You’ve probably heard of the Peter Principle, named for Dr. Laurence J. Peter, which formulated that “In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence.” (Caps Wikipedia’s). Basically if you work at anyplace with any kind of merit-based system of promotions, people will continue to rise within a company until they no longer are performing at an exceptional level.
A recent New Scientist article by Mark Buchanan asks the Stanford Graduate School of Business’s Robert Sutton about how managers operate, and he did not mince words:
They replace action with incomprehensible acronyms, blame others for failure, and cheat to create the illusion of progress
Stanford economist Edward Lazear has a slightly different take on the Peter Principle, almost endorsing its existence, and calling it a statistical likelihood:
[A]bility appears lower after promotion purely as a statistical matter. Being promoted is evidence that a standard has been met. Regression to the mean implies that future ability will be lower, on average. Firms optimally account for the regression bias in making promotion decisions, but the effect is never eliminated. Rather than evidence of a mistake, the Peter Principle is a necessary consequence of any promotion rule.
Back in the New Scientist article, an Italian study found strong evidence for the Peter Principle’s continued existence, and suggested promoting incompetent people. Buchanan:
[T]he new analysis suggests that there may be another way to achieve a similar end: subvert the seemingly inescapable logic that the best should always be promoted, and at least sometimes promote the poor performers too. By removing people from jobs for which they have low competence, such a strategy increases overall organisational efficiency, measured as a weighted average of employee competence, with higher-level positions counting for more.
One of the authors of the study adds:
[T]he best promotion strategy seems to involve choosing people more or less at random
Uh, no. Also, are we going to be taking business advice from Italy? Seriously? I don’t know that I”m desperate to hear business savvy from people who take 42 vacation days per year. And unless you actually want to run your company like a Dilbert cartoon or admire Bill Lumbergh’s management style, you probably should not intentionally pass over your most qualified employees to reward incompetent ones.
Still, the results are somewhat frightening, and logical. The two scenarios presented in the article are not exactly confidence inspiring. Behind door one, people are promoted on the basis of disproportionately positive work, and behind door two, they are promoted until they no longer produce at a level where they deserve promotion. What do you think, businesspeople? What of this strikes you as accurate? Is The Office actually a real documentary?
Related: Robert Sutton has an interesting take in Business Week on how outlandish expectations have pushed people to cheat and strive to create the illusion of superachievement rather than aiming for simple competence. While it might be going a bit far to pin the financial crisis on the need to be demonstrably better than one’s peers (in terms of profits, etc.), it is very likely that there is some causal connection there.