Glossary of Human Resources Management and Employee Benefit Terms
Rightsizing is the process of restructuring a company so it can make a profit more efficiently and meet updated business objectives. Organizations will usually rightsize their business by reducing their workforce, reorganizing upper management, cutting costs, and changing job roles.
It’s a common misconception that rightsizing is just downsizing with more euphemistic terminology, but this is not true. While both downsizing and rightsizing often require paring down a workforce and restructuring certain systems, their overall goals differ.
Downsizing is often an emergency measure during times of economic hardship so companies can maintain profitability. Companies will downsize their employee workforce to avoid redundancies, thereby reducing overall costs.
Rightsizing is less about reducing costs and more focused on meeting new business objectives. The rightsizing process is all about finding the right size and structure for the company, which doesn’t always entail reducing numbers.
Rightsizing the workforce will redefine job descriptions and reorganize employee structures to maintain efficiency and properly equip the company to meet its objectives.
This process doesn’t always entail a net loss of workers. While some employees may be let go to avoid redundancies, new employees may be hired to fill a gap in expertise that was previously missing.
There are two basic analytical methods you can use to determine if your business is in need of rightsizing: ratio analysis and activity analysis.
Ratio analysis reveals 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 with that of competitors and predict how your company may perform in the future.
An activity analysis is a study of the amount of time each person spends on their main activities. These results are compared to an employee survey in which they explain what their job duties are meant to be. If there are any discrepancies, like a group of employees completing a plethora of extra tasks, then restructuring might be in order.
To properly rightsize your company to become more efficient and profitable, you should follow these four steps:
Analyze the different departments and functions within your company—you can use one of the methods listed in the above category for this step. Understand what each role is designed to do and how it contributes to the goals of the company.
During this stage, you will be able to find where the redundancies are, see which experience gaps need to be filled, and come to a better understanding of how each department and employee helps the company. From here, you can determine if your company needs to increase, reduce, or restructure the workforce.
Your structural diagnosis should have deepened your understanding of every role in the company. From there, you can determine which roles are essential to the success of your organization.
This step will also give greater insight into which specific employees you need to keep. Depending on an employee’s experience level or unique expertise, some of them will be deemed essential.
Not only will this help you determine who to keep, but it will also inform your decisions on where you need to shift resources or personnel. Some questions you may want to consider during this step include:
How hard is this position to fill?
How critical is this role to our success?
Does this position protect the company from risk?
This step should not be completed with just the executive team—you should interview and discuss roles with department heads and managers to get their input. This will help you avoid any oversights.
Understand your total cost of workforce, which is the full report of labor and overhead costs that go toward your employees. The total cost of workforce helps you determine how the changes you make will affect your business financially.
After you’ve implemented your rightsizing plan by hiring new personnel or letting others go, it’s unlikely that everything will run smoothly out of the gate. You’ll probably need to make adjustments along the way, especially if your plan causes a rise in employee turnover.
Rightsizing is only done when company leaders feel it is the path that leads to the greatest benefits overall. Some of those benefits include:
Eliminating procedural redundancies
Becoming better staffed to meet goals
Reducing redundancies in staff
Becoming more prepared for the future outlook of the company
Rightsizing is inherently more risky than downsizing since its purpose is more complex. For example, if part of your rightsizing process involves hiring new employees to complete new tasks, your company needs to be sure those employees’ tasks are clearly outlined. Otherwise, those employees may become unproductive and cause you to lose money.
Companies should also be sure to take a holistic view of their employees when looking for redundancies—if redundancies aren’t removed from every department, your rightsizing may prove to be less effective than you hoped.