An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What Does Rightsizing Mean in Business?
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.
Rightsizing Vs. Downsizing
It’s a common misconception that rightsizing is just a euphemism for downsizing, but 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.
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What Is Rightsizing the Workforce?
Rightsizing the workforce means redefining job descriptions and reorganizing 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 new gap in expertise.
What Are Different Rightsizing Methods?
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. You’d then compare these results 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.
What Are the Steps in Rightsizing?
To properly rightsize your company to become more efficient and profitable, you should follow these four steps:
1. Conduct Structural Diagnostics
Analyze the different 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 goals of the company.
During this stage, you'll 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.
2. Identify Essential Roles and Personnel
Your structural diagnosis should deepen 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 the employees you need to keep. Depending on an employee’s experience level or unique expertise, some of them will be essential to your continued success.
Not only will this step 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 isn't a step the executive team can complete on their own—you should interview and discuss roles with department heads and managers to get their input to help you avoid any oversights.
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3. Determine Operational Requirements
Understand the total cost of your workforce, which equals 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.
4. Make Changes and Adapt As Needed
Even 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 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 overall, including:
- Increasing profits
- Eliminating procedural redundancies
- Becoming better staffed to meet goals
- Reducing redundancies in staff
- Becoming more prepared for future company growth
What Are the Risks of Rightsizing?
Without the rationale of a poor financial situation, it’s harder to justify letting employees go, making it easier for current employees to lose trust. If remaining employees don’t feel their positions are secure, they may decide to search for a more stable job elsewhere and take the skills and experience you were counting on with them.
When removing redundancies, remember that departing employees take their institutional knowledge with them—their knowledge of how your company operates. Any new employees brought on during the rightsizing process will need training and clear direction to get up to speed.
Your rightsizing plan also needs to take a holistic view of your organization’s structure to make sure current and future employees still have all the support and training they need after redundancies are removed. How do changes in each department affect the organization-wide strategy? An effective rightsizing strategy will create efficiency at all levels rather than easing the workload (or employee cost) for one department at the expense of another.
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