Rightsizing

What Is Rightsizing?

Rightsizing is a management-driven strategy and process aimed at aligning the number and skills of the workforce with the strategic and financial goals of the organization. This process may result in the reduction, expansion, or reallocation of the workforce to optimize productivity and efficiency. Rightsizing may involve restructuring, job eliminations, or layoffs but can also result in hiring or retraining when particular skills are needed. Its goal is not just to eliminate excess but to achieve the "right" resource balance within an organization.

What Is the History of Rightsizing?

The term "rightsizing" emerged in the corporate landscape during the late 1980s and early 1990s. In response to an increasingly competitive global market and advances in technology, many companies began looking for ways to improve efficiency and reduce costs. Rightsizing was initially viewed as a gentler alternative to "downsizing".

In many cases, companies discovered they were overstaffed or had employees whose skills were not effectively utilized. Alternatively, they needed workers with new skills that aligned with new business strategies. To address these issues, companies started employing rightsizing strategies, which included consolidating positions, eliminating redundant roles, and in some cases, hiring or training for new skills.

Critical incidents such as economic downturns, recessions, bankruptcy, or mergers and acquisitions have often triggered rightsizing initiatives. The global financial crisis of 2008 and the current COVID-19 pandemic has also led many companies to implement rightsizing strategies.

Over time, rightsizing has evolved to incorporate more strategic human resource planning, including the development of skills within a company to ensure the right people are in the right roles. Today, the practice of rightsizing is considered a standard part of managing a business effectively.

What Are Some Examples of Rightsizing?

1. Company Mergers/Acquisitions: Often, when one company acquires another, there are overlapping roles. The acquiring company might need to rightsize by eliminating redundant positions or departments. For instance, after the merge of pharmaceutical giants Glaxo Wellcome and SmithKline Beecham in 2000, the new company, GlaxoSmithKline, needed to rightsize to avoid functional overlap.

2. Adapting to Technology: With the rise of automation and digital transformation, many businesses have seen a shift in required staffing levels. For instance, banks are using more digital banking platforms, requiring fewer physical branch staff but more IT staff. This necessitates rightsizing.

3. Economic Forces: During economic downturns, some businesses may need to rightsize to keep afloat. For instance, during the 2008 economic crisis, many companies, like General Motors and Microsoft, had to rightsize their workforce due to the financial strain.

4. Foreign Market Expansion: A company expanding into a foreign market may need to rightsize its workforce in the new location to match the market demand and nature of the target market. For example, when Uber expanded into China, it had to rightsize to meet the country's unique needs and competitive landscape.

5. Change in Company Strategy: If a company decides to shift its focus to a new product or service, it may need to rightsize to ensure it has the right skill sets. For instance, IBM has rightsized several times throughout its history as the company shifted from primarily selling hardware to providing services and later focusing on cloud technology.

How Do Rightsizing and Downsizing Differ in Corporate Workforce Strategy?

Rightsizing is a strategy where the size and cost of the workforce are adjusted to match the needs of the current business strategy and market conditions. It involves aligning the number and competence of employees with the organizational goals, which might mean reducing, expanding, or realigning the workforce. It is a broader concept that focuses not just on cost-cutting but on organizational effectiveness. It could involve hiring, laying off, re-training, or re-assigning staff.

Downsizing, on the other hand, is a reduction strategy used by companies to cut the number of employees, usually to reduce costs during times of declining sales, mergers and acquisitions, or changing market conditions. It is more of a short-term cost-cutting measure that involves predominantly layoffs and does not necessarily involve optimization of workforce efficiency or re-alignment with organizational goals.

In a nutshell, while both seek to optimize cost and efficiency, rightsizing is more strategic, comprehensive, and long-term in nature, focusing on 'right' fit, whereas downsizing is often reactive and short-term, focusing largely on 'less'.

What Are Some Examples of Downsizing?

1. Ford Motor Company: During the 2008 economic crisis, Ford had to downsize its workforce significantly to deal with financial difficulties.

2. Kodak: Facing the digital revolution, Kodak downsized to reduce operating costs, laying off thousands of employees over the past decade.

3. General Motors: Also affected by the 2008 financial crisis, it implemented downsizing by closing plants and eliminating jobs to reduce costs.

4. Hewlett-Packard (HP): HP downsized several times, including one in 2012 when it planned to cut approximately 27,000 jobs to streamline its business operations.

5. IBM: In 2016, IBM downsized, laying off a significant number of its workforce to streamline its operations and redirect focus on areas such as cloud computing.

6. Coca-Cola: In 2020, amid the global pandemic, Coca-Cola announced plans for large scale downsizing, which included plans to cut around 2,200 jobs globally as part of its restructuring efforts.

How Does Rightsizing Differ From Business Optimization in Corporate Strategy?

Rightsizing refers specifically to adjusting the size and skillsets of an organization's workforce to optimally align with business strategy, operating realities, and market conditions. It is a human resources-focused strategy that could mean reducing, expanding, or reallocating the workforce.

Business Optimization, on the other hand, is a broader concept that applies to all aspects of an organization, aiming at improving efficiency, productivity, profitability, and competitiveness. It involves reviewing and refining processes, operations, technologies, and strategies. While rightsizing can be a part of business optimization, the latter also considers other elements such as processes, services, technologies, and capital allocation.

In essence, rightsizing is a subset of business optimization focussed on workforce alignment, whereas business optimization is a more comprehensive, organization-wide strategy.

What Are Some Specific Examples of Business Optimization Strategies in Action?

Here are some examples of business optimization:

1. Amazon's Optimization of Warehousing Process: Amazon uses algorithms and robotics in its warehouses to optimize product storage and retrieval process. This leads to faster and more efficient order fulfillment.

2. Toyota's Lean Manufacturing: Toyota's lean manufacturing strategy, known as Toyota Production System, focuses on reducing waste in all forms (time, labor, materials). It helped Toyota achieve high levels of productivity and quality in their operations.

3. Southwest Airlines' Optimization of Flight Turnaround Time: Southwest Airlines optimized its flight turnaround processes to reduce the time planes spend on the ground between flights, increasing plane usage and reducing costs.

4. Dominos Pizza's Use of Data and Technology: Domonos Pizza has heavily integrated technology in its ordering system, introducing online and mobile ordering, GPS tracking, and AI chatbots, significantly improving customer experience and operational efficiency.

5. Walmart's Supply Chain Management: Walmart's investment in logistic infrastructure and its innovative use of EDI (Electronic Data Interchange) to integrate suppliers into its ordering system, has optimized stock management and reduced costs.

6. Starbucks' Mobile Order and Pay system: To counter slow service, Starbucks introduced the mobile order and pay system reducing wait time for customers, improving sales, and enhancing customer experience.

These strategies emphasize the use of process improvements, technology and integration for business optimization.

What Factors Typically Lead a Company to Implement a Rightsizing Strategy?

Several factors can lead a company to adopt a rightsizing strategy:

1. Economic Downturns: During economic recessions or sector-based downturns, a company might use rightsizing to align its workforce to its reduced financial forecasts.

2. Technological Changes: Advances in technology can render certain skills or positions obsolete, making a shift in workforce composition necessary.

3. Market Changes: Shifts in consumer behavior, new competition, or changes in regulation could all necessitate rightsizing to realign the company's workforce with its market environment.

4. Acquisitions/Mergers: When companies merge or one company acquires another, there can be duplication of roles, which could lead to rightsizing.

5. Change in Strategic Direction: If a company decides to enter a new business area or exit an existing one, rightsizing might be needed to match the new strategic focus.

6. Cost Efficiency: If a company identifies an opportunity to improve its operations and cut costs without affecting the quality of output, it might decide to rightsize.

7. Globalization: Companies expanding into foreign markets might need to adjust the size or composition of their workforce in each location to suit local market needs.

8. Organizational Restructuring: Important changes to the corporate structure such as divestitures, spin-offs, or organizational redesign can necessitate rightsizing to align workforce with the new structure.

What Are the Benefits of Rightsizing?

Rightsizing can offer multiple benefits to an organization:

1. Cost Efficiency: By aligning workforce requirements with organizational goals, rightsizing can help reduce unnecessary labor costs.

2. Increased Productivity: By ensuring that the right people are in the right roles, rightsizing can lead to improved efficiency and productivity.

3. Clearer Organizational Structure: The process of rightsizing often involves clarifying job roles and responsibilities, which can lead to a more streamlined and effective organizational structure.

4. Improves Financial Performance: As a result of lower costs and increased productivity, a company's financial performance can improve, possibly leading to increased shareholder value.

5. Enhanced Competitiveness: Rightsizing can enhance a company's ability to respond quickly and effectively to market changes, thereby increasing its competitiveness.

6. Promotes Innovation: It can also foster innovation, as the process often involves the reallocation of resources to areas where they can be most effectively used.

7. Prepares for Future Growth: By ensuring that resources are well matched to strategic goals, rightsizing can lay the foundation for future growth and expansion.

What Are the Potential Drawbacks or Adverse Consequences of Implementing a Rightsizing Strategy?

Implementing a rightsizing strategy is not without potential adverse consequences:

1. Lower Employee Morale: The process of rightsizing, which often involves layoffs, can lead to decreased employee morale, fear, and uncertainty among remaining employees.

2. Losing Valuable Employees: If not handled carefully, rightsizing initiatives may lead to loss of skilled and experienced employees who are essential to the organization.

3. Increased Workloads: Remaining employees may face increased workloads and stress levels, possibly leading to decreased productivity and higher turnover rates.

4. Potential Reputation Damage: If the rightsizing process is handled poorly, it can damage a company's reputation, affecting relationships with clients, potential talent, and other stakeholders.

5. Restructuring Costs: Rightsizing can involve significant upfront costs, including severance packages, retraining, relocation, outplacement services, and potential legal fees.

6. Cultural Disruption: If a company has to lay off a significant portion of its staff, it can disrupt the established corporate culture and working environment.

7. Potential Loss in Knowledge and Skills: Losing employees could also mean losing essential knowledge and skills that might be hard to replace.

Balancing these potential drawbacks against the benefits of rightsizing is an essential part of the decision-making process surrounding the implementation of this strategy.

What Strategies Can Be Employed to Mitigate the Potential Negative Impacts of Rightsizing?

Several strategies can help mitigate the potential negative impacts of rightsizing:

1. Clear Communication: Keeping employees informed about the reasons for rightsizing and the process can prevent unnecessary uncertainty and fear.

2. Severance Packages and Outplacement Services: Offering generous severance packages and outplacement services can help laid-off employees transition.

3. Reskilling and Retraining: If technology or market demands require new skills, offering training programs to existing employees can prevent layoffs.

4. Gradual Implementation: Carrying out rightsizing gradually can minimize disruption and let employees adjust to changes more smoothly.

5. Employee Involvement: Involving employees in the rightsizing process and giving them a voice in decision-making can help reduce resistance and enhance morale.

6. Transparency: Being transparent about the company's situation and the need for rightsizing can build trust and prevent rumors from spreading.

7. Retaining Key Employees: Identifying and retaining key employees who are integral to the operation, and offering them incentives can provide stability during the transition.

8. Support Systems: Providing support systems like counseling, flexible work hours or adjusting workload can alleviate stress among remaining employees.

By considering the human element during the rightsizing process and treating employees with respect and fairness, companies can significantly mitigate the potential negative impacts of this strategy.