People permanently shedding unwanted pounds rarely keep wearing their old clothes. Corporations shed unwanted pounds through spinning off assets or lines of business. However, many corporations continue to wear old clothes (organizational structure, existing business practices, and supporting technology) that don’t fit the organization. The poor fit is reflected in inefficient business practices, organization frustration, and lack of agility.
Leading organizations have found ways to put on new clothes and become the lean and nimble company they hoped to become with the spinoff.
1. Reorganize the corporate structure
Pre-spinoff organizations are designed to address the corporate challenges inherent with the complex legacy company. Following a spinoff, new priorities and challenges arise. The new challenges are typically improving a core competency such as innovation, customer service, or quality. For example, a large oil and gas drilling company spun off a series of low-tech rigs. The spinoff enabled the company to focus on building and delivering new technologies. Consequently, the company completely reorganized global operations. Following the change in operations, the finance, human resources, and information technology functions naturally followed suit. A 30% reduction in general and administrative costs was achieved and the company is beating analyst profitability expectations.
2. Rationalize business processes
A spinoff creates an opportunity to streamline and simplify business processes. Trenegy’s research has shown that the most common opportunities for simplification are in finance, accounting, and human resources. For example, a large oil and gas services company capitalized on their spinoff and completely overhauled planning, forecasting, and reporting processes. This process cut thousands of hours out of the planning process and reduced reports by 50%. Operations was able to focus on execution instead of never-ending corporate planning meetings.
3. Shed excess information technology
Information technology solutions are typically designed to meet the scale and complexity requirements of the pre-spinoff company. Rationalizing business processes after a spinoff creates an opportunity to simplify the technology applications environment. A diversified oil and gas company shed their pipeline and services divisions to focus on exploration and production. The pipeline spinoff company was quick to migrate to a hosted ERP environment and shed the transition services agreement. The migration left the exploration and production organization with an ERP system designed to support more than what was needed. The company replaced their ERP solution with a fit-for-purpose application. The replacement cut annual application support costs by 60% and improved business processes. The new system was tailored to meet an exploration and production company’s needs better than the legacy generic ERP solution.
There’s no doubt that spinoffs can generate value for the parent company and the new company as outlined in our article, “Why Do Spinoffs Continue to Outperform?” Trenegy works with organizations to optimize the value from spinoffs, mergers, and acquisitions.