Separation anxiety

Separating an organisation is complicated and organisation design is a critical part of the process. When done properly it will ensure that the separated business is appropriately structured with the right capabilities to operate as a standalone entity and achieve its mission and with the right cost profile so as to deliver value to the acquirer. The wrong design choices, on the other hand, can create an unattractive target for buyers and investors, and disrupt BAU. So what’s so challenging about organisation design in separations, and what can companies do to make it a success?

Why is it difficult?

At the outset when you start the process, confidentiality issues usually mean that you have a very small ‘design tent’ – the number of people who know what is happening and are involved in designing the organisation can be tightly restricted which makes decision making incredibly difficult. It’s common to have to revisit decisions once more information is available and more people are involved. Unfortunately, the complexities don’t end there and the following in particular, can provide challenges:

• Unclear end state vision, strategy and operating model
• Leadership teams not announced until after detailed design is underway
• The need to keep options open as to what will happen with the organisation (e.g. spin, sale and then sale to whom?)
• You do not know which people will ‘transfer’ to the standalone organisation
• A target cost profile for the organisation is not known up front

What can you do to make it a success?

There are a few things that you can do to counter some of these challenges.

1. Get leadership in place first

Having your leaders in place helps to create a strategic direction for the new business which then defines what is needed from the organisation in the future. As with any organisation design, there should be a clear link between the strategy and goals of the new business and the organisation design. The growth strategy, how the organisation will position itself against its competitors and the desired culture will determine the capabilities needed, and provide a base from which to build organisation design principles to support a consistent approach to design across functions. In a separation, leaders are often appointed after design has started, or even once it is finished, which leads to designs being reworked according to that new leader’s preferences which then creates costly delays and wasted effort. Having leaders in place so that they shape the design, will also mean they are committed to it and can be held accountable for its implementation. If your leaders aren’t in place early, then having suitable interim ‘caretakers’ will enable the process to progress. Caretakers should represent the future business – not the project team – and have the functional expertise to design the right future organisation. Then when the leader is identified, you should try to maintain the proposed design to minimise disruption to a safe Day 1. Making late changes will cause delays and issues and the design can be optimised once the organisation has been separated.

2. Create a planning assumption as to what will happen at separation

The way you design the organisation will depend on whether you’re aiming to ‘spin’ the separated entity (i.e. where you need it to be completely separate) or if you’re going to sell it. Even if you know you’re going to sell it, the design will be different if you’re selling to a trade buyer or PE. For a trade buyer you will potentially need less build up in support services as the new parent may take on some of these roles, but a PE buyer may well require a more comprehensive support structure similar to that needed for a spin. Providing teams with a planning assumption that they can follow for their organisation design will create consistency of approach amongst teams. Without this direction, functional teams can be reluctant to invest time and effort into doing detailed design, and preparing for multiple scenarios is inefficient and impractical. Of course, if that assumption changes, then some redesign will be required, but with no planning assumption you risk significant delays. It’s also critical to have a formal way of documenting assumptions and decisions as you progress the design; project teams change over the course of the design and making sure that these are documented will help you avoid revisiting conversations and provide helpful context to teams progressing the design.

3. Design for roles not individuals

We all know that roles should be designed first and then talent identified to fill those roles but this is very hard in practice. Often assumptions that certain individuals will be part of NewCo are made early on. In reality, these individuals may not choose to become part of the separated organisation, even when it seemed ‘obvious’ that they would. By constraining your design by people, you also run the risk of designing roles in ways that simply do not make sense for the new organisation – for example, the geographical footprint for the organisation may change completely and in NewCo the role should sit elsewhere. So if you have a great Head of IT based in the US, but the rest of IT is in Europe in NewCo, does that really work?

4. Focus on cost from the outset

Minimising dis-synergy roles for NewCo (i.e. roles that you have to add because you are separating the organisation in to two) will be key to maintaining an attractive cost profile for investors and buyers. Often the cost of the overall business is only challenged once the organisation has been designed, so design teams are sent back to the drawing board with a need to refine (and sometimes completely alter) the organisation design to get to within a defined cost envelope. Understanding the target cost of the organisation early on, potentially using benchmarking data, will help teams to focus on this as they go through design, minimising cost reduction exercises later. As well as using external market data, it is also helpful to understand the true current cost of NewCo, so that there is something to compare it against. Often the services used from RemainCo are understated (or undercharged) and using this as a comparator will not help provide an understanding of where you are now compared to the future. It is also important to think about the costs that you may be leaving with RemainCo, and whether this is appropriate given its new structure without NewCo.