Amazon and the future of the middle manager at risk

Amazon CEO Note by Andy Jassy this fall sent employees about corporate culture headlines for the five-day mandate in his office. But Jassy's messages about a greater ratio of individual contributors to managers raises a much larger question about organizational structure: What is the right balance between individual workers and managers in numbers total heads? It's a question that corporations have long struggled to explain with anything other than anecdotal results.

With companies now firmly in the post-Covid world, organizational experts say Amazon may be leading the way in a new look at the efficiency gains associated with corporate bloat, and particularly middle management bloat.

“We've grown our teams quickly and dramatically,” said an Amazon spokesperson, echoing the message in Jassy's note: “When I think about my time at Amazon, I didn't think a- never thought I'd be at the company for 27 years… I've remained the growth ever seen (we had $15M in annual revenue the year before I started – this year should be well north of it $600B).

That growth, the spokesperson said, has inevitably led to the addition of many managers. Comparing Amazon's plan and Last year at Meta efficiencyThe spokesperson said the company added more layers than before due to its growth and that now is the right time to bring the structure “closer to our customers” and “Amazon's proprietary culture ” to confirm.

Over the past few years, layoffs have been as prominent as hiring in the tech sector. In 2022-2023, the department was in what is called the years of labor. While that head count shavings continues, Amazon's thinking involves a broader rethinking of how to get right at the biggest corporations.

Morgan Stanley analysts suggested that Amazon could cut up to 14,000 management positionswith the corporate efficiencies accounting for $2 billion-$4 billion in savings. Morgan Stanley's forecast was based on an assumption made by Jassy in the note that Amazon aims to increase the ratio of individual contributors to managers “by at least 15% by the end of 1Q25, across all divisions .”

Jassy identified “stuff” of headcount growth, such as the “pre-meetings for the pre-meetings for the decision-making meetings,” and has created a “Bureaucracy Mailbox” for employees to share processes which slows down decisions and that it. he said “we went in and we can root out.”

This is not a process unique to Amazon, said Joseph Roh, a professor at Texas Christian University's Neeley School of Business. Rapid growth can lead to adding “management layers” quickly without reassessing whether those positions are necessary,” he said. In general, the structure is flatter internally, and there is now more emphasis on individual partners across corporations. There is no right formula, or “golden ratio” for a contributor to a manager. “My understanding is that the optimal ratio of individual contributors to managers really depends on the nature of the work,” Roh said, but said it's generally around 7 to 10 -individual partners of each manager.

Investor and economic pressures play a role, and at a time when tech giants are spending billions on AI without being able to deliver immediate proof of return on investment to Wall Street, there will be a conscious effort to contain other costs. in. And despite companies like Amazon wanting everyone back in the office, spit-balling ideas around the proverbial whiteboard or the water dispenser, there's a sense that AI could be 'play a role in a more direct way already, with some. redundant middle management positions.

“Digital transformation plays an important role,” said Roh, “as automation and advanced technologies reduce the need for middle managers to oversee tasks that can now be done with software. keep an eye on them.”

'What you've seen from Amazon is just the beginning'

“What you've seen from Amazon is just the beginning,” said Naeem Zafar, a professor at UC Berkeley Haas School of Business and Northeastern University, with the regulatory downgrade being a larger move to play out across corporate America. Technology companies that have dominated the economy and grown rapidly are leading the way, preaching a return to a way of working that is fluid and innovative, but Zafar said that features “The new generation of workers are different and work differently,” he said, citing the growing use of communication tools and work culture philosophies. a general that provides freedom and balks at micro-management.

According to Roh, organizations are adapting to the preferences of a younger workforce that “values ​​less hierarchy and more autonomy in their roles. “

Zafar said the rise of AI along with a new generation of workers reinforces this evolving view of managers. “Amazon's reduction of managerial positions is not just about cutting costs; it is a glimpse into the future of work. Technology is eating away at the traditional corporate ladder, and middle management is feeling the bite,” Zafar said.

For decades, managers have been seen as “the glue that holds companies together” and as the key to turning strategy into action. But today, Zafar said, “AI-powered tools can analyze data, assign tasks, and monitor performance with unprecedented efficiency.” That makes it inevitable that the question will arise, “Why pay a mediocre person when a machine can do better?” he added.

Roh said Amazon's growth may be an extreme example, but it may also be a leading indicator. “Amazon's rebalancing reflects a broader corporate shift towards leaner and more efficient organizational structures, driven by the need for cost control, innovation and competitiveness in rapidly changing markets, ” he said.

From healthcare to finance, companies understand that a smoother hierarchy means faster decisions and potentially bigger profits. As with any effort to improve efficiency and the bottom line, there are risks in corporate flat-time. Sacrificing employee well-being and the essential human elements of leadership and innovation are challenges that will be at the heart of this realignment of corporate America, Zafar said. But he said, “The future belongs to companies that can build lean, agile structures, empowering workers to thrive in a world where machines do the heavy lifting.”