The Peter Principle examined

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The Peter Principle

We touched on the Peter Principle in one of our previous blog posts on sales managers, the idea that “In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence”. The principle outlines how an employee is promoted, perhaps several times, until their performance drops when their duties and responsibilities eventually outstrip their capabilities.

The Peter Principle was formulated by Laurence J. Peter in a bestselling book by the same name in 1968. The book was brimming with humour and satire, but rather light on research and underpinning data. Still, it has received a fair bit of attention over the years, probably because most of us have come across managers who have demonstrated the theory in action.

Unproven theory no more.

Earlier this year, three professors from Yale and the University of Minnesota published their findings, having analysed the performance of over 53,000 sales employees at American companies over a six year period. Over 1,500 of these were promoted to sales managers in that period, and they drew the following conclusions:

1. Companies were more likely to promote employees based on their sales figures, than on characteristics that might indicate managerial capability
2. Top sales people were more likely than not to perform badly as managers

“I expected that the best salespeople would become merely-good managers: some skills translate to management and others don’t,” Dr. Benson, from the University of Minnesota said. “To see that the best salespeople were becoming the worst sales managers was surprising.”

The researchers estimated that the costs of promoting workers with lower managerial potential are high – a two-fold cost, since the firm will not only gain an under-performing manager, but also lose a top performing sales person.

This doesn’t mean that top sales people can’t also be good managers, rather that it is unlikely (look at football managers – the best managers weren’t necessarily the best players). However, even in these cases, the evidence of their managerial potential wouldn’t have manifested in their sales numbers. Essentially, being good at a job and being a good manager are two very different skillsets.

The Peter Principle

One can argue that employees are not so much promoted to “his level of incompetence”, but away from their competence, perhaps because managerial skills are not quite understood and valued in their own rights. Firms are putting too much emphasis on high performance in employee’s current jobs, rather than looking for managerial talent amongst their staff.

It also seems to us that being a top, individual, performer should carry more prestige and weight. When we speak with recent graduates, we are often told that their long-term ambition is ‘to manage’. When probed, they’re often not very clear on what this might entail or whether it’s a role they’re suited for. However, almost all are under the impression that management represents the pinnacle of whatever career they’re setting out on. However, as the Peter Principle outlines, being promoted out of your comfort zone can be sure-fire way to stagnate, or even fail.

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