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Is there conventional wisdom on competing with a current boss for a new role? 

A new director position is being created to merge several existing functionally oriented groups/roles--a director-level section, a manager-level team, and some individual contributors. It's not clear what will happen to the existing director-level position. It's anticipated that candidates will come from the existing / affected leaders as well as others from the wider organization.

A manager under that existing director could be a competitive candidate (possibly more competitive than his/her current boss), given the broader cross-functional and new-team-development aspects of the new group. There is no certainly (it's unlikely) that candidate anonymity is possible. Relationships between the current director, the manager in question, and the director's supervisor are all healthy and well-developed.