Executives have been trying different strategies for increasing productivity, but the most recent play is one as old as time: remove the middle managers.
The idea of giving the "creators" – the ones actually doing the work and coming up with what sells – more empowerment is not new, but US tech giants are making moves to see if it can shore up bottom lines. During an earnings call last week Meta chief executive Mark Zuckerberg said he was "working on flattening our organisation structure and removing some layers in middle management to make decisions faster, as well as deploying AI tools to help our engineers to be more productive”.
Zuckerberg is apparently asking managers to move back to their original roles as coders or to leave the company. Meta is confident this cost cutting will work, and is now guiding for this year’s expenses to be $10bn below its original $100bn forecast.
A similar tactic is being deployed at Disney where new (and old) chief executive Bob Iger said he wants to return “greater authority" to "creative leaders" but also make them accountable for how "their content performs financially”. Presumably some of the people that were originally accountable for the financial performance were among the 7,000 people Iger fired at the beginning of the month.
It's no coincidence generative AI is being talked about just as companies scramble to boost productivity. At the end of last year, The Squeeze forecast it would be the middle management jobs that technology came for first. The theory was AI would boost the productivity of the creators making them more valuable but at the same time remove some of the supervisory roles.
Whether AI will be the productivity steroids technologists promise is uncertain but clearly these oversized companies needed to change something. Praveen Seshadri, whose business was acquired by Google, wrote a scathing blog post about the company’s cultural problems, blaming complacency for its decline.
He said most employees were more concerned with keeping their seat on the advertising gravy train than risking making something new. “This is a closed world where almost everyone is working only for other Googlers, and the feedback loop is based on what your colleagues and managers think of your work,” he said.
It’s impossible to verify his claims but it sounds plausible. You can also imagine other tech companies with near monopolies, such as Meta and Salesforce, suffering from the same feedback loop problems. As seen in the graph, none of these companies could hold onto their pandemic efficiency gains and all saw a drop off in revenue per employee last year.
The other victims of the productivity drive are the diversity, equity and inclusion (DEI) teams. Bloomberg reported that listings for DEI roles in the technology industry were down 19 per cent last year — a bigger decline than legal or general human resources jobs saw. There is clearly a limit to how inclusive you can be in a bear market.
After a decade of near zero interest rates there was inevitably going to be slack in the system. Creative destruction manifests in the bankruptcy of unprofitable businesses and in the removal of unprofitable employees. It's unpleasant for the people involved but inevitable in a capitalist economy without a low interest rate safety net.
Meta’s investor will hope Zuckerberg has correctly identified middle managers as the source of his woes. The Squeeze is hoping we were right to back an economic system incentivised by profits.
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