CHAPTER  |  ELEVEN

People Have No Limits

Ever wonder where the “Peter Principle” came from? Peter Drucker made it very clear that it did not come from him. The idea came from a best-selling book of the same title, written by academic Laurence J. Peter (along with Raymond Hull). 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.

Who Was Laurence J. Peter?

Dr. Laurence J. Peter was an associate professor of education at the University of Southern California. His best-selling book called The Peter Principle was published in 1969. The alliteration of the two Ps helped the book catch on quickly. I rather suspect that its message resonated with many people because it implied that their bosses were incompetent. Peter's initial book was followed by several others on the same general topic. His central concept was that in a hierarchy, every employee tends to rise to his level of incompetence. Being incompetent at this level, the person then fails and is promoted no further—and would or should be removed from that position. If not, the organization suffers. It could even collapse, should the number of incompetents among its higher ranks reach a critical mass, resulting in the organization's inability to perform its functions efficiently, effectively, or competitively. Since demotion is usually not an option, it is probably best if the individual leaves the corporation.

Drucker's Take on the Peter Principle

Drucker didn't agree with this philosophy, although he thought Peter's theory was a highly innovative automatic-retirement sequence. Of course, he agreed that a nonperformer needs to be replaced. But he also believed that people have no particular limits, even after failure. This didn't mean that a manager should tolerate performance falling short of required standards; however, it did not mean that failure is necessarily the end of the line nor that the individual was incompetent—especially a proven manager who had done well in a variety of jobs previously.

Drucker also maintained that, all too frequently, the fault underlying the failure was a boss who put the individual in the wrong job. He told of a top executive who once reprimanded a vice president for wanting to fire a senior manager that same vice president had himself appointed. Previously that failing senior manager had years of 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 that vice president. Moreover, to fire this individual would not only be unfair, it would be stupid. “Why should we lose a proven manager as valuable as this individual, just because you made a mistake?”

Drucker felt that the Peter Principle was overly simplistic, that the demands placed on today's managers functioning at higher levels will likely lead to increasing failure rates, a phenomenon that has since been observed. Everything possible should be done to keep this failure from happening. “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.” He stated emphatically that selection of the right person for the right job was the supervising executive's responsibility. Incompetence could not and should not be tolerated. But before considering dismissal, consider the assumption that every failure is due to incompetence. There are many other possible reasons, including inexperience.

IBM Founder Declines to Fire Executive Who Blew $1 Million

There is a story that Thomas Watson, the founder of IBM, once asked to see a recently promoted vice president who had failed on his first assignment and cost the company $1 million. 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 one million dollars as part of your education.”

A company that applies the Peter Principle puts significant additional pressure on its managers not to make mistakes, even though mistakes are an unavoidable part of business; there are always actions involving a reasonable balance of risk and potential advantage. This additional pressure, thus, is hardly conducive to developing a willingness to take risks or even assume full responsibility for actions, both of which are essential in good management. Such a “zero failure” climate inevitably creates problems. An organization that buys into and practices the Peter Principle is hardly encouraging its employees to perform at any level. It sends the message that long-term, hardworking, talented, and loyal employees must eventually and inevitably meet their 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 takes actions to ensure there are no mistakes, no failures. And this result yields an avoidance of reasonable risk, which leads to mediocrity and poor performance.

Round Pegs in Round Holes

Peter noted that implicit in the Peter Principle is the assumption that if managers are unsuited, or even incompetent for a particular job, they can't function well in any other job, at the same or at a higher level. This assumption is incorrect and therefore not only unfair but also incredibly wasteful of human potential. History is full of examples of “failures,” of those who would be defined as “incompetent” under the Peter Principle, yet who later achieved great success.

Everyone knows the business Kentucky Fried Chicken, or KFC as it's known today. Colonel Harland Sanders had become a success with his fried chicken recipes long before he began wearing the white suits with bow ties, his goatee and mustache, and claiming the title of a colonel. He just made darn good chicken, which was noted by the then food critic Duncan Hines, and was even included as a mention in Hines's best-selling book, Adventures in Good Eating. However, the Colonel's restaurant suddenly failed—not owing to any particular incompetence on his part, but because a new interstate highway took the traffic away from his restaurant. At age sixty-five and destitute, Sanders took his monthly Social Security check and hit the road, seeking franchisees to sell the very tasty chicken prepared according to the recipe he had developed. His efforts were not immediately successful, and many would have said that he had reached his “level of incompetence.” However, eventually Sanders did succeed such that, according to one story, he sold his fried chicken franchise company for a “finger-lickin’ $15 million” only seven years later.¹

Churchill's Rise from Failure

In some ways, Winston Churchill's story is even more impressive. Churchill was doing pretty well. He was a successful author and politician, and at the tender age of forty-one he became the First Lord of the Admiralty, a very senior position reporting to the prime minister, during World War I. With difficulty, he succeeded in convincing the British War Cabinet to undertake what turned out to be the biggest Allied seaborne operation of the war. However, Churchill had apparently reached his “level of incompetence” because this operation also turned out to be the biggest disaster of the war. This was the Dardanelles campaign, which included the catastrophic Allied landing at Gallipoli. It was a crushing defeat for the Allies, with over 200,000 casualties.

Churchill was forced to resign his job as First Lord of the Admiralty, and he was sent to the trenches in France as a rather junior lieutenant colonel commanding a battalion of infantry. Yet that same man was returned to his former position as First Lord of the Admiralty upon the outbreak of World War II. Then he was given much greater responsibilities when he was appointed prime minister upon the resignation of Neville Chamberlain. Winston Churchill saved England, and possibly the world, when the British stood alone against overwhelming odds and then went on to achieve victory over the Axis powers. Moreover, this “incompetent” is now considered the greatest British political figure of the twentieth century.²

Lincoln and Grant Also Failed Many Times

Politicians are great arguments against the Peter Principle. Abraham Lincoln failed in business; ran for the Illinois State Legislature and at first was defeated; went into business again and went bankrupt; ran for speaker of the Illinois State Legislature and was defeated; was defeated in his efforts to secure a nomination to the U.S. Congress; was rejected for an appointment for the U.S. Land Office; was defeated in a U.S. Senate race; and two years later lost the nomination for vice president at the first Republican National Convention.

Then, in 1860, he became our sixteenth president and he saved the Union. To the best of my knowledge, not even his detractors called him incompetent after that. Steven Spielberg's 2012 award-winning movie Lincoln showcased not only Lincoln's passion and persistence in convincing Congress to pass the 13th Amendment to the Constitution (which did away with slavery in the United States) but also displayed his competency and abilities as a politician and a president.

During the Civil War, Lincoln's general-in-chief, Ulysses S. Grant, was the only Union general who bested Confederate General Robert E. Lee on the battlefield. Earlier, Grant had been discharged from the army in disgrace for drunkenness, and then he had failed as a clerk in a retail store. Laurence J. Peter would have said that Grant had reached his level of incompetency with both failures and that he should certainly never have been named to a senior position, much less that of general-in-chief of the Union armies.

Peter's Principle

Drucker's belief in regard to the Peter Principle is that managers do not rise to their level of incompetence. If managers aren't performing, they need to be relieved of their duties. But to automatically fire a manager due to failure with no further thought is “human sacrifice,” pure and simple. You don't waste individuals who have proven themselves over long periods of time, simply owing to a single failure, no matter how monumental. You find the right job for them. You keep in mind that people have no limits, even after failure.

Drucker's lesson is especially important at times when many good people are likely to lose their jobs owing to even minor errors—or maybe to cutbacks during an economic crisis, when they've made no mistakes at all. If you must do the cutting, ensure that the individuals let go fully understand that they may be far from reaching their “level of incompetence” 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 have found themselves in your situation and have gone on to achieve much greater success.