The pandemic taught us that business survival rides on your ability to adjust to a changing business environment.
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
— Leon C. Megginson’s interpretation of Charles Darwin
Although there is no evidence that Charles Darwin said or wrote these words, it does express one of his primary conclusions in The Origins of Species:
It doesn’t only apply to nature. To ensure survival, businesses need to plan for and be ready to respond to industry changes.
One of the ways you can respond is by modifying your workforce through rightsizing.
What is Rightsizing?
Rightsizing involves reorganizing the workforce size and structure. It streamlines the business to meet current market conditions, anticipate future conditions, or disrupt the industry.
Does the current configuration of your workforce effectively serve your needs?
Is it appropriate for the state of the market?
If the answer isn’t a firm “yes,” you might need to adjust it.
Isn’t it the same as downsizing?
Contrary to popular opinion, rightsizing isn’t a euphemism for downsizing.
The difference isn’t mere semantics or a way to couch the blow of layoffs. It’s in the purpose behind the restructure.
The sole purpose of downsizing is workforce reduction to cut costs. It might be a reaction to challenging economic conditions to maintain profitability.
Rightsizing is a strategic move.
It optimizes your human capital to remain competitive while meeting business challenges. Begin the process by asking, ‘What do we have?’ versus ‘What do we need?’ The answers will guide how you trim, add, or shift resources to reshape the organization.
Over the lifespan of your business, there may be times when significant change calls for decisive restructuring. The catalyst might be any number of forces internal or external to the organization.
Internal factors might include:
- Operational inefficiencies
- Declining productivity
- Changed business strategy
External factors might include:
- Market forces,
- Regulatory, legal, or cultural changes.
When this happens, you might opt for rightsizing as an adapting strategy to:
- Maintain profitability
- Remove staffing and procedural redundancies
- Boost efficiency
- Optimize staffing to meet goals
- Redefine job specs
- Reallocate resources
- Prepare the organization for future growth
Beware of approaching a rightsize like a downsize.
The downside of downsizing is that it doesn’t consider future needs or the prospect of ongoing changes. It’s all about cost-cutting.
The downsizing approach can be short-sighted and limiting, more of a reaction than a response. With a downsize, you would usually determine where to trim by:
- Selecting areas of the business for pruning based on the present circumstances only.
- Selecting business centers that are not direct revenue creators, such as Marketing, without considering potential value.
- Selecting based on “last in first out” without assessing relative value.
- Making the selection performance-based or seniority-based without assessing added value.
- Coming up with a “magic number” based on gut feeling.
Choosing where to cut based on these criteria can be risky business.
With rightsizing, you won’t have to worry about indiscriminate layoffs. When exploring alternative ways of distributing valuable resources in the short term, separation is the last resort. You may consider sabbaticals, a reduced work week, or pay cuts. If layoffs are inevitable, employees should receive support and communication during the process.
If you approach the process like a downsizing, you may experience negative consequences.
- Layoffs can cause a loss of institutional knowledge among departing employees.
- The remaining employees may lose trust leading to a fall in morale due to feelings of insecurity. They may leave taking their skills and experience with them.
- Costs associated with new hires after the turnaround—recruitment, and training.
- It could hurt the business brand.
- Making cuts to a function like Marketing that isn’t a direct source of revenue can be counterproductive. It can jeopardize the company’s ability to sustain profitability.
- Efficiency imbalances can happen when cuts in one department are at the expense of another.
If you want to avoid these risks, ensure that the process is data-informed and strategic. Use people analytics to guide the process.
The Right Way to Rightsize: Using People Data
Companies are successful at rightsizing when they can master two balancing acts.
- Reducing headcount while managing the operational impact without sacrificing performance.
- Long-term strategic goals on the one hand and short-term cost-cutting goals on the other. Retaining critical skills and capacity to leverage them later in a recovery.
The only way to ensure that is by making rightsizing a data-informed undertaking.
People analytics provides the crucial metrics you need to quantify your current position. Armed with data, you can make better rightsizing decisions.
Deciding to Rightsize Your Workforce
The bottom line is rightsizing decisions are never ad hoc. They are the result of decisions based on analytics insights.
The three most popular techniques used to make rightsizing decisions are:
1. Ratio Analysis
Comparing figures and metrics year over year helps to get a sense of the direction you’re headed. Trends become apparent, and you can assess your financial health against industry standards.
Some of the ratios to look at are:
- Profit ratios
- Efficiency ratios
- Productivity ratios
- Turnover ratios
- Efficiency ratios
- Cost per hire ratios.
2. Activity Analysis
This approach studies the main activities of each role and the amount of time spent on them. Analyzing productivity this way will reveal levels of efficiency by individual role. Sometimes over time what someone does and their official job description can differ. This makes streamlining necessary.
3. Driver analysis
What drives the effort put out by a particular role? And what happens if those drivers change?
For example, call center drivers include the number and frequency of calls and the level of service required by customers. The implementation of an automated system reduces the need for live customer service.
Analysis of call center metrics will tell you the precise number of reps needed to meet the lower demand. Another rightsizing scenario may call for upskilling or reskilling call center staff to cater to a new live online chat feature.
1. Determine the internal and external forces at play and their impact on the organization, both immediate and long-term. They may impact revenue, profits, workforce, market share, productivity, demand, and supply chain.
2. Analyze your current organizational structure and resources versus what you need.3. Identify critical roles. People analytics can shine a light on your talent's less apparent skills and capabilities. This visibility makes redeployment a viable option. Critical roles are:
- Those that have direct responsibility for producing goods and services or the day-to-day functioning of the business.
- Compliance-related. Their absence would expose the company to penalties or damage brand reputation.
- Hard to fill because the skillset is hard to find.
4. Define the operational needs of the workforce. Determine the equipment, resources, and infrastructure necessary to meet current conditions. Determine the financial costs—labor and overheads.
5. Use data analytics to model various workforce planning scenarios. The ability to explore viable options and assess the resource requirements of each before decision-making is invaluable.
As things change, you must adapt to maintain efficiency and profitability. Change is inevitable, but layoffs aren’t. Rightsizing guided by people analytics can help you reach your goal without sacrificing organizational integrity.
Pixentia is a full-service technology company dedicated to helping clients solve business problems, improve the capability of their people, and achieve better results.