Tuesday, 2 November 2010

Why promotion breeds incompetence

Random promotion is more effective than promotion on merit, according to new research. The report, by Alessandro Pluchino, Andrea Rapisarda and Cesare Garofalo of the University of Catania, Sicily, concluded that picking managers at random actually increased the efficiency of organisations. According to the Guardian, the research mimics the findings of a 2001 study by Steven E Phelan and Zhiang Lin, published in the journal Computational and Mathematical Organization Theory.

Phelan and Lin concluded that random promotion performed better than every other method, including merit; up or out, where employees are either promoted quickly or fired; and seniority, which rewards longevity over performance.

But would a random promotion system work beyond the confines of a controlled study? It’s not hard to imagine how such a system might start to unravel team spirit and undermine motivation. Either a company imposes a random system in secret, running the risk of employees perceiving the promotions as misguided, or the firm publicises its intention to switch to a randomised process, risking lower performance levels across the board as normally efficient employees lose their chief incentive to perform beyond the minimum level expected.

But why promote at all? According to the Peter Principle, hierarchies are naturally inefficient because a continuous system of promotion inevitably leads to employees reaching a level that exceeds their own competence. Or as the Canadian psychologist Laurence J. Peter put it: “Every new member in a hierarchical organization climbs the hierarchy until he reaches his level of maximum incompetence”.

In practice, given enough time, every large company has the potential to become inefficient and prone to failure. As the channels that stretch to the very top of the organisation become filled with people who are promoted above their maximum capability, and in turn these incompetent managers are given the freedom to fill the rungs beneath them, the large hierarchical organisation grows ever closer to implosion. The Peter Principle is therefore the strongest and most rational argument in favour of private equity.

Pic credit: ThomasThomas

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