Rightsizing vs Downsizing in HR: What is the Difference?

What is rightsizing in HR?

Rightsizing means making sure you have the right number of employees for your company's needs. The process involves carefully evaluating how many people you need to do the work efficiently without having too many or too few employees. There are various rightsizing methods, which can vary depending on whether you are reorganizing upper management (including department heads) or looking at employees across the whole company.

This process typically involves external benchmarking parts of your business with a data provider like CompanySights (who have market leading headcount by function benchmarks). Equipped with benchmarks and your company data you can then review the functional processes (and sometimes even job descriptions) to determine how many resources you need to meet the business objectives.

When a business goes through the rightsizing process, it might hire new employees if the workload is too much for the current team to handle, or it might reduce the workforce if there are too many employees for the amount of work available. When existing employees are let go then it is important to understand that this can also have a negative impact on the remaining employees.

To mitigate against this, some organizations may perform an employee survey straight after the rightsizing process. This will be used to measure employee sentiment and ensure new business objectives are understood by all remaining employees.

The goal is to find the perfect balance so that the company operates smoothly and cost-effectively while still meeting its goals and maintain profitability. Rightsizing also helps a business use its resources wisely and stay competitive in the market.

What is downsizing in HR?

In contrast, downsizing in HR is a process where companies are cutting costs to reduce their workforce and adapt to economic hardship or changing market conditions. Unlike rightsizing, which aims to identify essential roles and maintain a balanced workforce on a regular basis, downsizing is often a one-time event that can have negative effects on employee morale and the organization's long-term profitability.

During the downsizing process, companies typically determine which departments or personnel to cut based on an assessment of their current records and financial progress. This may involve Human Resources restructuring certain job descriptions and spending time with upper management or outside experts to make the necessary changes. The primary goal of downsizing is to reduce costs quickly, usually by eliminating positions in different departments or even across the entire organization.

While downsizing can provide short-term financial relief, it carries the risk of losing critical personnel and their unique expertise. It may result in a less clear picture of the organization's future and its ability to compete with competitors. Downsizing is a challenging decision for HR departments, as it involves making necessary changes that can have a profound impact on the company's workforce and services.

In most cases, downsizing is seen as a reactive measure to address immediate financial concerns, while rightsizing in HR focuses on proactive, ongoing strategies to maintain a balanced workforce and ensure the company's long-term success. Some workers can feel that the business is putting profit (by reducing costs and money) over its employees, which can create future risk and issues for the business.

Rightsizing or downsizing? Find the functional benchmarks that you need here

Conclusion

The key difference lies in the purpose, with downsizing prioritizing cost reduction often at the expense of personnel, whereas rightsizing seeks to optimize the organization's workforce while considering the well-being of employees and the achievement of business objectives.

Successful rightsizing and downsizing initiatives depend on open lines of communication and transparency around the restructuring rationale, appropriate changes, and the decision making process.