Think Before You Rightsize: Why It’s Critical To Plan Cuts

The short-term future might be bleak, but businesses should project further into the future before they make decisions.

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The short-term future might be bleak, but businesses should project further into the future before they make decisions.


Think Before You Rightsize: Why It’s Critical To Plan Cuts

The short-term future might be bleak, but businesses should project further into the future before they make decisions.

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The coronavirus pandemic and the ensuing lockdown has been one of the most profound and sudden change to the status quo in our lifetimes. With many businesses facing bleak financial forecasts, it’s no wonder that many companies are considering budget cuts.

However, while hastily cost cutting without careful consideration may put the business in better shape in the short-term, it can do severe damage in the long run. This is where rightsizing your business comes in.

Think of it like a surgery: targeted cuts made by an experienced surgeon can help the patient recover, but a less expert approach can do more harm than good.

Companies should take advantage of the current business slowdown to leverage data-led insights and make decisions that will both enable them to survive in the present and set them up to prosper in the future.

By considering the desired scope, scale and shape of business in a post-pandemic world, companies can find the clarity they need to make challenging rightsizing decisions.

What is rightsizing?

Rightsizing is the decision to make changes to the shape and structure of a business to respond to economic circumstances, usually by cutting headcount.

All too often, panicked leaders will mandate a blanket layoff of some percentage of total employees or employees from specific groups as a kneejerk reaction. However, this can have unforeseen consequences for the business.

Consider, for instance, an HR department that is required to lay off 30% of staff and to apply this across all departments equally.

While this might balance the books in the short term, it hobbles the company’s ability to bring in new talent when the economy recovers as it doesn’t account for the relative efficiency or maturity of each department or process.

The Hackett Group’s research shows that companies which made broad headcount cuts to meet percentage requirements during the 2008 financial crisis were unable to maintain a competitive cost base in the medium term.

Responsible rightsizing requires a forward-looking focus on sustainability. Businesses should cut only so far as they can without risking their capacity for future growth, focusing on creating a minimum sustainable organisation.

What this means can vary significantly from company to company, and every business must balance the need for near term survival against future aspirations. Fortunately, the tools, resources and expertise are out there for businesses that are looking to rightsize intelligently.

Financial modelling, for instance, has become increasingly sophisticated in recent years, but it has not yet been adopted at scale.

Simplify, standardise, optimise

Disasters such as this pandemic force aggressive prioritisation from businesses in a way that can be beneficial. The sudden, forced analysis of what is essential to the company makes it easier to strip away unnecessary or redundant staff and processes, leaving just the core of the business.

This core, the minimum sustainable organisation, should reflect the current service delivery model with a minimum of excess and inefficiency.

However, the opportunities from rightsizing don’t stop there. If implemented properly, companies can see a dramatic improvement in agility, putting them in a better position to respond quickly to new challenges and opportunities.

Ask yourself how the business can better deploy technology, utilise shared services, and otherwise pursue quantifiable benefits. When we find ourselves in the new normal, what is next for the business?

Preparing for the future in this way ensures that the organisation will emerge from this period of great uncertainty in the best possible position to succeed. .

What to cut?

Rightsizing, particularly given the contours of the current crisis, can vary dramatically by industry and company. While companies in the travel and hospitality industries are seeing dramatic drops in revenue, online retail and entertainment companies, and others, have seen a surge in interest during the lockdown.

Except the direst of financial straits, it doesn’t make sense to fire employees with necessary skills if you anticipate rehiring them in the near future.

Instead, let go of employees with skill sets that are no longer closely aligned with the needs of the current or projected business landscape so that when it comes to rehiring, you can bring in skills that match the company’s future operating model.

For most companies, technology forms a fundamental part of the business. In fact, The Hackett Group has observed that several organisations, anticipating a long recovery or a second wave, are accelerating investments in technology and automation. Without a robust, well maintained and up to date IT infrastructure, most companies cannot achieve their full potential.

A robust IT department can provide a business with a foundation for sustainability, efficiency, and resilience that extends to other areas. The Hackett Group has found that in 84% of organisations with two or more functions that have achieved world-class performance, IT is one of them.

This strong correlation shows that IT is a fundamental driver of business success. So, while its hefty budget may make it a tempting target for cuts, any changes should be made with caution.

The right time for rightsizing is right now

The pandemic has put many businesses in an awkward position, but we are beginning to see signs that the end may be in sight. This is the ideal opportunity to consider what truly matters in your business, consider what you can do without, and reorient toward future goals.

Companies that escape the trap of short-termism and make cuts with an eye to the needs of the business in the years ahead will emerge leaner and nimbler, ready to thrive in the post-pandemic world.

Thomas Kellaway, associate principal, and David Ketchin, managing director of Europe, The Hackett Group.

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Think Before You Rightsize: Why It’s Critical To Plan Cuts

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