Monday, October 4, 2010

Organizations would become more efficient if they promoted people at random

The 2010 spoof IG Nobel has been awarded to a paper below demonstrating mathematically that organizations would become more efficient if they promoted people at random.

Not only is it interesting, but has potentially many implications for our business and economic life, starting from salaries of CEOs (should they really receive 1000s mulitples of salaries of average worker for --as Laurence Peter described it--climb the hierarchy until he/she reaches his/her level of maximum incompetence?) to the way companies' mnagement and public administration is organized..

REFERENCE: “The Peter Principle Revisited: A Computational Study,” Alessandro Pluchino, Andrea Rapisarda, and Cesare Garofalo, Physica A, vol. 389, no. 3, February 2010, pp. 467-72.


In the late sixties the Canadian psychologist Laurence J. Peter advanced an apparently paradoxical principle, named since then after him, which can be summarized as follows: {\it 'Every new member in a hierarchical organization climbs the hierarchy until he/she reaches his/her level of maximum incompetence'}. Despite its apparent unreasonableness, such a principle would realistically act in any organization where the mechanism of promotion rewards the best members and where the mechanism at their new level in the hierarchical structure does not depend on the competence they had at the previous level, usually because the tasks of the levels are very different to each other. Here we show, by means of agent based simulations, that if the latter two features actually hold in a given model of an organization with a hierarchical structure, then not only is the Peter principle unavoidable, but also it yields in turn a significant reduction of the global efficiency of the organization. Within a game theory-like approach, we explore different promotion strategies and we find, counterintuitively, that in order to avoid such an effect the best ways for improving the efficiency of a given organization are either to promote each time an agent at random or to promote randomly the best and the worst members in terms of competence.

1 comment:

Adrian Bruch said...

Congratulations Martin. Management can learn a lot from those it ignores.