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Down Sizing v Right Sizing

There has been so much written about this topic –what's new to say? The answer is very little, but what we need to understand is why organisations get themselves into this position in the first place.

The reason for this is that nobody ever take the time to work out what's really needed and the organisations simply grow over time, good examples would be General Electric before Jack Welch, Nissan Motors prior to Carlos Ghosn in 1999, Sony in 2002 , VW motors, Qantas Airline, in fact the list is endless – so how does this happen?

The underlying principle is the more work we do –the more people we need. HR departments seem impotent to stop this happening and eventually the organisation has too many people and those people don’t do enough work. Weak management and poorly focused HR departments help contribute to this mess.

Downsizing is simply reducing the number of reporting layers in the organisation to produce a better line of communication and efficiency through the business. Downsizing is a stressful and risky business and should not be carried out by anyone who has not experienced this technique. It is best put in the hands of consultants.

The work flow is normally greatly improved as often empowered teams or empowered departments replace the traditional hierarchy. What is the right number of levels in an organisation –it varies tremendously from company to company –four seems to work really well.
Working in favour of this concept is the fact that we have the highest educated and paid workforce ever. People nowadays don’t need the same levels or types of management that was in place ten years ago.
In fig 1 you can see a Financial services company, just the sales and services division before downsizing.

Everybody in the company was convinced this structure was right, as it had always served the company well

Due to a new player in the market the company had to respond and did so with the concept of downsizing. The new downsized structure is shown in fig 2 below.

The organisational chart shows four levels as opposed to nine with much greater spans of control – productivity up by 25% in the first year. In the new structure  there are 53 teams managers all of whom are reporting to the Sales and Services Director. Each of the team managers having 5 teams of ten reporting to them (total 50 workers). 


Rightsizing
Right sizing is a lot less risky. It involves reducing the organisation by a small percentage. By doing this you can keep the organisation trim and in better condition. Rightsizing can be achieved by a number of painless means such as:

  • Freezing recruitment
  • Releasing the long term sickAllowing early retirement
  • Releasing poor performers

With right sizing – reducing the organisational numbers will initially improve productivity figures. The trick with right sizing the organisation is to watch and track the link between reducing numbers and productivity and stop the reduction as soon as the productivity improvement graph plateau’s out.

There is no reason why managers can’t do this on a regular basis, small companies are good at this where companies over 300 employees quickly loose the plot.

Case Study Pharmaceutical Company –Paris

I had a meeting with the CEO. Walking into his office he was standing at the window seemingly just staring down at the car park. I asked what he was doing, his reply 'what you had advised me to do two years ago'.

He had been right sizing the company – by a very crude but simple means. He had observed all of the departmental managers not only starting work late; but also leaving early.

This deduction was reached by simply observing their cars in the car park. His office had a perfect view of the place where all the managers parked.

He had stopped all recruitment for these managers and now observing all of the managers starting work on time and not leaving early – although exact productivity records were not available – in his view things had improved significantly.
 


Value of Empowered teams
Depending on the type and size of the organisation – empowered teams makes good sense and are an integral part of organisational change . In real terms you will get a minimum of 15% extra productivity often at no extra cost.

Spans of control for maximum productivity


A brief history lesson. It was in 1760 that Adam Smith set out the ideas that would shape businesses. He was responsible for the new business titles of Supervisor and Manager and with the recommendation that the ideal span of management would be 1: 7. Maybe that was appropriate in 1760 but it sure is not what we need today.

There has never before been such a well-educated workforce. Just look at educational standards– the sheer number of people with degrees. So it makes sense to manage differently and to give more decision making and responsibility to teams. Gone are the days when people need a span of control of 1 to 7. Ratios of 1.50 are now common with one of my clients pushing the boundaries out to 1.200. Fig 17

Ratio's
1760 1:7
1860 1:8
1960 1:10
1995 1:15
1998 1:30
2009 1:50

What minimum ratios you can expect depending on the type of team working you select.

Fig5 above

The biggest productivity restrictor is the old fashioned manager, who rapidly becomes a bottle neck in a highly productive environment.

Contact Tony Miller for further information.

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