Column

When we see incompetence everywhere — in government, in companies, and in society at large — it reinforces our fundamental belief in the Peter Principle.

The principle states that in any hierarchy, every individual rises to his level of incompetence. Incompetent governments muddle through the swine flu challenge, incompetent companies routinely irritate their best customers, and incompetent societies repeatedly make the worst possible choices. For example, we waste fossil fuels and refuse to reduce greenhouse emissions even when better options are available.

All this makes one fatalistic — which is what the Peter Principle really is about. It is like Murphy's Law, which states that if something can go wrong, it will. Is there no way out of this bleak scenario? There is.

The best way to look at the Peter Principle is to see it as a half-truth. It is something that happens when we don't heed the warnings. The Peter Principle is the inevitable consequence of society's organising principles — which is to think hierarchically. We think higher is better, more is better, faster is better. But more is better only when we have too little of something (say, food). It is not better if we have too much of it. We then get indigestion, or obesity, or both.

Let us take the example of corporate profitability. More is good only if a company is not making enough money to invest in improving products for the consumer. If it is just making more, it will stop innovating, and instead gobble up its competitors and ruin the industry. We all know how excess bonus payments and excess profitability crippled the global financial sector last year. Unregulated greed promoted excess risk-taking, with all-round deleterious consequences.

This digression is merely to illustrate the idea that implicitly, we all accept that more is better. This is what makes companies believe that paying people more is always better, that promoting people to higher and higher levels is a good way to reward performance.

The Peter Principle will hold as long as the societal consensus favours continuous growth and altitude over commonsense. In such a scenario, incompetence will dominate.

But the Peter Principle is still a half-truth, for incompetence is not the opposite of competence. They are present together in everybody. We are not simply competent or incompetent; we are all partly competent and partly incompetent. Negating the Peter Principle means we have to balance the incompetencies in people so that collectively we get better competence.

This point is best illustrated in the path-breaking book, First, Break All The Rules, written by Marcus Buckingham and Curt Coffman about a decade ago. The underlying theme of the book, based on empirical studies spanning several decades and thousands of employees in hundreds of organisations, is simple: competence comes from talent, not knowledge or skills. Talent is inborn, and if you are good at selling widgets, it's because this kind of activity satisfies you. The specific skills of making sales calls or obtaining knowledge about the product you have to sell can be taught, but not the talent that will make you a super salesman.

A corollary: it is foolish to make a salesman a sales manager — which is where the Peter Principle operates — because selling talents are not that relevant in the manager's job.

The Buckingham-Coffman antidote to the Peter Principle is that people must be retained in the things they do best through a "broadbanding" of pay and roles, not outright promotions. This way, the incentive to perform remains reasonable enough for you to stay in the job you are good at. It prevents you from rising to your level of incompetence.

The other antidote to the Peter Principle is leadership through teams. Effective teams throw up their own leaders, and often the leadership is situational, where useful talents in one individual in one situation are complemented by the talents of others in other situations.

Let's illustrate this with another example. If I were to ask you whether you would like a racehorse or a mule, the chances are you will say racehorse. It sounds better, sexier. Who wants to own a mule? But if you had to carry a load up the Himalayas, a mule would be preferable to the racehorse. A mule is incompetent at the derby, but a racehorse is incompetent in carrying loads up the mountain slope. In short, a team that comprises both racehorses and mules would have a better chance of success than one with only one kind of talent.

The short point is this: the Peter Principle is true only if one person's competencies are not complemented by the competencies of others. Incompetencies must be counterbalanced by competencies. A great CEO will be great only if he has a sidekick who makes up for his faults. An effective team can keep Peter at bay.