Carve-out – achieving a clean cut
There are various reasons for carving out part of a business. It may be linked to a management strategy to sell part of the company, or there may be legal or regulatory requirements that make it necessary or more profitable to separate a part of the organisation. Whatever the reason, carve-out projects differ significantly from other project types.
Leavitt’s model: why carve-outs are fundamentally complex
Leavitt’s model is often used to illustrate how the four core organisational elements (goals and strategy, structure, technology and people) influence each other. When changes are introduced in one area, they will inevitably affect other areas of the organisation.
In carve-out processes, this complexity increases further: here, all four elements are changed simultaneously – and these changes also ripple across the remaining elements.
Leavitt’s model reinforces a key point in this article: carve-out projects are extensive and touch every corner of the organisation. It is essential for the company’s future that such projects are handled thoroughly, professionally and comprehensively. Based on our experience, we describe several key focus areas below that can help secure success.
A wide and influential stakeholder landscape
Stakeholders in carve-out projects are typically placed high in the organisation – often the executive management team or the ownership group. This gives carve-out projects the highest level of priority and ensures access to the organisation’s strongest resources.
A long list of corporate support functions is involved, both as stakeholders and as customers or suppliers to the project: legal, HR, finance, procurement and more.
Take the finance function as an example. Finance is a project participant because it must ensure clean accounting structures for both companies. At the same time, finance departments in both organisations are customers of the project, as they need to adopt new or changed processes and IT systems produced by the project.
The stakeholder group also includes all employees in the part of the organisation being carved out. HR therefore plays a major role in ensuring safe and compliant transfer of employees to the new entity – including handling formal pay and employment conditions with unions and ensuring that employees feel secure during the transition.
Because carve-out projects span so widely across the organisation, achieving momentum and consensus can be difficult. If not handled carefully, this can lead to employee attrition and declining business performance. The solution is to ensure high visibility, strong governance and the ability to communicate clearly with all key stakeholders involved.
Project participants in unfamiliar roles
As noted, carve-out projects require contributions from most corporate functions to separate processes, systems and responsibilities. Our experience shows that few employees in these functions are accustomed to working in cross-functional project teams or to the conditions typical in project environments. This can create challenges in decision-making, perspective and collaboration. For many, participating in a carve-out project is a one-off experience.
The underlying IT systems
Most business processes are supported by IT. If IT infrastructure and systems do not function properly and align with processes, neither of the two future organisations will operate as intended.
IT tasks in a carve-out are extensive and include:
- system and data migrations
- separation of systems (architecture, software and data)
- access management
- management of hardware (phones, PCs, servers, networks, IT security)
Data management is a particularly critical area – especially master data. Processes, ownership and responsibilities for master data must be fully clarified and established if both companies are to function properly.
Ownership of data, customers, IP rights and products
Even after the legal agreements are signed, ownership of customer data, IP rights and products can be difficult to divide. Historical customer data, proposals, contracts and purchasing patterns may have high value for both organisations.
Questions that must be addressed include:
- How should customers served by both companies be managed?
- Which company should own IP rights linked to products valuable to both?
- How should the product portfolio be divided – and what does that mean for existing and new customers?
When projects start quickly
Carve-out plans are often confidential and therefore only announced when the project begins. This means preparatory work such as pre-analysis, scoping and business case iterations often happens in parallel with execution. As a result, unexpected challenges may arise along the way – and with tight deadlines, carve-outs demand high flexibility and significant project capacity.
The project manager must maintain focus on what truly matters and be able to shift focus quickly if unforeseen obstacles arise. Keeping the project team motivated is crucial, as tasks can feel overwhelming.
Organisation and culture
In addition to the practical tasks required for separation, several organisational considerations must be addressed. Employees may struggle to understand or accept the reasons behind the carve-out. Emotional ties to colleagues and the existing organisation can be strong.
After the separation, both companies must rebuild organisational culture. Strong change management is needed. Project-level guidance must be anchored by local people managers across both organisations.
Our experience
Carve-out projects resemble large change programmes, where HR, finance, payroll, IT and infrastructure may each have their own sub-project and project manager. We recommend focusing on the following before, during and after the carve-out:
- Management must ensure that all employees receive – and understand – clear communication about the purpose and goals of the carve-out
- Executive leadership must secure buy-in from other leaders across the organisation
- The project must have fast and easy access to key decision-makers
- The project manager should establish early contact with specialists from support functions
- Consider running scenario workshops early on to identify cross-functional challenges
- Pay special attention to IT. Map and handle dependencies, shared ownerships and information flows
- Ensure the steering committee represents all key stakeholders. Alternatively, use an active reference group
- Make communication a central activity – both internally in the project and across the organisation
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kaastrup|andersen provides a strong team to manage carve-outs. We increase resources early in the process to quickly establish oversight of the stakeholder landscape – essential in carve-outs, which typically must be executed rapidly.
