Rightsizing vs. Downsizing: What's the Difference?

What helps organizations maintain a competitive edge in uncertain times? The flexibility to respond to market changes, talent needs, and consumer demands.

When external factors such as global disruptions or economic shifts reshape the market, aligning business goals with a current HR strategy becomes a significant challenge. Organizations are forced to develop new strategies — such as targeted recruitment, upskilling and reskilling employees, rearranging staff, or laying off part of the workforce through downsizing — to adapt to these critical changes.

Yet downsizing doesn’t really fit into modern HR strategies focused on employee development and building a sustainable corporate culture. As an alternative, many organizations opt for rightsizing.

But what does this really mean? Here's an overview of the concept, its advantages, and best practices for readying your organization for rightsizing.

What is Organization Rightsizing?

Downsizing concentrates on reducing the workforce to save on payroll and other HR expenses while rightsizing aims to maintain the correct number of human resources. In terms of rightsizing initiatives, companies may initiate staffing cuts as well. However, such changes are usually followed by hiring specialists who fill the skill gaps and bring their unique expertise to the company.

In general, rightsizing helps your  get a bird-eye view of an organization and assess its current state to determine necessary and strategic workforce changes. What’s more important is that rightsizing doesn’t disrupt HR processes and helps you implement essential changes simultaneously.

Benefits of Rightsizing

First, rightsizing helps you avoid the negative impact to your employer brand. Layoffs usually signal financial issues, inner conflicts, or toxic culture. Rightsizing, however, isn’t so damaging to a company’s image, as it relies on gradual changes like shifting roles and occasionally putting recruitment on hold.

Second, this approach helps you build a dream team of top talent — skilled employees with proactive and business-driven mindsets who willingly take on new responsibilities and challenges to drive positive changes in a company. Downsizing organizations rarely account for talent potential and skills necessary for the future, instead basing layoffs mainly on performance metrics and financial aspects.

Finally, this process increases profit margins by phasing out employees who don’t contribute to business profits, can be replaced with machines or automation tools, or whose expertise has become irrelevant to the organization.   

Bottom line: Organizations can consolidate their workforces while maintaining skills relevant to future goals. This continuous process involves different HR management techniques:

• Altering job profiles and position transfers to maintain expertise within a company and solve business goals at the same time.
• New strategic hires to bring external professionals with the expertise that a company needs.
• Layoffs of underperforming workforce.

When to Implement Organization Rightsizing

To determine the need for rightsizing, consider outlining your organization's objectives, needs, and current issues that prevent it from reaching its goals. Here are a few tips: 

• ‍Align with strategic business goals. Has your organization met all its yearly business goals? Were there any bottlenecks that prevented it from succeeding? Is there a disparity between gross revenue and net profit? Answers to these questions will help you determine critical issues and HR's role in solving them.‍
• Identify workforce gaps. Common HR issues — including talent that's ill-fitted for certain roles, duplicate positions, employees “on the bench,” or widening skill gaps — are suitable reasons to consider a rightsizing strategy. ‍
• Impact of external factors. Economic shifts, market fluctuations, technology advancements, or unexpected disruptions might necessitate organizational rightsizing. For instance, during the COVID-19 pandemic, restaurant businesses adapted by retraining employees as delivery couriers or call center operators, enabling them to transition from traditional in-house services to online deliveries and takeaway formats. This approach helped businesses stay afloat and preserved a significant portion of their workforce.

Organization Rightsizing Best Practices

Do you feel like rightsizing your organization as fast as possible? Consider our tips first to ensure successful changes: 

• Evaluate the current state of the workforce. An internal audit helps you identify future roles, mission-critical talent, underperformers, and duplicate roles that should be eliminated. But remember: Rightsizing isn’t a one-time activity. Strategies need constant reevaluation and realignment with business needs and challenges.
• Assess operational details. This could include switching part of the workforce to remote work, making some roles part-time, or adding equipment and software to ensure smooth workflows.
• Consider rehiring possibilities. Laying off talent doesn’t have to mean ending your professional relationships forever. By keeping your organization open to ex-employees, you can save time recruiting and onboarding in the future.
• Engage your employees in a decision-making process. Employee surveys and sentiment data help you assess management and subordinate relationships and determine promising talents or top performers. Gathering employee feedback can also take the heat out of difficult rightsizing decisions, which can inevitably include layoffs or role switches.

As you can see, organization downsizing doesn’t happen overnight. This gradual and step-by-step process helps your organization maintain a lean but impactful team roster, stay agile, and respond quickly to sudden market changes.