I'm assuming they look at the org chart, measure the max depth from the CEO to the lowliest employee, and cut that number by half. It's actually the least worse thing in this letter.
Depending on which layers they cut. I know of a company that last year cut the bottom layer of management, giving managers an average of 20 reports. Maximum disruption
Four layers instead of eight? A large company could easily have IC -> manager -> senior manager -> director -> VP -> SVP -> CxO. Maybe Intel was even worse.
Practically it is more than eight, because when multiple branches of managerial deposits cross on the project you are working on, all of sudden your work depends on decisions of dozens of people and their management chains.
Cutting this to four may give compound effect, but IMO this is focusing on the symptoms instead of the real causes like for example people being territorial or obsessed about their promo package. Convoluted managerial chain is often just a weapon to achieve your hidden agenda.