Competition in an economy works because the market picks the winners and allocates resources to them. Often that means several winners because different competitors have complementary strengths and weaknesses. Nobody knows their requirements and price tolerance better than the customer. Incentives of the producer and customer are aligned.

Inside an organisation there’s no real mechanism equivalent to a market within which these alternatives can compete. It almost entirely comes down to politics, not relative cost, features and technical suitability. If a team’s solution is adopted by another department does their revenue go up? Do they get extra resources? How do they advertise their product? What’s their incentive to provide customer service and support? If they get a new project or strategic direction and this ‘product’ doesn’t fit their vision anymore what’s to stop them just dropping it? After all none of their budget actually comes from this ‘product’ no matter how many other teams use it.

It’s not that these problems can’t be solved, but there’s no real market or real revenue stream there so market forces have to be consciously emulated by management fiat. If enough layers of management lose focus on that, or management changes, it all breaks down.

It’s basically the same problem as with planned economies.