by Chris Davis

5 lessons for successfully splitting a company

Feb 28, 2018
EnterpriseIT Leadership

In some ways, splitting a company into two may be harder than a merger. When merging, you have the luxury of more time to operate independently and merge strategically.

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Credit: Thinkstock

In early 2015, when The Manitowoc Company decided to split into two companies, the executive leadership called on the CIO, Subash Anbu, to lead the charge.

The transformation would be the most consequential in its 113-year history. Leaders from the company, then a diversified manufacturer of cranes and foodservice equipment, decided that the whole of the diversified organization was no longer greater than the sum of its parts. It would split into two publicly-traded companies: Manitowoc (MTW), a crane-manufacturing business, and Welbilt (WBT), which manufactures foodservice equipment.

The CIO was a natural choice to lead a change of this magnitude because his role allowed him to understand the interconnectedness of the company’s various business capabilities, which processes and technology were already centralized or decentralized, and where there may be opportunities for greater synergy in the future-state companies.

Subject matter expertise, however, would not have been enough to qualify a candidate; the leader had to be charismatic, and Subash was widely recognized for his servant-leadership mentality. That would prove essential to removing critical blockers across the organization.

It was also important that the CIO had long-standing credibility with the Board of Directors, who were the ultimate decision makers in this endeavor.

Subash embraced the daunting challenge, saying, “While change brings uncertainty, it also brings opportunities. Change is my friend, as it is the only constant.”

Mitigating and managing risk

In some ways, splitting a company into two may be harder than a merger. When merging, you have the luxury of more time to operate independently and merge strategically.

When Western Digital acquired HGST in 2015 and Sandisk in 2016, CIO Steve Philpott decided to move all three companies to a new enterprise resource planning (ERP) system rather than maintain multiple systems or force everyone onto the incumbent Western Digital solution. When splitting a company, there is greater urgency to define the target state business model and technology landscape and execute accordingly. 

This split for Manitowoc introduced major consequences for change: duplication of every business function, completed within a fixed four-quarter schedule, while still executing the 2015 business plans. All business capabilities would be impacted, especially Finance, Tax, Treasury, Investor Relations, Legal, Human Resources, and of course, Information Technology. 

While the Manitowoc Company had experience with divesting its marine segment (it started as a shipbuilding company in 1902), the scope and scale of the split was unprecedented for the company.

Breaking apart something that has been functioning together is an inherently risk-laden proposition. Subash and his team recognized that to mitigate risk, they would need to be both thoughtfully deliberate in planning and agile in their execution that breaks down big risks into smaller risks, prioritizing speed over perfection.

As Subash led the split of the company into two, he encountered the following risks:

  • Business Environment Uncertainty. Credit markets were tightening for the company’s debt refinancing, creating concerns about the timing of executing the split. Also, the EU data privacy laws required approval from the EU work councils to split the companies, so the team would have to work diligently to comply with evolving regulation.
  • Operating Model Definition. The organizational design for the two companies continued to evolve, with the creation and appointment of new C-level executive stakeholders. The target-state operating model was also in flux, as each of the new leaders evaluated how centralized or decentralized the future-state companies would be.
  • Employee Impacts. Initially, there was uncertainty for most corporate employees in the company. Which company would I work for? How would my role change? Where would I be physically located? With this uncertainty in the air, employee attrition during the project posed a material risk to meeting target deadlines. 
  • Technology Target State. Manitowoc’s IT landscape had both centralized and decentralized application portfolios, which required a rationalization of the IT portfolio, as well as determination of what would be most appropriate for each company. Standards and enterprise agreements for the technology infrastructure that included synergies for volume pricing would have to be restructured and renegotiated, potentially introducing increased cost to the new companies. And, as with all functions, there would now have to be two IT departments.

5 lessons for successfully splitting a company

When splitting a public company, the deadlines and outcome are clear. How Subash and the team would execute the split of the company, however, remained largely undefined.

The enormity of the task could have created a paralysis, but the team quickly began working backwards: getting on the same page with the right people; identifying the big-rock milestones; identifying the risks; sketching out a plan to reach the big-rock milestones; breaking the plan into smaller rocks to mitigate risk; and keeping everyone informed as the plan unfolded with greater detail.

In the process, Subash learned five critical lessons that all executives should heed before splitting a company:

1. Establish a separation management office and steering committee

Splitting a company requires cross-functional collaboration and visibility at the strategic planning and execution level. Start by creating a Separation Management Office, consisting of senior functional leaders that will oversee the end-to-end split across HR & Organizational Design, Shared Services & Physical Location Structuring, IT, Financial Reporting, Treasury & Debt Financing, Tax & Legal Entity Restructuring, and Legal & Contracts. The Separation Management Office should report to a Steering Committee consisting of the Board of Directors, CEO, CFO, and other C-level leaders. When faced with difficult questions that require a decision to meet deadlines, the Steering Committee should serve as the ultimate escalation point and decision maker to break ties, even if it means a compromise.

2. Assemble the right project team

A split will require dedicated, skilled resources that understand the cross-functional complexities involved. This project team will need people that understand the interconnectedness of technology architecture, data, and processes, balanced with teams that can execute many detailed tasks. When forming the team, it is important to orient everyone on the common objective to create unity; departmental silos will not succeed. Variable capacity will almost certainly be necessary for major activities, and you may be able to stabilize your efforts by turning to trusted systems integrators or consulting partners to help guide the transition.

3. Sketch out the big-rocks project plan and manage risk

Agile evangelists often frown upon working under the heat of a mandated date and scope, but a public split forces such constraints. Treat the constraints as your friend: Work backward to identify your critical operational and transactional deadlines. Ensure the cross-functional team is building in the necessary lead time, especially when financial regulations or audits are involved. Dedicate a budget, but be prepared to spend more than you anticipate, as there will always be surprises to which teams will have to adapt. As part of your project planning, create a risk management framework with your highest priority risks, impacts, and decision makers clearly outlined. When time is of the essence, contingency plans need to be in place to adapt quickly.

4. Prioritize speed over perfection

Any time a working system is disassembled, there unquestionably will be problems. The key is not to wait for a big bang at the end to see if what you have done has worked. Spending nine months planning for and three months executing this split would have introduced new risks. Instead, Subash and his team built their plan and then iteratively built, tested, and improved in an agile-delivery process. The team was able to identify isolated mistakes early and often, allowing them then to proceed to the following phases with greater confidence—not with bated breath.

5. Communicate relentlessly

In a split, every employee, contractor, supplier, or customer will be impacted. Create a communication plan for the different personas: Steering Committee, operational leaders, functional groups, customers, partners and suppliers, and individual employee contributors. The Manitowoc Company had to communicate on everything from where people would sit, to who would be named as new organizational leaders. In the void of communication, fear and pessimism can creep in. To prevent this, the Separation Management Office launched “Subash’s Scoop,” a monthly newsletter on the separation progress. It brought helpful insight, with a flare of personality, to keep the organization aligned on its common goal.

The Manitowoc Company successfully split into two public companies—Manitowoc (MTW) and Welbilt (WBT)—in March 2016, hitting its publicly-declared target. In fact, many of the critical IT operational milestones were completed in January, well in advance of the go-live date.

Over the last two years, the stock prices for both companies have increased, validating the leadership evaluation that the whole was no longer greater than the sum of its parts.