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The Peter Principle is a proposition that states that the members of an organization where promotion is based on achievement, success, and merit, will eventually be promoted beyond their level of ability. The principle is commonly phrased, "Employees tend to rise to their level of incompetence." In more formal parlance, the effect could be stated as: employees tend to be given more authority until they cannot continue to work competently. It was formulated by Laurence J. Peter and Raymond Hull in their 1969 book The Peter Principle, a humorous treatise, which also introduced the "salutary science of hierarchiology".
The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions. Peter's Corollary states that "[i]n time, every post tends to be occupied by an employee who is incompetent to carry out its duties" and adds that "work is accomplished by those employees who have not yet reached their level of incompetence." "Managing upward" is the concept of a subordinate finding ways to subtly manipulate his or her superiors in order to prevent them from interfering with the subordinate's productive activity or to generally limit the damage done by the superiors' incompetence.
This principle can be modeled and has theoretical validity for simulations.
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The Peter Principle is a special case of an ubiquitous observation: Anything that works will be used in progressively more challenging applications until it fails. This is "The Generalized Peter Principle". He observed it applied to hardware, e.g., vacuum cleaners as aspirators, and to administrative devices, such as the "Safety Evaluations" used for managing change. There is much temptation to use what has worked before, even when it may exceed its effective scope. Peter observed this about humans.
In an organizational structure, the Peter Principle's practical application allows assessment of the potential of an employee for a promotion based on performance in the current job; i.e., members of a hierarchical organization eventually are promoted to their highest level of competence, after which further promotion raises them to incompetence. That level is the employee's "level of incompetence" where the employee has no chance of further promotion, thus reaching their career's ceiling in an organization.
The employee's incompetence is not necessarily a result of the higher-ranking position being more difficult. It may be that the new position requires different work skills which the employee may not possess. For example, an engineer with great technical skill might get promoted to project manager, only to discover he lacks the interpersonal skills required to lead a team.
Thus, "work is accomplished by those employees who have not yet reached their level of incompetence."
In addition, Peter suggested the idea of “super-competence” in an inappropriately low position. He proposed that this employee will have two paths dependent upon his leadership. Competent managers will promote this employee for the betterment of the company. Incompetent managers will most likely feel intimidated or threatened by this employee. This employee is a disruption to their perceived natural order and will almost certainly drive them to set this employee up for failure or dismiss him. Organizations with poor leadership cannot handle this type of disruption to their hierarchical structure. A super-competent employee "violates the first commandment of hierarchical life with incompetent leadership: [namely that] the hierarchy must be preserved.”
There are methods organizations can use to mitigate the risk associated with the Peter Principle. However, the implementation of such methods must be applied at all levels to be effective.
One way that organizations can avoid this effect is by having an "up or out" policy that requires termination of an employee who fails to attain a promotion after a certain amount of time. For example: A manager is able to handle the vast majority of his or her current job responsibilities, but does not reveal the skill set necessary for promotion. The manager possesses the potential to cause harm within the company, by way of preventing those beneath them with higher potential from moving up, as well as lowering morale once such employees become aware of this fact. The United States Armed Forces, for instance, require that certain ranks be held for no longer than a set amount of time, a lack of compliance with which could render grounds for dismissal. This, of course, may have the effect of institutionalising the promotion of individuals into a role beyond their competence.
Another method is to refrain from promoting a worker until he or she shows the skills and work habits needed to succeed at the next higher job. Thus, a worker is not promoted to managing others if they do not already display management abilities.
Peter states that a class, or caste (social stratification) system is more efficient at avoiding incompetence. Lower-level competent workers will not be promoted above their level of competence as the higher jobs are reserved for members of a higher class. "The prospect of starting near the top of the pyramid will attract to the hierarchy a group of brilliant [higher class] employees who would never have come there at all if they had been forced to start at the bottom". Thus he concludes that the hierarchies "are more efficient than those of a classless or egalitarian society" .
In a similar vein, some real-life organizations recognize that technical people may be very valuable for their skills but poor managers, and so provide parallel career paths allowing a good technical person to acquire pay and status reserved for management in most organizations.
Alessandro Pluchino, Andrea Rapisarda and Cesare Garofalo used an agent-based modelling approach to simulate the promotion of employees and tested alternative strategies. Although counter-intuitive, they found that the best way to improve efficiency in an enterprise is to promote people randomly, or to shortlist the best and the worst performer in a given group, from which the person to be promoted is then selected randomly. This work won the 2010 Ig Nobel Prize in management science.
Another technique for overcoming the effects of the Peter Principle can be found in the use of contractors (for example in the information technology industry). Information technology contractors are selected for their relevant experience, supported by recent references, and are usually taken on for short periods (up to six months at a time, with renewals if competent). If incompetence is detected, they can be easily laid off (e.g., by simply not renewing their contract).
The contractor is not a part of the hierarchy, is not usually eligible for promotion, and is well remunerated and thus content with the contracted position, as well as being under pressure to perform to ensure continued employment.
Having formulated the Principle, I discovered that I had inadvertently founded a new science, hierarchiology, the study of hierarchies. The term hierarchy was originally used to describe the system of church government by priests graded into ranks. The contemporary meaning includes any organization whose members or employees are arranged in order of rank, grade or class. Hierarchiology, although a relatively recent discipline, appears to have great applicability to the fields of public and private administration.—Laurence J. Peter and Raymond Hull, The Peter Principle: Why Things Always Go Wrong
Although humorous, Peter's book contains many real-world examples and thought-provoking explanations of human behavior. For example, he pointed out that Adolf Hitler was a consummate and superb politician due especially to his charisma and oratorical skills but reached his "level of incompetence" as commander-in-chief of the Wehrmacht because of the rigidity of his decision making (not allowing retreats when necessary according to the tactical situation). Similar observations on incompetence can be found in the Dilbert cartoon series (such as The Dilbert Principle), the movie Office Space, and television shows the BBC's The Office or NBC's Parks and Recreation and 30 Rock. In particular, the Dilbert Principle seems to be an extension of the Peter Principle. According to the Peter Principle, the subject has been competent at some job in his past. The Dilbert Principle attempts to explain how a person who has never been competent at anything at any point in time can still be promoted into management.
In 1981 Avalon Hill made a board game on the topic titled The Peter Principle Game.
In April 2009, the book was re-issued in honor of its 40th anniversary.
The same experience was described as early as 1767 by Gotthold Ephraim Lessing in his comedy Minna von Barnhelm (3, 7): “Mehr als Wachtmeister zu werden? Daran denke ich nicht. Ich bin ein guter Wachtmeister und dürfte leicht ein schlechter Rittmeister und sicherlich noch ein schlechtrer General werden. Die Erfahrung hat man.”
Translated from German to English: “To become more than a sergeant? I don't consider it. I am a good sergeant; I might easily make a bad captain, and certainly an even worse general. One knows from experience.”