Amazon and the endangered future of the middle manager

Amazon CEO Note by Andy Jassy A letter he sent this fall to employees about the company's culture made headlines during his five-day tenure in the office. But Jassy's message about increasing the 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 the total headcount? It's a question that companies have long struggled to define with anything other than anecdotal results.

With companies now firmly in the post-Covid world, regulatory experts say Amazon may be leading the way In a new look at the efficiency gains associated with corporate inflation, especially middle management inflation.

“We have grown our teams quickly and dramatically,” an Amazon spokesperson said, echoing the message in Jassy’s memo: “When I think about my time at Amazon, I never imagined I would stay with the company for 27 years… Part of the reason why “. “My survival has been the unprecedented growth (we had $15 million in annual revenue the year before I joined – this year it should exceed $600 billion).”

This growth has inevitably led to the addition of many more managers, the spokesman said. Compare Amazon's plan to Meta last year of efficiencyThe company ended up adding more layers than it had before because of its growth and now is the time to bring the structure “closer to our customers” and strengthen Amazon's “culture of ownership,” the spokesperson said.

Over the past few years, layoffs have been as prominent as hiring in the technology sector. In the period 2022-2023, the sector was in what could be called Years of downtime. Instead Trim head number However, Amazon's thinking includes a broader rethinking of how it right-sizes the largest companies.

Morgan Stanley analysts indicated that Amazon may cut Up to 14,000 management positionswhere corporate efficiencies account for $2 billion to $4 billion in savings. Morgan Stanley's forecast was based on an assumption cited by Jassy in a note that Amazon aims to increase the ratio of individual shareholders to directors “by at least 15% by the end of 1Q25, across all divisions.”

Jassy pointed to “artificial tools” to increase staffing, such as “pre-meetings before decision-making meetings,” and created a “bureaucratic mailbox” for employees to share processes that slow down decision-making and that he said “have crept in and we can root them out.”

This is not a unique process for Amazon, said Joseph Roh, a professor at Texas Christian University's Neely College of Business. Rapid growth can lead to the rapid addition of “management layers without reevaluating whether those roles are necessary,” he said. In general, the flat structure is in place, and there is now a greater focus on individual shareholders across companies. There is no set formula, no “golden ratio” of shareholder to director. “My understanding is that the ideal ratio of individual shareholders to directors depends largely on the nature of the business,” Roh said, but added that it is generally in the range of 7 to 10 individual shareholders per director.

Investor and economic pressures play an important role, and at a time when tech giants are spending billions on AI without being able to provide Wall Street with immediate proof of return on investment, conscious efforts to rein in other costs will be rewarded. And despite the fact that companies like Amazon want everyone back at their desks, brainstorming ideas around the whiteboard or the water cooler, there is a sense that AI may actually play a role in a more direct way, with some Middle management functions are redundant.

“Digital transformation plays an important role, as automation and advanced technologies reduce the need for middle managers to oversee tasks that can now be monitored by software,” Roh said.

“What I saw from Amazon is just the beginning.”

“What you've seen from Amazon is just the beginning,” with downsizing in the management class a larger trend set to happen across corporate America, said Naeem Zafar, a professor at the Haas School of Business at the University of California at Berkeley and Northeastern University. Technology companies that have dominated the economy and achieved rapid growth are leading the way, heralding a return to a nimble and innovative approach, but Zafar said there are also cultural factors at play. “The new generation of employees is different and works differently,” he said, pointing to the increasing use of communication tools and the spirit of a general work culture that favors freedom and prevents micromanagement.

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

The emergence of artificial intelligence alongside a new generation of workers reinforces this evolving outlook for managers, Zafar said. “Reducing the roles of managers at Amazon is not just about cutting costs, it is a glimpse into the future of work,” Zafar said. “Technology is eating away at the traditional corporate ladder, and middle management is feeling the sting.”

For decades, managers have been viewed as “the glue that holds companies together” and key to translating strategy into action. But today, Zafar says, “AI-powered tools can analyze data, assign tasks, and track performance with unprecedented efficiency.” This makes it inevitable that the question arises: “Why pay a middleman when a machine can do it better?” He added.

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

From healthcare to finance, companies are realizing that flat hierarchies mean faster decision-making and greater potential profits. As with any effort to improve efficiency and the bottom line, there are risks in an era of corporate flattening. Zafar said that sacrificing employee well-being and the critical human elements of leadership and innovation are the challenges that will be at the heart of this adjustment in American companies. But he added: “The future belongs to companies that can build simple, agile structures and enable employees to succeed in a world where machines do the heavy lifting.”