Recent Searches
In brief
Many organizations miss the opportunity to build IT value during a divestiture or don’t address it until it’s already too late. The result is less agile IT organizations and unnecessary costs. In fact, 63% of companies acknowledge not placing enough emphasis on the parent company during their last carve-out or spinoff, according to the EY Global Corporate Divestment Study.
By focusing on six key elements of IT transformation, companies can take advantage of a critical opportunity to build a better digital enterprise with increased efficiency, superior customer experience and profitable growth.
How EY-Parthenon can help
Discover how our corporate venture building team designs and delivers cutting-edge digital businesses, guiding them from concept to cash.
Read moreIT is often one of the most complex parts of a divestiture, due to entanglements across different parts of the organization. Personnel, networks, procedures and controls, and their interdependencies, can be examined and managed carefully, alongside the impact on the enabling IT environments.
Companies often find that, after the deal, the IT department is too big for the smaller or reshaped organization. It is also common for companies to realize later that key personnel have left, either transferring to the divested entity or exiting altogether. That talent gap may now need to be filled, presenting an opportunity to introduce new skills and experiences.
Organizations may need to examine shared costs across business units, including those staying with the remaining company, to avoid being stuck with stranded costs for shared resources—including IT personnel, facilities and other resources—that are no longer fully utilized. In addition, volume-based contracts may need to be renegotiated due to the reduced purchasing leverage of the remaining company. Anticipating the impact of these costs early in the process can save time and help divestors preserve value.
There are six key elements of a reimagined technology strategy that C-suite and technology leaders can follow to help make a positive business impact.
As part of reshaping the remaining organization, management can understand early in the process how additional investments in cloud technology can help achieve the strategic and financial benefits envisioned in the deal. This way, the organization can leverage the changes associated with the transaction to implement cloud-based systems.
Cloud delivers more to the enterprise than just a streamlined IT function. It can often enable revenue growth and operational efficiency through speed, scale and productivity benefits. It does far more than traditional platforms to support attractive digital opportunities, like big data and analytics, as well as more effective management of the customer experience.
In fact, the divesting company will be prepared for the cloud journey by having completed an inventory of computing, storage and networking assets, as well as an assessment of current data centers for entanglements and costs. The company is also likely to transfer a number of business systems to the cloud as part of the divestment program.
The divesting organization will have assessed and classified its data as part of the transition. This can be an excellent opportunity to align data strategy with organizational business goals and develop a robust data environment and governance model.
A good data governance model can address regulatory compliance and data ownership to prevent unauthorized data from leaving the organization with the separation. This exercise is also a platform on which to build a sophisticated data strategy that leverages the value of data for stakeholders in future operations.
For example, advanced analytics powered by data can help the company become a more “customer-centric” business by innovating products around customers’ needs, delivering distinctive services and experiences, and attracting and retaining the best talent. Analytics can also become a key enabler of competitiveness and organizational value by supporting superior, strategic decision-making for the organization.
IT organizations can take advantage of the divestiture by using process assessments that are typically done as part of the transaction to develop more responsive technology delivery capabilities. Many successful organizations have done this by adopting modern Agile development processes for faster, iterative software delivery, as well as DevOps, an approach that combines software development and IT operations to shorten deployment lifecycles and improve collaboration. These practices work together with cloud, data and advanced analytics to accelerate the organization’s digital transformation. For example, an Agile technology department can deliver new solutions more quickly to help the organization gain control over its customers’ experiences.
Organizations may need to consider implementing new governance and process changes to support DevOps. For instance, they could allow development teams to test, promote and deploy code in production environments without requiring constant involvement and oversight from infrastructure teams.
The opportunity to transform the organization’s cybersecurity capabilities begins with the announcement of the deal itself. Once news of a divestiture is in the press, opportunistic cybercriminals can take advantage of disrupted routines and distracted employees to launch ransomware attacks. Risks also arise when a party in the deal is not prepared to implement cybersecurity measures to meet Day 1 requirements. Cyber risks affect both the divesting organization and the entity being sold or spun off and are present in all phases of the deal cycle.
Companies that take steps to embed a defensive cybersecurity strategy throughout the deal cycle will be positioned to avoid deal risks. They will also be in a better position to meet the future cybersecurity needs of the organization.
The parent organization’s future competitiveness will depend on its ability to innovate, including with new technologies. With the divestiture, the organization has a significant opportunity to develop a corporate culture with innovation as a key contributor to competitiveness.
A culture that fosters innovation promotes not only competitiveness and growth, but also the organization’s ability to attract and retain talent. One way to achieve this is to partner with sources such as universities or industry consortiums to find and develop rare talent.
The change management and communications program in place for the divestiture can be designed with a focus on innovation to help create a flexible and creative organization that can thrive in an environment of constant change.
While envisioning the organization’s future competitiveness, management can examine the company’s strategic IT and related partnerships. These can include cloud and other IT services, universities for strategic and leading-edge thinking, and startups for fast-changing technologies and potential joint ventures.
Successful IT partnerships help align an organization’s current capabilities and needs with a strong focus on market position, customer relationships and growth potential. Without strategic partnerships, it is harder for companies to deliver transformational capabilties that enhance customer experience and revenue growth.
The post-divestiture organization is often well placed to do this because it has assessed its core and peripheral capabilities as part of the deal. The logical next step, with newly raised capital from the deal, is to invest in partnerships that augment those capabilities.
Don’t wait to plan post-divestiture IT. Organizations may need to consider how to create value for the remaining company when deciding to divest. They can also begin refreshing the company’s technology strategy as soon as the divestment is in motion. Companies that take the window of opportunity to simultaneously transform their technology strategy while divesting can improve agility and competitiveness while delivering greater stakeholder returns.
Related Strategy and Divestitures articles
How can your digital investment strategy reach higher returns?
The 2022 Digital Investment Index reveals that companies struggle with digital strategy and measuring returns on their technology investments. Read more.
The CIO Imperative: Is your technology moving fast enough to realize your ambitions?
Data centricity can be an insight engine that unlocks operational, customer and market data value, according to EY’s 2022 Tech Horizon survey. Read more
