Data segregation: 3 steps for secure, efficient management

January 10, 2024

Data segregation: 3 steps for secure, efficient management

When one business entity becomes two, handling data correctly ensures security, compliance, and efficiency.

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This article first appeared in Solutions Review in December 2024.

Data segregation is a high-risk, high-reward process that requires strategic planning to avoid disruptions and performance issues.

Effective data segregation not only safeguards against unauthorized access and potential breaches but also streamlines operations, making data management more efficient. This becomes particularly crucial when a business undergoes division into two separate entities. Ensuring that each new entity has sole access to the data it requires is critical for maintaining confidentiality and operational integrity.

To achieve secure and efficient data management, organizations should adhere to these three essential steps:

1. Develop a strategic roadmap

While managing historical data cleanup is feasible, the true complexity arises in addressing ongoing transactions and artifacts that intersect both entities. The primary objective should be to ensure that both companies can function as autonomous legal entities. This involves establishing distinct infrastructures, applications, and access controls.

Prior to entering the Transition Services Agreement (TSA) period, organizations should develop a comprehensive plan and strategic roadmap to fully segregate the data. This involves designing and implementing strategies to guarantee each entity accesses only the data it requires, eliminating any overlap. Initially, organizations should establish clear guidelines and processes to facilitate a seamless transition and to minimize ambiguity regarding data access and ownership.

2. Select a company code segregation or carve-out strategy

When working with an ERP software like SAP, it's essential to recognize that the execution approach will vary significantly depending on whether a company code segregation or carve-out strategy is used. This variation arises because the organizational structure interconnects all processes and data within the system, meaning any change in strategy impacts how tasks are executed.

Here are a few key considerations for each approach:

• Company code segregation: A company code segregation approach involves creating a fresh organizational structure for the newly formed company within an existing or new sandbox environment. This process includes migrating all relevant transactions and data to ensure the new entity operates smoothly and independently from the original company. This method helps in maintaining continuity and minimizing disruptions during the transition.
  
  
• Carve-out: A carve-out approach involves cloning the existing SAP ERP system for the new company while retaining the current organizational structure. This method ensures that the new entity can operate independently but still benefits from the established processes and data configurations of the original company. This approach helps streamline the transition and maintain operational consistency.
  
  

3. Engage third-party partners early for optimal results

Data segregation projects are inherently challenging due to the number of banks, product vendors, technology partners, and various entities involved. To ensure the seamless integration of third-party stakeholders, it is crucial to establish clear communication channels and to align on timelines early as possible.

Forming a dedicated team to identify strengths, weaknesses, opportunities and threats (often referred to as a SWOT team) ensures all parties are well-informed of the overall program plan. Regular touchpoints with stakeholders help maintain alignment and prevent unforeseen issues. This approach ensures that all parties are well prepared to handle data in the specific formats and within designated timelines. Continuous monitoring and proactive adjustments play a critical role in mitigating potential disruptions and facilitating a seamless and efficient process.

A real-world application of data segregation

Recently, Cognizant helped Kohler Co. launch Kohler Energy as an independent business. As a strategic partner, we collaborated on assessing a carve-out strategy, developing a plan, and executing the system separation within six months.

By the first day of stand-alone operations, we had successfully separated all essential systems, including over 400 IT applications like SAP ECC, Salesforce, and CRM. This smooth transition ensured operational readiness for both entities.

Strategies to minimize disruption and maximize efficiency

Achieving complete data segregation on day one is not practical. Organizations should prioritize immediate operational needs while addressing the more complex aspects of data segregation during the TSA period. A phased approach ensures operational integrity and security, allowing both entities to function effectively as they work toward full data segregation.

To minimize disruption and maximize efficiency, organizations should leverage automation tools for repetitive and time-consuming tasks, implement validation checks and cleansing processes to ensure data quality, and provide comprehensive training to support teams. These measures help establish robust governance strategies and significantly reduce the likelihood of errors.

By effectively segregating data, organizations can enhance security, improve operational efficiency, and maintain confidentiality. Following this outlined approach not only mitigates risks but also positions businesses to navigate transitions smoothly, supporting long-term success and resilience.

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