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What Is The Peter Principle And How To Avoid It In Business?

What Is The Peter Principle And How To Avoid It In Business?

What Is The Peter Principle

The Peter Principle is a famous management principle developed by Laurence J. Peter, along with Raymond Hull, in a book of the same name. In the book, Peter explained how an employee, after getting promoted to a certain level, is no longer competent enough to hold that position. The principle is a common observation in many organizations.

In this article, you will mainly learn about some general details of the Peter Principle. Next up, we shall discuss the essential aspects of the Peter Principle, along with a description of how this situation can affect your business progress. Finally, we shall recommend you a few ways through which you can get rid of such a situation for better outcomes. Hence, to know further, read through to the end of the article.

The Peter Principle – What Is It Actually?

The Peter Principle – What Is It Actually

Corporate Finance Institute (CFI) gives an explanation of the Peter Principle thus –

According to Dr. Peter, in any corporate structure, employees tend to rise to ranks where they are not competent. If an individual works for a company that practices top-down management, then he is likely to be promoted until he gets to one rung above his level of competence.”

Basically, it refers to a position where an employee in an organization continually gets promoted and reaches a certain point at a higher level of the company. Once they reach a particular point high up the ladder, there is a lack of competence in the employee.

Although the theory was put forth lightly, it still shows the truth in most big organizations. Many organizations faced situations where they ended up with a lot of employees at the top level of the company who were incompetent at their job. This led to a lack of productivity, which hurt the growth of the business.

What Are The Major Aspects Of The Peter Principle?

What Are The Major Aspects Of The Peter Principle

The argument behind the Peter Principle is that there are some excellent employees that receive promotions. However, they reach a certain point that requires performance that goes beyond the employees’ skills and talents. claim that there is a truth to the claim –

Employees receive promotions based on current performance, but many end up being unable to perform their new roles well. With this fact in mind, companies must do what they can to avoid this potentially damaging business mistake.

You have to understand here that the incompetence of any particular employee in his/her new responsibility is not due to the failure of the employee. It is just because the employee does not possess the essential skills and talent required for this particular job at hand. The employee surely has an innate talent for making the most out of his/her previous responsibility.

How Does The Peter Principle Affect Your Business?

How Does The Peter Principle Affect Your Business

Basically, the Peter Principle shows that there are situations within an organizational hierarchy where employees are promoted based on their current performance, as their skills are overlooked. Hence, many employees might feel happy at the start, but eventually, they will find out that the role is turning out to be disruptive for their own careers.

According to Wall Street Mojo,

the Principle detects the loophole in the corporate structure caused due to the promotion of unskilled employees to positions that require advanced leadership and managerial skills. Therefore, the firm must ensure that the Principle’s warnings are appropriately addressed to remain productive.”

Such a situation can affect the productivity of the employee, and since the employee is in a higher position, it will affect the productivity of the department and, thereby, the company at large. This situation prevents the employee from getting promoted further.

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How Can You Avoid The Peter Principle Within Your Organization?

How Can You Avoid The Peter Principle Within Your Organization_

There are many ways through which an organization can avoid such a negative situation within the organization. The first and easiest way to find out the problem is to have an open discussion with the employee. The HR department can take responsibility for this job and can find out the problem. Thereby, they can take the necessary steps required to solve the issue. Some of them are discussed below:

1. Demotion Of The Employee(s)

An employee that does not have the capability to take on the responsibility that is given to them must be demoted to their previous role. This is, although a hard step but helps both ways. The employee gets to work as per his skills and talent, and the organization also gets back its productivity.

2. Offering Higher Pay

Any promotion comes with a hike in income, and hence an employee is more inclined to get a better package than acquire a better designation. You can also offer a particular employee a better package than offer a promotion in the organization hierarchy.

3. Skill Development Of The Employee(s)

This is one of the most effective methods of making an employee effective in his/her job, especially when the employee is promoted. The employee thus has a better idea of what is expected of him/her in the new role. This will help the company further in ensuring productivity remains constant, if not increased.

4. Use The Lateral Arabesque Method

A great way to resolve a situation of the Peter Principle is to use the lateral arabesque method. In such a matter, you can assign that particular employee to a lower-level role but a better job title. This can ensure that harmony is maintained between the employee and the organization. Furthermore, the employee also does not feel bad knowing that the company doubts his/her efficiency in some way.

Final Thoughts

The best thing about the Peter Principle is that it warns businesses of the possible repercussions that they might face by promoting an ineffective employee in a certain role. However, such negative consequences can be resolved. If you think that certain parts of your organization suffer from these situations, consider following the aforementioned steps to mitigate the problem. Do you have any other solution to solve a ‘Peter Principle’ situation? Share your recommendations in the comments box below.

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