The Peter Principle

You must have heard this business wisdom “ employees in an organization rise to their level of incompetence “ This is the Peter Principle a concept in management developed by Laurence J. Peter.

The concept was explained in the 1969 book The Peter Principle by Dr. Peter and Raymond Hull. Hull infact is the actual author of the book while Dr Peter developed the concept.

The story goes that Hull was very concerned and frustrated by the all pervasive incompetence that he saw in the market in business and life.He was looking for answers and bumped into Dr Lawrence Peter and had an epiphany. Peter and Hull intended the book to be a satire, but it became popular as as people saw the truth in what it laid bare. Since 1969 when it was published this book has been referred to and referenced as an explanation for managerial incompetence in organisaions.

Harward business review had published articles in support of the books tenets twice once in 1973 and another in 1976.

Thus the Peter principle has become an idiomatic not just in a Business context.

it has taken deep rootes in our business psyche with many an enlightened article has been published supporting and some negating the ideas put forth. The only one article that I came acros negating the Princiiple was by Edward Lazear writing for the Stanford school of Business Magazine who stated that incompetence is inevitable after a promotion. Strangely that’s what Peter Principle also states.

Rodd Wagner on Forbes explaining the steps to the ultimate Peter principle trap had this to say – An employee does well. He’s rewarded with a promotion. He does well in that job, and is promoted again. This continues until the point he is no longer performing at a level deserving of a promotion, which leaves him at a level where he is over-matched by the demands of the job – in other words, “incompetent.”

Peter Principle in effect seems like the inevitable result of the promotion system being followed by Hierarchies.

Though the principle existed as a universal truth it was scientifically proven when Alan Benson of the University of Minnesota, Danielle Li of MIT and Kelly Shue of Yale tested it out on a large sample of Sales professionals in the US. The sample under consideration was 53,035 sales employees at 214 American companies from 2005 to 2011 . During that time, 1,531 of those sales reps were promoted to become sales managers.

Reporting on this study Dr Alan Benson wrote in the HBR 2018 edition –

First, we found that sales performance is highly correlated with promotion to management. For salespeople, each higher sales rank corresponds to about a 15% higher probability of being promoted to sales management.

Second, sales performance is actually negatively correlated with performance as a sales manager: when a salesperson is promoted, each higher sales rank is correlated with a 7.5% decline in the performance of each of the manager’s subordinates following the promotion. We found similar results regardless of whether salespeople were promoted to their own team or to new teams. In other words, firms tend to promote top sales workers into management, even though they become the worst managers.

Simply put  –

1. Good performing Sales professionals tend to be promoted ( why else would they perform)
2. Once promoted they perform poorly as managers.

What struck Dr Benson – was amongst the individual contributors who got promoted  the best Sales professionals became the worst managers.

He further added that some firms may promote great salespeople “to encourage workers to exert effort in their current job roles and to maintain norms of fairness,”. Counting sales is easy compared to “other, more subjective or fungible employee characteristics in promotion decisions.” 

A desire to play fair is pushing organizations to botched promotions and managerial incompetence. Firms are lowering the bar to promote the best.

A word of caution needs to be placed here as

• Not all managers are incompetent ( many sales professionals turn out to be excellent managers).
• Second, employees who had high numbers in collaborative selling rather than the common go-it-alone version had better-than-average chances of becoming effective managers.

The question for Organisations and Career Professionals is how to offset its effect. How to counter the Peter Principle.

Suhas Sreedhar has shared a few approaches that leading firms are taking to avoid the PP ( peter principle) trap –

1. Reward staff members for being competent at their own levels. 

Remunerate good performers by increasing salaries or compensating them with other rewards as befits the organization. Trading firms typically follow this method. Steve Jobs used this approach and left employees at the levels at which they excelled.

• Getting rid of management. 

High growth tech firms like Zappos are experimenting with a fluid structure where employees manage themselves. They call is Holacracy. This is what I found on the Zappos website about Holacracy – “ Holacracy is like an operating system for your organization. It is a predefined set of rules and processes, checks and balances, and guidelines that an organization can use to help them become self-managed and self-organized by giving every employee (instead of just management) the power to innovate, make changes, and have a voice.

Zappos is a highly succesfull firm going by the numbers , to what extent Holacracy has played a part in its success is beyond the scope of this post. But, firms are coming up with innovative ways to counter the Peter principle.

• Having robust feedback mechanisms that expose incompetence

Many tech firms especially Google are following a system, of 360 degree evaluation of Managers by their subordinates. These managers are given an opportunity to reflect on the feedback and work on the improvements.

As firms become aware of the trap of the Peter Principle they are coming up with innovative approaches according to what suits their line of business and style of functioning. But the key is the awareness of the existence of this principle and the fact that past performers are the most likely carriers of this malady.

Staffanie Denning a career strategist and leadership expert sharing her expertise on Forbes mentioned the following techniques that professionals can use to offset impact of PP on your career.

• Focus on productivity Not income Growth

it’s the amount of money you make relative to the value you generate as an employee that matters. In equilibrium, you’re paid what you think you are worth. If you ever let your income rise faster than productivity, the Peter Principle traps you. You price yourself out of the Market.

• Be aware how your skillset is valued in the Market.

To stay ahead of the curve that is to continue to earn higher income master Hot skills. The in demand SKILLS I YOUR FIELD.

• Apply Neil Gaiman’s “Secret Framework”

Neil Gaiman is the creator of SANDMAN ( Marvel Comics ) a Billion dollar industry in itself. He gifted a secret framework to targeted at freelancers which works equally well for regular Jobs :

1. Produce Great Work
2. Be easy to work with
3. Deliver Work on time.

And the key he adds is that you just need to excel in 2 out of the three pillars , people would love to work with you even if you don’t produce great work but are fun to work with and you are dependable.

In summary A simple way to offset the Peter Principle is don’t go for promotions if you enjoy working alone , be productive and pay heed to the Neil GAiman framework.

Peter Principle is the result of creeping incompetence . No better way to stall incompetence than by learning and keeping yourself updated on the latest developments in your profession. Whether skills or other macro level happenings will keep you prepared and prevent the PP onset.

In the book Dr Lawrence Peter had this to say about how professionals and organizations could offset its effects –

Man must realize that improvement of the quality of experience is more important than the acquisition of useless artifacts and material possessions. He must reassess the meaning of life and decide whether he will use his intellect and technology for the preservation of the human race and the development of the humanistic characteristics of man, or whether he will continue to utilize his creative potential in escalating a super-colossal deathtrap.

Man must examine his objectives and see that true progress is achieved through moving forward to a better way of life, rather than upward to total life incompetence.

Here is my short video on the topic.

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