Definition: Rightsizing is a strategic business tool that escalates the resources to reduce costs and remain competitive. It is a type of involuntary separation that filters the workforce correctly, especially at the top level. Optimization gives rise to a skilled, able and knowledgeable workforce to achieve new business goals.
It reduces the operating cost and escalates the resources with little or no negative impact. It also reduces the duplication of work at the time of assessment.
Rightsizing does not only mean layoffs. It also involves the recruitment of fresh talent and upgrading roles and responsibilities of existing ones accordingly.
In this dynamic economy, organizations estimate the over and understaffing of the workforce. They assess the usage of prevailing resources and rearrange them most efficiently. While rightsizing, one needs to determine:
What do you have?
What do you need?
Some standard practices to perform rightsizing are:
- Part-Time Work
- Pay Cuts
- Reduced Work Weeks
- Stop Hiring
- Early Retirement
- Factors Affecting Rightsizing
- Difference between Rightsizing and Downsizing
Methods of Rightsizing
The managers may use the following methods to Rightsize the organization:
- Ratio Analysis
- Activity Analysis
Ratio Analysis: It depicts the relationship between certain variables. The organizations perform ratio analysis to ascertain the utilization of their resources. Based on these ratios, they plan the restructuring if required. Some of the ratios one may use for this purpose are:
- Personnel to Yield Ratio
- Productivity Ratio
- Turnover Ratio
- Cost Per Hire Ratio, etc.
Activity Analysis: Analyzing the effectiveness and efficiency to perform the job assigned to personnel is known as activity analysis. The organizations may conduct a survey based on the following determinants:
- Mental Activity, etc.
Process of Rightsizing
Organizations can follow a series of steps for performing Rightsizing, which are as follows:
- Analysis of Current Structure: One needs to conduct an in-depth analysis of their current organizational structure, and their resources are correctly occupied or not.
- Announcement: The management should make the announcement as soon as possible so that the employees get prepared for the process and cooperate during the entire process.
- Explain- Why Rightsizing? The organization should provide a valid reason for adopting Rightsizing to its employees.
- Communication: The management must communicate changes to the individuals affected by the process. They must also provide assistance to digest the change.
- Resolve Queries: The employees may have a lot of queries at the time of restructuring. Their queries should be timely resolved to reduce confusion.
- Collect Feedback: The organization should conduct 360-degree feedback to check the application of the strategy.
Benefits of Rightsizing
The process of Rightsizing benefits organizations and individuals in several ways. Distinct benefits from their perspective are given below:
- Time Efficient: The process of Rightsizing involves less time in comparison to Downsizing.
- Increased Productivity: The restructuring of organizational structure results in the overall increment in productivity.
- Remain Competitive: Continous strategic updation according to the changing environment helps to remain competitive.
- Attract Proficient Applicants: The profitability and growth achieved through rightsizing attract top talent to work with the organization.
- Revitalize Workforce: It is a substantial organizational change that fills new energy among the employees.
- Flatter or Thinner Organization: By reducing the excessive workforce, the organizational structure becomes flatter.
- Recognition: During the process, some employees get credit for their excellent efforts towards the organization.
- Self-Awareness: The employees become aware of their capabilities when management assign more responsibilities to them.
- Commitment: Retained employees renew their commitment towards work and organization.
- Creativity: Job rotation within the organization helps to increase the creativity of the individual.
- Replenished Energy: The retained and new employees refill the organization with new ideas and energy.
- Employees get insecure about their job.
- Productive employees may leave voluntarily.
- Employees may not cooperate during the process.
- It results in decreased morale of the workforce.
- Some additional costs like hiring, training, retirement etc., are associated with it.
- It may hamper the mental and physical health of the employees.
- New talent may not approach the firm because of the termination.
- It may degrade the organizations brand image in the industry.
Factors Affecting Rightsizing
Some internal and external factors initiate the need for Rightsizing. These factors are explained in detail below:
Internal factors include:
- Business Strategy: The change in business strategy like expansion or contraction results in rightsizing to maintain its operating efficiency.
- Trade Unions: Sometimes, unions formed creates unnecessary chaos within the organization.
- Conflict: The conflict between stakeholders hamper productivity and growth. Through rightsizing, management inspects the reason and take corrective measures.
- Declining Profitability: When the firm notices the continuous decline in their productivity, they opt for Rightsizing.
- Multiskills: Employees with multiskills are most likely to be retained by the management. It helps in cutting costs and reducing duplicacy.
External factors include:
- Technology: Organizations need to change their resources to cope with technological advancements.
- Economy: Economic factors like interest rate, demand, supply, etc., may lead to rightsize the organization.
- Political-Legal: Companies may rightsize according to the political announcements and changes in company law, labour law, etc.
- Cultural: Cultural factors like beliefs, creativity, fashion, etc., also influence organizations. They may develop strategies based on these factors.
Difference between Rightsizing and Downsizing
Rightsizing is often used synonymously with Downsizing. These two are part of involuntary separation but differ from each other in certain aspects.
|Meaning||Rightsizing is restructuring or reorganizing a business to cut costs||Downsizing is a reduction in the workforce through layoffs|
|Size of Organization||Adjusting the size of the workforce to reach the exact size required to operate||Reduces the size of the organization as a whole|
|Motive||The goal is to maximize the profit||The goal is to flatten the size of the organization|
|Type of Process||It is a positive process||It is a negative process|
|Acquiring fresh talent||The organization may acquire fresh talent if required||The organization do not acquire fresh talent during the process|
|Example||Job Rotation, Interdepartmental Transfers, Infrastructure Automation, etc.||Merger, Acquisitions, etc.|
Anglo American Platinum is a huge producer of platinum in the world. The company restructured itself by laying off 6000 workers in South Africa. This restructuring will help them return to their profitability. The company can focus their capital allocation on mines at the best places. It will sustain their business and create employment opportunities in the long run.
Rightsizing is the business strategy used to reallocate the companies resources in the most desirable manner. It is applied generally at the first level of management to cut costs.
In the present era of the dynamic environment and cut-throat competition, one can adopt Rightsizing to remain competitive. It will result in increased productivity, energized and motivated workforce.