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  • Writer's pictureUlrika Gustafson PCC LL.M

The Hidden Risks of Eliminating Middle Managers: A Critical Insight



In the quest for operational efficiency and cost reduction, many organizations have adopted a strategy of streamlining their structures by reducing or eliminating middle management positions. This approach is often driven by the belief that a leaner hierarchy can enhance decision-making speed, reduce overheads and foster closer communication between top executives and frontline employees. There's also a prevailing notion that advancements in technology can compensate for the reduced human managerial layer by automating many of the coordination and oversight functions traditionally performed by middle managers. Organizations often cite several reasons for reducing a management layer and some of the more commons once are:

  • Cost reduction: Middle managers represent a significant portion of a company's payroll and reducing these positions can lead to immediate cost savings.

  • Increased agility: Fewer layers are thought to make organizations more nimble, enabling quicker responses to market changes and competitive pressures.

  • Improved communication: Direct lines of communication between senior leadership and frontline staff are believed to enhance transparency and alignment.

  • Empowerment of frontline employees: By removing middle managers, companies aim to empower lower-level employees with more autonomy and decision-making authority.


However, as a former C-suite executive with experience in turning around organizations in Scandinavia, I have both observed and been brought in to organizations to remediate the unintended, severe consequences of this approach. Reducing middle management layers might appear cost-effective, but it can inadvertently impact everything from organizational culture, employee engagement and retention to goal achievement.


"Never let a short-term desire get in the way of a long-term goal" - Curtis Martin

There are hidden risks associated with diminishing middle management and with that in mind, I want to emphasize the need for a balanced approach to any organizational design. As an executive, it's crucial to exercise caution and thorough due diligence before deciding to reduce any layers of middle management. Stakeholder management becomes imperative in this context as the impacts of such organizational changes are far-reaching, affecting employees, customers, investors and other key groups. Engaging with these stakeholders to understand their perspectives and concerns can provide valuable insights into the potential consequences of reducing layers of management.

 

Also, benchmarking with organizations, especially in regions where flattening the hierarchy has been practiced for over a decade, can offer lessons and warnings. Many of these organizations are now reassessing their approach and, in some cases, reintroducing middle management layers to address the challenges that emerged from a too-lean structure. This trend serves as a cautionary tale for executives considering similar changes, highlighting the need for a balanced approach that weighs efficiency gains against the risks to innovation, diversity, leadership continuity and organizational culture.

 

Considering this, executives must be vigilant, extremely intentional and and long-term strategic in their decision-making process, ensuring that the drive for efficiency does not inadvertently compromise the organization's long-term health and competitiveness. In the following sections we'll dive deeper into the hidden risks associated with eliminating middle managers and offer strategies for mitigating these challenges while maintaining organizational integrity and effectiveness.


Innovation Stifled: The Consequences of Diminished Middle Management


Middle managers are often the catalysts for innovation within organizations. They act as the bridge between senior leadership's strategic vision and the front-line employees who implement these ideas. They also play a crucial role in nurturing and developing innovative ideas, providing the support and resources needed to bring these concepts to fruition. When this layer is thinned or removed, the flow of communication and ideation is disrupted, leading to a decline in innovative outputs.

 

Middle managers are instrumental in fostering an environment where innovation can thrive. They are close enough to the day-to-day operations to understand the practical challenges and opportunities for improvement, yet they also have the authority to drive change and implement new ideas. By removing these key players, organizations risk creating a gap where innovative ideas fail to reach senior leadership or are not adequately supported to move beyond the conceptual stage.

 

My client Erik, a SVP of Product Development in the tech industry, had a team that once was known for its rapid innovation and market-leading products. However, after the company reduced its middle management layer to cut costs, Erik found his team struggling to maintain its innovative edge. The direct lines of communication to senior leadership were congested, and front-line employees' insights and ideas were often overlooked. Projects that once would have been green-lit and developed within months began to stall or were never initiated.

 

Working on an assignment in a large municipal organization, I had the pleasure of partnering with Anna, a City Planning Director. Anna had witnessed first hand the impact of reduced middle management on public sector innovation. The city's initiatives to improve urban infrastructure and community services began to falter as the connection between the city's strategic planners and the operational teams weakened. Important community feedback and innovative solutions from front-line employees rarely made it to the decision-makers, leading to missed opportunities for impactful urban development projects.

 

Both of these examples underscore the unintended consequences of diminishing a management layer. The bottleneck in communication and lack of support for innovation can leave organizations stagnant, unable to adapt to new challenges or capitalize on emerging opportunities.

 

For organizations facing the dilemma of balancing cost efficiencies with the need to innovate, careful consideration of the role of middle managers is essential. It's not just about maintaining numbers but ensuring that this layer has the capacity, resources and organizational support to foster innovation. As executives, conducting due diligence, benchmarking against organizations with a history of similar structural changes and staying vigilant about the potential impact on innovation are critical steps in making informed decisions about middle management.

 

While the drive for leaner structures is very understandable, the importance of middle managers in fostering innovation cannot be understated. Their role in translating strategy into action and nurturing the seeds of innovation is crucial for maintaining a competitive edge. Organizations must weigh the potential savings against the risks to innovation and consider strategies that preserve this vital conduit of creativity and change.

 

Compromised Diversity Initiatives


In today's corporate environment, diversity and inclusion are not just moral imperatives but strategic necessities. Middle managers often play a pivotal role in championing and implementing these initiatives within their teams. They are instrumental in creating an inclusive culture that values diverse perspectives and ensures all voices are heard. When their positions are minimized or eliminated, the momentum for these critical initiatives can wane, potentially stalling progress toward a more diverse and inclusive workplace.

 

Middle managers are typically closer to the day-to-day dynamics of their teams, making them well-positioned to advocate for diversity, address biases and foster an inclusive environment. They are key to translating organizational diversity goals into actionable practices and behaviors within their teams. Without their influence, diversity initiatives may lack the necessary advocacy and enforcement at the team level, diminishing their effectiveness.

 

Soraya, a Senior HR Director in the manufacturing industry and a coaching client of mine, had been instrumental in developing and rolling out diversity training programs aimed at improving cultural competency within the workforce. However, after a restructuring that significantly reduced middle management roles, she noticed a decline in the programs' uptake and effectiveness. Without middle managers to reinforce the importance of these initiatives and model inclusive behaviors, the training failed to translate into meaningful changes in team dynamics.

 

Working with Jas, an SVP of Operations in the retail sector, on another unrelated project, he observed a similar trend in his organization. Previously, diversity and inclusion had been central to the company's ethos, with middle managers playing a crucial role in mentoring and supporting team members from diverse backgrounds. Post-restructuring, the absence of these key figures led to a noticeable decrease in the engagement and career advancement opportunities for underrepresented groups within the company, undermining years of progress in building a diverse workforce.

 

Both these examples highlight how the dilution of middle management roles directly can affect the traction and success of diversity initiatives within an organization. The absence of these critical champions and enforcers can stall the progress toward creating a truly inclusive workplace. For organizations contemplating changes to their management structure, it's essential to consider the potential impact on diversity and inclusion efforts. Strategies may include empowering remaining leaders with the tools and training to prioritize these initiatives or finding alternative ways to embed diversity and inclusion goals at every level of the organization.

 

While streamlining organizational structures can offer several efficiencies, leaders must be mindful of the potential repercussions on diversity and inclusion initiatives. The value middle managers bring in driving and sustaining these efforts is significant. As a former executive and advisor, I've seen the critical role these leaders play in weaving diversity and inclusion into the fabric of an organization's culture.

 

Leadership Void and Its Repercussions

 

Another common risk with a reduction or elimination of middle management positions is a significant leadership void within organizations. This gap often manifests as a lack of clear direction, support, and mentorship for front-line employees, leading to confusion and diminished performance. For senior and executive leaders, this void can translate into an overwhelming burden of operational responsibilities, leaving little room for strategic planning and leadership development. The consequences of such a leadership gap can be far-reaching, affecting employee engagement, decision-making processes, and ultimately, the organization's overall effectiveness.

 

A leadership void occurs when there is an insufficient number of leaders to provide the necessary guidance, support and decision-making authority within an organization. This gap often lead to unclear communication, inconsistent policies and a lack of accountability among team members. Without middle managers to serve as a link between senior leadership and front-line employees, organizations can struggle to maintain a cohesive and motivated workforce.

 

So what are the main repercussions of a leadership void? These are the most damaging ones that I've encountered:

  • Decreased employee engagement: Without adequate leadership support, employees can feel neglected and undervalued, leading to lower engagement and morale.

  • Inefficient decision-making: The absence of leaders at the middle level can slow down decision-making processes since more decisions are funneled upwards, overwhelming senior leaders and delaying responses. This causes frustration amongst all stakeholders and a perception of "unnecessary micromanagement" with all levels of employees, including leaders.

  • Burnout among senior leaders: Senior leaders often find themselves stretched extremely thin, juggling strategic responsibilities with operational tasks traditionally handled by middle managers, leading to burnout and reduced effectiveness. Long-term this affects the organization's reputation and ability to recruit high-performing senior leaders.

 

I was working with Renata, a Chief Technology Officer in a financial services organization, when she faced the challenge of a leadership void due to an organizational streamlining of its middle management layer as part of a cost-cutting initiative. The lack of technical team leads resulted in her spending an inordinate amount of time resolving day-to-day operational issues, diverting her focus from strategic IT initiatives crucial for the company's growth.

 

For Frank, a Director of Customer Service in the e-commerce industry, the elimination of several middle management roles led to confusion among customer service teams regarding responsibilities and decision-making authority. This confusion not only slowed down response times to customer inquiries but also resulted in inconsistent service quality, impacting customer satisfaction.

 

Both Frank's and Renata's situations highlight the critical role middle managers play in supporting senior leaders and front-line employees. Their absence can create a leadership vacuum that hampers organizational efficiency and effectiveness. To mitigate the risks associated with a leadership void, organizations should carefully consider the implications of reducing middle management roles and explore alternative structures or support systems to maintain effective leadership coverage. This might include leadership development programs for high-potential employees, enhanced communication channels, or leveraging technology to streamline operations and support decision-making.

 

Optimizing organizational structures can have great benefits as long as you are mindful of not creating leadership voids that have lasting negative impacts on the organization. As leaders, recognizing and proactively addressing these gaps is essential for sustaining organizational health and performance.  

 

Firsthand Experiences of Organizational Disarray


In my tenure as an executive, and particularly in organizations across Scandinavia where flattening hierarchies was a prevalent trend for many years, I've encountered firsthand the common pattern of chaos that can come from aggressively reducing middle management roles. These firsthand experiences have provided me with invaluable insights into the delicate balance required in organizational structures to maintain clarity, efficiency and morale.

 

Apart from the risks discussed above, organizations that aggressively cut middle management layers often face a multitude of other challenges:

  • Lack of clear leadership: With fewer leaders, employees often find themselves uncertain about who is in charge, leading to confusion over decision-making authority and responsibility.

  • Leader burnout: Remaining leaders at lower levels, burdened with an excessive number of direct reports and a wider array of responsibilities while also having less support from and access to their own leader, face an increased risk of burnout, impacting their effectiveness and the well-being of their teams.

  • Stifled decision-making: The consensus culture, aimed at inclusivity, can paradoxically lead to decision-making paralysis, where the absence of clear leadership slows down or complicates the decision-making processes.

  • Friction in co-leadership: Attempts to mitigate leadership gaps through co-leadership arrangements can sometimes result in power struggles and inefficiencies, further complicating the organizational dynamics.

 

In one notable instance, I was brought into an organization that had embraced the trend of minimizing middle management to an extreme. The result was a lack of direction and a pervasive sense of uncertainty among the staff. Decision-making had become a protracted process, bogged down by the need for consensus across too many levels.

 

To address these challenges, we embarked on a strategic initiative to reintroduce a layer of middle management. This move was not about merely increasing headcount but strategically placing leaders who could bridge the gap between strategic vision and operational execution. We focused on selecting individuals who were not only skilled managers but also effective communicators and capable of fostering a collaborative environment.


The experience underscored the importance of middle management in maintaining organizational harmony and efficiency. It highlighted that while leaner structures can offer benefits, there is a critical threshold below which the removal of managerial layers can cause more harm than good.

 

My experiences have taught me the importance of a balanced approach to organizational structure. The decision to streamline should be weighed carefully against the potential impacts on leadership clarity, employee engagement and operational efficiency. For leaders contemplating similar restructuring, I urge caution and due diligence. If you're navigating these complex decisions and looking for guidance based on real-world experience, I invite you to connect. Let's discuss how we can ensure your organizational structure supports your strategic goals while maintaining a healthy, dynamic work environment.

 

Navigating the Middle Management Balance

 

While the drive to streamline operations and reduce costs is understandable, the decision to cut middle management roles should be approached with caution. The potential risks can undermine the very efficiencies such restructuring aims to achieve. While lean principles can offer significant benefits, they must be balanced with the need for clear leadership, support and engagement across all levels of the organization.

 

For leaders contemplating or currently navigating structural changes within their organizations, it's crucial to conduct thorough due diligence, potentially benchmarking against organizations that have experienced similar transitions. Understanding the full scope of potential impacts is essential for making informed decisions that support long-term organizational health and success.

 

If you're in the middle of these considerations and seeking guidance, I invite you to reach out. Drawing on my experiences and those of my clients, I'm here to offer insights and support as you navigate the complexities of organizational structure to find the optimal balance for your team and your strategic objectives. Let's connect and explore how we can work together to ensure your organizational structure aligns with and supports your leadership vision and goals.




Ulrika Gustafson LL.M PCC is a Certified Executive Coach, former C-suite leader and partner of HAMILTON THERRELL Executive Advisors, an international advisory group of experts in leadership and organizational transformation. She advises CEOs and coaches senior executives in Fortune 100 and 500, startups, family businesses and government institutions on succeeding in demanding environments.

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