IS THIS ANY WAY TO RUN YOUR BUSINESS CHAPTER 7

The Peter Principal (Chapter 7)

Over the years, I've had several clients who have always promoted from within. They wanted to provide opportunities for all of their employees to advance within the company. Unfortunately, some of those employees were either unprepared for advancement or incapable of performing in a more demanding role. Rather than reassigning them to a more appropriate position, the question became how to handle their reassignment.

Professor Laurence J. Peter's book "The Peter Principal: An Explanation of Occupational Incompetence" was published in 1969. "In a hierarchy (such as a company's organization), every employee tends to rise to his or her level of incompetence," the book's premise stated simply, but it is as relevant today as it was then. In general, if an employee does a good job, he or she will be promoted to a position with more authority and responsibility. This pattern of promotion continues until the employee's skills and talents are no longer appropriate for the position. At that point, the employee has reached the pinnacle of his or her incompetence. Because of their poor performance in their current job, they will no longer be promoted to higher levels in the organization.

That, however, might not be sufficient grounds for dismissal. After all, the employee has always done well in previous positions, has gained seniority and loyalty along the way, and, despite being incompetent for their current position, at least contributes. Furthermore, firing people is always difficult, especially if their previous performance was satisfactory. It was not their fault that they were promoted to their level of incompetence; it was the fault of the person who promoted them.

"Every position tends to be occupied by an employee who is incompetent to carry out its duties over time," Peter's Corollary (to the Peter Principal) states. Of course, you'll never find that a company's entire workforce has reached their level of incompetence. Most are still working their way up the corporate ladder and doing a good job. Otherwise, the company would be forced to shut down.

To avoid this begin, simply acknowledge that the Peter Principal exists and do not allow it to infect your organization. It's best for everyone not to promote people who aren't up to the task. Recognize when you make a mistake, which you will. Explain the situation to the person involved, and then get them back into a position where they can perform well. This may necessitate a pay cut, but for the employee, it may be preferable to having no job at all. Furthermore, most employees are unhappy in positions that are beyond their capabilities, and if they are not moved backward, they will leave.

Also, compensation isn't always linked to organizational positions or responsibilities. It's not uncommon for your best salesperson to be paid more than their sales manager. This is especially true if your salespeople are paid on an incentive commission system. If an employee performs exceptionally well but is not eligible for further advancement, reward him or her with a higher salary, even if it is higher than that of his or her superiors.

I like to include two organizational charts in the Strategic Plans I create for my clients. The first depicts the organization as it currently operates, while the second depicts the organization as it might appear in two or three years. Vacant positions are shaded blocks, with many more vacancies in the future than shown in the current graph. These organization charts aid senior executives in not only understanding how their company's managers and employees interact, but also in planning promotions, hiring priorities for new positions, and manpower levels and requirements for projected growth.

Vertical positions do not always correspond to levels of responsibility. The positions and connecting lines are solely for the purpose of defining the areas of responsibility and internal communications. All company managers are then given access to those organization charts, as well as the entire Strategic Plan.

Create written job descriptions, along with the expected behaviors for each managerial position in your organization. Begin by asking each manager in your company to write a two- or three-paragraph job description for themselves. The person's immediate supervisor should review each of these, discuss it with the manager who wrote it, and then revise it to reflect those discussions.

Job descriptions should spell out each job's specific responsibilities as well as the criteria for evaluating performance. They should also specify the job's position within the organization, including direct reports up and down the chain. The person at the top of the chart should review all of the job descriptions as they are written and discussed. Your organization will function better when your people understand their jobs, expectations, and positions.

The Peter Principle applies to entire companies and the owners. Companies grow until they reach a point where the top executives' ability to manage the organization and continue its growth is exhausted. Those businesses either stagnate, decline, or solve the problems that are preventing them from progressing. The treatment is usually straightforward. The company's owner or top executives simply hire new managers with more talent and experience than their own. Pay well, give them performance-based incentives, and let them do their jobs.

Allowing an employee's competence in one position to qualify them for a promotion is not a good idea. Build a team of capable people who are well-suited to their roles, and your company will thrive.

(See also Chapter 2, and the book Whose Job Is It, Anyway.)