In 1969, Laurence Peter and Raymond Hull wrote a wonderful book titled, The Peter Principle: Why Things Always Go Wrong. They pointed out that high individual performance is not evidence of potential to be a great supervisor. They observed that companies that base promotions on performance in the current job create a system in which all managers eventually rise to their level of incompetence.

The solution to this dilemma begins with the insight that there is a difference between performance in the current role and potential for high performance in the next step up the ladder because different roles require different talents and skills. To give a specific example, the role of sales manager requires different talents and skills from the role of sales representative. But, as Peter observed, the number one sales rep most often gets promoted to sales manager. Often—sadly, very often in the world of sales—the newly promoted individual is not a good manager. The company suffers a double whammy. They have taken their best sales rep off the playing field and they have given the team a poor manager. This is not a formula to build an extraordinary team.

Just as putting someone in a bad fit has undesirable consequences, efforts to avoid the Peter Principle can also bring unpleasant consequences. When it comes to the Peter Principle, sometimes you are damned if you do and damned if you don't. Here is an example:

Once you recognize the difference between performance and potential and start looking through the lens of potential, something really interesting can happen. You will notice that some employees who are not stars in their current roles have the potential to be excellent supervisors. They are better coaches than players. And when they have an opportunity to take the next step into a management role, they will become top-performing managers because that role fits so well with their potential.

This discussion brings to light a more fundamental issue in our society. There is a widely held point of view that if one is not getting promoted, something is wrong. We need to eradicate this perception. This causes people to seek promotions for the wrong reasons, and attain roles that are not a good fit. They are driven to embody the Peter Principle. We need to ensure that people do not need a promotion to feel truly valued and significant.