The Peter Principle formulated by Dr. Laurence J. Peter and Raymond Hull is the principle that "In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence."
It holds that in a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain. Peter's Corollary states that "in time, every post tends to be occupied by an employee who is incompetent to carry out his duties" and adds that "work is accomplished by those employees who have not yet reached their level of incompetence".
One way that organizations attempt to avoid this effect is to refrain from promoting a worker until he or she shows the skills and work habits needed to succeed at the next higher job. Thus, a worker is not promoted to managing others if he or she does not already display management abilities. The corollary is that employees who are dedicated to their current jobs will not be promoted for their efforts but might, instead, receive a pay increase.
Peter pointed out that a class, or caste (social stratification) system is more efficient at avoiding incompetence. Lower-level competent workers will not be promoted above their level of competence as the higher jobs are reserved for members of a higher class. "The prospect of starting near the top of the pyramid will attract to the hierarchy a group of brilliant (higher class) employees who would never have come there at all if they had been forced to start at the bottom". Thus the hierarchies "are more efficient than those of a classless or equalitarian society".
In a similar vein, some real-life organizations recognize that technical people may be very valuable for their skills, but poor managers, and so provide parallel career paths allowing a good technical person to acquire pay and status reserved for management in most organizations.
Peter Drucker (born 1909) is known as the father of modern management. A prolific writer, business consultant and lecturer, he introduced many management concepts that have been embraced by corporations around the world.
It's been said that Peter Drucker invented the discipline of management. Before he wrote his first book on the topic, he knew of only two companies in the world with management development programs. Ten years after the book's publication, 3,000 companies were teaching the subject. His management concepts, which were new when presented in the 1940s and 1950s, endure into the 21st century.
Early Life History
Peter Ferdinand Drucker was born November 19, 1909 in Vienna, Austria. His parents, Adolph Bertram Drucker and Caroline Bond Drucker, were well educated. Adolph was an economist and lawyer. Caroline had studied medicine and briefly worked in the field. His parents raised Drucker in an intellectual environment. They regularly hosted dinners in which guests discussed economics, literature, music, mathematics and medicine. This instilled in the young boy a lifelong curiosity. After secondary school, Drucker moved to Hamburg, Germany and worked as a clerk-trainee for an export firm while enrolled in Hamburg University Law School. The school did not offer night classes, so Drucker learned the topic by reading books in three languages in the evenings. He earned his law degree without ever attending a class. Drucker married Doris Schmitz in 1937 and immigrated to the United States shortly thereafter. The couple had three daughters and a son. Drucker became a United States citizen in 1943. He was attracted to the United States because of its focus on the future. He told a writer for Forbes magazine that in Europe, "all they talked about was life before 1941. I was surrounded by extinct volcanoes."
Career
Drucker then traveled to Frankfurt where he worked as a financial writer. In 1931, he earned his doctorate in public law and international relations from the University of Frankfurt. Drucker soon left Germany to escape the Nazis.He moved to London where he worked as a securities analyst for an insurance company, then an economist for a small bank. Drucker's focus shifted from economics to people while he was in London. He was attending a seminar by economist John Maynard Keynes when he "suddenly realized that Keynes and all the brilliant economics students in the room were interested in the behavior of commodities while I was interested in the behavior of people," he explained.
Drucker worked as a correspondent for British financial publications before becoming an economics professor at Sarah Lawrence College in Bronxville, New York. Later, he taught at Bennington College, in Vermont. Drucker later said he "teaches to find out what he thinks."Drucker has said that writing is the foundation of everything he does. In 1937, he published his first book, which he'd written in Europe. The End of Economic Man: A Study of the New Totalitarianism, examined the spiritual and social origins of fascism. In 1940, before the United States had entered World War II, he wrote The Future of Industrial Man, in which he presented his social vision for the postwar world.
Role as a Researcher
In 1943, General Motors asked Drucker to study its management practices. His colleagues advised him not to accept the offer because studying corporate management would destroy his academic reputation. Drucker did accept and spent 18 months researching and writing the 1945 book, Concept of the Corporation.Drucker interviewed executives and workers, visited plants, and attended board meetings. While the book focused on General Motors, Drucker went on to discuss the industrial corporation as a social institution and economic policy in the postwar era. He introduced previously unknown concepts such as cooperation between labor and management, decentralization of management, and viewing workers as resources rather than costs.
Drucker claimed that an industrial society allows people to achieve their dreams of personal achievement and equality of opportunity. He referred to decentralization as "a system of local self government," in which central management tells division managers what to do, but not how to do it. The young executives are given the freedom to made decisions - and mistakes - and learn from the experience. Top leaders at General Motors disliked the book and discouraged their executives from reading it. Many other American executives criticized Concept as a challenge to management authority.
Role as a Writer
Drucker went on to become a business consultant and a prolific writer. For more than 50 years, he has counseled countless companies and written more than 30 books, which have been translated into 25 languages. His books generally break down into three areas: social and political studies, such as The Future of Industrial Man and The Age of Discontinuity: Guidelines to Our Changing Society; management books like The Practice of Management and Management: Tasks, Responsibilities, Practices ; and management advice like Management for Results and The Effective Executive.Drucker also wrote countless magazine articles for various business publications. From 1975 to 1995, he penned a monthly column in The Wall Street Journal. Many of his essays have been published as collections. He has also written two novels and a personal memoir, Adventures of a Bystander. His books reflect his diverse interests and draw from many of the topics discussed in his childhood home, including history, philosophy and medicine.
The concepts Drucker introduced in the 1940s and 1950s have endured. In 1954, Drucker wrote his first book that taught people how to manage Titled “The Practice of Management”. It introduced the concept of "management by objectives." He elaborated on the concept in subsequent books. Management by objectives requires managers to establish goals for their subordinates and devise the means for measuring results. Workers are then left alone to perform as they will and measure their performance. Drucker wrote, "It is not possible to be effective unless one first decides what one wants to accomplish." He went on to explain that every worker must be given the tools "to appraise himself, rather than be appraised and controlled from the outside."Management by objectives has become an accepted business concept and is probably Drucker's most important contribution. In “The World According to Peter Drucker”, Richard H. Buskirk of Southern Methodist University is quoted as saying: "His emphasis upon the results of managerial actions rather than the supervision of activities was a major contribution for it shifted the entire focus of management thought to productivity-output-and away from work efforts-input."
Basic Ideas
Several ideas run through most of Drucker's writings:
Decentralization and simplification
Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don't need (when a better solution would be outsourcing), and expand into economic sectors that they should avoid.
Respect of the worker
Drucker believed that employees are assets and not liabilities. He taught that knowledge workers are the essential ingredients of the modern economy. Central to this philosophy is the view that people are an organization's most valuable resource and that a manager's job is to prepare and free people to perform.
Management by Objective
Peter Ducker focuses on the need to manage business by balancing a variety of needs and goals, rather than subordinating an institution to a single value. This concept of management by objectives forms the keynote of his 1954 landmark The Practice of Management.
Customer as a Prime Responsibility
A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence.
Organizational culture has been given a lot of attention in recent years. Culture consists of the shared values of an organization - the beliefs and norms that affect every aspect of work life, from how people greet each other to how major policy decisions are made. The strength of a culture determines how difficult or easy it is to know how to behave in the organization.
The British management writer, Charles Handy suggests that we can classify organizations into a broad range of four cultures. The formation of ‘culture’ will depend upon a whole host of factors including company history, ownership, organization structure, technology, critical business incidents and environment, etc.
The four cultures he discusses are ‘Role’, ‘Club’, ‘Task’ and 'Existential’. The purpose of the analysis is to assess the degree to which the predominant culture reflects the real needs and constraints of the organization. Handy uses diagrammatic representation to illustrate his ideas:
1. Apollo-Role
A strong role culture places a premium on order and efficiency. Power is hierarchical and clearly defined in the company's job descriptions. Decision making occurs at the top of the bureaucracy. An apollonian response to a change in the environment generally starts by ignoring changes in circumstances, and by relying on the existing set of routines. Life insurance companies reflect an Apollonian organization.
This has been typified as a Greek temple and has often been stereotyped as portraying bureaucracy in its purest form. The apex of the temple is where the decision making takes place; the pillars of the temple reflect the functional units of the organization which have to implement the decisions from the apex.
The strength of the culture lies in specialization within its pillars. Interaction takes place between the functional specialism by job descriptions, procedures, rules and systems. This is very much an organization culture run by a paper system. An authority is not based on personal initiative but is dictated by job descriptions. Co-ordination is by a narrow band of senior staff. This is the only coordination required as the system provides the necessary integration. Handy states that the job description is more important than the skills and abilities of those who people the culture. Performance beyond the role prescription is not required or encouraged. The authority of position power is legitimate. Personal power is not. This reflects Weber’s pure theory of bureaucracy. System effectiveness depends upon adherence to principles rather than personalities.
Handy suggests that this culture is appropriate in organizations which are not subject to constant change. The culture functions well in a steady-state environment, but is insecure in times of change. The role culture is typified in government departments, local authorities, public utilities and the public sector in general. This sort of culture finds it extremely difficult to change rapidly. The role culture is typified by rationality and size. A large state enterprise usually holds this culture.
2. ZEUS-Club Culture
Power is concentrated in the hands of one individual, the top boss. Control radiates from the centre's use of personal contacts over procedures. The most powerful person dominates the decision making process. Proximity to the boss is vitally important as he frequently uses his network of friendships and old boys. Decisions are made quickly, but their quality depends almost entirely on Zeus and his inner circle. The Club culture's administration is small as are its costs. Investment banks and brokerage firms reflect organizations with a dominant club culture. Handy describes the power culture as a ‘web’. He suggests that this reflects the concentration of power of a family-owned business, which can either be extremely large or small. The family operation with strict responsibilities going to family members’ responsibility given to personalities rather than expertise creates the power structure of the ‘web’.
Examples to which Handy refers include the massive institutions in the USA, run as a small family business at the top and known as ‘robber barons’. Power is concentrated in a small area, the centre of which is the wheel or the centre of the web. Power radiates out from the centre, usually a key personality, to others in the family who send information down to departments, functions or units. The important point to note is that, because power and decision-making is concentrated in so few hands, the strategists and key family members create situations which others have to implement. It is difficult for others outside the ‘family network’ to influence events. (‘Dallas’, the long running TV soap displays this culture with the Ewing family.)
The ability of the power culture to adapt to changes in the environment is very much determined by the perception and ability of those who occupy the positions of power within it. The power culture has more faith in individuals than committees and can either change very rapidly and adapt or ‘fail to see the need for change’ and die.
3. ATHENS-Task Culture
Power is derived from the expertise required to complete a task or project. The work, itself, is the leading principle of coordination. Decision making occurs through meritocracies. Employees move frequently from one project or group to another. Task culture fosters a high level of adaptation and innovation by emphasizing talent, youth and team problem-solving, although excessive individual independence can lead to irresponsibility. Task cultures are expensive organizations that require highly paid experts driven to analyze organizational problems in depth. High cost drives organizations to construct routines and adopt a greater Apollonian work mode. Task cultures are often short lived. Ad agencies and consultancies reflect a dominant
Athenian culture.
This is characteristic of organizations which are involved in extensive research and development activities they are much more dynamic. They are constantly subject to change and have to create temporary task teams to meet their future needs. Information and expertise are the skills that are of value here. The culture is represented best by a net or lattice work. There is close liaison between departments, functions and specialties, liaison, communication and integration are the means whereby the organization can anticipate and adapt to change quickly.Influence in this team culture is based upon expertise and up-to-date information where the culture is most in tune with results. The dangers for this culture exist when there is a restriction in resources causing it to become more power’ or ‘role’ orientated.
4. DIONYSIUS-Existential Culture
Organizations exist for individuals to achieve their goals. Employees see themselves as independent professionals who have temporarily lent their services or skills to the organization. Management is considered an unnecessary counterweight and given the lowest status. Decision making occurs by consent of the professionals. The Dionysius culture can lead to poisonous, ideological wars among its professionals. Universities and professional service firms reflect the dominant Dionysian culture.
In this culture, Individuals are independent in the organization, they do have their own tasks and duties and they are actually independent in spite of this, they have to share resources in the organization.
Michael E. Porter is a leading authority on competitive strategy, the competitiveness and economic development of nations, states, and regions, and the application of competitive principles to social problems such as health care, the environment, and corporate responsibility. Professor Porter is generally recognized as the father of the modern strategy field, as has been identified in a variety of rankings and surveys as the world’s most influential thinker on management and competitiveness. He is the Bishop William Lawrence University Professor, based at Harvard Business School. A University professorship is the highest professional recognition that can be awarded to a Harvard faculty member. In 2001, Harvard Business School and Harvard University jointly created the Institute for Strategy and Competitiveness, dedicated to furthering Professor Porter’s work. He is the author of 18 books and over 125 articles. He received a B.S.E. with high honors in aerospace and mechanical engineering from Princeton University in 1969, where he was elected to Phi Beta Kappa and Tau Beta Pi. He received an M.B.A. with high distinction in 1971 from the Harvard Business School, where he was a George F. Baker Scholar and a Ph.D. in Business Economics from Harvard University in 1973. Personal History
Professor Porter was born in 1947 in Ann Arbor, Michigan, and lived and traveled throughout the world as the son of a career Army officer. He was an all-state high school football and baseball player in the state of New Jersey where he attended high school. At Princeton, he played intercollegiate golf and was New England champion. He was named to the 1968 NCAA Golf All-American Team. After graduating from college, Professor Porter served through the rank of captain in the U.S. Army Reserve. He maintains a long-time interest in the esthetics and business of music and art, having worked on the problems of strategy with arts organizations and aspiring musicians. Professor Porter has two daughters and resides in Brookline, Massachusetts. His work spans three broad areas: competition and company strategy (five forces, value chain); competition and economic development (clusters, diamond model); and competition and societal issues (health care, environment. Career
Michael Porter is the founder of a nonprofit organization called the Initiative for a Competitive Inner City and one of the founders of The Monitor Group. His main academic objectives focus on how a firm or a region can build a competitive advantage and develop competitive strategy. He is also a Fellow Member of the Strategic Management Society. One of his most significant contributions is the five forces. Porter's strategic system consists primarily of: · Porter's Five Forces Analysis · strategic groups (also called strategic sets) · the value chain · the generic strategies of cost leadership, product differentiation, and focus · the market positioning strategies of variety based, needs based, and access based market positions · global strategy · Porter's clusters of competence for regional economic development · Diamond model Teaching
Professor Porter's ideas are the foundation for courses on strategy and competitiveness, and his work is taught at virtually every business school in the world. At Harvard, Professor Porter’s course, Microeconomics of Competitiveness, is a graduate course open to students from across the university. It is also taught in partnership with more than 80 other universities from every continent using curriculum, video content and instructor support developed at Harvard. Professor Porter developed and chairs the New CEO Workshop, a Harvard Business School program for newly appointed CEOs of the world’s largest and more complex corporations. Held twice each year by invitation only, the workshop focuses on the challenges facing new CEOs in assuming leadership. His Harvard Business Review article with Jay Lorsch and Nitin Nohria, ‘Seven Surprises for New CEOs’ (October 2004), describes some of the learning from this ongoing body of work.Professor Porter speaks widely on strategy, competitiveness, health care delivery, related subjects to business, government, non-profit, and philanthropic leaders. Research 1. Strategy
Professor Porter’s core field is competitive strategy, which remains a major focus of his research. His book, Competitive Strategy: Techniques for Analyzing Industries and Competitors, is in its 63rd printing and has been translated into 19 languages. His second major strategy book, Competitive Advantage: Creating and Sustaining Superior Performance, was published in 1985 and is in its 38th printing. 2. Competitiveness of Nations and Regions
Professor Porter's 1990 book, The Competitive Advantage of Nations, presents a new theory of how nations and regions compete and their sources of economic prosperity. Motivated by his appointment by President Ronald Reagan to the President's Commission on Industrial Competitiveness, the book has guided economic policy in countless nations and regions. 3. Competition and Society
Professor Porter's third major body of work has addressed the relationship between competition and important social issues such as poverty and the natural environment. 4. Health Care Delivery
Since 2001, Professor Porter has devoted considerable attention to competition in the health care system, with a focus on improving health care delivery. His work with Professor Elizabeth Teisberg, including the book Redefining Health Care: Creating Value-Based Competition on Results (Harvard Business School Press, 2006), is influencing thinking and practice not only in the United States but numerous other countries.
Advisory and Civic Roles
Professor Porter has served as a strategy advisor to top management in numerous leading U.S. and international companies, among them Caterpillar, DuPont, Procter & Gamble, Royal Dutch Shell, Scotts Miracle-Gro, SYSCO, and Taiwan Semiconductor Manufacturing Company.
