The Peter Principle was first introduced in an article written by Dr. Laurence J. Peter in the January 1967 issue of Esquire magazine. It struck a chord among American office-dwellers. Following the response to the article, Peter, with the help of writer Raymond Hull, wrote the book, "The Peter Principle: Why Things Always Go Wrong."
Although the book presents its ideas humorously -- using cartoons, funny anecdotes and elaborate terminology for office foibles, like the insistence of some workers to maintain a clean desk -- the Peter Principle uncovers a real flaw in the structure of hierarchies.
A hierarchy is one way a company can be organized. In this type of composition, work is spread out in a pyramid shape, with lots of regular employees doing the largest amount of the work completed. Above them are supervisors, then management and so on until the top of the pyramid is reached in the form of the CEO, chairman, owner or president.
Many companies prefer to promote from within their hierarchy. In theory, employees promoted from within are already familiar with the inner workings of the companies and have a good grasp on the company's goals. But the Peter Principle reveals a problem with internal promotions.
As a person continues his path of promotion, he's eventually promoted right out of his field of expertise and into a position where he's utterly and helplessly incompetent. A Web designer, for example, can excel at his work, and as a reward for his effort and skill might be promoted to director of the Internet technology department. In this position, he could flounder. His skills at designing will, of course, come in handy. But there'll also be added duties -- like hiring and firing employees, motivating workers and dealing with a budget -- for which the promoted Web designer could be unqualified.
At the point where his level of incompetence is reached, an employee's promotional trajectory usually ends, and he's stuck in a position where he no longer has confidence in his abilities and produces less work for the company than he did in the position in which he excelled. The problems created by this promotion are compounded by the idea that an incompetent manager will make incompetent decisions -- including deciding who to promote. Eventually, says the Peter Principle, the higher levels of a bureaucracy become populated entirely by incompetent people.
Once an employee reaches his level of incompetence, in general, he won't be fired from the position, unless he's what Dr. Peter dubs a "super-incompetent" -- a person who's actually defined by his mistakes. Instead, the promoted employee is usually mediocre in his new position. He's able to cover up his incompetence and spends a lot of time doing just that. Most hierarchies don't have a fail-safe that includes demoting a person who isn't qualified for a position. The employee is usually left alone or fired.
Since the bulk of the productivity within the company is generally carried out by the regular employees who form the base of the hierarchical pyramid, companies can operate indefinitely, so long as the incompetence of the higher levels doesn't present itself through catastrophic decisions.
In the next section, we'll look at other interpretations of the Peter Principle.