Are you right-sizing for efficiency or for effectiveness? Five ideas to bring about balance.

I was having a conversation with friends in a social setting after working hours. I was intrigued (not surprised!) to find that the eleven of us (all people managers in large multi-national corporations) had been involved in some right-sizing event that had personally impacted us or someone we knew. The discussion ended up being fairly intense as the typical right-sizing activity always has an element of cost-cutting driven by a reduction in work-force and related disinvestments. This blog was motivated from that conversation.

Right-sizing is “the process of a corporation reorganising or restructuring their business by cost-cutting, reduction of workforce, or reorganizing upper-level management. The goal is to get the company moulded properly to achieve the maximum profit.”  It is typically a response to market changes and can also act as a signal to the stock-market to convince the market that the organisation is making all necessary steps to ensure that the share price reflects the organisation’s value fairly.

Right-sizing is arguably not the same as down-sizing as right-sizing in a sense is pro-active whereas down-sizing is reactive, however, my own experience of the Information Technology (IT) sector (where I am employed) has identified that there is a need to ensure proactive right-sizing in response to persistent market and environmental changes. This means that organisations that are subject to on-going market vagaries need to do a better job at proactively managing the change and trauma inflicted from on-going right-sizing activities.

Typical decisions on right-sizing are top-down and leave little room for managers (or employees) to think creatively or provide feedback on how to manage the cost structure of the organisation. Ironically if an organisation had been proactive in understanding its processes and customers then it could have kept abreast of cost-efficiency along the way rather than undertake a correction (the right-sizing event!) that is usually time-bound and ends up being a trade-off between efficiency and effectiveness. This trade-off is not generally understood or incorporated in the planning around right-sizing. There is a difference between the words efficiency and effectiveness but to my dismay I still see many senior executives giving right-sizing guidance without providing any guidance on how to balance the two. To ensure that you understand the difference I offer a simple example. A class of fifty students with one teacher has now been expanded to have the same teacher cover a hundred students. This move can be termed as efficient as the cost of the teacher is spread over a larger student base but it might not be effective due to the lack of personal attention and/or guidance that the teacher can provide to a student in the larger class. In summary, efficiency is “doing the thing right” whereas effectiveness is “doing the right thing“. Read this sentence again to be sure you get the point being made!

Most right-sizing decisions need to consider and ensure that we force a balance between efficiency and effectiveness. I offer five ideas towards achieving this.

Idea # 1 :: Management of change is more critical than managing the blocks on an organisation chart

It is understood that right-sizing is painful but necessary, however, it is critical that manager’s and the management team is doing on-going and open communications with employees on the rationale for the right-sizing and ability to raise any concerns directly to senior management. There is the common misunderstanding that showing reams of data will justify the need for the right-sizing and therefore, ensure compliance and understanding on the part of employees. My own experience is that employees today are smart enough to understand market realities as those realities are ‘in their face’ due to information being available instantly thanks to social media and 24x7 connectivity! Employees pretty much understand the bigger picture and showing data is not as effective as believed. It is about capturing their hearts and not capturing their brains!

This is also why most right-sizing attempts lead to attrition amongst those who survive and create trauma in those employees who also survive. Any right-sizing attempt will impact employees and that leads to a negative impact on productivity as work-load and processes are aligned to reflect the new reality. A right-sizing also erodes employee engagement and belief levels in employees now have a nagging and persistent feeling of disenchantment. As was quoted by a friend during the discussion that had lost her job as a senior manager - “I am sure that the employees are thinking If the organisation does that to my manager what stops them from doing the same to me as well?”

One of the biggest challenges with right-sizing in large organisations is the reality that management of change over hundreds of employees (if not thousands!) is difficult to do. There is an on-going need to have a culture of improvement that forces ‘a series of on-going right-sizing’ that occurs on a regular basis. This will minimise the trauma inflicted but more importantly makes management of change easier as well. To me any organisation that is not investing in its employees and training them in the ability to question the status quo and always reinventing is bound to find itself right-sizing constantly! It is not the market changing constantly but the internal inability to change constantly that is the real problem!

Idea # 2 :: Align the objectives of the right-sizing align cross-organisational strategy and put measurements to enforce the same

New directions and changes should be compared to and aligned with a company’s core competencies when making right-sizing. During the discussion one of the participants outlined how their organisation had revamped their channel model and made it into a formidable competency and had also committed to invest further to its Channel partners to make them successful but at the same time had made the Channel team and its management merge with another team whose objectives were contra to those of the Channel team! Again a classic case of effectiveness being sacrificed at the altar of efficiency! It was as if this organisation was playing 'Russian Roulette' intentionally!

Right-sizing decisions are undertaken for long-term efficiencies, reduced costs and improvements in revenue and/or margins. The need is to build solid performance metrics that actually track the promised ‘success’ and allows for re-alignment where the expected efficiencies are not delivered. Very critical is to also measure the negative outcomes arising from right-sizing decisions. Most performance metrics aim to capture benefits but not much focus is given on measuring negative aspects that may also be released. Do we ask other business units or internal customers how a right-sizing decision taken by one silo may have impacted another silo? One of the participants to the discussion high-lighted how a division realigned its processes, management layer and reduced its services but most of the cost moved to other divisions as the overall organisation still needed those services. This is also why in most right-sizing decisions we sometimes see new roles added and or adjustments being made post the right-sizing to reflect the ground realities. Unfortunately, by the time this is realised it is usually too late!

Idea # 3 :: Revalidate all right-sizing initiatives that are aimed at collapsing management layers and/or reducing cost of management

Most right-sizing attempts work on the basis that reducing cost of management is a good outcome. This is much easier said than done. The efficiency vs. effectiveness debate on this matter is critical to undertake. There is no rule of thumb that can be used to state what the optimal span of control for a manager should look like. Despite this I see right-sizing decisions being taken and prescriptive assumptions taken on span of control issues irrespective of other considerations such as geographical distribution (where are the people based and where is the people manager based) etc.  My impression is that in the search for employee empowerment and on the fictitious assumption that employees want to be given a more free hand in how they do their work as well as the misplaced assumption that virtual employees are the same as physically co-located employees. We have come to believe that span of control is something that can be moderated or adopted to confirm to industry best practice etc.

I am concerned by the on-going debate of the attention paid to an organisation chart and each block being considered as a cost. Just because there are lots of blocks on a chart doesn’t mean that cost needs to be minimised or taken out! The on-going search for efficiency needs to be more stringently balanced with focus on strategy as well as the precise steps needed to execute the strategy. Cost reduction must be the by-product of this activity and not the sole focus when consolidating processes, functions and people under common leaders. Most right-sizing objectives tend to work on a very interesting assumption that we can have ‘super executives’ run right-sized organisations. This is a myth that exists due to the pre-occupation with celebrity CEOs and the demi-god status being attributed to senior executives! This fallacy cannot and should not be drilled down lower into the organisation! My closing input on this is that there should be a rethink of what job titles denote and whether compensation and performance metrics are encouraging work processes that support the mind-set for self-initiated right-sizing opportunities rather than top-down directives!

Idea # 4 :: Balance the needs of shareholders with that of ‘internal stakeholders’

One of my friends who had been impacted by a right-sizing initiative at her office due to a decision to merge two teams under one manager. She was the unfortunate manager who did not make the cut. She highlighted that the decision to undertake the merger was taken keeping shareholders in mind but the same discussion was not discussed with the internal stakeholders who would be impacted i.e. the ‘internal customers’. The decision was cascaded by top management with due regard to efficiency (reduce one manager’s cost and retain only the cost for one ‘surviving’ manager) and not effectiveness. The only input that the internal stakeholders (‘internal customers’) gave in the process was on who was the stronger of the two managers to ‘survive’; and therein lies the illusion! By engaging internal stakeholders in the decision process (i.e. who leads the combined teams) created the illusion that there was participation by internal stakeholders whereas the real debate should have been on whether the coming together of the two divisions was an effective decision in the first place or not and what form the right-sizing should take.

Most right-sizing decisions tend to forget that the term stakeholder also includes employees of the organisation. I do recognise that employees do not vote their managers into their jobs but most organisations do utilise employee feedback in ascertaining whether a manager should remain in their role or not! I am clear that ultimately an organisation functions on the basis of command and control (i.e. top down instructions and adherence to the same by employees) but many decisions taken under the guise of command and structure are not open to debate or ideation with employees. It is my experience that most organisational issues have solutions that are already residing in the brains of employees and it is a matter of tapping into the same and facilitating a solution driven outcome.

Idea # 5 :: Balance operational knowledge lost vs. strategic knowledge gained

The discussion also revealed that most right-sizing decisions are based on the assumption that the operational knowledge lost by eliminating management layers is an acceptable loss to the organisation as there is a belief that operational knowledge resides in the ‘lower rungs’ of the organisation.  This fallacy is led by the movement that ridiculed middle management and kept insisting that it should be shrunk to empower employees. That is all well and good but the reality is that organisations tend to confuse this very critical aspect and then wonder why the surviving ‘lower rung’ does not act empowered as they are now left exposed without their managers who took critical operational knowledge with them.

One of the most fascinating points that came up in the discussion was the observation that as management layers are collapsed and assimilated there was the obvious reality that one is left with units or divisions that have more people under lesser managers. We are all aware that promotional opportunities are difficult to achieve naturally but it is an interesting consideration to always keep in mind that most managers (especially those that survive!) will not raise concerns or issues as two things are happening. Firstly, there is an element of empire building going on and secondly, the expectation that there is a promotion that may be involved with this change. Both of these will tend to dampen the need to raise concerns or objections or consider the need to be sure about operational knowledge lost vs. strategic knowledge gained? There is a built in ‘sweetener’ in the deal and this is something that needs to be looked at carefully – Are we sure that the right incentives are driving the right behaviour during a right-sizing?

In closing, efficiency vs. effectiveness is critical in all right-sizing decision but also important to note that right-sizing has a substantially negative impact on employee engagement, job satisfaction, organisational commitment and desire to leave “but it takes attention, effort and heart” to execute and deliver the expected returns. The heart is what is usually missing.

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