Companies like to pit internal teams against each other. Bad idea.

That is what we found in a study of companies that pushed internal teams to compete with each other—whether for formal financial rewards like bonuses, or for informal ones like greater prestige, access to executives and influence.

Yes, by some indicators, the teams ended up working harder when they were battling each other. But they failed in another crucial respect: The more teams competed, the less innovative they were. Simply put, they were wary of sharing information with other teams, so they weren’t getting unexpected, inspiring ideas from people in other parts of the company.

In fact, the only teams that excelled in the study were ones that did choose to share information with others, whether out of necessity or strategically.

Head-to-head

We started our research by looking at 73 teams from three engineering firms in renewable energy and enterprise software. Competition between teams was prevalent. Organizations often created winner-takes-all incentives for annual bonuses and hiring head counts. Some team leaders also used their personal rivalry with other team leaders to create more targeted competition with other teams.

We found that this competition could make teams put in more hours and work more closely with their teammates, but it ultimately hurt their ability to innovate. What’s more, the more groups that one team competed against, the lower its innovativeness. People weren’t sharing information between teams, so they weren’t getting outside-the-box ideas to spur innovation.

One type of team, though, seemed to thrive in competition. Call them “bridge teams": groups that chose to share information with other groups, and in turn share what they had learned with others. Bridge teams led the pack in innovativeness because they had more contact with people and ideas outside their own group.

To be clear, bridge teams often aren’t officially designated groups inside of a company, and they don’t only appear in companies that have internal competition. They can pop up in any context. What they have in common is that they act as “bridges," collecting and sharing information among teams.

In our research, for instance, one team working in cloud storage approached other teams for feedback on its work, to make sure its designs could adapt to changing demands. So, the bridge team was exposed to knowledge from diverse sources.

A team can become a bridge purely by accident, too. If one group is located in the middle of the company’s physical floor space, other teams will naturally gravitate to it to chat, and to ask about what is going on elsewhere in the company.

The information edge

In companies with intense competition, the knowledge that bridge teams acquire becomes a key strategic advantage for them. We conducted an experiment in the laboratory with 162 teams, asking the groups to create an innovative business plan—while competing for an innovation prize, judged by two experts.

Bridge teams got access to vital information to create their plans by trading knowledge with other groups, and restricting the flow of information to competitors. The result: Non-bridge teams performed 49% worse than bridge teams in terms of innovativeness, according to the experts’ assessments.

Overall, competition did increase team motivation and the level of teams’ internal communication by 16%, as indicated by the number of messages team members sent to each other in coordinating their plans. But it reduced the total information exchange among teams by 42%, meaning a decrease in overall innovation for the organization.

How, then, can companies leverage the benefits of competition without sacrificing information sharing between teams?

For one thing, choose an outside target: Instead of making internal teams battle each other, have them try to beat external benchmarks, such as how many patents a rival company produces. Companies should also make efforts to ensure groups share information, such as holding regular meetings or creating a shared database that any team could use.

Above all, leaders must make sure that teams don’t see internal competition as a goal in itself. The ultimate aim is helping the organization achieve its goals—even if that means collaborating more or otherwise sharing information with a competing team.

Tom Taiyi Yan is an assistant professor of organization and innovation at University College London’s School of Management. Vijaya Venkataramani is dean’s professor of leadership and innovation at the Robert H. Smith School of Business at the University of Maryland, College Park. They can be reached at reports@wsj.com.