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Using Business Simulations to Avoid The Peter Principle

By Mike Kester - April 30, 2018

If your organization struggles to promote the right people into management roles, you aren’t alone. The Peter Principle, coined by educator Laurence J. Peter in the late 1960s, explains the tendency of organizations to select leaders based on their performance in previous roles rather than the skills needed for the intended role. As a result, employees only stop being promoted once they can no longer perform effectively, causing managers to rise to the level of their incompetence. In fifty years the challenges of the Peter Principle haven’t diminished. Can organizations avoid the Peter Principle by incorporating a business simulation into their talent management process?

Many companies attempt to engineer their way to better talent management through job skill--or competency--mapping, by creating detailed descriptions of the competencies required for success in each role. But these efforts typically fall short. As our world becomes increasingly volatile, uncertain, complex, and ambiguous (or VUCA, as described by the U.S. Army War College) it is becoming even more difficult to identify who has the skills to lead. Competencies can identify that “managing uncertainty” or “making decisions with limited information” are important job requirements for a specific role and are often talked about in selection and promotion decisions. But testing for these capabilities when an individual’s prior job didn’t require them for success will leave employers guessing. Without quality data to make an assessment of these skills, employers fall prey to the Peter Principle.

The Regis Company has been working with several global businesses to use custom business simulations to help improve decision making about job placement into managerial roles. For over fifteen years we’ve been creating custom business simulations as part of leadership development programs. From onboarding new joiners to preparing senior executives to lead through marketplace disruption, a well-designed business simulation can significantly accelerate the learning curve when different ways of thinking and behaving are required for success. But as we’ve observed thousands of people go through these simulations we’ve also seen how much insight can be gained about individual participant’s strengths, weaknesses, biases, and preferences related to a leadership role. We’ve also witnessed how valuable these simulations can be to help participants understand whether they really want to spend the next phase of their career in a certain role. When carefully crafted to reflect the unique challenges of a role and client organization, a custom business simulation can provide powerful insights about who is ready for the next level of leadership and who could benefit from some additional development.

There are substantial ethical and legal considerations when using a business simulation to help with talent management. A single assessment of any kind, including a business simulation, should never be used as the sole criteria for job placement, and any simulation that hasn’t gone through rigorous validation should never serve as a primary factor in selection. However, a digitally-enabled custom business simulation can help provide the data needed to validate its efficacy over time. And in the short-term, a business simulation can be used to help participants self-select in or out of pursuing a managerial role, aid in coaching conversations about career growth and provide data to be used to suggest additional development priorities for participants who want a leadership role in the future.

Michael Kester is Co-President of The Regis Company. He also serves as the program executive for commercial engagements related to global strategic change, operations transformations, mergers and acquisitions, and major growth efforts. At Regis, Michael’s clients include UPS, Walgreens, Deloitte, BNSF Railway, EY, and Wendy’s. Michael holds a JD degree from Harvard Law School and a bachelor’s degree in philosophy, summa cum laude, from the University of Colorado at Boulder.


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