Challenges of Identifying Non-Core Business Units for Strategic Divestment

Does your company have units that slow growth, use too many resources, or distract leaders? For many businesses, the answer is yes. Strategic divestment selling or spinning off parts of the business that are not essential can improve performance and focus on what matters most.

The hardest part is deciding which units are truly non-core.

This article looks at the main challenges in identifying non-core units. It also offers practical advice for successful strategic divestment, covering IT retrenchment, strategic withdrawal, cost-cutting, and market focus.

Why Strategic Divestment Matters

Companies pursue strategic divestment to streamline operations, free up cash, and sharpen their market focus. By letting go of units that no longer fit the core strategy, firms can:

• Reduce complexity and improve decision-making
• Focus capital and leadership attention on high-growth areas
• Increase shareholder returns and overall efficiency

Without accurate identification, businesses risk losing value or unintentionally selling a future growth engine.

Defining the Core Challenge

The real challenge in strategic divestment is judgement, not mechanics. A unit may generate revenue and employ skilled people, but if it lacks synergy with the main business, consumes excessive resources, or distracts management, it may be non-core.

Key questions leaders must answer include:

• Does this unit significantly contribute to our market focus?
• Does it consume disproportionate capital or attention?
• Could another company create more value from this unit than we can?

Failing to answer these questions accurately can turn strategic divestment into a costly mistake.

Key Challenges in Identifying Non-Core Units

Identifying non-core business units is complex. Here are the main obstacles:

• IT Retrenchment Complexity

Business units often share IT infrastructure with core operations. Separating systems like ERP or CRM requires extensive planning.

The Challenge: Leaders underestimate costs and timelines, leading to delays and budget overruns.

Data Insight: Nearly 60% of divestitures face delays of 12–18 months due to IT disentanglement (McKinsey, 2024).

• Emotional Attachment and Organisational Inertia

Units may hold historical or emotional value to founders or executives.

The Challenge: Leaders may resist divestment, citing “future potential” despite poor alignment with core strategy.

Expert Insight: “Admitting a unit no longer aligns with the future requires trustworthiness and objectivity,” says a LawCrust partner specialising in debt restructuring and transformation.

• Misleading Financial Metrics

A unit may appear profitable on paper but consume excessive capital or yield low ROI.

The Challenge: High revenue can mask inefficiency, leading to misjudged strategic importance.

Data Insight: Companies executing well-planned strategic divestment see 15–20% higher shareholder returns over three years (Statista, 2023).

• Hidden Links to Core Operations

Units may share suppliers, technology, or customers with core areas. Poor mapping can disrupt supply chains or sales when divested.

• Market Timing and Value Shifts

A unit’s value can fluctuate with industry trends, technological advances, or regulatory changes. Leaders need up-to-date market intelligence to avoid missed opportunities.

Real-World Examples

• General Electric (GE): Sold its bio-pharma unit to Danaher for $21 billion in 2020. GE identified it as non-core to its aviation and energy focus. This strategic withdrawal reduced debt and sharpened market focus.
• European Conglomerate Case: Divested low-margin, capital-intensive real estate units to focus on high-margin manufacturing. Result: core stock re-rated and overall valuation increased by 18%.

Actionable Recommendations

LawCrust Global Consulting recommends a four-part framework:

• Portfolio Audit: Evaluate all units annually on profit and strategic fit. Ask: Would we launch this unit today?
• IT Cost Assessment: Estimate IT retrenchment costs and timelines using unbiased external expertise.
• Highest and Best Use Test: Determine if another entity could generate more value from the unit.
• Cost-Cutting Through Focus: Treat divestment as proactive cost-cutting to free capital for growth areas.

Additional steps include mapping connections to core operations, cleaning data for accurate performance metrics, and engaging stakeholders to manage staff impacts.

Expert Insights

• Sarah Lim, Partner at McKinsey, says: “Focus on facts, not feelings, when identifying non-core units.”
• A BCG analyst adds: “Check each unit against your three-year plan. If it does not fit, consider divesting it.”

Future Outlook

Emerging technologies, AI, and sustainability pressures will accelerate strategic divestment decisions. Companies that proactively identify non-core units and execute clean divestments will maintain agility, cut costs, and lead innovation in their industries.

Frequently Asked Questions (FAQ)

1. What is strategic divestment?

It is the process of selling or spinning off parts of a business that no longer fit the company’s main goals. It helps improve focus and efficiency.

2. How does IT retrenchment relate to divestment?

IT retrenchment separates the divested unit’s systems from the parent company. This prevents costly delays and problems.

3. What defines a non-core business unit?

A non-core unit is one that does not support the main strategy, uses too much capital, or distracts leadership from core operations.

4. How does strategic withdrawal improve shareholder value?

By freeing resources and focusing on key areas, it increases growth and returns for shareholders.

5. What are common divestment challenges?

Common challenges include emotional bias, complex IT separation, hidden links to core operations, and misleading financial data.

6. Is divestment the same as cost-cutting?

No. Cost-cutting improves internal efficiency, while divestment changes the business portfolio to focus on core areas.

7. How often should companies evaluate units for divestment?

Companies should review all units every 12–24 months to ensure alignment with strategy.

Conclusion

Identifying non-core units for strategic divestment requires clear thinking and careful planning. Leaders must overcome emotional attachment to old units. They also need to manage IT challenges and avoid being misled by financial metrics. By doing this, companies can execute strategic withdrawal successfully. This keeps the business lean, focused, and ready for future growth.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

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