Divestitures: Breaking Up is Hard to Do

Division of Assets: Mine, Yours, and Ours

With divestiture comes the division of assets; unlike a merger or acquisition where all the assets will ultimately reside with one party, in a divestiture, that is reversed. Assets are required to be split and, in most cases, only owned by one of the divesting parties. Some shared assets may need to be replicated or duplicated between the two environments as well, which may have their own issues due to the exact timing and nature of when the sharing agreement ends, or the replication process occurs. 

The strategic plan for the final disposition of organizational assets must be distilled into an itemized list of named assets that will transition, not transition, or be duplicated between entities.  This detailed work requires a combination of environment discovery to itemize assets, knowledgeable resources to determine disposition, and consideration of the legal and regulatory requirements in place.  Ensuring that work occurs well before termination minimizes any risk that critical information will be left behind.  Each asset identified should be assigned a disposition to ensure it is transitioned appropriately:

• Transferred
• Shared
• Duplicated
• Replicated
• Decommissioned

Divestiture Challenges: Moving to a “New Place”

Divestitures present similar but different challenges to merger or acquisition projects. With no existing organizational framework to move to, there is a “trading of the difficulties” of mapping data and processes between source and destination institutions with the difficulties of creating a whole new environment to move into. This allows the divested party to reevaluate their IT needs as a new organization and select an appropriate technology to deploy in the Greenfield space.

Some organizations replicate their IT infrastructure and services under a new Greenfield domain. While it sounds simple on the surface, it may not work out as well in practice. The divesting party is frequently much smaller than the divesting organization. The scale and types of technology, resources, and services needed may differ between institutions.  Consideration of the actual IT needs of the new organization allows for the rightsizing of associated services in the destination environment, avoiding unnecessary expenditures for ongoing operations in the future.

During a divestiture, not all IT systems will transition simultaneously. Different services will be maintained by the divesting party for differing periods of time based upon a terminal services agreement or similar vehicle.  Considering the eventual deadlines for fully divesting and those of the various services being provided is essential to eliminating costly overruns and penalties.  By having a comprehensive inventory of services, their respective migration processes, and timeline constraints, an overall cohesive schedule can be put in place to prioritize those services having the most complex process, earliest termination deadlines, and greatest impact on normal operations. This helps mitigate the risk of services being ended before the divested organization is prepared to take them on.  It is essential to pay particular attention to any custom, long-term, or non-existent transfer of service agreements (TSAs), as their use has increased in recent years as the IT landscape grows more interconnected.

Sensitivity to the Employee Situation

While most IT stakeholders will focus on the IT assets and processes transitioning, the cultural implications of divestiture should not be ignored. While the initial culture of the divested party may feel much like that of the divesting organization, how employees feel and interact with the newly divested culture will force it to change. While many employees will look at it as an opportunity, some may feel that they’re being cast off by moving to the new organization, while others may feel that they’re being left behind for not being transitioned. A comprehensive change management plan that takes into account the different perspectives of different employees can alleviate those concerns, allowing them to focus on the transition process itself, resulting in a smoother transition for both organizations involved. 

The need for a robust communication, training, and awareness campaign increases as the difference between the technologies, processes, and cultures increases.  The impact of the workforce is more than just doing the same thing in a smaller organization with a different name. By being sensitive to the employee situation and instituting a change management campaign that addresses their needs’ downtime and disconnects due to disgruntled and confused employees unable to perform at their best can be avoided.

Turning in the Keys: Importance of Auditing

At the end of a divestiture project, it is imperative that all assets be audited to ensure each has been addressed and verified and arrived at in its proper final disposition. In the vast majority of divestitures, this is a legal, contractual, and/or regulatory requirement. It ensures that everything has been accounted for and provides a starting point for the divested organization as to the initial disposition of all the assets now under their full control. This may occur as a single global audit conducted at the end of a migration project. However, due to practical concerns, it is more commonly performed in waves as the various IT systems and assets are transferred to the divested organization.  Doing so in waves also avoids massive work for the auditing team at the end of the project, which will be trying to audit information that was transitioned weeks or months ago, making for a large workload at the end of a project. Regardless, if done in waves, all at once, or a combination of both, it is just as essential to audit transitioning assets at the end of a project as having an inventory of those assets at the beginning.

If your organization is planning a divestiture and would like assistance in rightsizing the new IT environment, managing the employee experience, and/or ensuring a smooth separation of assets, please reach out to New Era Technology today or visit our DCS webpage to learn more.