analysis and a consideration of his alternatives (whether he could sell to an outside party), we calculated that his bottom line should be closer to $7 million. “He doesn’t deserve that good a price,” the seller responded. After explaining that he was implicitly pricing his pride and his ego at $1 million, we asked him to explicitly put a price on beating his partner and to enter it into the spreadsheet we had created. After thinking this through overnight, he priced his pride at $200,000; he acknowledged that his original, emotional response had led him to overprice this element of the deal and that he was comfortable with the new figure (as large as it seemed to us).
Once you have carefully assessed your limit in an auction, a negotiation, an acquisition, or a dispute, publicizing it to colleagues or to your executive board can provide additional safeguards against competitive arousal. Public commitments make it harder to violate your limits.
Reducing time pressure.
Who can stop a bidding war that has spiraled out of control? Let’s reexamine the battle over Paramount. Time reported that Barry Diller came to his senses at the end of 1993, realizing that the acquisition was strategic and financial rather than a competition with Sumner Redstone. His first step was to defuse his dangerous feelings of rivalry. He then removed himself from the time-pressured deal-making environment. “Diller had packed up 10 lbs. of Paramount documents and hauled them along on a year-end Caribbean vacation,” Time reported. “Running the numbers while onboard the rented yacht Midnight Saga as he cruised off St. Barts, Diller decided that Paramount was not worth a penny more than the $10 billion in cash and stock that QVC was bidding.” When Diller returned from the trip, he held to his original offer—and lost the deal. Although time pressure can be imposed from outside, as with deadlines, it is essentially perceptual, shaped by how one feels about time ticking away. By shifting contexts, from his office to his yacht, Diller reduced perceived time pressure, slowing the ticking clock so that he could make a calculated, rational decision.
Effective decision makers create time to reevaluate the bases of their value calculations, to discuss substantive issues, and to negotiate. Because individuals consistently underestimate the time needed for complicated tasks—and consistently overestimate their ability to make wise decisions, particularly under time pressure—it is easy to set ill-considered deadlines that lead to bad decisions.
Extending or eliminating arbitrary deadlines may serve the purposes of both parties. Recent negotiations between Comair and its flight attendants and pilots are an excellent example of this kind of temporal flexibility. The airline’s union and management agreed to extend negotiation deadlines twice, in both cases to prevent time pressure from leading to value-destroying competitive behaviors. As Captain J.C. Lawson, chairman of the Comair pilots’ union, said, “The pilots and flight attendants will not have contract terms imposed upon them, regardless of some artificial deadline.” Comair spokeswoman Kate Marx conveyed the same message, albeit in different terms: “We have agreed to the deferral as a way to continue our work toward a consensual agreement, which has been our goal since we began this process over a year ago.” Given the simplicity of deferral as a solution, executives need only ask themselves in negotiations and in other high-stakes decisions, “Do I really need to make this decision today?” If the answer is no, a short deferral can be tremendously effective. Asking this simple question, however, may not always be easy—after all, it took our negotiate-over-breakfast executive several years to recognize the time trap he had set for himself.
Deflecting the spotlight.
A spotlight can originate outside an organization—in the media, for example. It can also shine from within, in the form of observant colleagues. To counter the effects of an internal spotlight on competitive arousal, organizations should consider spreading the responsibility for critical, competitive decisions across team members. That way, no one manager or executive will stand alone in the spotlight. For instance, one of our clients, a financial services company, recently adopted a policy requiring sales managers to report any large push by a customer for price concessions to a team of peers and bosses. The team then formulates a strategy and takes collective responsibility for the consequences. In the past, if clients threatened to switch to a competitor, sales managers feared that they would be held personally responsible for the loss and that their failure would be highly visible throughout the organization. This anxiety often pushed them to agree to extreme and unnecessary concessions. The new policy deflects the spotlight, allowing them to feel more comfortable holding the line on prices.
Another way to deflect the spotlight is to put individual managers in charge of multiple accounts and judge them on their overall—rather than on account-specific—performance. Editors at publishing companies, for instance, are often caught in emotionally charged bidding wars as they try to woo attractive authors. A big deal may come along rarely for an individual editor, and so the spotlight shines brightly. It’s not hard to understand why he or she may have a hard time resisting competitive arousal. To address this problem, some book publishers allow only one person in the organization—the CEO, who is familiar with the company’s entire portfolio—to approve advances above a set amount (for example, $250,000). The CEO won’t suffer the glare of the spotlight because each deal represents just one of many.
Many of the acquisition battles we have discussed here have had widespread media coverage, with analysts dissecting the competitors’ every action and reaction. The media spotlight can be difficult to deflect, but advance work can limit its effects on decision making. If negotiators anticipate that an acquisition will make headlines, they should carefully calculate their reservation prices before word of their potential bid hits the newsstands. These calculations should include the premiums that an acquirer is willing to pay in a variety of scenarios (for example, if competitor X enters the bidding or if the media begin to play up the rivalry between bidders). Although this prescription is not difficult to follow, firms routinely wait until after a new competitor has outbid them to reevaluate the premium they’re willing to pay. By then, competitive arousal may be clouding their judgment.
In some contexts, competitors are shielded from the spotlight as a matter of policy: Dispute mediations often have gag rules that prevent parties from discussing the process or the outcome. This policy has a dark side, of course, which must be considered before implementing it, especially in out-of-court settlements involving harmful behavior that might be repeated. For example, a company that has created products that can harm consumers may be free to continue manufacturing these products if guilt cannot be disclosed.
Whenever competitive arousal can be anticipated—whether because of rivalry, time pressure, or the spotlight, or because all three are likely to emerge—mental preparation can be an important defense. A simple and effective way to avoid unwise competitive behavior is to consider not simply prior mistakes but potential mistakes that may occur in competitive interactions. A number of our former students and clients role-play to prepare for major negotiations. By simulating upcoming deals, negotiators can anticipate the emotional reactions of competitive arousal and avoid behaviors that might derail otherwise sound strategy. Our research has shown that if managers do not have time to simulate an entire deal, they can still help avoid missteps by imagining future regrets about overpaying.• • •
Research clearly demonstrates that we tend to overestimate how rational, careful, and logical we are. We are also prone to believe that others are more susceptible than we are to irrational decision making. Both of these biases make it easy to ignore or underestimate the harm that can befall us as a result of competitive arousal. Executives and managers will be most successful in competitions when they not only prevent or mitigate competitive arousal, but also set in place organizational processes that help focus their competitive energies toward efficiently winning contests in which they have a real advantage—and away from those in which winning comes at too high a cost.