Operating Model Design for Planned Divestitures
Operating Model Design for Planned Divestitures
Blog Article
Planned divestitures are strategic decisions undertaken by organizations to enhance focus, streamline operations, or unlock value for shareholders. While divestitures can provide significant benefits, their success heavily depends on a well-designed operating model tailored to the needs of the separated entities. The operating model serves as the blueprint for how the divested business will function independently and how the parent company will adapt to its revised structure.
This article explores the key components of operating model design for planned divestitures, highlights the challenges involved, and outlines best practices for achieving a seamless transition.
Understanding the Role of the Operating Model
An operating model defines the structure, processes, systems, and governance required to execute an organization’s strategy. In the context of divestitures, it serves as the framework for ensuring that both the divested entity and the remaining organization can operate effectively post-separation.
Designing a new operating model involves addressing several critical questions:
- What functions, assets, and resources will transfer to the divested entity?
- How will shared services, such as IT, HR, and finance, be managed during and after the separation?
- What governance structures will ensure accountability and alignment with strategic goals?
The operating model must balance independence for the divested business with continuity for the parent company, minimizing disruptions to operations, customer relationships, and stakeholder trust.
Key Components of Operating Model Design
1. Organizational Structure
The first step in operating model design is defining the organizational structure for both entities. This includes determining leadership roles, reporting lines, and team compositions.
For the divested entity, the structure should support its specific business objectives, whether it’s pursuing growth, focusing on core capabilities, or adapting to new market conditions. For the parent company, the structure must align with its revised portfolio and strategic priorities.
2. Process Redesign
Processes need to be clearly delineated between the divested business and the parent organization. This includes supply chain management, customer relationship management, compliance processes, and back-office functions.
During this phase, transitional service agreements (TSAs) often play a critical role in ensuring continuity. TSAs allow the parent company to provide certain services to the divested entity for a defined period, enabling a smoother transition.
3. Technology and Systems
IT and technology systems are integral to operational efficiency. Designing an independent technology stack for the divested entity is a complex but essential task. This involves:
- Migrating data to new systems.
- Identifying and replacing shared applications.
- Ensuring cybersecurity and compliance.
For the parent company, the challenge lies in optimizing its IT infrastructure to reflect the revised operating environment while maintaining integration with retained assets.
4. Governance and Decision-Making
Clear governance structures are vital for both entities to function independently. For the divested business, governance must ensure compliance, accountability, and alignment with its goals. For the parent company, governance should focus on strategic oversight, risk management, and ensuring that the divestiture delivers its intended benefits.
Engaging divestiture advisory services during this phase can help establish robust governance frameworks, drawing on their expertise to navigate complexities and anticipate challenges.
Challenges in Operating Model Design
1. Managing Complexity
Divestitures often involve disentangling deeply integrated systems, processes, and teams. This complexity can lead to delays, cost overruns, and operational disruptions if not managed effectively.
2. Aligning Stakeholders
Operating model changes require buy-in from multiple stakeholders, including employees, investors, and customers. Resistance to change or misaligned expectations can hinder progress.
3. Balancing Independence and Continuity
While the divested entity needs to operate independently, ensuring continuity during the transition is equally important. Striking this balance requires careful planning and coordination.
Best Practices for Effective Operating Model Design
1. Start Early
Operating model design should begin as soon as the decision to divest is made. Early planning allows organizations to address potential challenges proactively and minimize disruptions.
2. Engage Cross-Functional Teams
Involving representatives from all key functions—such as finance, IT, HR, and operations—ensures that the operating model addresses the needs of the entire organization.
3. Leverage External Expertise
External consultants and advisory services bring valuable experience and insights to the divestiture process. Their guidance can help organizations design effective operating models, manage risks, and execute transitions smoothly.
4. Monitor and Adapt
Operating models should be flexible enough to adapt to changing circumstances. Regular monitoring and feedback mechanisms enable organizations to make necessary adjustments during and after the separation.
The Role of Communication in Operating Model Design
Effective communication is a cornerstone of successful operating model design. Keeping employees, customers, and other stakeholders informed about changes fosters trust and reduces uncertainty.
Transparent communication about the rationale for the divestiture, the timeline for implementation, and the expected benefits ensures alignment and support throughout the process.
Operating model design is a critical element of successful divestiture planning. By addressing organizational structure, processes, technology, and governance, companies can create a framework that enables both the divested entity and the parent company to thrive.
While the challenges of operating model design are significant, early planning, cross-functional collaboration, and engagement with divestiture advisory services can mitigate risks and enhance outcomes. In today’s dynamic business environment, a well-designed operating model is not just a necessity—it is a strategic advantage that lays the foundation for sustained success.
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