Sustaining Competitive Advantage Of Divested Business

Market realities and increased competition have pressurized corporations to revisit their priorities and operational strategies. Divesting non-core business units that no longer fit strategic goals and selling under-performing units can be a viable means to resolve pressing business issues at hand. However, separating a business unit (BU) from its parent organization is wrought with tremendous IT challenges for both the parent as well as the BU being divested. Here are a few observations from the perspective of business unit(s) that are being divested to ensure they safeguard the competitive advantage in the face of divestiture.

 

Priorities/Challenges for the parent entity during divestiture

Traditionally, large organizations have leveraged IT to drive operational efficiencies and automate processes resulting in standardized service platforms to drive cost economies. These platforms are a complex mesh of enterprise applications working in tandem with add-on systems to enable specific functionality. Although an intertwined IT landscape with standardized business processes/applications coupled with deployment of shared services across business functionality is indicative of IT maturity, it works against the interests of the organization during divestiture since the applications landscape and processes relevant to the divested unit will need to be carved out from the parent entity. Divestment often throws up a slew of challenges for the parent organization in arriving at an ideal IT applications framework for the carved out business unit as mentioned below:

 

• Tendency to carve out only the core functionality to protect its competitive advantage from strategic investors/competitors
• Intellectual property issues & concerns, related to industry specific functionalities that are developed over a period of time, hinders the creation of a full-fledged application landscape and functionalities
• Low priority in carving out business unit as compared to other ongoing strategic initiatives/programs
• Workaround solutions in lieu of automated customized solutions dilute competitive advantages and process automation.

 

Priorities/Challenges for the business unit being divested

The BU leadership of the divested entity would be keen to carry forward the entire landscape with its tools, customizations, industry-specific functionalities and analytics into the new organization as these would be deemed critical to business. It would thus be prudent for the BU to come up with a wish list of tangible and intangible IT assets on to the negotiating table for continued operations. The following are some of the challenges that a BU generally faces during the course of divestiture:

 

• Lack of guidance and advice on the go-forward approach and IT strategy formulation due to absence of IT teams
• Obligation to manage F&A, HR, and other processes manually or with workarounds due to absence of shared services function
• Lack of knowledge of the design and implementation of the technical solutions/functionalities developed by the parent unit and customizations that need to be carried forward.

 

What business unit leaders of a divested entity should do to maintain competitive business advantage

 

Being the consumers of the custom/industry specific functionalities deployed by the centralized IT team, the individual BUs are often unaware of the technicalities of the solutions built over a period of time. Hence, carrying a complex functionalty/landscape forward is a challenging task. The critical decision for the business unit leadership will be to identify a core team of subject matter experts and nominate an IT lead from their end. This team should be able to:

• Undertake an independent assessment of the current IT landscape
• Assess inventory of applications, processes by criticality and complexity and strategic value
• Measure inventory of processes undertaken by shared services and their impact
• Evaluate the transactional usage volume of various applications
• Distill the inventory of applications/processes into “must have” and “nice to have” categories.

 

This identified team would start to build data that will be able to ensure that the business unit can:

• Initiate early steps to set up a skeletal IT organization with a mix of SMEs and IT experts (either in-house or sourced).
• Work towards ensuring an effective transition service management process
• Design the  future IT operations to enable normal business operations
• Decide which applications are overkill for the business unit and identify the ones that are sparingly used.
• Ensure that competitive advantage is retained during the changeover process
• Use divestiture as an opportunity to take a fresh look at the IT systems and decide the best course of action and as an opportunity for change management.

 

The ability of the divested business unit to negotiate with its parent entity, the IT landscape and processes/functionality is dependent on knowledge of the existing scenario. Therefore, the above steps are imperative to accomplish even before the buyer is finalized. This is especially important because the type of buyer (private equity v/s strategic investor) is unknown at this point in time. In the event the buyer falls into the latter category, the efforts invested will be even more important as the investor is more likely to bring in little in terms of IT strategy to the deal table.

Comments

[Nitin Fuldeore]

Prashant,
Good information. Divesting may not be just a business decision some times it becomes a political decision as well. I think selling off of Phibro by Citibank can be one example of the same.
Good work and keep blogging.

[Alex]

Hi outsourcing tend is in positive path again in India. BPO companies are going to hire a huge number of employee in next quarter .Liked your post

Thanks again
Alex