Much has been written on how to combine the technology departments in mergers and acquisitions. This article serves to discuss the issues when companies break-up and joint IT must be separated.

When companies grow through mergers and expansions into so many different businesses, there often comes a time that a particular subsidiary gets spun-off. As this new spin-off company begins to build its own organizational infrastructure, it typically leverages the IT of the parent for a period of time. There are numerous issues that arise from this marriage by convenience:

• Cost Allocation – Allocating IT costs with in internal departments is usually done based on some easily identifiable metrics (square footage of servers, CPU usage of mainframe, etc.) that are not truly reflective of cost and efforts. This allocation may be satisfactory in that it captures total costs when all entities are internal, however it may result in an under or overcharge when a participating entity is now external.
  
  
• Contractual Agreement – While there will be some contractual agreement between the parent and subsidiary, it is more likely to focus on cost allocations and provide safeguards for the parent that the subsidiary will pay for during the transition. In the typical outsourcing contract/SLA, cost guarantees and indemnifications are rarely present.
  
  
• Planning – The technology plan of the parent organization may include the subsidiary. However, the plan is more likely aligned with the goals and objectives of the parent. Some of the unique needs of the subsidiary will not be recognized or not be afforded their proper place when needs are prioritized. In addition, timelines and goals may not be within the control of the subsidiary.

Over time, these issues result in the subsidiary seeking to separate their IT from the parent. This creates a new set of challenges and decisions to be made:

• Creating a new home for IT – The usual IT choice is internal or outsource. However, in this situation, the subsidiary will have minimal internal IT resources to build on, as all IT staff are employees of the parent. The cost and risk of moving from the parent to an outsourcing provider is much less than trying to create an internal IT from the ground up.
  
  
• Requesting services from the ITO marketplace – A challenge in doing an RFP is that the subsidiary will not have the usual details on the IT services it currently receives. The IT details between the parent and subsidiary focus on how the services were billed, not on the unique items that drive cost. The subsidiary may be able to ascertain some “best guess” of this information from the parent. However, it will not be “apples to apples” with how the marketplace views IT services.
  
  
• Building the retained organization IT management of the subsidiary – In a typical outsourcing arrangement, it is always suggested that the client keep the “keys to the kingdom” in areas that include strategic planning, architecture design, control and administration (governance, contract management, procurement, etc.). In this situation, the subsidiary never had the keys, so it will need to build them as part of the organization.

Alsbridge has helped several clients that have transitioned from their parent organization to separate their IT. Alsbridge has assisted with the initial data center migration assessment, prepared detailed cost and service level analysis, evaluated the sourcing alternatives, created the RFP, selected the provider, negotiated the contract, and transitioned the work. For more information, please contact Lorna Brooks at
214-696-6410.