Why are corporations cutting managers?
arnoldkling.substack.com
arnoldkling.substack.com
In the years since, the incentives to leave one's current employer have decreased. Salaries have stagnated, there's been belt tightening and layoffs, the pool of applicants competing for the same jobs has become bigger, and a lot of folks who've gotten cushy benefits like permanent WFH arrangements would have to go back to the office if they changed jobs.
But that means that a lot of tech companies are experiencing lower than normal attrition, but there's still professional growth happening, and the only way the companies have been able to reward employees is through promotions. That has led to bloat at the management layer, which this year many companies have tried to address, either by letting managers go or sending them back into IC roles.
I predict that due to "tenure lock" (where a lot of people who moved in the Great Migration have the same tenure at their current company) we're likely to hit a watershed moment that leads to another Great Migration later in the decade.
I have three appointments, one at a software company, one at the university as a research scientist, and one at a university I am visiting.
At the company we have an open office plan. Most people don’t have assigned desks and often time people are working with customers. However we have a core r&d group but because it’s all open office basically everyone does their own thing because it’s disrupting to talk. Therefore I go to the office when I want to have lunch with colleagues but that’s about it. Nobody much complains about this arrangement because most everyone is working at the customers and those in the office are not typically there every day. Also the company pays for home office setup so everyone is happy to work from home some days.
At the university I’m visiting everyone, professors included, are crammed into tiny offices that are shared. Nobody has their own office. Nobody is even allowed to have their own white board you must share it with office mates and it must be regulation size with is only one meter wide. I was even told that the white board should only be used in collaboration that if I was using it for myself I should better use paper at my desk. You are not allowed to move or rearrange the office in any way. There is an industrial coffee machine that logs which coffee you take and reports through its 5g enabled internal computer. So far this coffee remains free. The management often complains about how people are not allowed to work from home yet there is only shared meeting space which can only be used if it’s booked through the online system and often it’s all booked. Even though the building seems busy with people most prefer to work from home or a coffee shop.
At the university I am a research scientist at I have my own office. It has a couch and a giant white board for discussing projects with phds and postdocs. There’s room for my textbooks and I have lots of desk space. When I work there it seems as if I’m working at 10x speed compared to anywhere else because all my resources are right there. There is a nice espresso machine, there is a nice culture of lunches and there’s a research centre lunch space. Everyone in the Research centre seems to show up to work every day and often seem happy to be there. Is rare that people work from home and often times even if there is crunch time they simply close their office door.
I guess what I’m trying to say is that it is possible that people would like to work from an office if that office was a nice place to be. It’s also possible that work from home is a great solution for lots of people. But I think that a great many people experience an office space that is onerous. And so given the option they would prefer to never be there.
There are a lot of managers who are force multipliers for their teams. There are a lot that do crucial glue work but aren't gamechangers. There are a lot who are mediocre. There are some that are counterproductive. It is very difficult to tell the difference between these. Even if you have lots of time, it is hard to isolate the work of the manager from the circumstances they're in. One way to find out is to get rid of the managers and see which initiatives suffer.
I'm guessing we'll see the number of managers gradually converge to whatever the long-term average, unless the nature of white collar work has changed. On case-by-case bases, teams that are hamstrung by insufficient management will demand more management. They'll get it, especially if they are doing critical work. Other teams will regain management due to the desire for consistency.
But yes, a lot of people were let go at the same time (8 months ago).
And the article, no useful information from what I can see.
One thing that happens is that when money is plentiful, there is a push to find new ways to generate returns. When money is tight, new bets look bad, and companies may cut new bets and work on optimizing their existing cash-cows.
Strictly, that says nothing about the number of managers needed, but I do think it's less management intensive to keep on with what you're already doing.
It's not optical, it's just bad. The risk adjusted returns for bets need to cross the interest rate threshold and when rates are high, the number of bets you can take must drop.
Thus, new managers are not necessary as new teams are not necessary. Folding teams together also starts making sense. Fewer layers also starts making sense.
Ultimately, management is overhead and administrative. Less important than individuals who are actually building, maintaining, advertising, and selling.
There are no reduction in numbers at meta now. Middle managers have made a comeback at meta big time. CEOs love middle managers despite what they say to investors.
Even the numbers cited in the article are not convincing
> middle-manager head counts by about 6% since the peak of their pandemic hiring sprees
This actually indicates the opposite that middle managment is unusually resilient to layoffs
You can accuse Meta of a lot of things. But being short term focused is not one.
you mean he doesn't care what the meta stock price is ?
then I don't have a theory why mark claimed to cut middle management in 'year of efficiency' but didn't actually do it.
https://www.statista.com/statistics/273563/number-of-faceboo...
Like there is a dispersion process of responsibility of the actual business as you go up the chain so if you have enough layers you can basically free roll as an upper manager with taking credit for the good outcomes while the bad was just shitty middle management.
It is an investment by upper manager to free roll.
The entire last paragraph was a bunch of questions meant to invoke discussions and theories.
It has no ads, the author is already a well known economist and has nothing to prove for trying to be a “thought leader”.
I read this blog post as "thinking out loud on the internet". It's something I see done quite a bit in the econ blogosphere. Sometimes a post like this will prompt responses from other econ bloggers (Greg Mankiw, Tyler Cowen, etc.). Sometimes not. It's not meant to be an essay.
Haven't there been pretty big, well-known layoffs in other areas as well in the last couple years? Lots of engineers have gotten laid off, and the article also points out a 6% reduction in HR. Might it be that they're just laying everybody off across the board? I'd love it if this article considered management layoffs compared to the base rate of layoffs.
I'm a designer, and what I tell people is that you can't avoid having a designer on your team: if you don't have a dedicated designer, design is going to get done by everybody else. Probably by people who don't want to do it, aren't good at it, or may not even know they're doing it as they make unconsidered choices that shape your product forever. I think the same is probably true with managers. You hypothesize: ahh, managers are probably dead weight, let's get rid of them to save money. But then it turns out that all the individual contributors have to split the work the managers used to do. Or, more likely, your lead IC has to do it along with their main job. And in most cases they are not good at it, and do a poor job, and when it nets out you've got a less productive team. My manager quit a year ago, they didn't backfill for his position, and it's been an utter shitshow ever since.
This was all formulaic and the more experienced directors and VP's back in 2022 knew this and immediately started playing the new corporate game to win in the long run.
"On the same WSJ front page that the story of management cutbacks appeared, there was also a story about the stock market having risen unusually fast the last two years. Perhaps these stories are connected"
And there we have it.
Do the tools that help manage projects with remote employees reduce the number of managers needed?
There are a lot companies, Volkswagen to name a prominent example, that have over time built up massive management layers that don't ultimately serve the company goals.
Getting rid of excess is something that is necessary because they have ballooned to expensive and unhealthy proportions.
Having none at all or too little obviously also has downsides.
You need to manage your PLM (product life cycle CAD/design software) integrated to your EBOM (engineering bill of materials) to your MBOM (manufacturing bill of materials) to support your ERP (enterprise resource planning) in support of your MRP (manufacturing resource planning). All of that requires people at higher levels that understand the systems at the conceptual level and the company specific level, working together to make sure that 40,000 parts manufactured in house and purchased externally, all with varying lead times, come together at the exact right time to build the correct model/configuration for the market right now.
I've seen plenty of companies making bank today but that were doomed because they no longer did any of the above, they fired management, they outsourced design, they outsourced IT, they coasted on prior managers work in setting/configuring everything and it all became fixed in place as is. Best they could hope for was to bring in consultants to heavy lift changes as part of 'major' efforts going forward, allowing what managers would have been continually adapting to pill up until it became such a big issue money was freed up for the consultants.
My argument wasn't that most management wasn't necessary. Especially for something as complex as modern cars, there is a need for organizing and managing the whole process correctly. What companies like VW suffer from is too much management.
I've worked for one of their sub-brands. It was not a rare sight to see that there were individual contributors that had more than 1 manager while working on a single project. It made no sense from any conceivable standpoint. The movie Office Space comes to mind.
The main problem I saw while working there was that to be considered successful, and get corresponding salary adjustments and promotions, managers increased their head count by any means necessary. That included hiring and promoting more managers who's sole goal was to increase it even further. There came a point where my team had 3 managers at once, all on a different career level, but all responsible for only my team. Division Lead (responsible only for Team X) -> Sub-division Lead (responsible only for Team X) -> Team Lead (responsible only for Team X) -> Team X. That structure made no sense.
Was your project seen as quasi make or break? I've been places where that structure made sense in that context. Division lead is mainly full time liason to the board in order to keep them comfortable with the project, sales planning, forecasts, etc. There's a lot of invisible at the team level stuff that can go on up there. Subdivision lead is to smooth the projects interactions/needs with other functional areas of the company, and team lead to actually keep the project on track internally.
I saw things from the other side but just from site visits. We implemented the same software and our management actually invested in our staff and flew us all over to see how others implemented things/their processes/etc.
Did site visits to an auto company where they had outsourced everything to TATA. At this point there is zero reason that brand exists, it doesn't bring anything over anyone else, not much institutional knowledge (or care for that matter) and basically treating their business like a franchise where any old body could step in, and not a specialized institution where the employees actually added/had internal value.
One McDonalds franchise is the same as the next, but seeing your auto company that way you are dead long term.
I see your point about keeping all level of stakeholders aligned and interested in the project. Considering our project size though, and the fact that it was considered a permanent development project anyway, I don't see a reason why the managers should only be responsible for a single team. They had plenty of time to take over that stakeholder management for multiple teams.
Internally, we're adrift. If everyone is in charge, nobody is. And the CEO didn't think about how yearly reviews or promotions were going to work without managers to read or write them.
"Of course they want to bring in Indians and Artificial Intelligence. Why would they want to pay a US citizen $100,000 a year or whatever the commensurate salary is for your job."