The original Peter Principle was a classic of the 70’s, essentially stating that “in a hierarchy every employee tends to rise to their level of incompetence”.
At that point they have reached as far as they can go in that organization and can no longer be promoted. As a corollary, the Peter Principle states, all useful work in an organization is done by those who have not yet reached their level of incompetence.
But that’s just by way of preamble. A larger and wider application of this principle emerges from looking at how companies grow in the marketplace and how they innovate and how they “lose their soul” and stop innovating.
I’ve been contemplating this for a while and I’d like to propose it as the following :-
Every company innovates until it finds a cash cow. At that point only innovation that supports the cash cow is promoted. Further, any innovation that threatens or does not support the cash cow languishes or is actively killed. Eventually, most of the true innovation ceases as the innovators leave and start new companies and the cycle repeats.
A young company is like a thirsty animal in the desert, desperately sniffing and searching with all its might for a supply of sustenance that will allow it to survive the rigors of the market. If the animals energy runs out before it finds an oasis, or better still a river or a lake, then it dies. If it finds a source of water it survives. It’s all very basic and primal “circle of life” stuff.
If it finds an oasis in the desert can you blame it for not wanting to take another long open ended trek in the desert. The search for the initial revenue stream for a startup is strongly analogous. Once you find it, you don’t want to let it go. And therein lies the rub.
That very act of hanging on will eventually lead to stasis and then death.
A company finds a cash cow (IBM – mainframes, Microsoft – DOS/Windows/Office, Google – AdSense, Oracle – database license revenues, … ) and it redirects all its energies primarily in ensuring that the cash cow never stops giving milk. And in doing so it domesticates itself and loses it’s ability for wild and woolly innovation.
Yes, there may be wild and woolly innovation inside the company but it will very rarely make it outside as a product.
There are of course some interesting anomalies here. What about Apple and iTunes?
Will Apple do anything new if it upsets revenue from the iTunes Store? Remains to be seen.
What about Google and 20% time? Yahoo and Brickhouse? Will innovation be jump started again? Will it not still be in support of advertising – the main Yahoo and Google cash cows?
Try as I might to find holes in the new application of the older principle, it seems rather robust.
What do you think?