Elon Musk Takes On Corporate Hierarchy In Note To Tesla Employees

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In a recent email to employees, Tesla CEO Elon Musk said the company will restructure and flatten its management structure, according to the Wall Street Journal.

The news reiterates commentary from Musk in a similar email to employees last month where he directed them to go directly to the person who can best expedite their work, regardless of level or title. That directive was included among other productivity tips. In his April note to employees, Elon commented that non-value-add layers were far too common within Tesla and its subcontractors:

“I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful.”

His desire to get directly to the heart of the problem without having to translate layers and layers of middle management icing is evident with his direct approach of sleeping on the factory floor until production line throughput issues are resolved with Model 3.

Coming out of his April email to employees, Tesla has proceeded to tighten the reigns on contractor spending, so it seems only natural that it would focus on trimming the managerial fat internally as well. The challenge with any flattening of the hierarchy is that people can only scale so far in a flat organization. If there are only two layers in an organization (for instance, managers and technicians) with no additional hierarchy, it is difficult to scale up.

From his April email to employees, Elon provided some insight into his distaste for hierarchy:

“Communication should travel via the shortest path necessary to get the job done, not through the ‘chain of command’. Any manager who attempts to enforce chain of command communication will soon find themselves working elsewhere.

“A major source of issues is poor communication between depts. The way to solve this is allow free flow of information between all levels. If, in order to get something done between depts, an individual contributor has to talk to their manager, who talks to a director, who talks to a VP, who talks to another VP, who talks to a director, who talks to a manager, who talks to someone doing the actual work, then super dumb things will happen. It must be ok for people to talk directly and just make the right thing happen.”

Elon makes it clear that his focus is on the work. Making the end product come out the other end at the lowest cost, with the lowest number of touches, at the highest quality, as quickly as possible, is the only goal. Anything that has to happen in between should be done with that objective in mind.

That is the essence of Musk’s famed “first principles” approach to solving problems, to building a product or pursuing another objective. The concept of “designing the Model 3 for manufacturing” starts with this idea. Boil things down to their essence, and then build it back up. Then do it all over again. And again. And again.

This approach was obvious on Tesla’s Q1 earnings call when Elon said that the Model 3 was unnecessarily complex to build and that Model Y would be leaps and bounds better. While it confused many, this is just his focus on continuous improvement and an incessant desire to constantly distill processes down to their most fundamental elements and build them back up again. It never stops, and it results in products that are more refined, lower cost, produced more quickly than they were in the past — or it should.

Elon is now taking these same concepts and applying them to the Tesla organization. Some humans, especially those who have been socialized within Tesla, are flexible, but most are not. This inflexibility is compounded by social norms and corporate norms that new hires bring with them. These residual elements of corporate culture are extremely difficult to break and have been something that Musk has railed against over the years. His email last month served as a manifesto against these “dumb” structures, and they are the very same list of things he will lead a charge against over the coming weeks and months with the newly commissioned restructuring, bloody as it will inevitably be.

Fortune shared the contents of today’s memo about the restructuring, which seems like a natural next step after his email last month:

“To ensure that Tesla is well prepared for the future, we have been undertaking a thorough reorganization of our company. As part of the reorg, we are flattening the management structure to improve communication, combining functions where sensible and trimming activities that are not vital to the success of our mission.

“To be clear, we will continue to hire rapidly in critical hourly and salaried positions to support the Model 3 production ramp and future product development.”

The note highlights Tesla’s focus on the Model 3 production ramp and future product development as the two areas where it needs to add both hourly and salaried staff to support the work already underway. With the Model Y, Tesla Semi, Tesla Truck and what are surely another half-dozen unannounced projects all being pushed at light speed in parallel, delegation and at least some hierarchy must be a part of the equation.

Having said that, Elon Musk and the team at Tesla have never shied away from the impossible, whether it be technological, marketplace, financial, or, in this case, an organizational challenge. If we have learned anything from this dream team, it is to expect the impossible. To expect them not to be afraid of it, but to be engaged by it. To step up to the challenge and to marshal all of the resources at their disposal to face it head on.

At the same time, however, we should expect a bumpy road ahead for Tesla’s organization. Leadership changes often force uncomfortable discussions, which force hands. Expect new hires and perhaps even some notable fires. Change does not come easily, nor does it come on time at Tesla, but it does come.

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Kyle Field

I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. As an activist investor, Kyle owns long term holdings in Tesla, Lightning eMotors, Arcimoto, and SolarEdge.

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