The Blubber

Per CNBC:

Amazon CEO Andy Jassy’s note sent this fall to employees about corporate culture drew headlines for his five-day-in-the-office mandate. But Jassy’s messaging on an increased 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 overall headcount? It’s a question that corporations have long struggled to define with anything but anecdotal findings.

With companies now 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 bloat, and especially middle management bloat.

“We have grown our teams quickly and substantially,” said an Amazon spokesperson, echoing the message in Jassy’s note: “When I think about my time at Amazon, I never imagined I’d be at the company for 27 years … Part of why I’ve stayed has been the unprecedented growth (we had $15M of annual revenue the year before I joined—this year should be well north of $600B).”

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

Over the past few years, layoffs have been as prominent as hiring in the tech sector. In 2022-2023, the sector was in what could be called the years of the layoff. While that headcount trimming continues, the Amazon thinking involves a broader rethink of how to rightsize the largest corporations. 

Morgan Stanley analysts suggested that Amazon could cut as many as 14,000 management positions, with the corporate efficiencies accounting for $2 billion-$4 billion in savings. Morgan Stanley’s forecast was based on an assumption that 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.”

A person walks by The Spheres at the Amazon.com Inc. headquarters in Seattle, Washington, on Nov. 14, 2022.David Ryder | Getty Images News | Getty Images

Jassy pointed to “artifacts” of headcount growth, such as the “pre-meetings for the pre-meetings for the decision meetings,” and has created a “Bureaucracy Mailbox” for employees to share processes that slow down decision-making and that he said “crept in and we can root out.”

This is not a process that is unique to Amazon, said Joseph Roh, professor at the Neeley School of Business at Texas Christian University. Rapid growth can lead to the rapid addition of “management layers without reassessing whether these roles are necessary,” he said. In general, the flatter structure is in, and there is now greater emphasis on individual contributors across corporations. There is no exact formula, no “golden ratio” for contributor-to-manager. “My understanding is that the ideal ratio of individual contributors to managers depends largely on the nature of the work,” Roh said, but he added that it is generally in the neighborhood of 7 to 10 individual contributors per manager.

Investor and economic pressure play a role, and at a time when technology giants are spending billions on AI without being able to deliver to Wall Street immediate proof of the return on investment, a conscious effort to rein in other costs will be rewarded. And despite the fact that companies like Amazon want everyone back in the office, spit-balling ideas around the proverbial whiteboard or watercooler, there is a sense that AI already may be playing a role in a more direct way, with some middle management positions redundant.

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

‘What you saw from Amazon is just the beginning’

“What you saw from Amazon is just the beginning,” said Naeem Zafar, a professor at UC Berkeley Haas School of Business and Northeastern University, with the downsizing of the managerial layer a larger trend set to play out across corporate America. Technology companies that have dominated the economy and grown rapidly are leading the way, preaching the return to an approach of being nimble and innovative, but Zafar said there are also cultural factors at work. “The new generation of employees are different and work differently,” he said, citing growing use of communication tools and a general work culture ethos that privileges freedom and balks at micro-management.

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 alongside a new generation of workers reinforces this evolving view of managers. “Amazon’s slashing of manager roles isn’t just about cost-cutting; it’s a glimpse into the future of work. Technology is eating away at the traditional corporate ladder, and middle management is feeling the bite,” Zafar said.