This is a case recommendation that my team and I put together to explore the possibilities of outsourcing for this particular company. We measured risk and reward with various factors including financial forecasting, organizational change and overall business stability.

1. OFFICE SUPPLY, INC
OUTSOURCING IT INFRASTRUCTURE
TO MAXIMIZE BUSINESS VALUE
S544 - 12235 - DECEMBER 7, 2009
Aditi Parekh | Brian Honaker | Johann Fischer | Matt Blair

2. Recommendations for Outsourcing at OSI
2
• Decrease infrastructure costs by utilizing a more
Business Strategy specialized, third-party staff.
• Experience cost-savings during the 2nd year, but
Costs/Benefits face increased expenditures during 1st year.
• Maintain availability and performance through
Implementation SLAs with the vendor.
• Ensure a smooth transition through a formalized
Change Management change-management program.
• Mitigate risks by documenting procedures and
Risks improving employee awareness.
Strategy Costs/Benefits OVERVIEW
Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

3. Having OSI run in-house IT is no longer
valuable to the business
3
IT functions provide cost savings, not long-term strategic value.
The IT infrastructure is difficult and expensive to maintain.
There are issues with retention of talented IT staff.
System downtime results in immediate losses.
The bulk of IT spending is in support, not transformation.
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

4. Outsourcing IT to TIS will allow OSI to focus on
core business activities instead of maintenance
4
 TIS employs industry experts and has experience
working with other large companies.
 TIS can standardize IT to raise service levels and
lower costs.
 TIS can quickly scale and provide flexible cost
structures depending on OSI’s IT needs.
 TIS’s industry knowledge and experience will allow
for greater security.
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

5. IT outsourcing is a successful strategy for other
major global companies
5
 Retailers Home Depot and UK’s Tesco outsource
their IT functions in order to support existing systems
and develop new applications.
 Tesco saves an estimated $100 million every year.
 Citibank sold its Citigroup Technology Services to
focus on its banking and financial services.
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

6. Outsourcing IT will cover many costs normally
associated with managing infrastructure
6
Infrastructure Costs over the Next Five Years (000’s)
Year 1 Year 2 Year 3 Year 4 Year 5
Base Case $ 60,862 $ 61,542 $ 62,409 $ 64,170 $ 65,693
Outsourced $ 70,315 $ 42,941 $ 43,613 $ 36,655 $ 38,146
Savings $ (9,452) $ 18,601 $ 18,795 $ 27,515 $ 27,546
Total Savings: $83,000
NPV @ 8%: $37,700
Additional Notes Regarding Outsourcing
 Easier access to new technology, reduction in start-up costs.
 Use of specialized, experienced IT personnel to manage issues.
 Decreased depreciation, utilities and maintenance expenditures.
http://www.macquarietelecom.com/hosting/it_outsourcing.htm
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

7. Outsourcing IT infrastructure will significantly
reduce total IT expenditures
7
Infrastructure Costs over the Next Five Years
$75M
By outsourcing IT $70M
infrastructure, OSI will -$9
$65M
see positive returns over [-$9]
in-house IT as early as $60M
year 2. $55M $19 $19
[$10] [$29] $28
$27
[$84] Base case
$50M [$56]
Outsourced
Expected total annual IT $45M
cost-savings will reach
$40M
11% during year 2 and
16% by year 5. $35M
$30M
1 2 3 4 5
Years From Now
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

8. IT outsourcing improves IT performance, but
increases exposure to risk
8
Focus on innovation instead of support.
Improved
Increased security, relieved liability. Performance
of IT
Infrastructure
High performance, externally managed IT.
Reliance on a 3rd party for critical operations. Increased
Exposure to
Risk
Less customizable infrastructure adjustments.
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

9. Five requirements for implementing a successful
IT outsourcing strategy
9
• Due Diligence Service Levels
• Define Std. Operating Procedures
• Implement Communications Plan
• Review Metrics and Reporting
• Maintain Quality Assurance
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

10. A state-of-the-art IT infrastructure has five steps
10
 Solution: IT infrastructure outsourcing
 Step 1 – Identify
 Overview of given service levels
 Analyze actual IT-architecture
 Step 2 – Define
 Definitionof the processes
 Evaluate required data management and technology
 Step 3 – Implement
 Transferring given IT and purchase new IT
 Restructuring of IT infrastructure
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

11. (cont’d)
A state-of-the-art IT infrastructure has five steps
11
 Solution: IT infrastructure outsourcing
 Step 4 – Review
 Testingof implementation
 Improve performance
 Cut-over to new IT-infrastructure
 Step 5 – Maintain
 Ensure provided SLA levels
 Continuous improvement initiatives
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

12. The transition to new systems will take one year
12
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011
Identify processes & 2month
architecture
2m
Definition of processes
2m
Transferring IT
3m
Restructuring IT
4m
Testing and
Improvement
2 weeks
Cut-over
4 years
Ensure and improve IT
infrastructure
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

13. A change management initiative will help OSI
keep employee morale high
13
• Procedures for handling change
Define •
•
Roles and responsibilities of IT staff
Measurements and metrics for change management
• Assignment of priorities
Monitor • Execute break out procedures when necessary
• Track with the original change management plan
Modify • Modify the change management plan as required
• Report on changes implemented
http://articles.techrepublic.com.com/5100-10878_11-5074869.html
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

14. IT outsourcing provides additional opportunities
for current OSI IT employees
14
 Divide the IT staff into 2 categories:
 Supporting the services provided by TIS.
 Developing in-house capability to research innovative
technologies.
 Conduct employee motivation program to make the
employees understand the benefits of the
outsourcing program.
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

15. IT outsourcing involves various categories of risk
15
 Risks in Outsourcing
Brand
Damage
Service
Interruptions
Operational Risk
Contractual Risk
Compliance Risk
S514 – Justin Greis – VRM Presentation (October 13, 2009)
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

16. Various approaches to mitigate risks
16
Category Example Mitigation Impact
Compliance Vendor does not meet OSI’s Ensure that TIS has the required
Risk minimum standards for compliance. policies for compliance
Contractual Risk of running into disagreements Have necessary service level
Risk with the vendor agreements in place
Operational Operational efficiency decreases Implement change
Risk due to the change in process management initiatives for
more efficiency
Service System break downs and Run the parallel systems for the
Interruption unexpected behavior might occur initial year
during the transition period
Brand Customers face issues and lose Make customers aware of the
Damage trust over the organization changeover and have alternate
options available
Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

17. A solution to save money, increase performance
and provide scalability over time
17
Improvement of
Lower IT-cost of about
performance, NPV of $37.7 million
30% in year 2 and
security and over 5 years.
about 43% in year 4.
availability.
IT Infrastructure
Outsourcing
Agreement
Strategy RECOMMENDATIONS
Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

18. QUESTIONS / COMMENTS
OFFICE SUPPLY, INC
OUTSOURCING IT INFRASTRUCTURE
TO MAXIMIZE BUSINESS VALUE
S544 - 12235 - DECEMBER 7, 2009
Aditi Parekh | Brian Honaker | Johann Fischer | Matt Blair

19. Appendices
19
 Financial Analysis
 Defining Change Management
Strategy Costs/Benefits APPENDIX
Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

20. Financial Analysis
20
 Quantitative Costs/Benefits Analysis
Microsoft Office
cel 97-2003 Workshe
Strategy Costs/Benefits APPENDIX
Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

21. Defining Change Management (1)
21
 Step 1: Define change management process and practices
 Procedures for handling changes
 Roles and responsibilities of the IT support
 Measurements for change management
 Tools to be used
 Type of changes to be handled and how to assign priorities
 Back-out procedures
 Step 2: Receive change requests
 Receive all requests for changes, ideally through a single change coordinator. Change requests can be
submitted on a change request form that includes the date and time of the request.
 Step 3: Plan for implementation of changes
 Examine all change requests to determine:
Change request prioritization
 Resource requirements for implementing the change
 Impact to the system
 Back-out procedures
 Schedule of implementation
http://articles.techrepublic.com.com/5100-10878_11-5074869.html
Strategy Costs/Benefits APPENDIX
Implementation Change Mgmt Risks Outsourcing at OSI – Team 4

22. Defining Change Management (2)
22
 Step 4: Implement and monitor the changes; back out changes if necessary
 At this stage, apply the change and monitor the results. If the desired outcome is not achieved, or if
other systems or applications are negatively affected, back out the changes.
 Step 5: Evaluate and report on changes implemented
 Provide feedback on all changes to the change coordinator, whether they were successful or not.
The change coordinator is responsible for examining trends in the application of changes, to see if:
Change implementation planning was sufficient.
 Changes to certain resources are more prone to problems.
When a change has been successfully made, it is crucial that the corresponding system information
store be updated to reflect them.
 Step 6: Modify change management plan if necessary
Consider reexamining your change management discipline if:
 Changes are not being applied on time.
 Not enough changes are being processed.
 Too many changes are being backed out.
 Changes are affecting the system availability.
 Not all changes are being covered.
Strategy Costs/Benefits APPENDIX
Implementation Change Mgmt Risks Outsourcing at OSI – Team 4