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Lessons From Peter Drucker

People Have No Limits—Even After Failure

William Cohen, Ph.D.
Posted: 11/30/2008

The Peter Principle vs. Rising Above Failure

Ever wonder where "The Peter Principle" came from? Peter Drucker made it very clear that the Peter Principle did not come from him. The Peter Principle came from a best-selling book of the same name, written by an academic by the name of Laurence J. Peter. Moreover Peter (Drucker that is) thought that the Peter Principle was badly mistaken, easily disproved and likely to lead to serious problems at many levels of management if it were actually applied as presented.

Dr. Laurence J. Peter was at the time an associate professor of education at a respected university. His well-known book based on what was called "The Peter Principle" was published in 1968. Peter's central concept was: "In a hierarchy every employee tends to rise to his level of incompetence." Being incompetent, the employee would fail and be promoted no further and therefore must be removed from his responsible position. If not, the organization could collapse when the number of incompetents among its ranks reached a critical number, resulting in the inability of the organization to perform its functions efficiently, effectively or competitively. Unfortunately, since demotion was probably not an option, it was best if the individual left the corporation.

Drucker didn’t agree with this at all. Of course he agreed that a non-performer needed to be replaced. However, he also believed that people have no limits, even after failure. This doesn’t mean that a manager must tolerate performance falling short of the standards expected. However, it does mean that failure is not necessarily the end of the line and does not mean that the individual was incompetent, especially for a proven manager who had done well in a variety of jobs previously.

Hiring the Right Person for the Right Decision

Drucker maintained that all too frequently the fault of the failure was the boss who put the individual in the wrong job in the first place. He told us of a top executive who reprimanded a vice president who wanted to fire a senior manager who the vice president himself had appointed. Yet the failing manager had years of considerable success in the company. "The one thing we know for certain is that you made a mistake, since he was your appointment," the top executive told the vice president. Moreover, to fire this individual was not only unfair, it was stupid. "Why should we lose a proven manager as valuable as this individual, just because you made a mistake?"

In class, Drucker told us that the Peter Principle was overly simplistic. He said that demands placed on modern managers at the higher levels would likely lead to increasing failure rates, a phenomenon that has since come to pass. Everything possible should be done to avoid this happening. Drucker continued, "We have no right to ask people to take on jobs that will defeat them, no right to break good people. We don’t have enough good young people to practice human sacrifice." Drucker stated emphatically that the selection of the right person for the right job was the supervising executive’s responsibility. However, he agreed that incompetence could not and should not be tolerated. But before one should consider dismissal, the really basic question should be, is every failure due to incompetence? There are many other possible reasons, even inexperience.

Managerial Failure and Unforeseen Opportunity

There is a story that Thomas Watson, founder of IBM, once asked to see a recently promoted vice president who had failed on his first assignment in the new job, a mistake that cost the company a million dollars. The young man reported to the IBM chief prepared for the worst. "I guess you called me in to fire me," he said on entering Watson’s office.

"Fire you!" exclaimed Watson, "We just spent $1,000,000 as part of your education!"

Moreover, a company that believes and applies the Peter Principle puts significant additional pressure on its managers not to make a mistake, even though mistakes are an inevitable part of action with a reasonable balance of risk versus potential advantage. This pressure is hardly conducive to willingness to take risks or even the assumption of full responsibility, both of which are essential in leadership. Such a "zero failure" climate, other than as a worthy goal, will inevitably create problems. An organization that buys into and practices this solution to the assumed reality of the Peter Principle is hardly encouraging employees at any level. It says that a long-term, hard working, talented and loyal employee must eventually and inevitably meet his fate: to be plummeted headlong out of the corporation, or at best be "kicked upstairs" or put out to pasture in a nonentity job. Accordingly, every manager at every level had better take actions to ensure no mistakes, no failures. Such a result is only possible with risk avoidance, which leads inevitably to mediocrity.

Drucker noted that implicit in the Peter Principle is the assumption that if a manager is unsuited, or even incompetent for one particular job, he or she can’t function well in any other job at the same—or of course a higher—level. This assumption is in error and therefore not only unfair, but incredibly wasteful in human potential, for history is rife with "failures" or those that might be defined as incompetents under the Peter Principle who later proved to be great successes.

Finding the Right Position or Opportunity

Rowland Hussey Macy was a Nantucket Quaker. He studied business and then started a retail store. It failed. He started another. It failed too. This happened six times, and he failed with each. Were his stores divisions of a Fortune 500 company practicing the Peter Principle, he would have been discharged after his first attempt since he would have clearly demonstrated his incompetence at retailing, business and entrepreneurship. However, Macy’s seventh attempt succeeded and Macy died a wealthy man. And 150 later, Macy’s Department Stores still exist and exhibit roughly $30 billion in annual sales from over 1,000 stores. Not too bad a legacy for someone who had clearly risen to his level of incompetence six times before his overwhelming success. I recently watched the annual Macy’s Thanksgiving Day Parade on TV celebrating Macy’s success.

Winston Churchill reached his level of incompetence as First Lord of the Admiralty during World War I, during which he succeeded in convincing the British War Cabinet to undertake what turned out to be the biggest allied disaster of the war. This was the Dardanelles Campaign, which included the catastrophic allied landing at Gallipoli. It resulted in a crushing defeat with over 200,000 casualties and Churchill's forced resignation from his job as First Lord. Yet the same man, with much higher responsibilities as Prime Minister, during World War II saved England and possibly the world when the British stood alone against overwhelming odds. Moreover, this "incompetent" is now considered the greatest British political figure of the 20th century.

Politicians are great examples disproving the Peter Principle. Abraham Lincoln failed in business, ran for the Illinois State Legislature and was defeated, went into business again and went bankrupt, ran for Speaker and was defeated, was defeated in a nomination to Congress, was rejected for an appointment for the U.S. Land Office, was defeated in a U.S. Senate race and two years later defeated again in a nomination for vice president. Then in 1860 he became our 16th president and saved the Union. To the best of my knowledge, not even his detractors called him incompetent after that.

Lincoln’s General-in-Chief, Ulysses Grant, was the only Union general who bested Confederate General Robert E. Lee. Earlier, Grant had been discharged from the army and then had failed as a clerk in a retail store. Lawrence J. Peter would have said that Grant had reached his level of incompetency with both failures.

People Have No Limits—Even After Failure

Drucker’s lesson is that managers do not rise to their level of incompetence. This is a dangerous myth. If a manager isn’t performing, of course he needs to be relieved of his or her duties. But to automatically fire a manager because of failure with no further thought is, as Drucker said, human sacrifice pure and simple. Keep in mind that people have no limits, even after failure. Don't waste individuals who have previously proven themselves over long periods of time because of a single failure, no matter how monumental. Find the right job for them before writing them off as general incompetents. Keep in mind that people have no limits.

This lesson is especially important at a time when many good people are likely to lose their jobs due even to minor mistakes, or maybe no mistakes at all, because of cutbacks in a time of economic crisis. If you must do the cutting, take care to ensure that the individual that you must let go understands fully that he or she may be far from reaching a level of incompetency and that a truly bright career may still lie ahead. And if you have the misfortune to lose your position yourself, understand that many very successful people were in your situation and went on to much greater success.

William Cohen, Ph.D.
Posted: 11/30/2008