It's time to make some difficult decisions.

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Can your organisation afford its current cost base if a recession comes, or even if the economy remains stagnant??

Growth still seems stubbornly hard to come by; taxes are high, real inflation is high, and interest rates are high.? The economy remains stagnant and on recession alert. When is the right time to plan for change?? Many leaders are happy to ‘follow the curve’, while others prefer to get 'ahead of the curve.' Which one are you?

What is the right size for my organization?

This question has been on the minds of most business leaders over the last few years. Many are biding their time before coming to an answer. Others have been forced into action, whether to scale up operations or to scale down or even close.

How Does A Company Decide The Right Time To Increase Or Decrease Its Personnel?

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 shallower 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 downsizing until it knows that there is no option. By this time, the company 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, analyze, 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.

What should businesses be thinking about as they look to settle on the "right size"?

Businesses That Have Already Scaled Up

For many, scaling up will not be permanent, and eventually, they will have to scale back again. The challenge will be determining how much of their currently increased cost base they need to retain. Businesses need to review what they need in functions such as operations, customer services, order fulfilment and logistics.

They must also review the efficiency of their new operating model. Scaling up operations quickly by merely 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.

Businesses That Have Already Scaled Down

Some businesses have already taken the tough decision to reduce their workforce. Perhaps because taking on debt to survive is too risky. Maybe parts of their business are not viable. Where cuts are made to front-line operational units, 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 want to scale up, it would be the right time to reevaluate 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 organization with efficiency and effectiveness in mind.

Businesses That Are Yet To Make Significant Changes

What happens when the next recession arrives? Will supply chains still be intact? Will customers still be there, or will their buying habits have changed completely?

It is difficult to form a coherent plan for future operations in an environment of uncertainty. 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! Over the past few years, you will have learned a lot about your company’s 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 your company finds itself in, now is the time to make these three necessary checks.

I like the philosophy of 'decide carefully and implement quickly.' A financial recession is looking increasingly likely. My advice is to design this year your organisation's structure for next year. Create several options.

• What would it look like if you were to grow 5%?
• Is there a better way to organise the company if there is no change in customer demand?
• Conversely, what shape would would the structure be if you were forced to reduce payroll costs by 10%?

Know in advance what the company would look like so you are ready to implement the right solution quickly at the right point - time and timing.

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