The cost of living crisis and skyrocketing energy prices has resulted in nearly every small business examining how they operate and rightsizing their workforce to ensure their organisation has the talent to grow and prosper in tough economic times.
There are many factors to consider when embarking on a business rightsizing project. Rightsizing can ensure your organisation is in the ideal position to face upcoming challenges, remain productive and take advantage of new opportunities.
But if the process is rushed or lacks a clear strategy and plan of action, not only can your business find itself deficient in key skills it may also mean having to address Employment Tribunal claims.
The difference between rightsizing and downsizing
While downsizing involves reducing the number of employees to increase profitability, rightsizing is the process of ensuring a company has the right number of people and a workforce with the skills and expertise required to help the organisation achieve its goals. This rings true whether you are a large or small business.
Rightsizing can involve a staff reduction or offering terms for early retirement but can also include increasing staff levels by hiring new talent, adding experienced management, or creating a specialist department.
Another difference between rightsizing and downsizing is the latter, which occurs at a particular time, centring around staff layoff to cut costs.
On the other hand, rightsizing is the restructuring activity, ensuring the business is always well-positioned to perform and has the right resources to reach its targets.
What should I consider when rightsizing?
The following factors should be considered when embarking on a rightsizing exercise:
Does your short, medium, and long-term business strategy need revising?
Effective rightsizing can only be achieved if effective processes are in place.
For many businesses, the day-to-day running of operations during unprecedented times means that they have little capacity to assess whether their existing plans are appropriate for the challenges and opportunities.
Spend time re-evaluating goals, seeing where new opportunities lie and position your rightsizing project to resource successfully around this strategy.
Do you need to rightsize?
Once you have your goals in place, consider whether the business has the skills required to meet them. Conducting an organisational audit and gap analysis of skills will help you align human resources with business goals.
Are all current roles required, and are new positions needed?
Part of the human resource audit should involve examining each department's staff role, determining whether it is critical to reaching overall strategic goals and whether cost savings or investment is warranted.
Consider whether new positions should be created and the scope of those roles. It may be best to employ a contractor rather than a full-time employee for short-term projects.
If you want to break into a new overseas market, agents and/or distributors who know the region and supply chain may be the best option.
Is each employee in the company a good fit in their current role?
Through performance reviews, you can establish whether a current staff member has the skills and expertise required to ensure operational targets and strategic objectives are met.
You may also find that some workforce members must be better suited to their current roles. This does not automatically mean making cost savings such as redundancies; moving an employee to a new position in the company solves a problem rather than reducing headcount.
You may determine that some employees may also be working below their skill levels and will relish more responsibility.
What are different rightsizing methods?
There is no exact method of rightsizing your business; however, you may consider basing your strategy on the following:
Departments – specific departments such as finance, marketing, and R&D can assume a lot of resources without generating much revenue. Consider examining these teams and seeing if some roles/functions could be outsourced.
Performance – examining past performance evaluations can give you an idea of which employees are not meeting their KPIs. You can then use this information to decide whether they need more support (resulting in you needing to employ new people), training, or should face redundancy.
To ensure you comply with employment law when developing and administering your rightsizing strategy, it is best practice to work with an employment law solicitor from the earliest stages of the project.
What are the benefits of rightsizing?
The benefits of rightsizing are;
- It can help your business become more profitable because it allows you to cut out any unnecessary spending
- You can swiftly identify any weaknesses in the business and remedy them
- It allows you to look closely at your business processes and the technology you use and eliminate anything that is not moving your business closer to its growth targets
- It can help you streamline your workflow, allowing you to invest resources into innovation and customer experience
- It can increase your business’s competitiveness by allowing you to focus on what your organisation does well
You can also make redundant unproductive and/or negative employees to revitalise your team.
What are the risks of rightsizing?
The risks of rightsizing are;
- It may result in restructuring or reducing your workforce – essentially, downsizing (if this is the case for you as a business owner, your company must follow the correct procedure, engage staff through the human resource team, and act professionally, understanding the impact on each worker)
- It may result in tension and anxiety within the organisation (business leaders and senior management should focus on keeping employee morale high and maintaining productivity during periods of change)
To maintain trust and protect employee well-being, open and honest communication throughout the process is vital.
Throughout any restructuring process, expert advice from a business lawyer can help ensure your approach is professional, capitalises on opportunities and minimises risk for your organisation.
Get legal assistance from LawBite
Rightsizing your business can be complex and have both commercial and employment legal implications. Ensuring you follow the correct procedures is critical to a successful rightsizing project.
If you need support with rightsizing your business, including drafting documentation for redundancies, book a free 15-minute consultation or call us on 020 3808 8314..
Additional resources
- 10 legal documents for HR departments
- How to amend an employment contract
- Employee exit policy and procedure
- Can an employer change company policy without notice
- What are the 3 basic rights employment rights for a worker
- What is statutory redundancy pay?
- Terms and conditions of an employment contract
- Outsourcing HR - legal considerations
