Here are a few pointers on what you should do to avoid the pitfalls and challenges of a carve-out.
1. Mitigate risk
In an ideal world, any new business you carve out from its parent, should have infrastructure, resources and talent to operate effectively. But quite often they don’t.
De-risk this by carrying out carve-out due diligence. Effective due diligence process should speed up the carve-out process and save investors and the new standalone entity millions.
2. Create a watertight Transition Services Agreement (TSA) and Target Operating Model (TOM)
A Transition Services Agreement (TSA) is a time-bound document that outlines which services should be shared and paid for by the parent company until the carved-out business is fully independent. It’s a document that should be prepared in the separation planning phase of a carve-out alongside an accurate picture of the Target Operating Model (TOM) of the new business. What will the carved-out business do and how will it achieve this? What services does the business need to borrow to establish itself established as a stand-alone entity? Answer these questions up-front, document everything, and the carve-out process will be a lot smoother.
3. Be open to tailoring technologies to the new business
Simply adopting the same technology systems as the parent company could hinder the carved-out business: its new requirements may be different, will not be constricted by legacy tech and will naturally evolve over time. You also need to factor in new technology contracts not being as favourable, given the carve-out’s size versus the buying-power of a larger parent organisation.
4. Test and commit to timelines
Once the TSA has been set up, there will be financial penalties in place for failing to meet certain deadlines throughout the carve-out process. Therefore, it’s crucial to make sure that the timelines in place are realistic and that the TOM can be realised within the suggested timeframe. Identify the key stakeholders from the parent organisation and get them to commit to the timeline. Make sure you have all the resources you need in place and the necessary buy-in to hit carve-out deadlines.
5. Don’t lose sight of business-as-usual
While we all like to focus on future objectives and targets, it’s important not to forget about the present – make sure that all BAU (business-as-usual) operations are maintained within the standalone entity. This means engaging with the new entity’s IT department and other stakeholders so that they can keep the business running without additional workload created by the separation.
At Siena Consulting, we work with our clients to help evolve their businesses and achieve transformation success.
If you’d like to continue the conversation with our digital transformation expert Rob Saunders, contact him here:
Robsaunders@wearesiena.com
linkedin.com/in/robnsaunders