With all the attention being paid to Wall Street executives’ unearned bonuses, it seems appropriate to revisit peter principle. It’s hard to believe that forty years have passed since Laurence Peter and Raymond Hill wrote what was then considered business satire. Basically, the principle states that employees in a hierarchy are rewarded for their competence by being pushed up the ladder until they reach a position that exceeds their ability to function in that job. “Eventually, each position tends to be filled by an employee incompetent to perform his duties,” the authors wrote in 1969.

Although, the principle when taken to extremes, can cause some cynicism about business in general. We know that not every CEO on Wall Street is or was incompetent, but there definitely were and frankly still are an overabundance of people leading companies who are either incompetent or too far out of the trenches to really understand what their companies do today. This day. We see the principle at work in the sports world, as assistant coaches are promoted to head coaches only to fall flat on their face because they don’t have the necessary leadership skills. Just because someone excels in his current position doesn’t mean he’s ready for promotion. It always comes back to the question of preparation. Is Joe ready to take on a leadership role? If so, why? If not, what are his weaknesses that need to be strengthened before he takes on the new role?

Jack Welch of GE fame said it best about leadership, “Genuine leadership comes from the quality of your vision and your ability to drive others to extraordinary performance.” Being one of the top salespeople does not qualify you to lead the sales department. Being a top-tier attorney does not mean that you will be equally successful running the firm.

As a company grows, the importance of leadership becomes critical. This is why we see many entrepreneurs hire professional CEOs once the company grows beyond the capacity of the founder. On the other hand, stories of founders refusing to hire people who knew more about leadership than they do are almost proverbial, as companies crashed and burned as a result.

For small businesses, the Peter Principle also has implications, especially when it comes to service. Having a bright idea and starting a business or having experience and then buying a business in that field does not guarantee success. You may be brilliant in that field, but if you don’t know how to deliver your product or service with world-class service, the Peter Principle is at work. Successful business owners recognize their weaknesses and reinforce them with people who are better at providing competence in a particular area of ​​the business.

Being “competent” seems like such a low expectation. We are in a world that demands excellence. The Wall Street mess has brought us down to earth a bit, but it shouldn’t lower our expectations when it comes to business excellence. In large companies, shareholders will vote on how they feel about the company’s leadership, and the share price will often reflect dissatisfaction or satisfaction with current leadership. In the small business world, your customers will vote with their purchase dollars.

Here are some things small business owners can do to avoid succumbing to the Peter Principle:

1. Acknowledge your personal weaknesses as a manager and those of others in your company.
2. Take steps to gain the necessary knowledge or hire someone who already has it. Isolate the skills that need to be developed in your employees.
3. Have a performance standard in your company and make sure that everyone in the organization adopts it.
4. If you find yourself in a bind, get help!

Be the anti-Peter principle. Rise above the competition towards excellence. That is what will get us out of these tough times and capture market share for those who are willing to understand their weaknesses and take action today to strengthen them.