Peter Principle In A Nutshell

The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Understanding the Peter Principle

Peter argued that in organizations with hierarchical structures, employees were likely to be promoted until they were one rung above their level of competence. Given enough time, every position within an organization would then be filled with incompetent staff.

While the book was originally written as satire, subsequent research into the Peter Principle discovered some degree of truth. 

In the next section, we will discuss some possible causes of position incompetency.

Factors that encourage the Peter Principle

A lack of future skills planning

In 2018, a study of over 200 American businesses found that employees tended to be promoted to managerial positions based on their performance in their previous position. They did not, as a matter of course, consider their managerial potential. 

The study also found that sales employees were more likely to be promoted for management positions based on sales ability alone.

Promotion culture

Many job seekers are attracted to businesses that have a promotion-centric culture. They may have no interest in the nature or scope of the work itself.

As a result, these businesses are more likely to hire unqualified staff who are only motivated by money or status.

How businesses can avoid the Peter Principle

There are some relatively simple ways of avoiding the deleterious effects of the Peter Principle.

These include:

  1. Incorporating a demotion policy. Demoting an employee without the requisite experience is the most obvious solution. But it must be done sensitively and not be equated with failure on the employee’s part. Instead, the individual who authorized the original promotion should accept fault.
  2. Substituting a promotion for better pay. Most employees are thrilled when promoted because of the associated financial benefits. However, a company can still reward excellent work in a role without attaching the reward to a promotion.
  3. Employing self-aware individuals. During the recruitment stage, prospective employees should only be hired if they understand the extent of their capabilities. When a promotion is eventually offered, the employee realizes that the higher workload and broader skillset of the new role are beyond them.
  4. Reassigning employees to another role in a different department. Peter called this process “lateral arabesque”, where incompetent staff are unaware that they’ve been fired from a role they were originally promoted to.

Key takeaways

  • The Peter Principle argues that staff within an organization are promoted until they become incompetent. Given enough time, every position is occupied by someone ill-equipped to carry out their duties.
  • The Peter Principle was originally written as a satirical piece about manager incompetence in hierarchically structured organizations. However, subsequent research has found that the effect has some merit.
  • Businesses can avoid the negative effects of the Peter Principle by incorporating a demotion policy that does not lay blame on the employee receiving the promotion. Screening potential employees for high self-awareness is another excellent strategy.

Connected Business Concepts

Barbell Strategy

A Barbell strategy consists of making sure that 90% of your capital is safe, and using the remaining 10%, or on risky investments. Applied to business strategy, this means having a binary approach. On the one hand, extremely conservative. On the other, extremely aggressive, thus creating a potent mix.

Technological Modeling

Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.


As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Bounded Rationality

Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Second-Order Thinking

Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Moonshot Thinking

Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.


The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Dunning-Kruger Effect

The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Mandela Effect

The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What is marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

Read Next: HeuristicsBiases.

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