With all of the attention being paid to undeserved bonuses for Wall Street execs it seems fitting to revisit The Peter Principle. It’s hard to believe it has been forty years since Laurence Peter and Raymond Hill penned what was then considered to be a business satire. The principle basically states that employees in a hierarchy are rewarded for competence by being shoved up the ladder until they reach a position that overwhelms their ability to function in that job. “In time, every post tends to be occupied by an employee who is incompetent to carry out its duties,” wrote the authors in 1969.
Although, the principle when carried to extremes, can cause a certain cynicism about business in general. We know that not every CEO on Wall Street is or was incompetent but there definitely was and, quite frankly, still is an overabundance of people leading companies who are either incompetent or too far removed from the trenches to truly understand what their companies are doing day to day. We see the principle at work in the sports world as assistant coaches are promoted to head coach only to fall on their faces because they don’t have the necessary leadership skills. Just because someone is excelling their current role doesn’t mean they are ready to be promoted. It always comes back to the question of readiness. Is Joe ready to take on a leadership role? If so, why? If not, what are his weaknesses that need to be strengthened before he takes on the new role.
Jack Welch of GE fame said it best of leadership, “Genuine leadership comes from the quality of your vision and your ability to spark others to extraordinary performance.” Being a top salesperson doesn’t make you qualified to lead the sales department. Being a top lawyer doesn’t mean you will have equal success running the firm.
As a business grows the important of leadership becomes critical. This is why we see many entrepreneurs hire professional CEOs once the company grows beyond the capability of the founder. On the other hand the stories of founders who refused to hire people who knew more about leadership than they did are almost proverb as the companies crashed and burned as a result.
For small businesses the Peter Principle also has implications, especially when it comes to service. Having a brilliant idea and starting a business or having an expertise and then buying a business in that field doesn’t guarantee success. You could be brilliant in that field but if you don’t understand how to deliver your product or service with world class service the Peter Principle is at work. Successful business owners own up to their weaknesses and shore them up with people who are better at delivering competency in a particular area in the business.
Being “competent” seems like such a low expectation. We are in a world that demands excellence. The Wall Street mess has brought us down to earth somewhat but shouldn’t lower our expectations when it comes to business excellence. In big business, the shareholders will vote how they feel about the company’s leadership and the stock price will often reflect the dissatisfaction or satisfaction with current leadership. In the small business world your clients will vote with their purchasing dollars.
Here are some things small business owners can do to avoid succumbing to The Peter Principle:
1. Own up to your personal weaknesses as a manager and those of others in your company.
2. Take steps to gain the necessary know-how or hire someone who already has it. Isolate skills that need to be developed in your employees.
3. Have a performance standard in your company and make sure everyone in the organization embraces it.
4. If you are in over your head, get help!
Be the anti-Peter Principle. Rise above competency to excellence. That’s what will lead us out of these challenging times and will capture market share for those who are willing to understand their weaknesses and take steps today to strengthen them.
