Shared Service Separation: Building Standalone Operating Models for Divested Entities

Blog Article

In the corporate world, divestitures—where a company sells, spins off, or separates part of its business—are often pursued to sharpen strategic focus, unlock shareholder value, or comply with regulatory demands. While these transactions can bring long-term benefits, they also come with considerable operational complexity. One of the most critical and challenging components of a divestiture is the separation of shared services, which include IT, finance, HR, procurement, legal, and other essential business functions. Successfully building a standalone operating model for the divested entity requires meticulous planning, cross-functional collaboration, and often, the specialized expertise of divestiture consultants.

This article explores the intricacies of shared service separation and offers a roadmap for creating standalone operating models that support a divested entity’s success in its new, independent form.

Understanding Shared Services in a Divestiture Context

In a corporate environment, shared services are centralized functions that support multiple business units within an organization. These services are typically designed for efficiency, scalability, and consistency. However, when a business unit is divested, it can no longer rely on the parent company’s centralized services. This presents a host of operational challenges:

Disentangling tightly integrated systems and processes

Migrating or duplicating critical infrastructure

Establishing interim solutions while permanent ones are built

Ensuring business continuity during the transition

Often, the divested entity must either replicate these shared services or build entirely new ones, which can be time-consuming, expensive, and risk-laden. This is where a well-structured separation strategy and experienced divestiture consultants come into play.

The Strategic Role of Divestiture Consultants

Separation planning and execution are complex undertakings that span people, processes, and technology. Divestiture consultants bring critical experience and best practices to the table, helping companies minimize disruption, reduce risk, and accelerate the timeline to independence.

These professionals typically help in:

Assessing the current state of shared services and identifying dependencies

Designing a transitional services agreement (TSA) to maintain continuity during separation

Developing a target operating model (TOM) for the divested entity

Managing the implementation of new systems, tools, and teams

Navigating compliance, security, and regulatory requirements

Their ability to coordinate cross-functional efforts, address integration issues, and manage change is vital to ensuring that the divested business emerges as a strong, agile, and independent organization.

Phases of Shared Service Separation

Separating shared services as part of a divestiture generally occurs in several key phases. Each stage requires deliberate actions to ensure smooth execution and effective transition to a standalone operating model.

1. Discovery and Assessment

The initial phase involves identifying all shared services currently used by the business unit slated for divestiture. This includes:

Cataloging applications, infrastructure, and third-party services

Mapping out business processes supported by shared services

Identifying contractual and compliance dependencies

Understanding service-level expectations and performance baselines

This discovery phase sets the foundation for defining the scope of separation and enables stakeholders to assess the complexity and effort required for disentanglement.

2. Designing the Target Operating Model

Once there is clarity on what needs to be separated, the next step is to define the Target Operating Model (TOM) for the standalone entity. The TOM outlines how the divested business will operate independently, including:

Organizational structure and governance

Key processes and workflows for back-office functions

Technology architecture and platforms

Policies, controls, and service levels

A strong TOM ensures that the new entity is not only operationally viable but also aligned with its strategic objectives post-separation.

3. Transitional Services Agreement (TSA) Planning

Given the complexity of building a standalone model from scratch, it’s often impractical to complete all separation activities immediately. As a result, a Transitional Services Agreement (TSA) is commonly used to define the support that the parent company will provide for a specified period post-divestiture.

A well-structured TSA outlines:

Services to be provided (e.g., payroll processing, IT support)

Duration of support and exit strategy

Cost allocations and service-level expectations

Change management and dispute resolution mechanisms

TSAs serve as a temporary bridge, enabling the divested entity to maintain operations while new capabilities are built and deployed.

4. Implementation and Build-Out

This phase involves executing the build-out of the standalone capabilities as defined in the TOM. Key activities include:

Migrating data and applications to new platforms

Standing up new systems (e.g., ERP, HRIS, CRM)

Establishing procurement and finance functions

Hiring or reallocating staff to support internal functions

Ensuring cybersecurity and compliance in the new environment

This stage often involves parallel operations, where the TSA remains in effect while the new infrastructure is being tested and scaled.

5. Cutover and Stabilization

Once the new systems and processes are fully operational, the business transitions away from the TSA and becomes fully independent. The cutover process must be carefully managed to avoid disruption to day-to-day operations.

Key considerations include:

Final data migration and reconciliation

User training and communication

Monitoring for performance, compliance, and service levels

Post-separation support for troubleshooting and refinement

The stabilization period is crucial for identifying issues early and making necessary adjustments to ensure that the standalone model performs as expected.

Key Challenges and Risk Factors

Building a standalone operating model is no small feat. It’s important to recognize and plan for common challenges, including:

Timeline Pressure: Divestitures are often driven by aggressive timelines, and misalignment between strategic and operational planning can cause delays.

Budget Constraints: The cost of building new systems, hiring staff, and managing change can be significant.

Change Management: Employees may face uncertainty and fatigue, making effective communication and training critical.

Data Security and Compliance: Ensuring regulatory compliance during data migration and system deployment is essential.

Vendor Management: Existing third-party contracts may not be transferable, requiring new negotiations and onboarding.

By identifying these risks early, companies can develop mitigation plans and ensure smoother execution.

Conclusion

Separation of shared services is a central challenge in any divestiture. The ability to build and transition to a fully functioning standalone operating model directly impacts the long-term success of the divested entity. With a structured approach, strong project management, and the guidance of experienced divestiture consultants, businesses can navigate the complexities of separation while minimizing disruption and risk.

In today’s fast-paced, deal-driven environment, operational readiness can be a decisive factor in a divestiture’s success. Organizations that invest in thorough planning, leverage the right expertise, and remain agile during execution will be well-positioned to thrive post-separation.

References:

https://elias1w48dmt1.therainblog.com/33833899/tax-loss-harvesting-through-strategic-divestitures-optimizing-corporate-tax-positions

https://kayden2d19kxi2.life3dblog.com/33854827/maintaining-brand-equity-through-license-agreements-in-partial-divestitures

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SHARED SERVICE SEPARATION: BUILDING STANDALONE OPERATING MODELS FOR DIVESTED ENTITIES

Shared Service Separation: Building Standalone Operating Models for Divested Entities