Rightsizing the right way

Rightsizing an organization is never easy. But, it is a normal process as firms adapt to changing market requirements. More recently, higher interest rates, AI and the current tariff uncertainty have put renewed interest in efficiency as a necessary lever of value creation, if not value preservation in private equity. And pressure for cost reduction will increase when end-markets slow, as early indicators including US consumer confidence are currently showing.

Rightsizing initiatives cause stress among managers as they grapple with the emotional and change management challenges on top of the tough business decisions. This is even greater for managers of otherwise profitable firms, where the “case-for-change” is less obvious to employees at all levels.

However, there are 6 steps to successful rightsizing that not only delivers greater efficiency but also effectiveness and agility.

It starts with setting a realistic top-down savings target that is ambitious enough to stretch the thinking on new ways of organizing and working at all level to achieve it. The target and process need to be driven from the top as all rightsizing initiatives carry some risk, and this risk must be assumed in the end by a senior officer of the company. Middle managers are averse to taking it.

• Gain fact-based transparency on resource allocations and productivity throughout the organization. This requires a deep understanding of resource allocations and time-spent at all levels in the organization and setting a baseline to which all reductions will be measured. This can be efficiently gathered with an automated tool like Humatica’s modas activity survey. However, time spent is only half of the picture. This needs to be matched against output with scale-adjusted benchmarking and cost to understand where there is genuine improvement potential.
• Armed with clear top-down targets and a granular understanding of efficiency potential in all areas, management dialogues can be conducted to interpret analyses and identify which areas have justified potential with lowest risk. Dialogs are important to reality check and refine cost reductions with accountable managers.
• Finding the best cost-out approach for all stakeholders is an important step. This is also where there are large differences in regulation between countries. In many cases, good solutions can be found that match the company’s interests with the employees’ interests. It’s important to get the proper legal advice in order to avoid unnecessary cost and delay.
• Rigorous tracking and follow-up ensures that the process stays on track throughout and during the notice period.
• Communications is critical throughout the process. No matter how tough a rightsizing is, employees deserve to understand the rationale and that there is a better future for the company and remaining employees on the other side. Putting the rightsizing in the context of the firm’s overarching purpose, objectives and competitive environment helps to make sense of the change. As these times are emotionally charged, it’s critical for management to fill an information void before it arises and is filled incorrectly by the rumour mill.

By following these six clear steps, managers can avoid talent flight, increase efficiency and strengthen their organizations for the long-term.