Unlocking Hidden Potential: The Importance of Separating Business Units Within an Organization

Sep 22, 20233 min read

LUIS PINATE

AGILE CONSULTANTS GROUP

EXECUTIVE CONSULTANT & STRATEGIST

WWW.AGILECNG.COM

In today's rapidly evolving business landscape, organizations face the constant challenge of staying competitive and profitable. One strategy that is gaining increasing importance is the separation of business units with different natures into distinct, independent entities. This approach allows organizations to evaluate profitability and uncover hidden aspects that might be concealed in a consolidated operation. Nevertheless, it is essential to strike a delicate balance – while separation is important and necessary, organizations must preserve existing synergies to reduce costs and maintain cohesion between business units.

The Need for Separation

Unmasking True Profitability: One of the primary reasons for separating business units is to better understand each unit's profitability. When different units with diverse natures are consolidated, their financial performance can become obscured. Separating them allows organizations to identify which units are thriving and which require improvement.
Independent Decision-Making: Separate business units can make independent decisions aligned with their goals and strategies. This autonomy can lead to more agile and effective decision-making processes, fostering innovation and adaptability within each unit.
Enhanced Accountability: Separation fosters a culture of accountability. When business units are treated as distinct entities, leaders and teams are more likely to take ownership of their unit's performance and take proactive steps to improve it.

Preserving Synergies

While the benefits of separation are evident, it is equally vital to preserve synergies that can help organizations thrive. Here's why:

Cost Efficiency: Shared resources such as IT, HR, and administrative support can lead to significant cost savings. Separating business units must be done carefully to ensure these shared services remain efficient and cost-effective.
Knowledge Sharing: Collaboration and knowledge sharing between units can lead to innovation and problem-solving. Organizations should create mechanisms to facilitate cross-unit communication, allowing the exchange of best practices and lessons learned.
Cohesion and Company Culture: Maintaining a cohesive company culture can be challenging when business units operate independently. However, it is not impossible. Leaders can foster a shared sense of purpose and values that transcends individual unit boundaries.

Striking the Right Balance

Clear Governance: Establish a clear governance structure to manage the relationships between business units. This should include a well-defined reporting hierarchy, decision-making processes, and performance metrics.
Regular Evaluation: Continuously assess the performance of both separated business units and shared services. Adjustments may be necessary to ensure the separation remains effective while preserving synergies.
Invest in Technology: Implement technology solutions that support communication and collaboration among units. Modern collaboration tools, project management software, and data-sharing platforms can bridge the gap between separate entities.
Leadership Alignment: Ensure leaders at all levels understand and support the separation strategy. Encourage them to foster a sense of unity and shared purpose while respecting the autonomy of individual units.

Measuring Success: The Role of KPIs and OKRs

In the journey toward separating business units while preserving synergies, the role of Key Performance Indicators (KPIs) and Objectives and Key Results (OKRs) cannot be overstated. These metrics serve as the compass that guides individual units and the organization toward their goals. Identifying the right KPIs and OKRs is crucial for several reasons:

Focused Goals: KPIs and OKRs help clarify what success looks like for each business unit and the organization. They ensure that everyone is aligned with common objectives while recognizing the unique contributions of each unit.
Accountability: When business units have KPIs and OKRs, it becomes clear who is responsible for achieving specific outcomes. This accountability not only drives performance but also encourages proactive problem-solving and innovation.
Data-Driven Decision-Making: KPIs and OKRs are based on data and measurable outcomes. They provide the insights needed to make informed decisions, allocate resources effectively, and pivot when necessary.
Continuous Improvement: Regularly reviewing and updating KPIs and OKRs encourages a culture of constant improvement. Units can adapt to changing market conditions and emerging opportunities, ensuring long-term success.
Holistic Evaluation: At the organizational level, KPIs and OKRs allow leaders to assess how healthy business units perform individually and as a whole. They offer a comprehensive view of progress, helping identify areas needing further attention or alignment.

In conclusion, separating business units with different natures within an organization cannot be overstated. It allows for a deeper evaluation of profitability and independent aspects that may be hidden in a consolidated operation. However, organizations must tread carefully, ensuring that they preserve existing synergies that reduce costs and maintain cohesion. Striking the right balance between separation and synergy is the key to unlocking the hidden potential within your organization and securing a competitive edge in today's dynamic business environment.