AbstractThisarticle proposes that incompetence in management may not be explained so much by the ‘Peter Principle’,i.e.by terminal weaknesses of personnel in faulty promotion systems, as it is by the organizational climate in which managers perform,i.e.by outmoded supervisory styles and limiting structural relationships. This alternative explanation is supported by Townsend's popular book,Up the Organization,1where Theory X styles of leadership, in some combination with bureaucratic elements of structure, are seen as impairments in modern organizations.This contention argues that organizational change agents must operate in tandem upon perceptions and attitudes as well as structural properties to maintain effectiveness ‐ embarking on either skill and sensitivity training alone or mandating authority and task changes is insufficient. In addition, leadership flexibility and structural variety must provide alternative options across different task units if both short‐run efficiency and long‐term relevance are to be generated for the organization.Finally, organization survival is viewed as a function of managerial performance as determined by structure, including the promotion system, and by level of humanism of the climate, especially motivational stimuli. Within all of this, managerial effectiveness is considered to be influenced by incumbent conceptualizations of goals and capacities of the organization and of his own ‘self’ within that system. Concepts of self, in turn, are determined by historical notions associated with work and authority, as well as by various socialization processes in the organization, e.g. training, super‐vision and general psychological conditioning. Accordingly, the matrix design of organizations and the contingency theory of leadership are offered as vehicles for tentatively re‐conceptualizing the nature and form of collective behavior. Matrix and contingency theories focus upon modern, complex organizational structures and varied superior‐subordinate relationships rather than upon man's instrumental performance, as with the Peter Principle, in explaining mana