From the March 2007 issue of Entrepreneur

Business is good for Michael Cooch, founder of 4-year-old Everon Technology Services, a Boston IT firm that serves SMBs. The company's clientele encompasses industries from schools to government lobbying firms to retail shops, and sales are projected to surpass $5 million this year. "We've grown over 100 percent per year since we started the company," says Cooch, 33. "There's a good market for our services out there."

The competition, however, can get fierce among Everon's 35 service delivery employees, its three sales employees and its one-employee marketing department. The marketing department researches and generates leads and gives them to the sales team, but the service team has veto power over all sales deals and can advise the sales department on how to sell a prospect. The result can be tension--and sometimes rivalry. "There's a strong back-and-forth between the sales team and the service team," Cooch says. "It's a very competitive group."

Keeping both sides working together is the tricky part. Departmental competition is the ugly underbelly of companies large and small, resulting in product delays, increased costs and dwindling market share as departments vie for domination behind the scenes. Today, the online side of a company can feel it's competing against the offline side. Sales and customer service can go mano a mano, and skirmishes between marketing and R&D are legendary.

Somewhere in the middle is the customer, who loses out when everybody is tending to their own nest, says Tom Kinnear, executive director of the Zell Lurie Institute for Entrepreneurial Studies in Ann Arbor, Michigan. "One major company described the two great enemies [as] functionalism and regionalism. You can add departmentalism to the list," says Kinnear, who encourages senior executives to bring up departmental battles in his executive educa-tion courses. "You want sales now, and you want them without the high cost structures that go with the bureaucracy."

Your business will eventually need more divisional structure, but fiefdoms could be an unwanted byproduct without proper checks and balances. In a leaked memo last November, Yahoo!'s senior vice president of communications and communities, Brad Garlinghouse, vented his frustration over the development of insular silos inside the company that were fighting over ownership, strategies and tactics instead of collaborating on projects. Soon after, Yahoo! announced its reorganization into three operating units to cut bottlenecks, increase accountability and encourage faster decisions. "It sounds like they had become too bureaucratic and too functionally oriented," Kinnear says. "Their systems got in the way."

Caroline Vanderlip already navigates departmental competition as CEO of 3-year-old SharedBook, a New York City online scrapbook company with 45 employees. The company's development team, which designs the system architecture, can bump up against the operations team that implements it. Tensions also arise between SharedBook's marketing and product teams over which features to implement next. Vanderlip, 51, spends a lot of time trying to resolve these battles. "It's really a question of, with finite resources, what do you tackle first?" she says. "That's where a lot of the conflict between departments comes from."

How you choose to allocate limited resources can increase competition between departments, especially if your own interests and abilities as the leader gravitate toward a particular part of the company. An R&D minded entrepreneur, for example, might not notice friction building in other departments. A hands-on approach and intense commu-nication are critical to easing depart-mental friction, says Candida Brush, entrepreneurship division chair at Babson College in Wellesley, Massachusetts. "Where a lot of this stuff comes out is over a beer at the end of the day," she says. "You do have to pay attention in case something is bubbling up."

Cooch's daily score card, which gen-erates 80 metrics, can also provide a red flag for interdepartmental battles brewing on the down-low. "You'll start to see numbers that aren't moving in the direction they're supposed to," he says. "That allows you to focus your questions on certain parts of the business."

Kinnear sees companies large and small designating team leaders who bring together employees from all divisions to serve a specific demographic, a certain industry or an important client. General Electric created GE Automotive, an integrated team that serves the auto industry. P&G has a cross-function team that focuses solely on Wal-Mart. Switching from a vertical model that's focused on functions and regional areas to a horizontal model focused on the customer is "the nirvana in terms of trying to deal with this issue," Kinnear says. "You still have turf issues, but the operating understanding is that everybody is there to serve an end customer."

Ultimately, solving the problem requires good management that helps em-ployees see the company's big picture. Departmental competition "is an inevitable, age-old issue. It's human nature," Vanderlip says. "You have to make sure everybody's objectives are aligned."

Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.