Should the Winner Take All?

The season’s winning driver gets top position in the Grand Prix. The brightest sales performers receive the best training and the most productive territories.

May 21, 2014

Dominant teams in soccer get the home-field advantage. But do winners always score significant benefits and gain control of better resources, leading to even more wins? Are the underdogs doomed?

This classic conundrum haunts leaders who work with diverse teams to achieve organizational goals. Should more time and resources be provided to laggards in order to narrow the yawning gulf between the performances of winner and losers? Or could the challenge of improving team performance be solved by simply boosting top performers?

In the former case, a policy favoring the laggards could level the field and intensify competition. Alternatively, it could weigh down the performers in the team with disincentives—why work hard if winning is not rewarded?—and lead people to withhold effort. In the latter case, boosting top performers sets strong incentives to work hard in the beginning. But, over time, such a policy could expand the gap between leaders and laggards, generating a “moral hazard” problem in which high achievers can afford to put in less effort. Either way, a manager has limited time and resources, and so optimally using them to enhance team effort is critical.

There is no consensus among researchers about the best managerial approach, which motivated professors Robert Ridlon of Indiana University and Jiwoong Shin of Yale University to work on resolving the conundrum.

In their recent research paper “Favoring the Winner or Loser in Repeated Contests”, RIdlon and Shin tracked a theoretical model over a two-period repeated contest with two employees of different ability. They simulated real world scenarios of bi-yearly assessment and annual targets; they assumed that each of the employees in the model would account for the impact of their work in the first period on the final outcome of the competition. The model also factored in uncertainty, with the managers unsure of employee ability until the first stage of the contest ended. The paper ultimately demonstrated the specific conditions under which one strategy is preferable to the other.

When the manager inherits a heterogeneous team with members of varied abilities, a handicapping policy that favors the loser enhances the total effort of the team. (The authors do not say explicitly what they mean about by “heterogeneous.” They talk about mangers being uncertain about exact abilities of team members.) Rewarding the loser might lead to some so-called “ratcheting”—top performers working less hard—and shrink the total first period effort. However, given that evenly matched contests are the most intense, leveling the competition in this way creates much greater effort in the second period, overshadowing the losses of the first-period.

In a scenario in which a manager has team members with similar abilities, favoring the winner will maximize the total team effort. Since people have similar abilities, small incentives for the winner in the first period do not dissuade people from putting in effort in the second period. Because losers of the first period still have a fair chance of winning the prize, this policy ensures effort by all the team members throughout the contest.

These results bear important organizational insights. When the abilities of a team range widely, then managers will benefit by investing in the laggards of the team, equipping them with optimal tools and training. The results help us understand different settings—athletic, social, corporate—and how appropriate incentive policies can maximize the efficiency of effort in those settings.

Managing a team is tough, especially since managers are entrusted with dual responsibilities of growing revenues of the business alongside the skills of people within the team. This research underscores the importance of leveraging strategies to achieve a balance between maximizing revenue and maximizing peoples’ potential. It is not always the winner who does, or should, take it all. Sometimes it’s worthwhile to give losers the advantage.