With all the attention paid to undeserved bonuses for Wall Street executives, it seems appropriate to revisit The Peter Principle. It’s hard to believe that forty years have passed since Laurence Peter and Raymond Hill wrote what was then considered a business satire. Basically, the principle states that employees in a hierarchy are rewarded for their competence by being pushed up the ladder until they reach a position that overwhelms their ability to function in that job. “Over time, each position tends to be filled by an incompetent employee to carry out his duties,” the authors wrote in 1969.
Although, the principle taken to extremes, it can provoke a certain cynicism about business in general. We know that not all CEOs on Wall Street are or were incompetent, but there was definitely and, frankly, there is still an overabundance of people leading companies who are either incompetent or too far out of the trenches to really understand what their companies are doing. on day. today. We see the principle at work in the world of sports, as assistant coaches are promoted to head coach only to fall flat on their faces because they don’t have the necessary leadership skills. Just because someone is excelling in their current role does not mean they are ready for promotion. It always comes back to the question of preparation. Is Joe ready to take on a leadership role? If so, why? If not, what are your weaknesses that need to be strengthened before you take on the new role?
Jack Welch of GE fame said it best in leadership, “Genuine leadership comes from the quality of your vision and your ability to propel others toward extraordinary performance.” Being a top-tier salesperson does not qualify you to lead the sales department. Being a top-notch attorney does not mean that you will have the same success in managing the firm.
As a company grows, the importance of leadership becomes critical. This is why we see many entrepreneurs hiring professional CEOs once the company grows beyond the capacity of the founder. On the other hand, the stories of the founders who refused to hire people who knew more about leadership than they do are almost a proverb, as companies collapsed 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 experience and then buying a business in that field does not guarantee success. You may 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 recognize their weaknesses and shore them up with people who are better at delivering competencies in a particular area of the business.
Being “competent” seems such a low expectation. We are in a world that demands excellence. The Wall Street mess has landed us a bit, but it shouldn’t lower our expectations when it comes to business excellence. In large companies, shareholders will vote how they feel about the leadership of the company and the share price will often reflect dissatisfaction or satisfaction with current leadership. In the small business world, your customers will vote with their purchase dollars.
Here are some things small business owners can do to avoid succumbing to the Peter Principle:
1. Recognize your personal weaknesses as a manager and those of others in your company.
2. Take the necessary steps to acquire the necessary technical knowledge or hire someone who already has it. Isolate the skills your employees need to develop.
3. Have a performance standard in your company and make sure everyone in the organization adopts it.
4. If you don’t agree, get help!
Be the anti-Peter principle. Elevate the competition to excellence. That’s what will get us out of these challenging times and capture market share for those who are willing to understand their weaknesses and take action today to strengthen them.
