The best widget-maker becomes the widget-maker manager. Which means we promote the people who are best in the functional area role, right?
And sometimes it's an absolute disaster. We've all been there. We promoted someone because they were strong as an individual contributor, then they became a manager and it turned into an absolute dumpster fire. That's when we pledge to look at manager competencies differently. Then we get busy and forget about it.
It's widely accepted that we promote strong individual performers into manager roles. But there's little data to actual prove it - but HBR recently took a look and the results are interesting.
While the Peter Principle may sound intuitively plausible, it has never been empirically tested using data from many firms. To test whether firms really are passing over the best potential managers by promoting the top performers in their old roles, we examined data on the performance of salespeople and their managers at 214 firms. Sales is an ideal setting to test for the Peter Principle because, unlike other professional settings, it’s easy to identify high performing salespeople and managers—for salespeople, we know their sales records, and for the sales managers, we can measure their managerial ability as the extent to which they help improve the performance of their subordinates. The data, which come from a company that administers sales performance management software over the cloud, allow us to track the sales performance of a large number of salespeople and managers in a large number of firms. Armed with these data, we asked: Do organizations really pass over the best potential managers by promoting the best individual contributors? And if so, how do organizations manage around the Peter Principle?
First, we found that sales performance is highly correlated with promotion to management. For salespeople, each higher sales rank corresponds to about a 15% higher probability of being promoted to sales management.
Second, sales performance is actually negatively correlated with performance as a sales manager: when a salesperson is promoted, each higher sales rank is correlated with a 7.5% decline in the performance of each of the manager’s subordinates following the promotion. We found similar results regardless of whether salespeople were promoted to their own team or to new teams. In other words, firms tend to promote top sales workers into management, even though they become the worst managers.
Does that mean we are promoting the wrong people? Maybe. Or maybe the performance of the team comes up as a new manager gains experience and understands what's required in the role.
In our data, among people who were actually promoted, better salespeople ended up being worse managers. But if we could observe the managerial potential of all salespeople, and not just those who were promoted, would we still find a negative correlation between sales performance and managerial performance?
Answering this question is difficult because the promoted managers we observed in the data weren’t promoted at random. For example, if firms promoted by flipping a coin, then poor salespeople could get promoted because they were lucky, rather than being promoted because their employer observed qualities that overcame their deficiencies as salespeople. Although people aren’t getting promoted by coin flips, they are more likely to be promoted if they happen to be in the right place at the right time: using variation in the promotion rates across industry over time to act as our coin flips, we still find that better salespeople tend to be worse managers.
We also found that firms underweight other indicators that a salesperson would be a good manager. In particular, we found that salespeople whose sales credits were shared among a large number of collaborators become very effective managers. Credit sharing for enterprise sales is typically a mark that the salesperson was involved in large, complex deals requiring collaboration. This type of collaboration experience positively predicts managerial quality.
What do you do with all that? I think the choices are pretty simple. You can:
1--Do a better job assessing who in your company has the DNA of a manager. There's a set of skills - much like the collaboration element cited above - that can tell you who is naturally inclined to the do the job. Find a great provider like Caliper to help you dive in.
2--You can actual train your managers of people to get better in the most important conversations that drive business results. If you're looking for that type of training series, don't forget about the BOSS Leadership Series I've put together at Kinetix.
3--You can keep doing what you're doing. Godspeed.
Hit me in the comments with what you think about the research from HBR.