Turnaround Success: 5 Key Benchmarks in Operational Restructuring

Introduction

Operational restructuring is often essential for companies facing financial challenges or aiming to enhance performance. Whether it's reducing costs, increasing efficiency, or adjusting business models, effective operational restructuring requires careful planning and execution.

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One of the most powerful tools in ensuring the success of such initiatives is benchmarking. By comparing key metrics to industry standards or best practices, businesses can assess where they stand and identify areas that require improvement. In this blog, we'll explore the following topics:

• What is Operational Restructuring?
• The 5 Key Benchmarks in Operational Restructuring
• How to Implement These Benchmarks in Your Restructuring Strategy
• Case Study: A Successful Turnaround Using Benchmarks
• Conclusion

What is Operational Restructuring?

Operational restructuring refers to the process of reconfiguring an organization’s structure, processes, or workforce to improve efficiency, reduce costs, or align better with business goals. This process may involve changes in leadership, workforce reduction, outsourcing, process optimization, or even a complete shift in business strategy.

The goal is to revitalize the company, restore profitability, and improve long-term sustainability. Benchmarking plays a critical role in this process, offering a clear, data-driven path for identifying areas that need change and tracking improvements over time.

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The 5 Key Benchmarks in Operational Restructuring

1. Revenue per Employee (RPE)

Revenue per employee is a key metric for understanding workforce productivity and efficiency. During a turnaround, this benchmark helps organizations evaluate if they have the right staffing levels to generate optimal revenue.

If the revenue per employee is low, it could indicate an overstaffed workforce or inefficiencies in the way labor is utilized. By comparing this metric against industry standards, companies can make informed decisions about workforce restructuring, whether that means reallocating employees to higher-value tasks, reducing headcount, or investing in training to improve productivity.

This benchmark provides crucial insight into whether operational changes are yielding the expected productivity gains – Benchmark your RPE for free here.

2. Operating Costs as a Percentage of Revenue

Operating costs as a percentage of revenue measure how much of a company’s revenue is consumed by its operating expenses. In a turnaround scenario, controlling costs is one of the most immediate and impactful goals.

If operating costs are disproportionately high, it could signal inefficiencies in processes, resource allocation, or procurement. Benchmarking this metric allows companies to identify areas where cost-cutting measures can be applied without sacrificing quality or performance.

For example, if a company’s operating costs exceed the industry average, it may need to examine its supply chain, workforce utilization, or overhead expenses to find savings opportunities. By reducing operating costs, a company can significantly improve its profitability during the restructuring process.

3. Gross Profit Margin

Gross profit margin is a key indicator of a company's ability to generate profit after accounting for the direct costs of producing goods or services. A healthy gross profit margin indicates that a company is effectively managing its production or service costs while generating enough revenue.

In the context of operational restructuring, benchmarking gross profit margins helps to assess the effectiveness of cost-cutting measures and operational improvements. If margins are lower than industry standards, it may point to issues such as inefficiencies in production, overpriced raw materials, or suboptimal pricing strategies.

By identifying and addressing these gaps, companies can increase their profitability, which is a critical outcome of any turnaround effort.

4. Headcount by Function

Headcount by function measures the distribution of employees across various departments and roles within the organization. These benchmarks are particularly important during a restructuring because it helps to assess whether the workforce is appropriately allocated to meet the company’s strategic objectives.

A key part of any operational restructuring is ensuring that resources are aligned with the company’s most critical functions, whether that’s sales, production, R&D, or customer service. Benchmarking headcount by function allows companies to identify areas of overstaffing or understaffing.

For instance, a company may find that it has too many employees in administrative functions, while strategic departments like R&D or sales are understaffed. By adjusting the workforce distribution, companies can ensure that they are investing in the areas that will drive the most value – Get access to functional benchmarks here.

5. Turnover as a Percentage of Employees

Employee turnover as a percentage of employees is a crucial metric for measuring workforce stability and engagement. High turnover during a restructuring process can signal dissatisfaction, uncertainty, or poor morale. It’s important to monitor turnover rates to ensure that employees are staying with the company through the changes and that the restructuring is not negatively affecting the workforce.

Benchmarking turnover against industry standards can help identify if the company is facing an unusual level of attrition. If turnover is high, it might indicate problems such as poor leadership, lack of communication, or misalignment between the company’s goals and employee expectations.

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How to Implement These Benchmarks in Your Restructuring Strategy

To effectively implement these benchmarks in your operational restructuring, start by gathering the relevant data from both internal sources (such as financial reports, employee records, and performance metrics) and external sources (such as industry reports and benchmarking databases).

Once you have the data, compare your company’s metrics with those of industry peers or best-in-class organizations. Analyze the gaps and determine which benchmarks are most critical to achieving your turnaround goals.

Then, develop an action plan that outlines the steps required to improve performance based on these insights. Whether it’s cutting costs, optimizing workforce allocation, or improving profitability, these benchmarks should be at the core of your restructuring strategy.

Case Study: A Successful Turnaround Using Benchmarks

A US based manufacturing company with high turnover rates used external benchmarks from CompanySights to recognize that its employee retention was well below industry standards. By improving its employee engagement programs and offering more competitive compensation, the company successfully reduced turnover by 29% in the following year, stabilizing its workforce during the restructuring process.

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Conclusion

Operational restructuring can be a challenging and complex process, but leveraging key benchmarks can provide clarity and direction. By focusing on critical metrics like revenue per employee, operating costs, gross profit margin, headcount distribution, and employee turnover, companies can identify inefficiencies, optimize resource allocation, and improve profitability.

Benchmarking not only provides a way to measure success but also offers valuable insights that guide decisions throughout the turnaround process. By applying these benchmarks, businesses can drive more effective restructuring efforts and position themselves for long-term success – Start your benchmarking journey here.