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OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
OSI Case - Outsourcing Infrastructure to Maximize Business Value
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OSI Case - Outsourcing Infrastructure to Maximize Business Value

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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 …

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.

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  • IT is valuable for how it is used, not how much of it you haveIT is not strategic
  • Transcript

    • 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

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