The 9 TSA Principles of Success
They serve as a bridge, ensuring business continuity while the buyer establishes their own operational systems. They serve as a bridge, ensuring business continuity while the buyer establishes their own operational systems.
However, navigating TSAs can be challenging, and without a clear strategy, they can become a source of delays and conflicts.
This blog explores nine essential principles to guide you through a successful TSA, helping you avoid common pitfalls and achieve a smooth transition.
1. The main thing: Focus on closing and rapid transition as the “main thing” Delays in closing the deal can lead to uncertainty, strain on resources, and integration fatigue. Prioritizing a quick and efficient transition helps maintain momentum and reduces the risk of business disruption.
Insight:
Keep your teams aligned on the end goal–finalizing the deal and moving towards full independence. Avoid getting bogged down in over-analysis or unnecessary complexities that could derail the process.
Example:
Consider a scenario where a company spent months fine-tuning operational details, only to see the deal falter due to market changes. They could have avoided the fallout if they had focused on closing and rapid transfer.
2. No Time to Burn: Start TSA Development ASAP / Execute with Definitive Agreements
The sooner TSA development begins, the better. TSAs are best implemented when definitive agreements are signed. This ensures that all parties are on the same page from the start. Delaying TSA discussions can lead to rushed, incomplete agreements that may cause friction later.Tip:
Develop a parallel timeline for TSA creation that aligns with the negotiation of definitive agreements. Involve key stakeholders early to ensure the TSA reflects the operational realities of both parties.Example:
A company that waited until post-signing to draft the TSA found themselves scrambling to address gaps, leading to costly delays. By starting early, they could have avoided these last-minute challenges.
3. Where-is/As-is: Transition Now with What the Seller uses – Optimize Later
Perfection can be the enemy of progress when it comes to TSAs. Focus on transitioning with what the seller has in place, rather than immediately optimizing. This approach minimizes disruptions and allows the buyer to stabilize operations before making improvements.Advice:
Accept the seller’s existing setup for Day 1, with a plan to optimize once the transition is complete. This pragmatic approach reduces complexity and helps maintain business continuity.Example:
A buyer who insisted on immediate system upgrades encountered significant delays and cost overruns. By following the “where-is/as-is” principle, they could have ensured a smoother, more efficient transition.
4. TSAs should be the exception vs. Default for Everything
While TSAs are useful, they shouldn’t become a crutch. On Day 1, aim for a full operational transition in all cases. TSAs should only be used for areas where immediate transition is not practical, reducing reliance on the seller and speeding up full integration.Insight:
Evaluate which functions can be fully transferred on Day 1 and prioritize those cutovers. Reserve TSAs for truly complex or high-risk areas where immediate transition would be disruptive.Example:
A company that defaulted to using TSAs for all functions ended up extending the TSA period multiple times, leading to dependency on the seller and higher costs. A more selective approach would have accelerated independence.
5. Relationship Capital: Build and Maintain Collaborative Relationships Based on Mutual Objectives
The success of a TSA often hinges on the quality of the relationship between the buyer and seller. Building collaborative relationships based on mutual objectives can help prevent misunderstandings and smoother interactions. Trust and open communication are key to resolving issues quickly and keeping the transition on track.Tip:
Invest time in understanding the seller’s perspective and aligning on shared goals. Regular communication and problem-solving sessions can help maintain a positive, productive relationship.Example:
A buyer who took the time to build rapport with the seller’s team found that disputes were resolved more amicably and efficiently, leading to a smoother overall transition.
6. Dedicated Governance: Use dedicated resources for TSA governance, statusing, dispute resolution, etc.
TSAs need focused management to succeed. Assign dedicated resources for TSA governance, tracking progress, and resolving disputes. This ensures that the TSA doesn’t become a secondary concern, but rather a well-managed process with clear accountability.Advice:
Establish a TSA governance team with clearly defined roles and responsibilities. Regular status updates and proactive issue resolution should be integral to their mandate.Example:
A company that appointed a dedicated TSA manager was able to quickly address issues as they arose, avoiding escalation and keeping the transition on schedule.
7. Use Incentives / Penalties: You Get What You Incent (and Measure) – Reward Early Exits
Incentives and penalties are powerful tools for driving behavior and ensuring compliance with TSA terms. By rewarding early exits and holding parties accountable for delays, you can encourage a faster transition and minimize disruptions.Tip:
Structure incentives and penalties around key milestones and deadlines. Ensure that they are meaningful enough to motivate both sides to meet or exceed expectations.Example:
A seller who was incentivized to exit the TSA early delivered ahead of schedule, saving the buyer significant costs. Clear incentives that aligned both parties’ goals were highly effective.
8. Price Wars are a Loser for Everyone: Set Terms and Prices Based on Costs and Reasonable Pricing
By setting reasonable, cost-based prices from the beginning, you can avoid unnecessary conflicts and ensure a fair deal for both parties. Price wars can damage relationships and lead to drawn-out negotiations that hinder progress.Insight:
Base TSA pricing on actual costs and market standards, ensuring transparency and fairness. Both parties should feel confident that the terms are equitable and conducive to a successful transition.Example:
A company that insisted on unrealistic pricing terms faced prolonged disputes that strained the relationship and delayed the transition. Fair, cost-based pricing would have facilitated smoother negotiations.
9. Stagger TSA Exits: By Function, Process, System, Vendor, Location, etc. Instead of aiming for a ‘Big Bang’ exit, where services are all transitioned at once, consider using a staggered method. Exiting TSAs by function, process, or location allows for a more controlled, manageable transition and reduces the risk of disruption.
Advice: Develop a detailed exit plan that prioritizes critical functions first, with clear timelines for each phase. This approach enables smoother handoffs and minimizes the potential for operational hiccups.
Example: A company that opted for a staggered TSA exit saw fewer disruptions and was able to maintain business continuity throughout the transition. The phased approach allowed for troubleshooting and adjustments along the way.
Following these nine principles can help ensure a successful TSA, enabling a smooth transition and setting the stage for long-term success.
By focusing on rapid closure, starting early, maintaining collaborative relationships, and managing the TSA with dedicated resources, you can navigate the complexities of divestitures with confidence.Remember, the goal is not just to transition, but to do so in a way that positions both the buyer and seller for continued success.
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