Operating in the ever-changing business landscape requires businesses to remain flexible and adaptive. One way to ensure that your business is appropriately aligned with your current business goals and market demands is rightsizing.
This involves adjusting your company structure and allocating your workforce to support your current strategic plan and improve efficiency to support business growth.
Find out how rightsizing could benefit your company, and explore critical strategies and examples to help you begin your rightsizing journey.
What is rightsizing?
Rightsizing is reorganizing your business structure to support business objectives better. It often involves reorganizing departments, teams, and reporting structures to improve organizational efficiency and communication.
This is important because your business goals and needs will shift over time, and you should allocate your resources where they’re most needed. Rightsizing will look different for each company.
Some companies may be restructuring roles and departments to adapt to new technology like AI or changing consumer demands. You might be looking closely at your current workflows.
For example, you might be thinking about automating some workflows. You could use the latest technology for this. Additionally, you might consider reallocating your current staff. This can help you meet business goals more effectively.
Rightsizing vs. downsizing
You’re likely more familiar with downsizing, which involves reducing your workforce. Rightsizing differs from downsizing because the main goal isn’t reducing costs and headcount.
Instead, rightsizing is about organizing your employees to find the proper structure and size for your company. Rightsizing may involve letting people go but can also occur without layoffs.
Some rightsizing objectives involve shifting around your organizational structure to ensure everyone fits where they’re needed and that your management structure makes sense for your company.
Benefits of rightsizing
Rightsizing often has a negative connotation due to its association with downsizing, but it also offers significant benefits.
Better aligning your staffing resources to your business goals
Many businesses engage in strategic planning yearly, but not all prioritize strategic workforce planning. Your business goals will shift and realign regularly as the markets change and you set new priorities.
As this happens, examining how your staffing structure and resource allocations need to change to better align with your updated strategic goals is essential.
Doing this regularly isn’t just beneficial for your business but also for your staff. Organizations often grow at a non-sustainable rate and need to downsize after a few years.
If you’re using rightsizing tools and conducting organizational analysis regularly, you can adjust your hiring and staffing plan more effectively to ensure you’re growing at a more realistic rate.
This means you are hiring in the right areas. Furthermore, you are keeping tabs on your staff size as it grows. You are checking whether it aligns with revenue growth.
Additionally, you are reallocating people promptly. You are doing this when you notice redundancies or changing needs.
Reducing costs
While rightsizing isn’t solely about cost-cutting, like downsizing, it can lead to cost savings. This may be due to a decrease in your headcount. Rightsizing can also be due to process optimization. With process optimization, you improve the efficacy of your processes. At the same time, you improve your structure.
Additionally, you can cut out unnecessary spending. This might include spending for outside vendors. It might also include unused business tools. Finally, you can reduce poorly used labor hours. You could then allocate those hours elsewhere.
Adapting to change
Today’s businesses must be agile and adaptable to thrive in a constantly evolving market. For example, many companies had to engage in rightsizing during the pandemic to shift their staffing resources to areas like e-commerce and home delivery that were thriving while areas like in-person retail dwindled.
Rightsizing can help you align your human resources with changing business demands and identify staffing or skill gaps you’ll need to adapt better. The way we do things is constantly changing. This is especially true because of technological advancements.
Therefore, rightsizing is an excellent time to evaluate your needs. You might need to fill holes with new roles. These roles may not be on your current org chart. Alternatively, you might need to upskill your current staff.
Eradicating inefficiencies
Sometimes, your organizational structure needs to be revised to speed up processes. During rightsizing, you should examine whether your organizational structure and approval processes create unnecessary red tape and bureaucracy.
Do items have to go through a long chain of people to get approved? This may make sense for things like new HR policies that your legal team and finance department may need to review.
Still, it should be different for your company’s everyday Instagram posts or smaller sales transactions.
Adjust the department structure if simple tasks go through too many steps. For example, a social media manager might send planned posts to a Digital Marketing Manager. Then, that manager sends them to the marketing department head for approval.
Instead, it might make more sense to remove the middleman. Therefore, the social media manager would report directly to the marketing department manager.
In this example, cutting down on approval inefficiencies would be an excellent way to rightsize, as more efficient approval of social media posts would allow the team to be more agile and hop on social media trends while they’re still fresh.
Common rightsizing challenges
Here are some challenges that leaders commonly encounter while rightsizing.
Knowing what organizational structure will work best for your company
There’s no one-size-fits-all approach to creating your organizational structure. Successful companies have relatively flat structures and those with large hierarchies while maintaining efficiency and cost-effectiveness.
Some types to consider are:
- Hierarchical: This is the classic pyramid-shaped structure you’re likely familiar with. It has C-suite executives at the top and then flows down through various tiers of management before getting to the individual contributors and less senior staff. It offers a clear reporting structure but can slow communication and collaboration as things may need to go through several people.
- Flat or horizontal: This is a flatter organizational structure with fewer senior leadership levels. Often, the team reports to the department head instead of creating in-department hierarchies. Sometimes, start-ups have a flatter chart with people reporting directly to the most relevant executive.
- Divisional: Each division operates more independently, with more freedom to allocate its resources, such as staff members and budgets. They may be divided by project assignment, area of business, etc.
- Matrix: Matrix structures are designed for organizations that work cross-functionally. Your org chart will look more like a grid. It’s often categorized by project teams (and may dictate a team lead) while putting people in columns based on function and department head.
- Team-based: Team-based organizational structures focus on teams rather than hierarchies. They will generally still have a team leader, but they have more autonomy to problem-solve and collaborate as a team rather than sending things up the corporate ladder.
Navigating resistance to change
Employees are often resistant to change. This is especially true and very understandable when it comes to rightsizing. Any talk of organizational adjustments will likely create anxiety. It will also likely create uncertainty.
This is mainly because most people will immediately think of downsizing and layoffs. It can help better explain the concept of rightsizing to your team so they know what to expect.
People also build strong relationships with their team members and managers, so changing your organization’s structure may raise concerns that their team will be broken up or will get a new manager.
A manager can make or break the work experience, which is a valid concern. Sometimes, reporting structures or departments must be adjusted, but it is essential to ease into the process and listen to employee feedback.
If employees are moved around, meetings should be set up between them and their new manager, and time should be given to wrap up any projects with their old team or boss. Abrupt changes can create greater resistance, so make a transition plan rather than forcing immediate change without notice.
The initial adjustments phase is usually the hardest, but subsequent rightsizing efforts will likely be met with less pushback. Suppose your company needs to be more active in its organizational structure and roles.
In that case, the first round of rightsizing will shock employees who are set in their ways and feel secure within the current structure. Once you get through the initial shock and adjustment phase, rightsizing can be an ongoing process that your employees will better understand and anticipate.
Maintaining employee morale
Keeping morale high through periods of change is always a challenge. If you do let go of some of your staff during the rightsizing process, you likely will see a dip in morale as employees process this change and mourn some of the great coworker relationships that they had.
The best thing that you can do is to communicate. Communicate transparently, acknowledge employees’ feelings on any changes or adjustments introduced, and give them a clear idea of why changes are being made and what they can expect personally.
Leaving employees in the dark about what’s happening will lower morale. Therefore, communicate frequently, even when you only have minor updates to share.
A quick email or meeting with more minor, uneventful updates or progress reporting might feel like a waste of time, but it can decrease your team’s looming feelings of uncertainty.
Rightsizing methods
If you want to implement rightsizing for your business, here are a few methods and strategies.
Ratio analysis
Ratio analysis is a rightsizing method that involves comparing your company’s past financial statements to your current data and calculating the change. You can do this for several lines on your balance sheet or metrics. Consider areas such as revenue-per-employees, profitability, or productivity metrics.
For example, if your revenue per employee is down, it may mean you’ve grown too quickly or need to allocate your human resources to the most profitable areas. This can sometimes happen if your organization is top-heavy.
In other words, you have many managers at the top. However, you do not have enough low- or mid-level employees. These employees are directly engaged in revenue-generating activities. For example, they make sales and work with customers.
For further insights, you can also compare your financial progress with that of your top competitors. This can help you anticipate future performance. You should compare your metrics to competitors.
This helps you understand the cause of performance dips. For instance, you can determine if the dips are an industry-wide issue. These issues might include changes in consumer spending and interests. Alternatively, the dips may be specific to your business.
Activity analysis
Activity analysis involves analyzing and tracking how much time each team member spends on their primary job tasks. You can survey employees on their main job tasks and how they spend their time on average, or you can have different activity codes in your time-tracking software.
The key here is to look for departments or team members who spend much time on tasks outside their main scope. This may mean you need to restructure.
It can also start a dialogue about what tasks should take less time or be done inefficiently. Sometimes, your structure or hierarchy makes simple tasks very time-consuming. Micromanagement or convoluted approval processes can create something that should take several hours spanning several work days.
Real-world rightsizing examples
Here are some examples of well-known companies that have undergone rightsizing in recent years. You’ll notice that various factors spurred their rightsizing initiatives. Some focused on cost optimization, while others prioritized organizational reorganization based on shifting consumer demand.
Wall Street Journal
The way we consume media has changed a lot over the past decade. You likely get your morning news on your phone instead of a physical newspaper. As such, it’s unsurprising that news media organizations like the Wall Street Journal have had to undergo some rightsizing and organizational restructuring as they shifted towards mobile news products.
In 2017, the Wall Street Journal announced a reorganization process called WSJ2020. It was designed to accelerate their shift towards digital content and news. They noted that the project aimed to “evaluate all we do and make some calls on what we stop, what we improve, and where we see an opportunity to grow.”
This is an excellent example of knowing when to rightsize. They identified a change in the market and made a concerted effort to realign their organizational structure and processes to help the business adapt and grow in a changing market.
Wayfair
This popular online furniture retailer had to do some cost-focused rightsizing in recent years. The company stated they were “reducing team sizes across the organization, as well as reducing seniority in certain roles that we plan to rebuild with modified leveling over the course of this year.” Wayfair stated this came after an “organization-wide analysis of the appropriate team size and structure.”
Downsizing is always unfortunate and can often be part of cost-driven rightsizing. In Wayfair’s case, leaders downsized the corporate team most significantly. They also adjusted and reduced organizational hierarchies in some cases.
Leaders must continuously evaluate corporate and management teams. This is because these areas can grow too large. As a result, they may not fit the organization’s current budget or direction.
Furthermore, rightsizing and organizational analysis should also be ongoing. This helps curtail unsustainable growth early on. Otherwise, significant cuts can negatively impact employee morale. Similarly, they can harm the employer’s brand.
The tech giant has had to rightsize a few times over the years. Still, a significant example occurred in 2015 when the company adjusted its organizational structure and boasted some great results afterward.
Each business unit received its own CEO. Additionally, the units were given more autonomy in their daily operations. This restructuring shifts the company away from a full-company hierarchy.
Now, the company will move to a more divisional structure. This shift can be a valuable tool for rightsizing.
This is especially true when a company grows quickly, as Google has. Multiple smaller structures focused around a specific business area improve communication and business activities.
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