Carve-outs more common in a changing world
For a couple of years now, we have seen a clear trend of carve-outs increasing, i.e. companies choosing to isolate specific parts of their operations and corporate them. Sometimes pure subsidiaries are created under their own brand, sometimes completely independent and even listed companies are created (Essity, formerly part of SCA, is probably the most notable example) and sometimes several carve-outs become part-owned joint ventures, for example Zenuity (Volvo Cars and Autoliv ). What is this development a sign of?
Fredrik Berglund, senior management consultant at Ekan Management and with multifaceted experience from both Chalmers and AB Volvo, currently has an exciting assignment where he is project managing a carve-out like this in the automotive industry. We took the opportunity to ask him a little about what is going on.
What can you tell us about what you do in your current assignment?
I project manage a carve-out of an R&D operation from an OEM, so that the new company can more easily broaden its customer base and scale the business. We have just registered the new company and are securing all the prerequisites for it to start functioning independently. It includes, among other things:
- To value and move all assets and secure legal agreements,
- Provide for new premises and equipment,
- Ensure processes and systems for Purchasing, HR, and Finance,
- MBL-negotiate and move staff,
- Transferring current contracts and agreements entered into, etc.
A labor-intensive part is identifying all the necessary IT systems and implementing new infrastructure, moving license agreements and transferring all data. The important thing is to do this work without disrupting the business - everyone must be able to continue delivering according to existing commitments in the project portfolio.
Not least within the automotive cluster, we have seen several carve-outs in recent years - what is this due to?
The automotive industry is currently in an enormously changing phase, mainly driven by new technologies such as electrification and autonomous systems. But also new business models, for example "mobility as a subscription" and "digital value chains" where the customer can modify their experience during the product's life cycle. This puts pressure on developers and manufacturers to be much more agile, minimize risk and spread investment costs.
New revolutionary innovations and business ideas are probably the biggest reason why we see an increased trend of carve-outs, among other things within the automotive cluster but also in other domains. It is difficult to manage the future in a changing world - then you have to be prepared to cooperate in different constellations. If we look at the automotive industry, it has exploded with a large number of start-ups, carve-outs and spin-off companies, acting as niche players in certain technologies and market segments. The players who can best take advantage of this new driving force will have a great competitive advantage in the future.
What are the main challenges to succeeding with a carve-out?
The big challenge with a carve-out is that it affects the entire business - even if some changes are small in themselves, they must be coordinated, implemented and communicated. It requires a lot of change management, both from the project itself - but mainly from managers within the organization. Creating a positive feeling about the carve-out and getting everyone to want to go in the right direction is critical. Here, it is also important to bring in affected personnel who remain - who need to be involved in the carve-out project without it creating obvious value for the remaining business.
Another major challenge is identifying and valuing all the assets to be transferred. The approach has far-reaching consequences depending on the ownership structure of the new and the original company. Here, the interests of the respective owners must be met while at the same time complying with legislation in tax and company law. The rights to these assets must be negotiated so that all parties can continue to operate within their respective markets.
The most labor-intensive challenge is to transfer the entire IT environment without creating too much disruption and cost. Standing agreements with suppliers, infrastructural solutions and data structures make it difficult to transfer a device without problems. Here, I believe that this use-case must be taken into account much more when building IT landscapes in the future - the ability to transform, collaborate, cut loose and share data in new constellations will be a means of competition in the future.