UK Markets closed

Why middle management can kill a company

Lydia Smith
Writer, Yahoo Finance UK
Companies are cutting down layers of management in an attempt to streamline business and cut down on unnecessary costs. Photo: Getty

The traditional way of working is being shaken up. Where decisions were once passed from top to bottom via middle managers, companies are beginning to change this structure by cutting down layers of management in an attempt to streamline business and cut down on unnecessary costs. 

One advocate of cutting out middle management is Tesla’s chief executive Elon Musk. A memo announcing a major reorganisation last year revealed the electric-car maker’s plans include “flattening the management structure” to improve communication. 

“People are forced to talk to their manager, who talks to their manager, who talks to the manager in the other department, who talks to someone on his team,” the memo read.  

“Then the info has to flow back the other way again. This is incredibly dumb. Any manager who allows this to happen, let alone encourages it, will soon find themselves working at another company. No kidding.” 

In a so-called “flat” organisation, there are fewer layers of management involved in decision-making. Instead, people who have the relevant information are allowed to make decisions. Put simply, there are far fewer middle managers so the chain of command is shorter. 

READ MORE: Why December is the perfect time to update your CV and LinkedIn

Research shows there are various problems associated with having too many mid-level managers. One key issue is that this can make things less efficient - bringing to mind the old adage “too many cooks”. 

Without a specific purpose, some may find themselves spending time justifying their positions - sitting in on meetings and pushing papers, for example - leading to an expensive and unnecessary layer of bureaucracy. 

Instead, a flat organisational structure helps cut down the overhead costs of management. According to the Harvard Business Review, the cost of excess bureaucracy in the US economy amounts to more than $3 trillion in lost economic output, or about 17% of GDP. 

Middle management can also impact staff further down the ladder, as it may reduce the likelihood of career progression and affect worker satisfaction and wellbeing. High employee turnover costs business owners in time and productivity too. 

Cutting down the layers of management can also improve the speed at which decisions are made. In 2017, a study of more than 300 executives globally found that having more organisational layers meant organisations were slower to reach customers with new products and services. 

According to researchers Raaj Sah and Joseph Stieglitz, having more decision-making layers can also increase the chance of good projects being rejected which may have benefited the business. 

Having too many mid-level managers may also increase the probability of the wrong people being in the job. A study by the American Psychological Association found that 75% of Americans say their “boss is the most stressful part of their workday.”  

Furthermore, one in two employees have left a job “to get away from their manager at some point in their career,” according to a study by Gallup

Changing the structure of an organisation is never easy and there is no ‘one-size-fits-all’ approach. Each business is different and a flat organisation won’t work for everyone. Success can rest on each employee knowing where they stand in a business - which can be difficult without a clear hierarchy and good communication. 

READ MORE: Why promoting people for loyalty is a bad idea

It’s also important to highlight that if done properly, the role of mid-level managers can be successful and have a positive impact on firms. To ensure managers are effective, it’s essential to make sure those who have been promoted from employee to management positions are offered training that includes supervisory skills, conflict management and communication skills. 

Additionally, it’s crucial for managers to have a clear job role that isn’t pulled in too many different directions and for businesses to ensure the middle doesn’t become too bloated.