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Determining Organizational Readiness

Measure the ability to undertake divestiture. Explore requirements for a successful divestment. Address any potential issues. Improve delivery of shareholder returns.

Play by:

About the play

As a divestiture can be a significant undertaking, management needs to get an upfront assessment that it has the resources to accomplish it effectively before it jumps in. An organizational readiness assessment is a formal analysis and measurement of the seller’s ability to undertake such a major initiative. 

This play goes through the steps required to do such an assessment. It gives the seller the knowledge and assurance that the proposed divestiture will be successful, should it go ahead.

This type of assessment also gives the seller the ability to address any potential issues before they become big problems. This saves both time and money, leading to a speedier transaction timeline and improved delivery of shareholder returns. 

Preparation

People

CEO, Deal manager, Commercial team

Difficulty

High

Materials

Meeting Agenda, Whiteboard, Strategy documents

Time

Spend one day or more to prepare materials for a one hour play.

Running the Play:

01

Assess Divestiture Complexity

Agree with the team the way the target operates in relation to the parent. 

Here are a list of questions that help determine what this relationship is:


  • The business’ customers are shared with the Parent.
  • The business products and services  are shared 
  • Does the business’ business and technology infrastructure are shared 
  • There is no standalone financial operation
  • There is no independent management reporting.
  • There is no discrete management team
  • Business assets (Software, Hardware, Plant, Property and Equipment) are shared 
  • The business supply chain logistics is shared
  • Legal contracts with third parties bind the business and parent together
  • Processes (Financial, HR, Operations, Regulatory etc) are shared with the parent
  • Intellectual Property such patents, software, trademarks etc is shared with the Parent.


Each one of these questions indicates a level of complexity in the way the target operates in relation to the parent  which will guide the scope, the time and effort required. 


Discuss and agree divestiture complexity as follows:  


Divestiture Complexity Assessment
02

Assess the Complexity of What is Being Sold

Gain an agreement on what is being sold and what best describes the target:

  • A group of companies. 
  • Single stand-alone legal entity. 
  • Single connected legal entity. 
  • Multiple connected legal entities. 
  • Combination of legal entities + certain assets or people. 
  • Business unit with distinct reporting to the Parent. 
  • Business unit without distinct reporting to the Parent. 
  • Loosely defined operational unit. 
  • Collection of pieces


Discuss and agree complexity as follows:  


Complexity Assessment
03

Assess the OrganiZational Capacity to Deliver Change

Capacity is the degree to which the organization can bring supportive work processes, knowledge and experience, current knowledge, skills and abilities, and resources to manage the divestiture successfully.


Discuss the following topics and achieve an open and honest assessment on the organizational capacity.


  • Previous Experience
  • Supportive Environment
  • Resource Availability
  • Execution Timeline
  • Assess the level of commitment 
  • Sponsorship
  • Separation Management
  • Staff 
  • Previous Experience
  • Supportive Environment
  • Resource Availability
  • Execution Timeline
  • Commitment 
  • Sponsorship
  • Separation Management
  • Staff 


Discuss and agree complexity one-by-one as follows:  


Previous Experience

Many organisations are quite adept in the acquisition process with skills and capabilities to match. However, when it comes to selling assets, an organisation could have no experience at all. Carving out a business can often be more complicated than acquiring one. Divestitures, just like acquisitions, is an experienced-driven skill set where preparation counts. Being a prepared seller means having the experience to identify the pitfalls before they happen, and steer the sale to a successful conclusion for the benefit of both staff and shareholders. If the seller has no prior experience, then external support is required where skills and staff availability is most lacking.

Supportive Environment

If the seller company is financially struggling in some way, this can trickle down to operational problems with over-stretched staff working with curtailed budgets. This brings into question the sellers’ ability and available funds to effectively carve out a business it wants to sell in a way that makes it a saleable asset. Moreover, the seller may not have the capacity to provide transitional service support to a potential buyer post-close. This opens up the seller to predatory type buyers who will only want to cherry-pick the assets they want for the lowest possible purchase price. In this circumstance, the seller may need to seek additional funding so it can sell the business for the premium it seeks. 

Resource Availability

Resources are people, equipment, place, money, or anything else that’s needed to run the deal. If for example, there are other divestitures, acquisitions or other initiatives taking up staff time and budgets, it highlights a lack of readiness. Additional external resources and investment may be required to effect the transaction. 

Execution Timeline

There’s a common desire to execute the transaction as fast as possible. Speed of execution is a critical factor in transaction success. However, if the transaction speed is particularly aggressive, then the seller is at risk of making sub-optimal decisions that could have the catastrophic impact of plaguing the parent for years to come as well as diluting deal value. A more measured approach is to go slow and deliberate when making business-critical decisions and accelerate once decisions have been made. 

Level of commitment 

Like any significant initiative, a successful divestiture revolves around the people and their ability to commit to the divestiture.  A strong level of commitment is needed early and needs to be sustained until the transaction completes, and the desired outcomes have been achieved.

Sponsorship

Probably the most crucial role in a divestiture is that of a sponsor. A sponsor needs to set, clarify, and align expectations, objectives and milestones. This person also needs to be candid on the time and effort to perform this role. If the sponsor is exceptionally busy with minimal bandwidth, then any declaration of commitment may be of dubious value. The sponsor has to accept accountability and put time aside for town-hall sessions, meetings, reviews, and checkpoints. It also requires an intense emotional commitment to do what is necessary to help see the divestiture through. 

Separation Management

While the sponsor addresses the emotional side of commitment, it’s the separation manager who turns the notion of commitment into a practical exercise. This means team members will need to be assigned the level of accountability, and authority commensurate with their role. Secondly, the separation manager will need to set up the governance structure to ensure commitment and accountability is built into the rhythm of work. 

Staff 

While there may be a committed sponsor and separation manager, the same may not be said of the staff involved. There’s a risk that the staff working in the business to be sold feeling alienated and may not believe they are not being treated fairly. If the staff think they will not benefit personally and only see a downside to the divestiture, then commitment to the work will be met with resistance. The proposed divestiture needs to be framed as an opportunity for staff and a good solution that benefits themselves and the business they work for. 


04

Summarize Organisational readiness

With the participants in the room, confirm:

  • Readiness gaps
  • Key readiness risks
  • Actions required to address gaps and risks

Prepare a document that summarizes organizational readiness; use this as input to divestiture strategy and planning, and as input to other divestiture plays.


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