Many of you might recall a management book from the 1970's (and updated since) called "The Peter Principle" by Lawrence J. Peter. The essence of it was that people are often promoted based on their past performance, not necessarily for their future potential or qualifications. Promotions were handled as rewards, not as strategic hiring decisions. As a result, an employee would eventually be promoted to a job that they could not do, nor would they be promoted out of it. I once heard it phrased like this; "A person will rise to the level of their incompetency". Unfortunately, this is still a very common occurrence, especially in technology positions.
So, how do we solve this? Well, it requires more time and effort in mentoring, timely and thorough performance evaluations, and most importantly, good position descriptions. It also requires good communication to the employees as to how promotions are carried out and how they can determine if they are qualified. Another factor, smaller but important, is that promotions in the company should not be touted as rewards but as important management decisions.
A position description must be written that describes the current job, along with all of its responsibilities and how the person holding the job will be evaluated. All too often in technology, we see this as an afterthought when it really should be the very first thing we consider. It is also imperative that these position descriptions be kept current. I can't tell you how many I have seen that indicate that some skill is needed for a product that doesn't exist any longer or is not in use in the organization.
So, how is this principle dangerous to our own companies? Well, the biggest threat may be to our own employees. When a good producer is promoted to a job they can't do, they'll rarely accept a lower job out of fear of appearing to be a failure. In frustration, most will likely leave the company. Then there is the issue of the other employees that can see the person is incapable of successfully doing their job. Morale problems begin to creep in as they see the other person not performing while they are working hard. When it gets to this point, it is almost a no-win situation.
Large companies weather this better than small companies. They are big enough to support internal transfers and have other ways of shoring up the poor performer, either with support or by providing a face-saving action. Smaller companies don't usually have this option and the atmosphere is more like a small town, where everybody knows everybody. Thus, the small company often loses the employee.