The Peter Principle

There’s a fundamental problem that every business seems to struggle with. Its something that seems to crop up in nearly every company I interact with and I’ve wondered why it seems so prevalent. What I’m talking about is incompetence. Not necessarily with the business itself (although there’s plenty of examples of that as well), but incompetence in the individual employees working within the company.

In discussing this with coworkers at my day job, I would always harp on the numerous ways that my employer would create an environment that encourages our all-star employees to leave. Enacting stricter dress codes, turning music off in all of their locations, and forcing you into using a cookie-cutter organizational strategy, just to name a few. My theory being that the all-star employees are the ones that are most likely to leave after a negative policy change — simply because they could easily get a better job over their less-than-stellar coworkers. This sort-of natural selection causes the average quality of the company’s employees to decrease over time.

My fear with this is that we would always be hiring fewer all-stars than we would be losing through this process. This leaves two simple ways to combat the problem, either hire more all-stars (which is incredibly difficult since you are beholden to the quality of your applicants, which fluctuate over time) or stop enacting bone-headed policies that upset the rank and file (which I have no faith will ever happen).

But, there has to be a reason why these obviously foolish decisions are made. As mentioned earlier, its all about the incompetence.

During one of these discussions about the foolish things middle-management tends to do, I realized something about how these people (who make far more money than I, but don’t seem to have any idea what they’re doing) managed to get where they are today. There is a flaw in the mechanism used for promotions. You see, an employee who over-performs at his position will likely get promoted at some point. And, if he over-performs at the new position he will get another promotion. This continues until he is no longer over-performing and instead settles into a position he’s mediocre at. He can’t be an all-star employee, because if he was then he’d receive another promotion.

The promotion mechanism is broken. Employees will naturally continue to be promoted within their business until they’re no longer good enough at their current position to be considered for another promotion. This is a serious problem. And, one I don’t exactly have an answer to. How do you determine at what position an employee will be at their highest potential? It’s too easy to give them that last promotion that they aren’t truly suited for. And one incompetent employee seems to breed more incompetent employees, because they often make decisions about promotions for many of the employees below them.

I’ve brought this concept up to a number of people in my life and felt as though I wasn’t getting the reaction I expected from them. I find this idea to be fascinating because it shows that all businesses have a natural tendency to operate this way and that you actually have to try (probably pretty hard) to prevent this from happening. But, most of the people I would discuss this with would listen to me politely, agree with a nod, and not have anything to say in response.

Until I realized that this was happening, I hadn’t heard anyone mention anything like it before (hence the frustration from the reactions I would get about it). But it turns out, this theory is called The Peter Principle, first discussed in the 1969 book The Peter Principle: Why Things Always Go Wrong by Laurence J. Peter and Raymond Hull.

The Peter Principle is described on Wikipedia as:

The Peter Principle is a concept in management theory in which the selection of a candidate for a position is based on the candidate’s performance in their current role rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and “managers rise to the level of their incompetence.”

I thought I had discovered something brilliant, only to find out that someone has beat me to the punch. But, I can’t feel too bad if I’m still independently discovering things like this.

I’ve heard Google has two promotional tracks — one for technical staff and one for management — to help mitigate this problem (although I can’t find any references to it anywhere online). And, this seems like the smartest way to keep The Peter Principle from becoming a problem because promotions in many companies often means you’ll spend less time in the trenches doing the work and more time in meetings talking about how to get the work done.

I think every company in the world should be thinking about this when they build their corporate structure. One strategy that can keep these problems at bay naturally is to mimic what Apple seems to have adopted — limit the number of managers in between the lowliest employee and the CEO of the company. There can’t be many promotions when there’s only a few people above each employee — those positions just don’t become available very often. Instead, you offer incentives in the form of doing similar tasks but on higher profile projects.

Since discovering this just a couple of weeks ago, it’s changed a lot about how I think about the businesses around me. I’m blaming the person with the bone-headed idea a lot less than I normally would because they probably shouldn’t have been put in a position to make that decision in the first place. But, that certainly doesn’t make the bone-headed idea any less bone-headed.