Sales is the ideal setting to test the Peter Principle, since the performance of both salespeople and managers are measurable. The Harvard Business Review did just that earlier this year, with revealing findings:

• Sales performance is closely related to the likelihood of promotion to sales management, rising by 15% for each higher sales rank
• After promotion, each higher sales rank correlated with a 7.5% decline in the performance of each of the manager’s subordinates
• The decline was largely the same regardless of whether the new manager was promoted to a new team or the same one

Their study concluded that better sales people tend to be worse managers.

Accepting, then, that a top performer and a top manager might be two very different things, there is still the question of whether internal promotions or external hires are the best way to go.

Internal promotions have shown in a range of studies to act as a motivator for the whole team, as it demonstrates that the firm offers career progression. In turn, this can promote loyalty and performance. It is also often fast and cheaper (albeit you are now opening up another vacancy further down the chain), and you will obviously have a good understanding of the candidate’s capabilities and cultural fit.

However, there is also the flip-side, where the Peter Principle comes into effect, and newly promoted managers can also struggle with colleague perception, creating resentment and conflict.

For external hires, the short-term costs are often higher, ranging from advertising to recruiter fees. However, you will have a greater talent pool to choose from, and an outside hire will bring fresh skills, ideas and solutions.

Ultimately, it might be a question of thinking strategically around your firm’s long-term plans. Internal promotions often promote status quo, embedding your current culture and processes, whilst an external hire might be better suited to driving growth and change.

And if you hire someone new to management, what next?

In a study, CMI found that people in management positions are less likely to receive training than any other employee group. In fact, over 60% of new managers have reported that they received no training whatsoever when starting their new jobs, and this is matched by a similar percentage who underperform or fail in their first two years on the job (CEB study).

Does this point to a belief that management skills is something you are born with, rather than something you learn? As we often point out, the wrong hire can cost a firm 2.5 times the annual salary of the employee, so it is surprising that firms don’t invest more in their managers – especially as these are hires who greatly impact on the performance of others too.

Aside from the cost to the employer, this attitude is bad news for the failing hire too, as the bad habits they pick up in their early years are hard to unpick, and will mar the rest of their managerial career. Whether you opt for an internal promotion or an external hire, a solid induction and training programme is essential.

Many firms struggle to attract talented managers, but perhaps it is not talent that is in short supply, but investment in training and development, and a recognition of management skills as a separate skillset.