In the world of business, where hierarchy and promotional incentive make up the very core of upper-level bureaucracy, no singular theory on human behavior has gathered more recognition than the one devised in the late 1960’s by sociologist Dr. Lawrence Peter. Throughout his extensive research into the hierarchy of structured business, Peter observed that, as a rule, “employees within an organization will advance to their highest level of competence and then be promoted to, and remain at, a level at which they are incompetent." This observation, better known as the Peter Principle, has since become a popular topic for humorous commentary on the foibles of business and government. For corporate administrators who recognize the signs within their own hierarchies, the topic has become the cause of much corporate anxiety.
The concept of the Peter Principle is best explained by imagining the familiar pyramid-shaped business model showing new employees at the lowest level. As these lower-level employees prove to be competent in their positions, they are rewarded with promotions to the next level — typically, management. This movement up the hierarchical ladder continues indefinitely until employees reach positions where they are no longer competent. Since most structured administrations fail to implement “demotion” procedures, it is here that the process usually stops. An employee who would be happier or perform better outside of management has no proper way to resolve the situation. Thus, the theory goes, the employee stays at the top position, remains mediocre on the job, and spends most of the day covering up for incompetence.” To those in the upper-echelons, the Peter Principle reveals a dramatic flaw in the practice of internal promotion.
According to Dr. Peter, the work that keeps a business moving is accomplished by those employees who have not reached their level of incompetence. If this is true, it is easier to understand how organizations remain afloat even as employees repeatedly accept one too many promotions. The problems created by the Peter Principle are compounded further by the realization that incompetent managers typically make incompetent decisions — such as deciding which competent employee should be promoted to their level of incompetence. Eventually, says the Peter Principle, the higher levels of a bureaucratic administration become populated entirely by incompetent people.
In both business and governmental hierarchies where the Peter Principle runs rampant and decisions are obviously made in the upper-echelons, the solution remains at a standstill. Having money and careers in the balance, it seems likely that those in management would choose to ignore the idea that their organizations are run by incompetent people. To make an alternative choice, managers would have to admit to problems within their internal promotion system and, in the process, risk making the implication that they, too, have probably achieved their own level of incompetence.