De-layering: do firms need middle managers?

Middle managers have had a tough couple of decades. Many large firms sought to cut costs by removing levels of hierarchy from their organisational structure. Often it was the middle management ranks that felt the squeeze the hardest. Academics praised ‘flatter’ organisations and people like David Brent (from comedy TV series The Office) became the butt of jokes.

According to The Economist, before a big restructuring it has been estimated that Unilever, a consumer-goods firm, had 36 tiers of management which it has reduced to just six. Lloyds Banking Group recently announced that it would be cutting 15,000 middle managers, hoping to save £1.5 billion a year. According to one quoted academic, teams are now often comprised of peers focusing on a particular project who, aided by technology, now also monitor output and give each other feedback—two classic roles of the middle manager. This view supports the idea that middle managers are no longer very important.

Part of the counter-argument comes from evidence that found that an employee’s relationship with their line manager is the most important factor in determining whether they remain motivated and productive. One management writer once quipped: “people join firms but leave managers”. So perhaps rather than seeing them as an unnecessary layer of bureaucracy, firms should concentrate on developing managers with enough initiative to balance the needs of the company’s day-to-day operations (or tactical objectives) against the need to implement the board’s wider strategy. Managers can also act as an important barrier, deciding which issues from below are worth passing upstairs.

I think the most interesting part of the article is the argument that actually, the demise of the middle manager links all too suspiciously with the rise in the “cult of the CEO”. These are the ‘hero’ bosses who have managed to secure gigantic pay increases over the last decades. Research has suggested that chief executives consistently overestimate their influence on a company. One economist for example found that the person at the top accounted for just 5% of a Fortune 500 firm’s performance.

And if you’ve ever seen the show Undercover Boss, you’ll be very familiar with the fact that the relationship between senior management and the grassroots of a company is practically zero. Most workers don’t even know their CEO’s name.