Why carve-out is a success factor in separation of IT systems
Recently, the economy is witnessing one of its toughest times. Due to the pandemic, many companies are taking drastic steps. Many companies, for whom IT is not a core operation, are opting to carve-out their IT units.
Companies are keen to sell or spin-off their IT units. They want to concentrate on their core business. Others are divesting individual subsidiaries from the central IT system. Carve-out has become a common business practice.
What is a carve-out and how does it affect IT separation?
Understanding carve-out
A carve-out essentially is divestment from the parent company. In a legal and operational sense, it is considered independent. It may be in the form of a subsidiary, joint venture, or a completely independent company.
Carve-outs help existing companies keep an eye on their operational activities. They permit new companies to establish and stabilize themselves.
Crave-out and IT separation
IT separation refers to the act of separating IT assets from a specific business while preserving the core of a company. However, IT has evolved from a business support task to a core part of the business. Hence, it is essential to have a sustainable plan in place for carve-outs or de-merger projects when IT separation is involved.
Challenges faced during Carve-out
Carve-out involves complex challenges and questions. For success in IT separation, these must be addressed. Some of these challenges are:
- How to successfully manage an IT separation project?
- How to migrate existing data to new entities?
- How to manage the complexity of the process?
- Is there a need for IT system replacements?
To tackle these challenges, two principal factors that must be considered:
- Implications for IT during a carve-out
- Transitional Service Agreement (TSA)
Let us briefly understand both these factors.
Implications for IT separation during a carve-out
There are some implications for IT during divestment. A keen understanding of these implications is vital to the success of the project. They must be resolved during the implementation of the strategy. Some common implications are: