The impact of business disruption on IT: The divestiture
While the business is celebrating some new announced organizational change, as an IT professional, you are sitting back wondering how you are going to accomplish some unreasonable task related to the said business decision. This post is the first in a series of posts that discusses the impacts of business decisions on IT. As a fellow geek with some business experience, I’ll try to provide some insights into where to start your journey for an answer. In this first post, I’ll tackle the thoughts and concerns a divested business unit.
There are different types of divestitures. The most common is being part of a business unit sold to another organization. I’ll address that scenario in the future. The scenario of today’s discussion is being spun out.
The spin out
One option for unlocking hidden value is to sell or spin out a business unit. Let’s cut through the business speak of hidden value. Hidden value is a term used when a company is more valuable in separate parts than as a larger company. An example in the tech industry is Symantec spin out of Veritas. In the end, Veritas becomes a standalone company, and Symantec shareholders receive shares in both companies. The hope is that Wall Street values each company more individually than as a whole.
I’d argue spin outs are more difficult IT projects than integrations in some aspects. In integrations, you have the option of kicking the can down the road. Low-value system migrations are delayed until it makes sense to prioritize and invest in the migration of the systems. On the people and process side, having double the number of employees is a different problem than having half the employees you need. Normally, as part of the spin-out announcement, the management team have informed investors when operations become independent.
The independent operations date is the most critical part of any planning around separation. The two organizations normally put together operating agreements where the spun out organization pays the former parent for services ranging from accounting, HR, facilities and of course IT. Both management teams are incentivized to ensure the separation happens on schedule. The service agreements are profitable to the parent organization, but the real business value is a successful migration. Therefore, substantial penalties are enacted to motivate all parties to complete separation on schedule. While IT is a major consideration, it isn’t the only consideration during separation.
Define your scope
A separation is a bundle of projects inside of one umbrella. Think, data center migration, network deployment, and IT systems refresh as just some high-level workstreams. It’s critical to define and control the objectives and scope of the separation. Separation projects are just the projects that are required to keep the lights on. The business is still moving and competing. As a result, it’s critical to understand the priority of your new organization. Is the priority separation or innovation? Without the clarification, there’s significant risk as constraints for the two initiatives compete.
The priority supports the development of scope. A separation takes months to years depending on the size and complexity of the organizations involved. It’s critical to revisit scope during specific checkpoints of the migration. Remember, the reason for migration is the business drivers behind the separation. If those drivers accelerate or change then, the impact of scope is impacted.
People and Process
The technology challenges are enough to keep a team of consultants busy. One of the initial decisions is around people and processes. There are synergies when two IT organizations merge. The math is equal on both ends when considering a divestiture. Synergies disappear, and organization needs to staff quickly up to meet the needs of separation and new projects. Resource constraints are revealed. Leaders have an eye on migration and steady state operations. During the migration, both IT organizations are leveraged. Post migration, the divested business has only the resources dedicated to the independent organization.
Pre and post-separation resources are one of the biggest risks to the success of ongoing IT operations. IT leaders need to determine how the plan on quickly staffing and maintaining a new IT organization. Should CIO’s consider outsourcing operations and engineering? Outsourcing frees up critical resources to establish the new organization. However, outsourcing isn’t magic. A managed service provider provides capable resources, but these resources need training while performing separation duties.
Outside of training, out sourcing is a project within itself. The organization needs to understand the complexities of negotiating a managed services contract and transitioning operations that don’t exist yet to a managed service provider. Another project. In traditional out sourcing, an IT organization may transfer employees, systems and processes to the managed service provider. In a separation, these resources are sparse if they exist at all.
What about licensing and vendor management? In a larger organization, you leverage economies of scale. What triggers are tripped when your organization is divested? Before the divestiture, it’s wise to negotiate the discounted rates transfer to the smaller organization for a period.
Licensing isn’t the only consideration. There are critical resources that both organizations share with core vendors. The SAN vendor has to split their time between two critical customers. Will your organization count on access to the same named resource that handles mission critical systems and design? When and where does the separation of shared account information happen. What relationships exist between your new team and your critical vendors?
At the technology stage, you need to make the simple decision of transformation vs. migration. Is the business goal to add new capability during the separation or offer “like-for-like” capability? I’d highly advise not trying to transform technology at this point. If you haven’t caught the theme of this post – a lot of stuff is in flight during a separation. Technology migrations are disruptive as stand-alone projects. Adding transformation without an incredible upshift in business capability isn’t a good idea.
Any new technology initiative is directly tied and measurable business outcome. Transformative projects consume the time of your most talented resources. Separation projects consume the time of your most talented resources. Your most talented resources cannot serve two projects.
I can write a book on this topic. I wanted just to give a taste of the considerations. Use the comments section below to help me form the follow on post. Such a broad topic and I want to write about the aspects the most impact readers.
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IT infrastructure subject matter expert (Cloud, Virtualization, Network & Storage) praised for transforming IT operations in verticals that include Pharma, Software, Manufacturing, Government and Financial Services. I’ve lead projects that include consolidation of multiple data centers and combining disparate global IT operations. “Three letter” Federal agencies have called upon me to lead the modernization of critical IT communication platforms.