To what extent is the concept valid in modern management practices?

b) The validity of the Peter Principle in Modern Management Practices
According to Dr. Peter, work is accomplished by those employees who have not reached their level of incompetence. Thus we can see why organizations still function even as the Peter Principle causes some employees to accept one too many promotions. Dr. Peter provides an insightful analysis of why so many positions in so many organizations seem to be populated by employees who seem incompetent. This concept is likely to be ignored by most senior managers since to admit one’s organization is suffering from the Peter Principle is admission that people have been improperly promoted. This, in turn, suggested that senior management might have attained their own level incompetence.
Example:
If you’re a proficient and effective software developer, you’re most likely demonstrating peak competence in your job right now. As a result of your performance, your valuable contribution results in a promotion to a management position. In this new position, you now do few of the original tasks which gained you acclaim. In fact, little of your current job remains enjoyable, therefore your heart is no longer in your work, and it shows. Given this, promotions stop, and there you stay, until you retire or your company goes under due to mismanagement.
Companies will attract and expand on a certain level of incompetence. Once a company forms a culture of incompetence, only the incompetent staff will remain, and the competent ones will tire of trying to soar with eagles while surrounded by turkeys, and therefore leave.
The end result is that non-growing companies are more likely to have incompetent employees at many levels of the organizational structure whereas growing companies add

new positions and employees so fast that the inevitable results of the Peter Principle may be forestalled so long as growth continues.
Management consultants who recognize that the Peter Principle is in full swing in their clients organization often recommend percussive sublimations and lateral arabesque for high ranking employees to make room for new employees, because new employees are not yet at their level of incompetence thus they can actually do the work they were hired to do which increases total output of the organization.
The employee’s eventual incompetence is not necessarily a result of the higher-ranking position being “more difficult” – it may be simply that the position is different from the position in which the employee previously excelled, and thus requires different skills which the employee may not possess. An example used by Peter involves a factory worker whose excellence at his work results in him being promoted into a management position, in which the skills that got him promoted in the first place are no longer of any use.
One way that organizations attempt to avoid this effect is to refrain from promoting a person until that person already shows the skills or habits necessary to succeed at the next higher position. Thus, a person is not promoted to manage others if he/she does not already show leadership, for instance.
Some have observed that individuals perform worse after being promoted. The Peter Principle, which states that people are promoted to their level of incompetence, suggests that something is fundamentally misaligned in the promotion process. This view is unnecessary and inconsistent with the data. Below, it is argued that ability appears lower after promotion purely as a statistical matter.

Being promoted is evidence that a standard has been met. Regression to the mean implies that future ability will be lower, on average. Firms optimally account for the regression bias in making promotion decisions, but the effect is never eliminated. Rather than evidence of a mistake, the Peter Principle is a necessary consequence of any promotion rule. Furthermore, firms that take it into account appropriately adopt an optimal strategy.

Usually, firms inflate the promotion criterion to offset the Peter Principle effect, and the more important is the transitory component relative to total variation in ability, the larger the amount that the standard is inflated. The same logic applies to other situations. For example, it explains why movie sequels are worse than the original film on which they are based and why second visits to restaurants are less rewarding than the first.



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