Middle management …. sacrificial lamb which can extract a huge price!

Over the last few years, one of the standard management approaches for cost reduction (due to falling margins, business mergers & acquisitions, raising funds from capital markets, etc) has been the theory of flattening the organization structure under the idea of ‘change management’. 

This flattening the organization structure involves reduction and deletion of middle management positions under the plea that technology has facilitated improved employee connection from anywhere and apart from the time zones involved (corporates with international presence), employees can be better connected. Work from Home, etc has added another dimension to the possibility of deleting some middle management positions. 

What many forget is the Role of Middle Management executives. They are the ones translating senior management intent on business development and future business growth into actionable points to be conveyed to the lower layers of employees — whether non-management or bottom level management.  In the event of the business being demerged / another business acquired or remuneration increases being delayed, it is the middle management which is in front conveying senior management intents and proposed actions to make intents achievable.

Another very crucial Role middle management pays is the Role of remembering Historical data and corporate events / history. Middle management is a huge data base server which remembers past events and actions and at crucial times can bring out the historical events / facts for discussions and analysis of what succeeded and what didn’t succeed.  Any country or corporate which does not remember it’s History or seeks to trivialize it is headed for trouble.

Many employees in the lower end of the employees’ pyramid relate much better with their immediate bosses than with their step-up bosses. When this link with immediate boss gets broken, the employee job satisfaction and contentment goes down resulting in miserable and less productive employees.

The flattening of the organization thru a hatchet job on middle management employees results in the death of corporate history and corporate culture. The lower down employees feel a loss of reporting security, feel neglected with no one to address their concerns and often find that there is no satisfactory response to their concerns on the new direction of the corporate entity.  Along with that middle management possesses job skills in terms of processes, procedures, compliance requirements on safety / quality / accounting requirements, IT systems knowledge, Management Information Systems, Manufacturing process controls which are not easily available in any corporate manual or text book.

Middle management possesses job skills combined with human interface ability which technology can never reproduce or replicate. Many corporates who have flattened structures very harshly have found that implementation of new ideas and policies lags behind and the employees workforce including the corporate ‘outsiders’ like creditors, lenders etc are not clear on the corporate movement into new direction. The middle management which would have managed this is not available to take matters forward thru explanation of intents and objectives. 

This part of the change management process often gets mishandled at many companies and this mishandling has associate costs in ideas and policies failing to be properly implemented. We talk of cost savings in easy terms like removing flab or removing multiple persons for positions but one forgets that in managing change the absence of steady hands and minds which can take matters forward – results in much higher costs of failure to achieve new goals and directions and which can be a heavy weight on the organization.

In ‘change management’, technology can never replace the human being. Also, improved IT systems need to be worked on. Middle management absence thru flattening can result in poor integration of IT systems with Business Operations of Manufacturing, Marketing / Sales / Distribution, Accounting disclosures and record keeping and this can be an Achilles heel of tremendous weakness.  The absence of Middle Management thru wholesale employees’ termination results in IT systems mismanagement of integration, data testing / checking and reduced usage resulting in a key link being weakened and which could snap at any time.

No real study has been done of the supposed cost savings thru hatchet job terminations of employment and the real costs that corporates pay due to improper execution of ideas and plans.  Many mergers and acquisitions and attendant cost reduction measures fail because employees’ culture integration does not occur which is often an important Role middle management plays quietly, unheralded. To save pennies thru structure flattening, one runs the risk of more significant losses thru failure to achieve what is required and demanded. 

Every business acquisition / merger or new corporate Top Management change to improve corporate business prospects has the section of disclosure mentioning proposed savings in Employees and overheads costs but 12 -24 months later, there is no disclosure to show whether the flattening has assisted or been unhelpful or actually has worked against the corporate change wanted.  Lenders and Investors must ask for this information.

So far as Business Operations is concerned, Middle Management is the KEY to efficient operations in all areas.  The flattening of the Organization Structure is sometimes akin to throwing the KEY away.  Much thought needs to go into these decisions and adhoc % achievement of Employees numbers / Cost reductions cannot be any indicator of good times ahead.

It is a foolish belief that lower middle management count equals lower costs and increased profitability.  It could actually be lower costs resulting in much lower efficiency and much lower achievement of Intent of ‘change management’.  This is often the reason why mergers & acquisitions or cost reduction plans fail to deliver.