What is rightsizing? Meaning and definition
Rightsizing is the process of a company restructuring or reorganizing itself by reducing its workforce, cost-cutting, or rearranging its upper management. The aim is to streamline the business so that it can make a profit more effectively. Technically, the term means adapting the company to market conditions, which in theory could also mean increasing the workforce.
In IT (information technology), the term refers to the process of reorganizing or restructuring an organization’s network, IT infrastructure, data center, storage, hardware or other components in an attempt to get the maximum value from those services.
In today’s fast-changing business environment, the ability to adapt and respond rapidly is crucial for survival. Cutting staff numbers has become much more common in the world of business since the 1980s.
There are many reasons why the directors of a company decide it is time to rightsize. In most cases, it is because the commercial enterprise is in trouble.
It is a common measure that companies take during times of poor financial performance or market volatility.
According to the Financial Times Lexicon of business and financial terms, rightsizing is:
“When a company becomes a more suitable size, especially by employing fewer people. When an organization starts using smaller, more modern, and less expensive computers.”
Rightsizing vs. downsizing
The term downsizing has virtually the same meaning. Business leaders often use ‘rightsizing’ because it sounds less alarming, as in: “After three consecutive quarters, the Board decided that rightsizing was necessary.”
The more cynical among us might say that the term is a euphemism for mass layoffs. Rather than telling people that mass redundancies are going to take place, saying that it is now time for rightsizing sounds less drastic.
When a situation or object is common, it has many synonyms. In the Inuit and Yupik languages, there are many words for ‘snow’, while in the Sahara Desert there are dozens of words for ‘camel’. In the world of business today, there are several different ways we can refer to making workers redundant.
Technically, downsizing means having to reduce the workforce, while rightsizing is just adjusting the workforce to get it to the right size – this could mean increasing the number of workers (rare).
When you rightsize, you typically do so on an ongoing basis, while downsizing is a specific action. Any business that calls layoffs ‘rightsizing’, but the move is a short-term one, is more likely downsizing.
Challenges when rightsizing
Redundancy can undermine morale among the employees who are not dismissed, as well as leading to job insecurity – this causes high attrition (you lose them).
If reducing the workforce is not well managed, those who are made redundant may complain bitterly online in forums and social network websites. Newspapers and other media soon pick up on this, and the bad news spreads rapidly. Applicants who are offered jobs in the company may be less keen about joining.
Rightsizing can have a negative effect on a company’s brand image, which makes recruitment and the selection of new resources more difficult. In fact, even sales may be harmed.
President and Chairman of the Australian Human Resources Institute (AHRI), Peter Wilson, said US studies showed that employers who reduced their workforce by 10% often ended up losing another 25% of their workers voluntarily over the next three years.
This made it extremely difficult to cope effectively when business started to pick up again.
Companies that are making workers redundant and offer a comprehensive outplacement service free of charge tend to have fewer problems.
Rightsizing is one of many euphemisms for making people redundant – the following terms are sometimes used for the same reason:
– excess reduction
– leveraging synergies
– RIF (reduction in force, especially in the civil service)
– workforce optimization
Video – Downsizing and Rightsizing
In this video, Dr. Tony Miller, an international consultant and productivity guru, explains what the difference is between the two terms, and why they are sometimes necessary.