Lifting the taboo on right-sizing—how a proactive approach can revolutionize business outcomes
Too many organizations are still operating with reactive cost-cutting approaches to conditions that require much more proactive strategies.
When push comes to shove, one of the most common cost-cutting strategies employed by management is right-sizing. It’s a sensitive topic of discussion, but it needn’t carry such negative connotations. The problem is, we’re often not going about the process in the right way.
The risks of reactionary right-sizing
Done properly, right-sizing can be a highly effective cost-reduction strategy because it may not require capital investment and can result in up to 20% in savings in salaries across the business. In evaluating a full set of available cost-saving opportunities, it should be one of the first considerations.
However, performing right-sizing in a reactionary way can actually hurt your organization more than it helps. Lengthy, inefficient, and insular attempts can degrade morale and cost more in the long run.
On the other hand, proactive right-sizing can do much more than cut costs. It can set you up to derive optimal value from your workforce, maximizing revenue potential and securing a sustainable operating structure that’s better equipped to deal with volatile operating environments. The benefits of a properly right-sized organization are improved resiliency, competitiveness, and profitability.
What does proactive right-sizing look like?
Proactive right-sizing is performed well ahead of an adverse event. High-performing organizations conduct right-sizing in advance of the point at which it becomes a necessity, rendering themselves more resilient to adverse conditions and more profitable over the long term.
The process is aimed at sculpting a lean workforce that delivers optimal value for your business’ bottom line and performs at an advanced competitive level in your industry.
What are the approaches to right-sizing?
There are generally three approaches to right-sizing you can take: time and motion studies, competitive benchmarking, and labor productivity benchmarking.
Time and motion studies are highly data-driven, requiring a detailed analysis of the level of time and effort it actually takes to deliver something. Such studies reveal how much of any given individual’s day is spent doing the work that you’re paying them to do. This approach often takes a long time and it’s extremely expensive.
On the other end of the spectrum you have labor productivity benchmarking, which is KPI-driven. At a high level and using a simplifying analogy, this approach says if your competitor has 6.3 people per ton of material produced and you have 7.6 per ton, you need to reduce your workforce by 1.3 people per ton. The problem with this approach is that very rarely are two operators similar enough to make these assessments accurate. The 1.3 person per ton may be adding a disproportional amount of value. As a result, basing a right-sizing decision solely on high-level industry benchmarks could put a disproportional amount of value at risk.
A blend of these two approaches is competitive benchmarking. It offers a more granular bottom-up approach that compares actual versus theoretical staffing complements and is normalized to your specific conditions. Competitive benchmarking is based on knowledge gained from subject matter experts that have spent time working in comparable facilities. This offers more tailored comparisons with organizations not just in your industry but of a similar size and orientation.
By blending granular data and high-level KPIs, competitive benchmarking offers a faster, more affordable, and highly accurate foundation on which to make the most valuable right-sizing decisions.
Proactive right-sizing goes well beyond cost-cutting
Proactive right-sizing reduces the drastic fluctuations and drawn-out processes of constant hiring and firing, avoiding dangerous degradations in morale that can reduce the effectiveness of an otherwise highly skilled and motivated workforce.
A properly right-sized organization is more connected, has flatter hierarchies, and has a better understanding of labor costs. It also challenges employees to meet their potential, encouraging people to perform at their best.
Right-sizing isn’t just an exercise in reduction. The process can also help identify areas of the business that would benefit from increasing employee numbers, reallocating or redefining roles, training to diversify skill sets and adaptability, and the development of new roles and agile ways of working to future-proof your workforce.
It will help ensure your organization is performing efficiently in good times as well as bad, and unlock previously out-of-reach opportunities for growth and advancement.
Right-sizing with the right people
Many people wonder why they can’t just perform their own right-sizing organically from within the company, as and when it’s required. There are many reasons why this is ill-advised.
Most companies simply lack the resources to perform the task effectively. People tend to be busy and focused on maintaining important functions like safety and production.
Competitive benchmarking requires industry-specific technical and subject matter expertise to maximize the value and effectiveness of your right-sizing decisions. The right industry partner will have experience working with companies of a similar size and orientation. They will best be able to identify the most crucial gaps and opportunities, and provide solutions that are tailored to your organization and its specific operating conditions and challenges.
Even when done properly, right-sizing is a difficult and often emotionally-charged process. Bringing in an independent, external partner can make it significantly less painful. Firms with experience handling such challenges smoothly and impartially can help achieve quicker and more effective resolutions.
In today’s volatile economy, proactive right-sizing isn’t a luxury, it’s a necessity. Those who take action today will not only reap the rewards of increased resiliency, competitiveness, and profitability. They will be future-proofing their businesses for long-term success.
About the author
Gerry Ayling
Engagement Manager, Advisory
Gerry is an Engagement Manager with broad experience in business improvement consulting, operations, and engineering leadership across all our sectors. He has managed large-scale strategic business improvement projects for some of the world's largest resource extraction firms. Gerry is intimately familiar with upstream oil and gas operations, having spent several years in engineering and operations leadership roles in western Canada and specializes in managing complex, multidisciplinary projects.