The Peter Principle Goes All the Way Down

Every small business, if it is to be successful, needs a competent Second In Command (SIC). In many companies that position is held by dint of tenure or loyalty as opposed to pure ability. When we see a key employee who has responsibility beyond his or her capability, we frequently refer to “The Peter Principle.”

The Peter Principle is stated in chapter 1 of the book with the same title: “In a hierarchy every employee tends to rise to his level of incompetence“. For those who (like me), assumed the name sprang from some sort of slang, the original 1969 book describing the problem is coauthored by Dr. Laurence J. Peter.

But while the most obvious display of the Principle in a company (aside from an incompetent owner-which is much harder to deal with) is the SIC, the real problem is often that the same rule applies throughout the ranks.

This became painfully obvious when I was talking to two business owners last week. Both need a strong SIC. They acknowledge it, and want to fix it. However, neither has anyone at the third in command level who could step into the position. In fact, their main reason for seeking an SIC is because they can’t depend on the next level down to execute their jobs. So an SIC is intended to deal with the examples of the Peter Principle below him.

Of course, if the people at that level were competent at what they did, the owner wouldn’t be nearly as motivated to recruit a Second In Command. A conundrum? Yes, but one that is perfectly understandable.

The Peter Principle came from an analysis of hierarchies, or large corporations. Like many good ideas, it has been extended further than it’s original basis can support. A small business is a hierarchy, but one without redundancies or depth of resources. In a corporation you can work around someone, using others at the same level. You can terminate someone who doesn’t improve skill levels (the “up or out” approach), and choose someone from the next tier down for the subsequent try. You can, within budgetary constraints, hire additional staff to achieve the goal.

In a small business it is far more complicated. First, the person or persons involved are people. You know them. They are real, and you understand clearly what the loss of a position or compensation will mean to them and their families.

Second (and more important from the owner’s point of view), is the lack of redundancy. In fact, that’s what the British call a lay-off; a redundancy. It assumes that you can let those employees go because you have others who can do the job. In a small business, letting someone go usually means the business falls back on the owner as the repository of all corporate knowledge.

A company that has employees who are all ready to take on the next level above their job seems like a luxury to most owners. It requires your careful attention to development at every level. There is greater investment in training, even if the trainer is typically you. It calls for regular performance evaluations, that include concrete goals and objectives. It calls for rewards, both recognition and financial, for those who achieve those goals. It also requires clear career paths; advancement for those who prove their competence.

It isn’t easy, but the investment pays off every time.Your challenge is where to start. Use a pro-forma organizational chart to assess your human resources. Map every position as if it was filled by a competent player now. You should also map every position, along with the required skills, for your company in five years, or at twice it’s current size. At every level look at the players right below it. Do any show the potential to step up? If not, what actions are needed to make them ready?

For most owners, it is a sobering exercise. In order to get your whole company to the next level, however, you have to start somewhere.

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