What is the term used to describe it when workers report to only one manager?

Learning Outcome

• Differentiate between the functions of top managers, middle managers, first-line managers, and team leaders.

Vertical management, also called top-down management, refers to the various levels of management within an organization. Managers at different levels are free to focus on different aspects of the business, from strategic thinking to communicating information to operational efficiency. During the nineteenth century and much of the twentieth century, vertical management was highly structured with many layers of management (as depicted by a pyramid). In industries where processes and conditions are stable and where ongoing innovation is less critical, the vertical structure of management can still be very efficient. Workers in labor-intensive industries such as manufacturing, transportation, and construction need to follow established procedures and meet specific goals. Everyone knows who is in charge and assumes the job they do today will be the same next year or in five years.

Vertical management in a traditional organizational structure

A main disadvantage of vertical management is that it limits information flow from the lower levels of the organization to the upper levels (like water, information flows downhill easily). Without easy two-way communication, top management can become isolated and out of touch with how its plans affect core processes in the organization. It also fosters vertical thinking. Vertical thinking refers to using traditional and recognized methods to solve particular problems. It is the opposite of “thinking outside of the box.” The digital age exposed the shortcomings of management that addressed problems in formal or bureaucratic approaches at the expense of creativity and innovation. Today, many organizations use “flatter” structures, with fewer levels between the company’s chief executives and the employee base. Most organizations, however, still have four basic levels of management: top, middle, first line, and team leaders.

Top-Level Managers

As you would expect, top-level managers (or top managers) are the “bosses” of the organization. They have titles such as chief executive officer (CEO), chief operations officer (COO), chief marketing officer (CMO), chief technology officer (CTO), and chief financial officer (CFO). A new executive position known as the chief compliance officer (CCO) is showing up on many organizational charts in response to the demands of the government to comply with complex rules and regulations. Depending on the size and type of organization, executive vice presidents and division heads would also be part of the top management team. The relative importance of these positions varies according to the type of organization they head. For example, in a pharmaceutical firm, the CCO may report directly to the CEO or to the board of directors.

Top managers are ultimately responsible for the long-term success of the organization. They set long-term goals and define strategies to achieve them. They pay careful attention to the external environment of the organization: the economy, proposals for laws that would affect profits, stakeholder demands, and consumer and public relations. They will make the decisions that affect the whole company such as financial investments, mergers and acquisitions, partnerships and strategic alliances, and changes to the brand or product line of the organization.

Middle Managers

Middle managers must be good communicators because they link line managers and top-level management.

Middle managers have titles like department head, director, and chief supervisor. They are links between the top managers and the first-line managers and have one or two levels below them. Middle managers receive broad strategic plans from top managers and turn them into operational blueprints with specific objectives and programs for first-line managers. They also encourage, support, and foster talented employees within the organization. An important function of middle managers is providing leadership, both in implementing top manager directives and in enabling first-line managers to support teams and effectively report both positive performances and obstacles to meeting objectives.

First-Line Managers

First-line managers are the entry level of management, the individuals “on the line” and in the closest contact with the workers. They are directly responsible for making sure that organizational objectives and plans are implemented effectively. They may be called assistant managers, shift managers, foremen, section chiefs, or office managers. First-line managers are focused almost exclusively on the internal issues of the organization and are the first to see problems with the operation of the business, such as untrained labor, poor quality materials, machinery breakdowns, or new procedures that slow down production. It is essential that they communicate regularly with middle management.

Team Leaders

A team leader is a special kind of manager who may be appointed to manage a particular task or activity.  The team leader reports to a first-line or middle manager. Responsibilities of the team leader include developing timelines, making specific work assignments, providing needed training to team members, communicating clear instructions, and generally ensuring that the team is operating at peak efficiency. Once the task is complete, the team leader position may be eliminated and a new team may be formed to complete a different task.

The Peter Principle is an observation that the tendency in most organizational hierarchies, such as that of a corporation, is for every employee to rise in the hierarchy through promotion until they reach a level of respective incompetence.

In other words, a front-office secretary who is quite good at their job may thus be promoted to executive assistant to the CEO which they are not trained or prepared for—meaning that the secretary would be more productive if they had not been promoted.

The Peter Principle is thus based on the paradoxical idea that competent employees will continue to be promoted, but at some point will be promoted into positions for which they are incompetent, and they will then remain in those positions because of the fact that they do not demonstrate any further competence that would get them recognized for additional promotion.

According to the Peter Principle, every position in a given hierarchy will eventually be filled by employees who are incompetent to fulfill the job duties of their respective positions.

• The Peter Principle observes that employees rise up through a firm's hierarchy through promotion until they reach a level of respective incompetence.
• As a result, according to the Peter Principle, every position in a given hierarchy will eventually be filled by employees who are incompetent to fulfill the job duties of their respective positions.
• A possible solution to the problem posed by the Peter Principle is for companies to provide adequate skill training for employees receiving a promotion, and to ensure the training is appropriate for the position to which they have been promoted.

The Peter Principle was laid out by Canadian educational scholar and sociologist, Dr. Laurence J. Peter, in his 1968 book titled The Peter Principle. Dr. Peter stated in his book that an employee's inability to fulfill the requirements of a given position that he is promoted to may not be the result of general incompetence on the part of the employee as much as it is due to the fact that the position simply requires different skills than those the employee actually possesses.

For example, an employee who is very good at following rules or company policies may be promoted into the position of creating rules or policies, despite the fact that being a good rule follower does not mean that an individual is well-suited to be a good rule creator.

Dr. Peter summed up the Peter Principle with a twist on the old adage that "the cream rises to the top" by stating that "the cream rises until it sours." In other words, excellent employee performance is inevitably promoted to the point where the employee's performance is no longer excellent, or even satisfactory.

According to the Peter Principle, competence is rewarded with promotion because competence, in the form of employee output, is noticeable, and thus usually recognized. However, once an employee reaches a position in which they are incompetent, they are no longer evaluated based on their output but instead are evaluated on input factors, such as arriving at work on time and having a good attitude.

Dr. Peter further argued that employees tend to remain in positions for which they are incompetent because mere incompetence is rarely sufficient to cause the employee to be fired from the position. Ordinarily, only extreme incompetence causes dismissal.

Most people will not turn down a promotion, especially if it comes with greater pay and prestige—even if they know they are unqualified for the position.

A possible solution to the problem posed by the Peter Principle is for companies to provide adequate skills training for employees both before and after receiving a promotion, and to ensure the training is appropriate for the position to which they have been promoted.

It is also important to carefully assess the job skills of all candidates, especially for internal promotions. Many valuable skill sets do not transfer well to higher positions—for example, a person may be an exceptionally skilled engineer but lack the social skills to be an effective manager. Having a clear picture of the employee's skills will allow the company to find placements that suit their interests.

However, Dr. Peter pessimistically predicted that even good employee training is ultimately unable to overcome the general tendency of organizations to promote employees to positions of incompetence, which he refers to as positions of "final placement." Promoting people at random has been another proposal, but one that does not always sit well with employees.

The Peter Principle sounds intuitive once the idea is understood, and models can be built that predict the phenomenon. Still, it is difficult to get real-world evidence for its widespread occurrence.

In 2018, economists Alan Benson, Danielle Li, and Kelly Shue analyzed sales workers' performance and promotion practices at 214 American businesses to test the Peter principle. They found that companies did indeed tend to promote employees to management positions based on their performance in their previous position, rather than based on managerial potential.

Consistent with the Peter principle, the researchers found that high-performing sales employees were more likely to be promoted and that they were also more likely to perform poorly as managers, leading to considerable costs to the businesses.

The Peter Principle can have several negative effects on a company's productivity and morale.

Perhaps the greatest consequence is less effective leadership: Since the newly-promoted managers are not well-suited to their roles, they may be less able to provide effective management and direction to their employees. This can also lead to high rates of error or defects if their new responsibilities are associated with quality control.

These problems can trickle down to other employees, who will make more mistakes as a result of poor management. Lower-level workers may continue to be promoted, resulting in several layers of managers who lack the skills or training for their jobs. This can also damage employee morale, since remaining employees may resent their poor management.

The Peter Principle is the inverse of the Dilbert Principle, an idea coined by the cartoonist Scott Adams for the comic strip Dilbert. This rule states that companies tend to promote their least-competent employees to management roles where they are least likely to interfere with production.

Both rules seek to explain the presence of incompetent people in management positions but use different explanations. The Peter Principle states that people are promoted until they reach a position where they are no longer competent; the Dilbert Principle states that they are promoted because of their incompetence.

Peter's Corollary is an extension of the Peter Principle. It states that in time, every position within an organization will be filled with someone who is not competent to fulfill the duties of their role. This may result in compounded mismanagement and poor leadership.

Sometimes dubbed "the Paula Principle," this rule states that women tend to work in positions that are below the level of their competence. Tom Schuller, who coined the term, suggested five potential reasons for this "competency gap:

1. Sexist discrimination still exists.
2. Women lack the "old boy's network" of professional contacts that male colleagues use to gain promotions.
3. Women are more likely to admit that they lack some of the skills for a job.
4. Women bear most of the burdens of child care.
5. Women may make a "positive choice" not to rise as high as they might.

Companies can solve the Peter Principle by carefully assessing the skills and interests of their employees, and promoting them only to roles that are well-suited to their abilities and personalities. They should also provide additional mentoring and skills training to help newly promoted employees grow into their new roles.

The Peter Principle is a theory of management that seeks to explain why many companies have seemingly ineffective management staff. It states that rather than promoting people to the roles they are best suited for, companies will tend to promote effective employees to roles where they are not qualified. This can sometimes result in poor management and ineffective leadership.