Game Theory and How To Deal With Incompetence In Your Business

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Early in my career as a game theory-based business consultant and executive coach I was introduced to a concept known as the Peter Principle.


What he means here is that employees are promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another.

Peter and his co-authors intended the book to be satire, in time it became that Peter was really onto something serious.

Imagine an organization where a person reaches their level of incompetence and then trains new people in his/her department. Over time this pattern of incompetence spreads like a virus throughout the organization infecting middle management, lower-level employees, and possibly the executive suite. Of course, executives are focusing on the wrong area, the entire hierarchy may collapse below them, and they never saw it coming.

So as I said the Peter Principle states that a person who is competent at their job will earn promotion to a position that requires different skills. If the promoted person lacks the skills required for the new role, they will be incompetent at the new level, and will not be promoted again, unless their superior, is also incompetent, then they may be promoted again, and again.

This outcome is inevitable, given enough time and enough positions in the hierarchy to which competent employees may be promoted. The “Peter Principle” is therefore expressed as: “In a hierarchy, every employee tends to rise to his or her level of incompetence.” This leads to Peter’s Corollary: “In time, every post tends to be occupied by an employee who is incompetent to carry out its duties.”

Examples of the Peter Principle in action would include Sears, Enron, and the 2009 world financial collapse.

Final Thought

In a world of analytics, it is easy to measure for incompetence. Unfortunately, maybe the people who have designed these analytics are themselves incompetent. Over time the best companies will adjust and grow, while the ones who ignore this issue will simply collapse.

Author: Lewis Harrison is an Independent Scholar, corporate consultant, and executive coach. He has a passion for knowledge, personal development, self-improvement, applied game theory, entrepreneurism, and problem-solving.

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