What is Rightsizing?

In today’s fast-paced business world, efficiency is key. As is ensuring your operations are running as smoothly as possible. 

Traditionally, businesses go through cycles of upsizing in times of high growth and downsizing in times of recessive growth. But that approach causes a handful of problems— it’s reactive and often impacts your business and your employees in a bad way.

But it is possible to take a proactive approach. It is possible to think ahead and ensure your business is always positioned competitively.

More and more businesses are turning to a process called rightsizing to achieve this— but what exactly is it? 

Rightsizing can mean different things to different people, and you may be wondering how to use this strategy to effectively streamline and simplify operational approaches

In this article, we’ll discuss the concept of rightsizing, why it’s important for businesses, its advantages and disadvantages, and how you can ensure you’re using it correctly.

By the time you’re done reading, you’ll know how to evaluate your own business through the lens of rightsizing and what steps you need to take next.

Rightsizing and its Benefits for Businesses

As businesses grow and change, their needs change as well. 

In order to stay efficient and effective, it’s important to evaluate what’s working and what’s not. This is where “rightsizing” comes into play. 

Rightsizing is reorganizing and restructuring a business to ensure it’s the right size for its current needs. This can involve anything from downsizing to expanding, depending on the situation. 

Some benefits of rightsizing include cost savings, increased employee productivity, and better alignment with the company’s goals. 

By closely examining your operations and making necessary changes, you can position yourself and your business for long-term success.

It’s important to note that rightsizing is not downsizing.

Downsizing is usually a reactionary measure to save costs. Rightsizing is a more sophisticated strategy for calculating your business requirements and adjusting your resources to match.

2 Different Approaches to Rightsizing

Since rightsizing could mean either increasing or decreasing your resources, it’s critical that you understand your business’s current state and requirements so you know whether to grow or shrink.

There are two popular ways to assess your business for rightsizing opportunities:

Ratio Analysis

Ratio analysis evaluates the number of employees in relation to revenue, profits, or other financial metrics. 

For example, you can look at the number of employees relative to sales revenue or profit margin and compare it to the same ratio for the last few years or to competitors’ ratios.

This approach involves comparing the ratios of different departments or divisions in order to determine if they are appropriately sized.

Activity Analysis

The second approach is activity analysis. This involves evaluating how efficiently you use your resources, such as labor, equipment, and space. 

This approach examines the time, energy, and resources required for each task or process. It also examines how well those tasks and processes meet the business’s goals. 

By analyzing the activities of each department or division, you can determine if certain departments are overstaffed or understaffed.

Key Considerations When Rightsizing

When it comes to rightsizing, there are real consequences to poor preparation. 

If you don’t look before you leap, you could damage your bottom line and lose talent. You could jeopardize your competitive position in a manner that takes months or years to recover from. We don’t want that, and neither do you.

Let’s talk about a couple of key considerations you should make before you take action.

Short-Term Costs

In the short term, your business may incur expenses related to downsizing, such as severance packages and hiring and training new employees. 

However, in the long run, rightsizing can lead to significant cost savings by reducing operational expenses and increasing profitability. 

It also allows you to better allocate resources and invest in growth opportunities. Just make sure to account for the short-term expenses.

Impact on Employee Motivation

Additionally, it’s important to keep your employees well-informed and involved in the rightsizing process, as this can go a long way toward minimizing any disruptions or morale issues that may arise during the transition. 

Overall, by prioritizing transparency, collaboration, and a growth mindset, you’ll be well on your way to rightsizing your company in an effective and sustainable manner.

Practical Tips for Rightsizing Your Business

The rightsizing process could be simplified to “matching your resources to your requirements,”— but even that is easier said than done.

These practical tips will help you ensure you’re handling the rightsizing process correctly throughout. 

It’s important to keep these in mind to make sure that you make effective, informed decisions:

Tip 1: Identifying Roles to Cut or Expand 

Identifying the roles that need to be cut or expanded in a company can be daunting, but keeping everything running smoothly is essential. 

You’ll need to analyze the responsibilities of each job position and determine whether they’re still relevant. 

Some roles may have become redundant due to automation or changes in the industry, while others may require some expansion to meet the evolving needs of the business. 

You can optimize your workforce and improve overall efficiency by identifying the roles that need to be cut or expanded. It’s a challenging process, but with careful planning and analysis, rightsizing can open up new opportunities and drive business growth.

Tip 2: Establishing New Workflows After Rightsizing 

After a rigorous rightsizing process, it’s time to shift gears and establish new workflows to keep your team on track. 

While it may seem daunting initially, this is a great opportunity to streamline processes and increase efficiency. 

Start by evaluating your current workflows and identifying any areas that need improvement. 

From there, collaborate with your team to develop new processes that work better for everyone involved. Communicate any changes clearly and train your team so they are fully prepared to adopt the new workflows. 

With a little effort and teamwork, establishing new workflows after rightsizing can lead to a more productive and successful workplace.

Tip 3: Keeping Staff Engaged During and After the Process

Keeping staff engaged during and after a process can be challenging, but ensuring that your team remains motivated and focused on achieving the desired outcome is crucial. 

You must not forget the human side of rightsizing. You can’t expect to make sweeping changes to your organizational structure without worrying or disrupting some of your employees. You need to keep them informed and optimistic throughout the process.

One effective way to do this is by providing ongoing software training and development opportunities to help your employees grow professionally. 

Additionally, seeking their feedback and ideas throughout the process can help them feel heard and valued. 

Don’t forget to celebrate success and acknowledge their hard work along the way. By making it clear that their contributions are important and appreciated, you can help your staff stay engaged and invested in the process from start to finish.

Not Too Big, Not Too Small: Goldilocks Would Approve

Rightsizing is a tool that can help businesses of all shapes and sizes take control of their workforce and balance the workload to achieve greater efficiency. 

As long as it is carefully planned, rightsizing can greatly improve operations, reduce costs, increase productivity, and maximize available resources. 

While it can be difficult to identify roles to cut or expand, remember that the key lies in analyzing data with an unbiased perspective and ensuring cuts are based on reality rather than assumptions. 

But you must balance this by also considering the long-term effects, like how employees will respond to changes, morale, and company culture when rightsizing; emphasizing communication throughout this process and creating new workflows afterward will help support existing staff while promoting growth for your business. 

By putting a keen strategy into place and preparing for any bumps along the way, rightsizing can ultimately result in positive outcomes for you and your business and prove instrumental for positioning yourself competitively and driving business growth.

It’s a common misconception to see rightsizing as a cost-cutting exercise. We disagree. We prefer to see it as an intentional investment in the future of your business.

Updated: April 18, 2023

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