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Why Incompetence Spreads through Big Organizations

Promoting the people most competent at one job does not mean that they’ll be better at another, according to a new simulation of hierarchical organizations.

There’s a paradox at the heart of most Western organizations. The people who perform best at one level of an organization tend to be promoted on the premise that they will also be competent at another level within the organization. I imagine that most readers will have had personal experience at the way that this hypothesis fails in practice.

In 1969, a Canadian psychologist named Laurence Peter encapsulated this behavior in a rule that has since become known as Peter’s Principle. Here it is:

“All new members in a hierarchical organization climb the hierarchy until they reach their level of maximum incompetence.”

That’s not as unfair as it sounds, say Alessandro Pluchino and buddies from Universita di Catania, who have modeled this behavior using an agent-based system for the first time. They say that common sense tells us that a member who is competent at a given level will also be competent at a higher level of the hierarchy. So it may well seem a good idea to promote such an individual to the next level.

The problem is that common sense often fools us. It’s not so hard to see that a new position in an organization requires different skills, so the competent performance of one task may not correlate well with the ability to perform another task well.

Peter pointed out that in large organizations where these practices are used, it is inevitable that individuals will be promoted until they reach their level of maximum incompetence. The unavoidable result is the runaway spread of incompetence throughout an organization.

Now Pluchino and co have simulated this practice with an agent-based model for the first time. Sure enough, they find that it leads to a significant reduction in the efficiency of an organization, as incompetency spreads through it. That must have an uncomfortable ring of truth for some CEOs.

But is there a better way of choosing individuals for promotion? It turns out that there is, say Pluchino and co. Their model shows that two other strategies outperform the conventional method of promotion.

The first is to alternately promote first the most competent and then the least competent individuals. And the second is to promote individuals at random. Both of these methods improve, or at least do not diminish, the efficiency of an organization.

Interesting idea that would be fascinating to see in action. What would be a suitable prize for the first CEO to implement such a policy?

Ref: arxiv.org/abs/0907.0455: The Peter Principle Revisited: A Computational Study

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