Rightsizing definition
Rightsizing is reorganizing and restructuring a company to reduce costs and increase profits. It involves cutting redundant expenses, reducing the number of employees and redefining company roles. Reorganizing upper management is also a crucial aspect of rightsizing. Company rightsizing’s goal is to streamline work productivity and remove any redundant, inefficient aspects of the work process.
Rightsizing vs. downsizing
Rightsizing is commonly misconstrued as downsizing. While this misconception persists, businesses are becoming more interested in their differences. Downsizing strictly involves reducing the number of employees to lessen costs. It’s often evoked as an emergency measure and can indicate a company is experiencing difficulty.
In contrast, rightsizing uses several strategies focused on improving efficiency. While downsizing might be a facet of rightsizing, strategies aren’t limited to simply reducing the number of employees. Rightsizing happens on an ongoing basis, whereas downsizing is a short-term, immediate action.
Both rightsizing and downsizing involve risk because you can’t always predict that the changes you make will render positive results. However, the risk with rightsizing is substantially lower. Rightsizing involves more strategic and less drastic changes, some of which you can easily reverse if proven maladaptive.
What are the benefits of rightsizing an organization?
Whether you reap the rightsizing’s benefits depends on how well you execute it. When done properly, rightsizing can have the following benefits:
- Increased profits due to reduced costs
- Higher employee satisfaction
- Better use of employee skills
- Eliminated redundancies
- Improved collective company skill and adaptability
- Real company growth
Rightsizing is a practice that requires a great deal of skill, effort and accuracy. Without these elements, you risk creating problems instead of solving them. Before beginning your rightsizing campaign, it’s important to be aware of the risks involved.
What are the risks?
When letting employees go or redefining their roles, it’s important to ensure that you’re not losing crucial talent . Doing so can result in damages and can cause company-wide disruption. Moreover, it’s important to avoid making changes too rapidly, as it won’t let you measure the effects of each adjustment. Making careful, patient and strategic changes is the best way to minimize potential risks.
Additionally, letting too many people go in a short time will externally seem like downsizing. This could signal to key clients and consumers that you’re experiencing an operational crisis which might lead them to lose faith in your business. If you want to try rightsizing but are concerned about the potential risks, it may be worth hiring an expert to consult you on the best practices for your specific needs.
Types of rightsizing analysis
Before implementing a comprehensive rightsizing plan, first, analyze whether your business is suitable for rightsizing. There are two main practices for analyzing this:
Ratio analysis
Ratio analysis checks your business’ financial health by comparing previous financial statements to current records. You then use it to calculate the change. You can compare your financial progress to your competitors and forecast how your business will likely perform in the future based on the variable analyzed.
Activity analysis
Activity analysis studies the time each employee spends on their central activities. You then use it to compare results to an employee survey explaining what they believe their duties are. If there are discrepancies, restructuring or redefining their job role might be necessary. This practice helps employers get the most out of their employee investments while giving employees increased job satisfaction.
How to start rightsizing your business
If you’re interested in rightsizing your business to become more efficient at less cost, start by following these steps:
1. Conduct structured analysis
You’ll want to start by analyzing each department within your company to see where the inefficiencies and financial waste lie. You can use ratio and/or activity analysis for this. It’s important to obtain a clear picture of each role and what it’s designed to do. When you find discrepancies between what an employee should be doing and what they are doing, consider making changes. Once you complete the analysis of each department and employee, you can anticipate what type of changes you need to implement.
2. Identify the most essential talent
When it comes to being essential for overall company productivity, not every employee is equal. Naturally, some are more productive and essential than others. Identifying the most and least essential people will give you a starting point for implementing important changes. When considering each role, it can be helpful to answer the following questions:
- How vital is this role?
- How difficult is it to fill this role?
- Does this role protect against risk?
- Is this role doing more harm than good?
- Is this costing me more than it’s worth?
This can be quite a large undertaking, especially if your company is big and has many employees. Team managers must complete this as it requires interviewing and analyzing each employee.
3. Make the necessary changes
After conducting a thorough analysis of each employee and department, it’s time to make changes. Remember, it’s important to be confident in your approach to avoid risk, so don’t cut corners in the analysis phase. When making changes, do so slowly and strategically to avoid major shocks to the company.
Rightsizing’s specialized process restructures a company and redefines employee roles to reduce costs and redundancy , allowing a company to make profits more easily. When done properly, a business can benefit greatly from rightsizing.
