Amazon and the endangered future of middle management

Amazon executive director Andy Jassy’s note sent this fall to employees about corporate culture made headlines for his five-day tenure in the office. But Jassy’s message about a higher ratio of individual contributors to managers raises a much bigger question about organizational structure: What is the right balance between individual workers and managers in the overall workforce? It’s an issue that corporations have long struggled to define with anything other than anecdotal findings.

Now that companies find themselves firmly in a post-Covid world, organizational experts say Amazon may be leading the way in a new look at efficiency gains related to corporate inflation, and especially middle management inflation.

“We have grown our teams quickly and substantially,” an Amazon spokesperson said, echoing the message in Jassy’s note: “When I think about my time at Amazon, I never imagined I would be with the company for 27 years… Part of the because What I have taken away has been the unprecedented growth (we had $15 million in annual revenue the year before I joined; this year it should be well above $600 billion).”

That growth, the spokesperson said, inevitably led to the addition of many managers. Comparing Amazon’s plan to Meta’s last year of efficiency, the spokesperson said the company ended up adding more layers than before due to its growth and now is the right time to bring the structure “closer to our customers” and reinforce the “culture.” proprietary.”

In recent years, layoffs have been as important as hiring in the technology sector. In 2022-2023, the sector was in what could be called the years of unemployment. As that downsizing continues, Amazon’s thinking involves a broader rethinking of how to resize larger corporations.

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

Jassy pointed to “artifacts” of workforce growth, such as “pre-meetings before decision-making meetings,” and has created a “bureaucracy mailbox” for employees to share processes that slow down decision-making. and that he said “we sneak in and we can uproot.”

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 the rapid addition of “layers of management without reassessing whether these roles are necessary,” he said. Overall, there is a flatter structure and there is now a greater emphasis on individual contributors across corporations. There is no exact formula, nor a “golden ratio” for the relationship between employee and manager. “My understanding is that the ideal ratio of individual contributors to managers depends largely on the nature of the job,” Roh said, but added that it is generally 7 to 10 individual contributors per manager.

Economic and investor pressure plays a 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, a conscious effort to control other costs will pay off. And even though companies like Amazon want everyone back in the office, spitting ideas around the proverbial whiteboard or water cooler, there is a sense that AI may already be playing a role in a more direct way, with some positions redundant middle management. .

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

‘What you saw on Amazon is just the beginning’

“What you saw at Amazon is just the beginning,” said Naeem Zafar, a professor at UC Berkeley’s Haas School of Business and Northeastern University, and the thinning of the management layer is a broader trend that will play out across all industries. American companies. Technology companies that have dominated the economy and grown rapidly are leading the way, preaching a return to an approach of being agile and innovative, but Zafar said there are cultural factors at play as well. “The new generation of employees is different and works differently,” he said, citing the increasing use of communication tools and an overall work culture that privileges freedom and opposes micromanagement.

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 changing view of managers. “Amazon’s reduction of management roles is not just about cutting costs; it’s a glimpse into the future of work. Technology is eating away at the traditional corporate ladder, and middle managers are feeling the impact,” Zafar said.

For decades, managers have been seen as “the glue that holds companies together” and a key to translating strategy into action. But today, Zafar said, “AI-powered tools can analyze data, assign tasks and track performance with unprecedented efficiency.” That inevitably raises the question: “Why pay for a middleman when a machine can do it better?” he added.

Roh said Amazon’s growth may make it an extreme example, but perhaps it’s also a leading indicator. “Amazon’s rebalancing reflects a broader corporate trend toward more agile and 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 flatter hierarchies mean faster decisions and potentially bigger profits. As with any effort to improve efficiency and results, there are risks in an era of corporate flattening. Sacrificing employee well-being and the crucial human elements of leadership and innovation are challenges that will be at the center of this shakeup in corporate America, Zafar said. But he added: “The future belongs to companies that can build efficient and agile structures, empowering employees to thrive in a world where machines do the heavy lifting.”