There is no “Peter Principle”, Just Fear of Risk
By James P. Manouse
“Deutsche Bank's note said the changes (at Citigroup) may create extra bureaucracy and reduce the bank's appetite for risk.”
- Bloomberg, October 12, 2007
Interesting: The greater the bureaucracy, the less risk an organization will be willing to accept. How brilliant? How simple, as the best ideas invariably are. It makes perfect sense: The more people involved, the greater the odds that the group will ultimately pull the human equivalent of ‘regressing to the mean’, as far as their appetite for risk is concerned. Put another way; the more people involved in a decision, the more likely they will be to try and find an answer to a problem that will satisfy everyone. That means finding a middle of the road answer, which is usually the middle ground between what the person in the group who is willing to take-on the most risks wants to do, and what the person in the group willing to take-on the least amount of risk wants to do.
What was, just moments before, a seemingly fantastic and groundbreaking idea, now gets compromised. The greater the bureaucracy, the lesser the appetite for risk, and hence the note from Deutsche Bank regarding new levels of management being instituted at Citigroup, and the fewer risks they will be willing to take on.
Let’s face it; most risky ideas, even if a total failure, and rationally based, would not jeopardize the future of a company. Most ideas considered radical, even if they did not work, could be absorbed with only a temporary financial short-fall to deal with, and perhaps a slight, and again, temporary, drop in the firm’s status or loss of market share for the time being. In other words, most likely, the company won’t go Chapter 11 because of it.
Since most firms would probably survive a new radical idea if enacted (I’ve been in financial services for about 20 years and I have yet to see an idea proposed that would have meant the end of the firm I was with if it had been enacted and then failed), and if the firm itself would survive, even if the idea did not work, and if it could make the company a lot of money, increase gross revenues to the top line and generate greater net income to the bottom line, then why are so many truly ground-breaking and revolutionary ideas, the most radical ideas thought up at retreats and annual strategic planning meetings, discarded, by-passed, or watered-down in favor of some worn-out, colorless and soul-less proposal?
The answer lies in that old theory known as “The Peter Principle”. Defined as the ability of a person to rise to the level of their own incompetence, and once found to be incompetent, staying at that level, forever, unable to rise any further. The principle sounds sound enough, and so sound, in fact, that it has gained a lot of credibility and a place in the business lexicon of this country ever since it was first proposed. There’s only one problem: It’s wrong. Once a person achieves a powerful, high paying post, the more desperate they will be to keep it. Therefore, the more likely they will be to maintain the status quo, and to not rock the boat or do anything that could place their job at risk. What is created is a person’s own personal risk management system.
The tendency naturally becomes one where the individual will try to eliminate as much risk as they possible can, and not for the sake of the organization, but for their own sake (remember, we pointed out earlier that most companies will probably recover from even the most radical ideas that can be considered rationale in basis). It is important to point out that people can continue to learn and grow throughout their lifetime, evidenced by the vast number of individuals gaining advanced degrees later in life such as Ph D’s, MBA’s and law degrees. The thing that gets eliminated as they grow older and more successful is not their intelligence, not their ability to do their work, nor their ability to adapt; it’s their willingness to take on risk.
That brings us back to Deutsche Bank’s comment about Citigroup. That’s what they were alluding to if you really examine their comment – which was terribly correct. Added bureaucracy equals less appetite for risk, simply because of the increasing number of people involved. So, whatever happened to the notion that “The greater the risk, the greater the reward?”
Would you be willing to risk your job in the true pursuit of excellence? Would you be willing to take a chance at doing something radical in the hopes of achieving even greater growth than your targets call for, if your job was on the line as a result?
Would you risk your job? You wouldn’t, would you? Don’t feel bad, probably no one would. The risk is too great. After all, you have responsibilities, and maybe a family to provide for, and to protect, and it’s pretty hard to do that when you are unemployed.
Bill Gates once said that the person he fears the most is the kid working on something in their garage (a la Gates himself). Does Bill Gates know that because the kid in his garage has nothing to lose, and is therefore willing to try anything without the fear of being fired, that anything is possible?
The fallacy of “The Peter Principle” lies in the statement that underachievement is voluntary. If you’re too dumb to ever learn your job that’s not your fault; you’re just too dumb and you’re not to blame. You have risen to Manager or Supervisor without a problem, but now the Director, VP, or even CEO level is beyond you. Sorry, but you’re just too dumb to do your job and it means that you don’t get it and you never will.
Anyone reading this believe that? That it is just beyond a person’s abilities to do a job, with the same company, in the same field, and just at a higher level? That a person just can’t handle that, assuming that they want to, and just don’t totally hate the stress and added responsibilities that come with it?
But, what if you choose, consciously, to eliminate risk so that you can keep your job, and the status, the title, the pay, and the benefits that come with it? That’s a voluntary decision – you’ve chosen to do that.
What happens is that one day a person rises to the level of their own expectations, not to the level of their incompetence, and then seeks to hang on to all that they have earned and achieved.
Presidents and CEO’s want outside-the-box thinking, but let us remember that there really are no corporations. They are just names made up to go on signs, stationary, and on legal documents.
Real corporations are people, but people are not corporations, they are singular human beings with their own lives to lead, and no one to count-on but themselves. The notion that the company would protect them through thick and thin, economic up-turns and down-turns alike, provide them with a job for life and a decent pension at retirement, is long gone. Any hints at that today are seen as the height of naïveté.
A job at IBM, founded in my home area of New York’s Southern Tier, used to mean exactly that, but the stock market crash of 1987 ended that idea, once and for all. Through everything, and right up until that point, IBM had never had a lay-off. In fact, once hired, even if you weren’t able to do your job, IBM was good enough to move you around until they found something for you that you could do. How incredibly novel and through this thinking IBM became the most important corporation in the world and the very living example of what a “corporation” was. Why did this work? Just a guess, but I’d say it was because IBM - the very example of conservative values, had people working for them that felt secure, and so therefore, felt free to introduce new concepts and new ideas that made IBM one of the most admired and powerful companies in the world. But, as they got bigger, and bigger, something happened.
Word came from many that worked there in the 80’s that IBM was pretty big on conformity, not much on individuality, and that’s usually not a really great environment for creative thinking. Maybe that’s what led to their melt-down in the 80’s, their loss of objective thinking and ultimately, to their passing on a novel, but revolutionary idea that would change the world: the Personal Computer. And so down hill they went. Maybe things were different when the company was run by Thomas Watson during IBM’s glory days.
Now, you may say, “Hey, I come up with ideas, I tell my manager or the powers-that-be above me about them, I think outside the box” – and that may be true. I am not saying that eliminating risk, and eliminating all ideas, go hand in hand. I’m saying that people will avoid taking on risk that could lead to serious personal difficulties, mainly the potential to lose their job.
In that vein, ask yourselves this; how many of your ideas that you ever put forth were enacted? Leaving aside the argument about whether anything you proposed was truly radical, let’s say you’re gifted, and so therefore over 50% of your ideas were smart and were enacted. OK, great. Now, out of that 50% what percentage went forth 100% intact, as you had envisioned, and what percentage got watered down by committee, or was a much weaker version than what you had intended originally?
Now ask yourselves; out of the ideas that went forward, in whatever form, how long was the idea allowed to go forward before people jumped ship, shifted their support, and you realized that you were all alone out there? Now, at what point did you decide to abandon your own idea rather than stick with it, fight for it and risk alienation?
Finally, what ideas of yours were ever truly fought for, and able to go forward in-tact and given a real, not just a superficial, shot at success? How long did they last before the plug was pulled and everyone gathered around the old conference table saying “well, we gave it our best shot”? Was it years? Months? Weeks? How hard were you fighting at the end? Probably not that hard, because your natural, human, survival instincts took over, and, having a life, with the bills paid, took precedence over sticking to your guns, even at the expense of an idea that could have really improved the company. And that is how original thinking dies, and how outside the box thinking dies, and that gives rise, mistakenly, to theories like “The Peter Principle.”
Rather than just cursing at the darkness, since this article does have a negative tone to it, let me offer the following, in the final moments of this piece, in an attempt to light a candle: Don’t be afraid to take risks. Don’t be afraid to take chances.
Ultimately corporations pay millions of dollars each year to bring in successful athletes, coaches, and other visionaries from the world of business and politics to speak to them and they all pretty much deliver the same universal message: “I am the same as you; no better, no worse, certainly no smarter, but I took chances. I won some and I lost some. I wanted to give up, I was down to my last dollar, but in my most dire hour my perseverance finally paid-off. Opportunity knocked, I wasn’t afraid to answer (or out of necessity I answered), and the rest is history. Next thing you know, here I am talking to all of you, and I just want to say; if I can do it, you can do it.” That’s it. But, they probably don’t work at a corporation, do they? They may lead one, they may have founded one, they may have saved one, but they probably weren’t part of middle management, and they probably weren’t talking about a committee they were a part of, were they? They are invariable mavericks, rogues, and rebels. Those are the people that get things done. So, my advice to you is to go and do likewise. Don’t be afraid. To paraphrase Teddy Roosevelt: “Victory belongs to the man in the arena, win or lose, and in the taking part, rather than to those timid souls who never took part, and so know neither hot nor cold, victory nor defeat.”
Gordon Ramsey, world-class chef, entrepreneur, and reality television star says that it is his successes and his failures that have made him the man he is today. Although known for his reality television series’ on BBC America and Fox, and for the restaurants he opened that are successful, he is lesser known for one of the restaurants he started, and that ultimately failed, and had to be closed. Ironically, the one that failed was the one he tried to open in Inverness, Scotland: His own hometown. Not many people know that, but in times where he is counseling some poor restaurateur who is fast going down the drain, he calls upon that instance of failure to motivate them. In fact, I have never seen, nor heard him, call upon one of his profitable establishments as a source of inspiration. Time and time again, it is the Inverness failure that is used as motivation.
Think about that. He used that failure, a risk he took, that did not pay off as a springboard to success. As mentioned, it is this failure, as much as his successes that have made him the man he is today. Yes, it surely takes courage. You’re all alone, and you have to draw on your own inner strength and a belief in yourself to get it done, but it is there, and you can do it. Now, go forth, and do likewise.