Management: The Dunder Mifflin Way and Beyond
In its nine seasons on air, the office of Dunder Mifflin was run by 11 different regional managers. Remember when David Wallace and I talked, and we decided to promote Jim to the position of co-manager? Some managers had their jobs for years, others for less than an hour. But honestly, the office never ran better than in the rare times when there was no manager at all. “Unleash the Power of the pyramid!”
I get that this is just a comedy show, but sometimes what makes it so funny is how close it gets to reality. If a company is set up properly, people really can just come into work, do their job, and go home. They don’t need layers of authority on top of them micromanaging their every move, getting in the way of actual business operations, and taking home the biggest salaries. Bad management can seriously ruin even the best ideas and end up costing companies a ton of money.
How much money? Try about three trillion dollars a year, according to recent studies. That’s a huge cost! It’s why some companies are starting to rethink if the old-school hierarchical business structure is a thing of the past.
What Traditional Managers Do
In a typical business, management is responsible for a few key things. They are usually tasked with:
- Choosing the direction of the company (like yelling, “I declare bankruptcy!”).
- Training their subordinates.
- Providing employees with the tools they need to move the company in that direction.
- Rewarding employees who do excellent work.
- Punishing employees who don’t meet their standards.
These five tasks pretty much cover everything a manager is responsible for. And don’t get me wrong, they are all very important roles for running a successful business. So, it’s not like the role of a manager is useless by default.
But here’s the thing: some companies are starting to realize that these five tasks can be done without a manager at all, often with better results.
Why Companies Might Go Managerless
This isn’t some weird socialist idea. These are regular businesses trying to operate in the best way to maximize profits for their shareholders. Some of the organizations we’ll look at are owned by billionaires who definitely wouldn’t benefit from the “rich being eaten.” So, it’s time to figure out how money actually works to see if the companies of the future could ditch the managers of the past.
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Advantages of Getting Rid of Managers
To get rid of the traditional hierarchical management structures that organizations have used for centuries, a company needs to see that a managerless organization is not only possible but also advantageous for shareholders. Just not liking your boss is, unfortunately, not a good enough reason to change how a company operates. Also, a few of the managerless companies we’ll look at later are actually famous for being pretty terrible places to work anyway, so worker satisfaction isn’t really the main driver here.
Apart from that, there are four big advantages to getting rid of managers that shareholders will actually care about:
1. It Saves Money
Businesses should always try to cut down on unnecessary expenses. Managers are typically paid more than the workers they manage. If you can remove them, that leaves more money to be paid back to the shareholders. This one seems obvious, but fewer companies think to do this than you might imagine.
A 2016 report by the Harvard Business Review found that excess management was costing the United States three trillion dollars per year. That’s like taking the states of California and Texas and making them micromanage each other!
But why would profit-driven companies let this happen? Well, managers are normally the first people consulted about incoming layoffs, and they’re also the people tasked with deciding who leaves and who stays. They are obviously not going to pick themselves, even if they’re the person in their team that contributes the least. As you go higher up the corporate ladder, it gets worse because managers start to look out for the people directly below them.
The anthropologist David Graber spoke about this in his book “Bullshit Jobs”, where he specifically singled out people that only exist in organizations to make their superiors feel important. How on Earth do you end up in a situation where private firms are inventing jobs and paying people to not really do anything? That’s the last thing you’d think a competitive firm would do.
Graber specifically talked about receptionists, administrative assistants, and doormen, but middle managers can become flunkies too. A senior manager delegates to middle managers, who delegate to team leaders, who delegate to staff. If this chain of command doesn’t exist, then the senior managers would just be regular managers, and that simply can’t be allowed to happen! One of the first things most private equity companies do after they take over a business is strip out a lot of management, and it’s rare to hear that this has any downside effects on the company.
2. It Removes Single Points of Failure
Managers will either knowingly or unknowingly make themselves needless keyholders in a business. If you work in an office, think of how many tasks you’ve done a million times before but still need a manager’s sign-off every single time. Technology has only made this worse, as now operations on company systems are tied to managers’ login details.
Now, sometimes staff shouldn’t be allowed to do certain things, and we’re definitely not talking about making the company payroll account open to all employees – but that doesn’t involve management anyway!
I used to work at an investment bank (I can’t say too much about what I did there), but a big part of my job was making SIPs or confidential information presentations. These are fancy documents sent to potential buyers, packed full of information they need to know about a company they’re considering buying. I made countless SIPs in my career, but every time I needed to print one, I needed my MD (Managing Director) to sign off on it. Even if it was a draft, even if it would never be looked at by anyone external from the business. I’m sure you’ve all had very similar experiences before. If managers are ever asked about what they do around the office, a common responsibility they are unironically proud of is signing things off.
Hierarchical management also creates single points of failure if someone in a key position is incompetent or corrupt. The corporate hierarchy is just an extension of the human need for status and authority, which can lead to problems when that authority rests on one person.
3. It Helps Workers Stay on Task
This one might sound a bit weird, but let me explain. The job of a good manager is pretty easy, and unless they themselves or their manager gives them lots of meaningless tasks to do, it’s very hard to fill up a 40-hour work week with tasks that could truly be classified as managing.
The average manager is responsible for 4.7 subordinates. If a manager was directly managing all of them equally, that would mean more than eight hours per week per worker. That’s time taken away from the worker’s actual tasks! So, either these managers are wasting their subordinates’ time, or they’re finding ways to fill their own time to make themselves look busy.
Some managers mix up their time by actually jumping in and doing the same work as their team. This can be an effective form of leadership, but sometimes it just causes problems if the manager is just a manager and doesn’t actually have the skills needed to do the job they oversee.
Graber talks about the Taskmaster. Taskmasters come in two distinct varieties:
- The ones who simply tell their underlings what to do.
- The ones who actively invent pointless tasks just to make sure they can say they’ve contributed something.
The first variety is only pointless if employees in a company wouldn’t stay on task without active supervision. In the age of quiet quitting, that might make you think these managers are essential. But there are other ways to keep people on task that don’t involve paying people to stand over others with a stopwatch.
The second variety, the ones that make up pointless tasks, can be very damaging to a company. How much time do you waste at your job going through appraisals, reviews, assessments, and meetings that could have been in an email? Often, it’s just so your manager has something to put in their calendar. That’s time that you are not spending making shareholders money.
4. It Reduces Staff Turnover
According to a recent study conducted by Dr. Brian Robinson, the top reason people leave their job was poor pay, with 59% of respondents setting this as their reason for resigning. But just behind that, 56% said that poor management was what made them quit.
People rarely quit jobs, they quit managers. Which isn’t surprising when you find out that most managers don’t receive any formal management training. Most only got their jobs because they were good at non-management roles they had before. Being good at sales, programming, or any other operational job is an entirely different skill set from being a good manager. Sometimes companies get lucky, but not always.
The Dilbert principle is the trend for people who are good at their jobs to be promoted until they get to a job that they are no longer good at. I know I’ve used this example before, but Michael Scott is the best portrayal of this principle ever put to screen. He demonstrated that he was a fantastic salesman that made a lot of money for his company, so he became the logical choice to run the branch when his boss, Ed Truck, retired. He was not suited to management and ended up causing all the management problems on our list. He would waste people’s time, he would cause great damage to the business, and he would do all this while taking home the largest paycheck in the office. “Welcome welcome welcome welcome welcome! You are all jerks!”
Because he was so terrible at his job, he was never going to be promoted again. But the company also believed he had earned his job, so he also continued to barely avoid getting fired. “You are the reason I drink. You are the reason I live to forget.” So, his poor employees were stuck with him. And this exact situation is far from a work of fiction; it happens in offices all around the world. In the real world, if people get stuck with a terrible manager who is never going to leave their position, then they quit their job because it’s the only escape.
Hierarchical management structures also cause staff turnover for a different reason. Ambitious workers who want to climb the corporate ladder will quickly learn that switching jobs is the fastest way to get a promotion. This is a great strategy for the worker, but it’s terrible for the companies because they need to invest money into hiring and training an employee, only for them to deliver maybe two years worth of service and then move on. If a company had no defined hierarchy of management, then workers wouldn’t feel as if their career had stagnated because they were passed over for a promotion. Promotions themselves wouldn’t exist, so there wouldn’t be that motivation to move on.
Real-World Examples of Managerless Structures
But don’t just take my word for it. Let’s look at some real-world examples of businesses that have made a managerless structure work. You probably think I’m about to start talking about worker co-ops now. And they are a great example! Worker co-ops employ around 20% of the entire world’s workforce and are often incredibly successful operations for their owners, who are also the employees. These are often businesses and cottage industries which have a reputation for being a bit alternative, maybe selling organic tofu-coated solar-powered throw rugs out of their community centers.
But these are not the businesses I want to talk about.
Instead, I want to start with Renaissance Technologies, which is a hedge fund. Precisely the last business you would expect to do away with rigid management structures! This is probably the single most successful hedge fund in the history of the industry in terms of its performance record. Renaissance, and particularly The Medallion fund, is the most successful hedge fund in history. It delivered an annualized return of 39% after fees between 1988 and 2018. That is four times the market return, which is already very good! Just one thousand dollars invested into this fund at the beginning of that period would be worth 100 million dollars today.
The Medallion fund achieved these returns by employing the world’s smartest statisticians, mathematicians, and computer scientists to build computer models to predict the stock market, even before computer modeling was widely possible. Nobody outside the firm knows quite what they get up to these days, and that’s exactly how they like it. Renaissance cut off outside investors from their Medallion Fund in the early 90s, and now the business only invests the money of the people that work at the company.
People they hire also get access to all the company’s price data and computer models. So, they need to make sure that the people stay around, or else their market-beating formulas would eventually leak out to other investors, which would render them useless.
How Renaissance Technologies Operates Without Managers
The company was able to attract such amazing talent and keep them around long term because it’s effectively run as a worker’s co-op. The fund is run for the benefit of the members, who are the employees, and nobody is above anybody else when it comes to official authority. There are people that work at this fund that are more experienced, more respected, and are paid more than others, but their ideas are all treated equally, and nobody can say that something will or will not be done because they are the boss.
If you Google Renaissance, you’ll notice that it still does have a management structure and a CEO. But those individuals are mostly there for compliance reasons and to perform certain roles that must be given an official title in an investment firm. The CEO and the first-year analysts all get the same decision-making authority when it comes to how the fund deploys its capital.
Let’s look back at the five tasks of a traditional manager: choosing the direction, training subordinates, providing tools, rewarding excel, and punishing poor performance. It’s worth seeing how the most successful hedge fund in history completed these tasks without managers.
- Choosing Direction: This was also a joint effort. An investment fund has a pretty clear goal: make as much money as possible. Employees all… (text appears to cut off here).
- Training: Renaissance had a very particular philosophy: you can teach someone a job, but you can’t teach someone to be smart. The company would often hire people like astrophysicists and world-class chess players and teach them about trading on Wall Street. This training was done collaboratively, and the company took the same approach to developing trading algorithms as scientists would take when working on an experiment. They would draw different expertise from different people, and everybody would slowly learn how they all fit together. Of course, it probably helped that most of the people that worked there actually were scientists. In our own offices, I’m sure most of you have learned more about your job from your peers than you have through management-run exercises or seminars.
- Rewarding/Punishing: Renaissance doesn’t talk too openly about rewarding high-performing employees and punishing underperformers. The kind of people that qualify for a job at Renaissance are always going to be brilliant in their field and extremely driven to solve problems. But people still do get fired. It’s normally because the employees have collectively forced them out.
Working without a manager can actually be a huge motivator. Letting down the boss is not nearly as bad to most people as letting down a group of their peers. I know I’ve put more dedication into training for a soccer final than I have into preparing pitch decks, even though soccer is something I do just for fun and pitch decks used to be how I avoided homelessness. The fear of letting down your team is simply more powerful than the fear of being fired.
Okay, here’s that text cleaned up and organized, keeping everything in there just like you asked.
Decision Making at Renaissance Technologies
So, the story goes that at Renaissance Technologies, decisions about what strategies the company would use, what markets they would trade in, and even what investors they would bring on board were decided.
The Renaissance Work Environment Paradox
Now, you might figure that with all that success, Renaissance would be a fantastic place to work, right? Well, according to most accounts, it was the exact opposite.
- You had strong personalities there.
- People who are considered the best in their fields, all working together.
- They put in long hours in a high stress industry.
This combination could cause countless arguments.
Success, Turnover, and the Idea of Management
But here’s the wild part: even despite that difficult environment, the company has had staff turnover measured in decades (which means people stick around for a long, long time!) and has still managed to be the most successful investment fund of all time.
And honestly, if that doesn’t scream that maybe dedicated managers aren’t always as necessary as we think – a real ringing endorsement for their redundancy – then nothing will.
Humans, Social Hierarchies, and History
But maybe we, as humans, just can’t completely get rid of social hierarchies after all. It seems we only ever learn about the rulers throughout history.
Why History Focuses Where It Does
This kind of makes you stop and ask: why do historians only care about rich people?
Finding the Answers (And Learning More)
Fortunately, I’ve actually tackled and answered that very question over on my new channel, which is called how history works.
And hey, a special thank you again to fessi for making it possible for everybody to keep on learning how money Works. That’s really important!
A Word on Being the Boss
On a different note, people say I’m the best boss. They even say things like, “God, we’ve never worked in a place like this before. You’re hilarious and you get the best out of us.”
Yeah, I think that pretty much sums it up.