What is the right size for my organisation?
This question is often on the minds of business leaders. Many bide their time before coming to an answer, their workforce largely shielded from the economic impacts of changing market conditions. Others are forced into action, whether that be to scale up operations or to scale down or even to close.
How does a company decide when is the right time to increase or decrease its personnel?
Under normal circumstances, decisions to grow or shrink the workforce in response to changes in demand will depend mainly on the extent to which a business prefers to, or can, be proactive or reactive. The proactive company will seek to invest ahead of the growth curve. This embeds cost ahead of revenue, but the potential reward is stealing a march on the competition. In times of economic decline, they will seek to remove cost ahead of a fall in revenue. This risks weakening the business by cutting too deeply too quickly if the downturn is less shallow than expected. But the targeted benefit is financial viability in challenging times.
The reactive business, conversely, will naturally tend to play a waiting game. It will not increase its workforce until it knows that it is prudent or advantageous to do so, even though this constrains potential growth. And it will not endure the pain and cost of down-sizing until it knows that there is no option, by which time it risks being financially weakened having retained too high a cost base for too long.
Whichever approach a company prefers to take, its decisions will be based on careful analysis. But a systemic shock (such as a global pandemic) forces many business leaders to make snap decisions. The time to examine, analyse, debate and appraise options is an ill-afforded luxury. So, structural choices tend to be made at speed and with imperfect information. The transition can be chaotic and may appear irrational, even if seemingly necessary.
So, what should businesses be thinking about as they look to settle on the ‘right size’ in a post-Covid work from home world?
Scaling up ahead of the curve
When an organisation’s business model changes it becomes necessary to review what is now needed in functions such as operations, customer services, order fulfilment and logistics as customer demand changes and settles.
It must also review the efficiency of its new operating model. Scaling up operations quickly by simply throwing bodies at the problem tends to magnify inbuilt inefficiencies. A clumsy, paper-based form that used to be a minor inconvenience, suddenly becomes a major operational bottleneck when scaled up. This leads to an unnecessary expansion in the number of people needed.
Scaling down ahead of the curve
Where cuts are made to frontline operational units (because of reduced demand or a move into different markets), commensurate adjustments to indirect costs are often missed or underestimated. This needs to be addressed through a detailed analysis of the support required for value-adding activities.
And if businesses are minded to scale back up once through a crisis, now is the time to be re-evaluating the whole enterprise model – what value do we create? How do we intend to generate it? What must we do to support and sustain it? This is an opportunity to redesign the organisation with efficiency and effectiveness in mind.
Sitting tight and waiting to see
It is impossible to form a coherent plan for future operations in an environment of near-total uncertainty. That may seem like hyperbole, but it is a reality for many businesses. However, not having a plan for quick reductions would be a tactical error. Efforts should focus on determining the core parts of the business that must be retained for any form of survival to be possible.
What to consider
Strategy – Planned or emergent? Planned (or ‘deliberate’) strategies are predicated on the environment being largely stable and reasonably predictable. So much for that! The Covid pandemic meant that organisations learnt a lot about their adaptability, which is the cornerstone of more ‘emergent’ approaches to strategy. Yes, have a plan; but better still, make the means to pivot on changes in your environment a business as usual competence.
The value stream – Redefine the value that your company now creates and map out how that value should be designed to flow. Data-driven analytical approaches (such as Organisation Design Analysis and Lean) can be employed to scale these core operations economically, efficiently and effectively.
Support functions – These need to be in proportion to value-adding activities, so start by determining what the value stream needs to sustain it. Be prepared to quantify, challenge and eliminate non-value-adding work, sclerotic bureaucracy and initiatives that are poorly aligned with the overall strategic intent.
Whichever of these groups defines your company’s method of response, now is the time to make these three important checks.