What does rightsizing mean in business?

Rightsizing is the process of reorganizing a company so that it can more efficiently earn profits and meet updated business objectives. Organizations typically rightsize their business by reducing their workforce, reorganizing upper management, cutting costs, and changing job roles.

True to size vs. small size

It is a common misconception that rightsizing is simply a euphemistic form of downsizing, but while both downsizing and rightsizing often require reductions in the workforce and restructuring of some systems, their overall goals differ.

Reducing the number  of employees is often an emergency measure in times of economic difficulty  so that companies can maintain profitability. Companies reduce their number of employees to avoid layoffs, thereby reducing overall costs.

Rightsizing is not about cutting costs but about achieving new business objectives. The rightsizing process is about finding the right size and structure for the company, which doesn't always involve reducing numbers.

What is the right size of workforce?

Right-sizing the workforce means   redefining job descriptions and reorganizing staffing structures to maintain efficiency and make the company properly equipped to meet its objectives.

This process does not always result in a total loss of employees. While some employees may be fired to avoid layoffs, new employees may be hired to fill the new gap in expertise.

What are the different methods of rightsizing?

There are two basic analytical methods you can use to determine whether your business needs to be right-sized: ratio analysis and activity analysis.

ratio analysis

Ratio analysis determines the financial health of an organization by comparing past financial statements to current records and calculating the change. You can then compare your financial progress to that of competitors and predict how your company might perform in the future.

Activity Analysis

Activity analysis is a study of the amount of time each person spends on their core activities. You will then compare these results to employee surveys in which they state what their job duties are. If there are any discrepancies, such as one group of employees completing an overabundance of additional tasks, restructuring may be needed.

What are the steps in rightsizing?

These are the four steps you should follow to make your company more efficient and profitable:

1. Conduct structural diagnosis

Analyze the various departments and functions within your company using one of the methods listed above. Understand what each role is designed to do and how it contributes to the company's goals.

During this step, you'll be able to figure out where there are redundancies, what experience gaps need to be filled, and get a better understanding of how each department and employee helps the company. From here, you can determine if your company needs to increase, decrease, or restructure the workforce.

2. Identify the roles and personnel needed

Your structural diagnosis should deepen your understanding of every role in the company. From there, you can determine which roles are essential to your organization's success.

This step will also give you a better idea of ​​the employees you need to retain. Depending on an employee's level of experience or unique expertise, some of them will be essential to your continued success.

This step will not only help you decide who to keep, but it will also inform your decisions about where you need to move resources or personnel. Some questions you may want to consider during this step include:

• How difficult is it to fill this position?
• How important is this role to our success?
• Does this position protect the company from risk?

This is not a step the executive team can complete alone – you should interview and discuss roles with department heads and managers so you can take suggestions from them to avoid missing anything.

3. Determine operational requirements

Understand your total employee cost, which is equivalent to a complete report of the labor and overhead costs of your employees. Total employee cost helps you determine how changes you make will impact your business financially.

4. Make changes and adapt as needed

Even after you implement your right-sizing plan by hiring new employees or letting others go, it's unlikely that everything will run smoothly. You'll likely need to make adjustments along the way, especially if your plan causes a drop in employee morale.

What are the benefits of rightsizing?

When done correctly, rightsizing is the path that leads to greater success for the company as a whole, including:

• Increase in profits
• Eliminating procedural redundancies
• Prepare better staff to meet goals
• reducing redundancy of employees
• Becoming more prepared for future company growth

What are the risks of rightsizing?

Without the argument of a poor financial situation, it's harder to justify letting employees go, making it easier for existing employees to lose trust. If remaining employees feel their position isn't secure, they may decide to look for a more stable job elsewhere and take with them the skills and experience you were counting on.

When carrying out layoffs, remember that departing employees take with them their institutional knowledge – their knowledge of how your company works. Any new employees brought in during the rightsizing process will need training and clear guidelines to get up to speed.

Your rightsizing plan should also take a holistic view of your organisation's structure to ensure that current and future employees still get all the support and training they need even after the redundancies have been completed. How do changes in each department affect the organisation-wide strategy? An effective rightsizing strategy will create efficiencies at all levels, not reduce one department's workload (or employee costs) at the expense of another.