Rightsizing: Increase Profitability the ‘Right’ Way

“People are assets. Keeping them aligned to the business future is critical for success.”

- Amandeep Singh Munial?

It is not just the effect of the pandemic. Organizations need to constantly look at reducing costs to build a sustainable business. Workforce costs are one of the first ones that get focused upon. Hiring freezes, downsizing, salary freezes are some of the most common actions taken to reduce people costs.

While actions like downsizing can be quick, easy and impactful in the near term, if not done well, these can create difficulties in the future. Doing it wrong, might at best defer the inevitable or worse still, accelerate it. Moreover, another big challenge might be keeping the survivors motivated and engaged after a downsizing exercise. Workforce optimization requires thorough planning, which not only takes care of the present needs of the organization, but also the future requirements. It also creates a logical approach that demonstrates to the entire organization that the approach is trustworthy.

WHAT TYPICALLY GOES WRONG?

Some of the most common mistakes organizations make while reducing workforce costs are:

Missing Long-term Perspective:

• Getting into an aggressive diet plan kind of an exercise. While it helps in quick short-term results, it might cut into the muscle and impact other parts of the body and render it unhealthy for the longer term.
• Looking at people from the lens of the present. Since decisions are to be made quickly, and in the absence of a structured strategic planning process, decisions are taken based on who can be let go, reasons immaterial. With this process, organizations tend to lose high potential talent that could be prove highly valuable for the future of the business.

Cart before the horse:

• Organization design is a strategic lever that helps drive continual success over the longer term. However, a common phenomenon that reduces the efficacy of this strategic lever is changing the design based on the residual headcount.
• The effort then is focused on doing the best with what the organization is left with, instead of doing what is truly needed. It is like solving a jigsaw puzzle with partial set of pieces. The result might be way different and undesirable from what is envisaged as per the strategy.

Driven by Legacy:

• The famous words of Dr Deming highlight this point very well, “Your system is perfectly designed to give you the results that you get.” If you want to get different outcomes, the system need to be aligned with those expectations.
• The processes, the systems, the ways of working, in short – the legacy of the organization eclipses its ability to see the real opportunities. This results in targeting either the wrong opportunities or not being able to generate the maximum benefit possible for the organization. In either case, the organization stands to lose out on precious time.

It is important that organizations avoid these expensive mistakes, which might yield short-term gains, but have the potential to jeopardize the longevity of the organization.

Don’t Learn the Hard Way…

Client Case Study:

One of the large companies in the technology sector was struggling to grow at market rate while smaller and larger competitors were growing at a much rapid pace. Due to a lack of topline growth, the stock price was taking a beating. The organization chose improving profitability as the big focus area. To demonstrate quick results in that area, it turned to people costs. Every year, there would be a hiring freeze in one quarter, followed by massive layoffs in another one. Businesses that were doing well also bore the brunt.

In the first year, it was able to show an increase in profitability that gave the stock a little boost. But problems started from the second cycle onwards. People started getting insecure. They could not see the rationale behind the decisions. Even high-performing (HiPe) and high-potential (HiPo) employees were asked to go, which created further resentment. This led to a drop in engagement, which started showing up in reduced productivity and lower quality of outcomes. This started not only hurting the topline growth the organization was seeing, but also made it more and more difficult to improve profitability.

When the organization could not afford to continue with this approach, it turned to focus on following a structured approach. BMGI helped the organization rationalize its organisational structure, carry out people assessment and mapping to organization strategy, reduce duplication of effort, bring clarity and ownership of key business metrics, improve productivity through process automation and reduce customer issues. All these actions resulted in 37% reduction in operating costs over two years, increased user retention by 22% and top-line growth by 13% YoY which was almost 30% more than the market growth rate. In addition, the people metrics like Employee Engagement and Regrettable Attrition saw a significant improvement YoY. The organization also established a Performance Excellence team to drive organization-wide improvements on a continual basis.

CHOOSE THE RIGHT WAY

Avoiding the mistakes outlined above can give a huge fillip to the organization, not only in terms of improving the business performance but also create a better working environment that motivates people to contribute more. Below are a few approaches that you can consider if you are looking at driving workforce costs down:

Organization Design Focus

BMGI recommends a three-pronged approach to looking at the organization structure.

1.????Strategy-focus:

Start with the organization strategy and define the ideal structure required to deliver to the strategic plan. Identify the gaps in the current structure and make a re-alignment plan to move towards the ideal structure. It might means simply shuffling people into a new structure or identifying and plugging talent gaps to be able to move into the new structure. While creating the desired structure, as much as possible, avoid duplicity of ownership and work.

2.????Duplicity-focus:

Ensure that the ownership of key business outcomes rests with one team. Start with the key result areas of each function to identify overlaps, and associated resources deployed across overlapping functions. Decide the best ‘home’ for each result area and transfer entire ownership to that function thereby freeing up resourcing in other functions. For example, is BOM (Bill of Materials) Cost owned by R&D or split between R&D, Sourcing and Procurement? Is customer retention ownership with Marketing or split between Marketing and Customer Experience?

3.????Span of Control (SoC) focus:

Over a period of time, several factors lead to a large disparity in the span of control of managers. Some of the contributing factors are the addition of specialized roles, the addition of multiple layers to accommodate short-term requirements, talent retention etc. Increasing the average SoC from 4 to 8 would lead to a 57% reduction in the Managerial Headcount for a 4000+ employee organization. Combining this perspective with the above can lead to significant people cost reduction. Other advantages include faster decision-making, which can lead to better business outcomes.

Organization Effort Focus

It is a simple equation. Resource requirements are directly proportional to the effort required. Hence, by first principles, reducing the volume of work and increasing efficiency will reduce the effort, which will in turn reduce the resource requirements. Let us first talk about the workload or volume of work.

1. Volume Focus:

Defining the unit of work for each function, and identifying opportunities to eliminate or reduce certain units will lead to a reduction in the volume of work. For example, if one shipment is a unit of work for the Logistics team, find ways to reduce the number of shipments to be made. This could be achieved by better route planning, relooking at the vehicles used, changing the design of the vehicle body, the design of the secondary/tertiary packaging and the manner in which the goods are placed inside the vehicle to maximize within the available weight and volume capacity. One of our FMCG clients was able to reduce shipments by 27% with some of the above solution ideas.

Similarly, if one part being assembled at a workstation is one unit of work, look at the part and product design from DFMA (Design for Manufacture and Assembly) principles. By reducing the number of parts with the part redesign, you can not only eliminate certain steps in the manufacturing process but also make the remaining steps more efficient.

For a service business, this could mean reducing the number of service requests by eliminating/reducing friction in the customers’ journey. This will have the added advantage of better customer experience and hence retention.

While it looks simple, the key challenges organizations face are in defining the unit of work for each process, and finding new solutions which might not emerge through simple/traditional brainstorming exercises. There are several creative idea-generation tools available that can be used. However, choosing the right one for the situation at hand is critical.

2. Efficiency Focus

Efficiency, as we all know, is about getting more done with less. Identifying activities that are not adding real value and eliminating or reducing them, leads to an increase in the throughput while reducing the number of resources required in the process. This can be achieved by simple techniques of workstation redesign to make it more ergonomic, using macros in excel to make reports, having a ‘hands-off’ approach where hands are not used as fixtures on the line anymore (e.g., filling cartons by holding the flaps open), or other simple mechanization/automation solutions. Organizations also look at Robotic and Cognitive Process Automation to carry out more complex tasks which earlier were not possible without humans. The added benefit of automation is consistency in productivity and output quality both of which help reduce the effort required.

Not every process at the present juncture of technology evolution can be automated. For example, handling an irate customer might not be left to a bot at the moment. However, most processes can benefit from Augmented Automation, which supports and improves human decision-making and actions with technology. For example, helping a customer service executive find the resolution information using Speech-to-Text Analytics during a Live Call can help save a significant amount of effort. For one of the eCommerce companies, this was estimated at 10% reduction in Average Handle Time (AHT).

One of the most common pitfall organizations face in driving efficiency is assuming that the residual workforce will operate more efficiently and take care of the entire work. In today’s scenario where a large part of the white-collar staff is working from home, this increase in efficiency might actually be coming at the cost of additional hours of input. Many organizations have already seen the initial euphoria of improved “productivity” turn into gloom with increasing number of employees feeling burned out. Another pitfall is improving efficiency where it appears easier instead of identifying the right bottlenecks that need to be broken. For example, we have seen clients spend huge sums on making equipment IoT-enabled but not getting any meaningful business benefit.

To sum up:

“Difficult roads lead to beautiful destinations”.

It might be easier to make a standard criterion to reduce the workforce, but it can create a more difficult future for the organization. Rightsizing is the right approach, and not downsizing to balance the here and now, as well as the long-term prospects of the business. While Rightsizing initiative has elements that require thorough planning and hence could take longer, several solutions from the approach above can yield much faster results. With one of our FMCG clients, we could reduce 12% of the blue-collar workforce within three months.

If there is one takeaway from this article, let it be – do not eliminate people, rather target what they do.

Additional Client Results with Rightsizing

A Leading FMCG Company

• BMGI partnered with a leading FMCG company for driving operational excellence. The focus for manufacturing were in the areas of production compliance, capacity utilization and operational efficiency (manpower optimization).
• Benefits: 35% reduction in manpower in two lines using Lean Principles.

A Leading Pigment Manufacturer

• With focus on driving profitable growth, some of the areas of BMGI focused on include Manpower Optimisation, improving profitability of operations, capacity enhancement, throughput improvement, defect reduction, sales growth etc
• Benefits: The Manpower Optimization project reduced manpower by 33%

A Leading Resort

• BMGI carried out a manpower optimization exercise across all departments – front office, F&B, housekeeping, engineering and support.
• Benefits: Improved efficiency and effectiveness of the process leading to improved performance and customer experience. 18% reduction in manpower achieved.

About Breakthrough Management Group International (BMGI)

BMGI is a trusted growth partner for companies of all sizes, across industries. Ambitious business owners work with BMGI to overcome challenges and drive highly profitable business growth; to become better, faster.

BMGI partners with organizations to transform their business performance with a strong focus on?delivering results.?Over the last 25+ years, BMGI has delivered an engagement ROI of 5:1 To 20:1.

BMGI guarantees a minimum ROI of 3:1 on tangible business outcomes. We deliver:

• 1.5-2X of market growth rate for large enterprises
• multi-fold growth in 3-5 years for small to mid-sized businesses, and
• 1-5% of Revenues added to the bottom line within 9-12 months for companies of various sizes

Our Mantra: You win, we win. Simple.