More people have real-life carve-out experiences than we think. For example, a family of four deciding to go through divorce gain more knowledge of carve-outs than just the process of ‘splitting up’.
This imaginary couple with two kids have done their yearly family life assessment (management review), have reflected on how they are not able to focus on the things that matter the most (lost focus), and have concluded that their long-term goals are too different to make it together (strategic misalignment). They therefore decide to split up, and carve-out activities begin.
Carve-outs in business can get just as intimate as in one’s personal life. In this post I will cover what to watch out for, and which valuable lessons should be put into practice in the business world.
Be prepared to get moving, fast!
Typically, carve-outs run on tight schedules that require focus, prioritization and a matter-of-fact approach to the issues at hand. There’s no time to sort out wrong moves and all areas affected must be re-organized. Regardless of whether the ‘split-up’ is personal or business-related, it can benefit from approaching the situation as it is, accepting it and making a game plan for the future, instead of having people fall into indecisiveness, emotional drama or arguments.
Negotiate good transition services agreements (TSAs)
Time pressure is often created by the length of transition service agreements by which the parent company offers required services to the carved-out ‘NewCo’ for an agreed period of time. Depending on the nature of the relationship between the Parent and the NewCo and how well the negotiations went, the agreement may not cover the required services for long enough. This will easily lead to loss of business continuity, and increased costs in either engaging third party service providers to cover the gap or extensive TSA overage fees. Needless to say, many people know that personal break-ups can be costly too, and therefore agreeing on offering ‘transition phase’ services such as cooking and fixing the spouse’s car can save a dime or two.
Ensure that tools and resources are available
In carve-outs, the technology challenges differ significantly from the ones in mergers. In mergers, the choice between whose systems are adopted for which purpose is crucial. Also, the effort to integrate information systems is significant and often extremely time-consuming. In a carve-out many, if not all, automated processes and tools will no longer exist – everything will need to be designed and built anew. This can be a hard truth to break to the people involved; for example, everyone may now need to report travel expenses manually until the new system infrastructure is built.
Compare this with the family-life situation of having to explain to the kids why there’s no PlayStation at dad’s, and mom only allows playtime after the room is cleaned…
Psychologically, carving out an integral part of an entity triggers a feeling of loss in humans. Furthermore, the loss of something already existing is harder to accept than the possibility of creating something bigger and better, as in the case of mergers. Therefore, whoever leads the carve-out transformation project must be a tough negotiator who can ensure a good foundation for the change, including reasonable TSAs and technology decisions. To lead the human side of transformation is a topic for another day.