Outsourcing at Office Supply

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

Recommendations for Outsourcing at OSI
2

Business Strategy Costs/Benefits Implementation Change Management Risks

• Decrease infrastructure costs by utilizing a more specialized, third-party staff. • Experience cost-savings during the 2nd year, but face increased expenditures during 1st year. • Maintain availability and performance through SLAs with the vendor. • Ensure a smooth transition through a formalized change-management program. • Mitigate risks by documenting procedures and improving employee awareness.

Strategy

Costs/Benefits

Implementation OVERVIEW

Change Mgmt

Risks

Outsourcing at OSI – Team 4

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

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. Costs/Benefits Implementation Change Mgmt Risks







Strategy

Outsourcing at OSI – Team 4

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

Outsourcing IT will cover many costs normally associated with managing infrastructure 6

Infrastructure Costs over the Next Five Years (000’s)
Year 1 Base Case Outsourced Savings
$ $ $ 60,862 70,315 (9,452) $ $ $

Year 2
61,542 42,941 18,601 $ $ $

Year 3
62,409 43,613 18,795 $ $ $

Year 4
64,170 36,655 27,515 $ $ $

Year 5
65,693 38,146 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

Costs/Benefits Implementation Change Mgmt Risks

Strategy

Outsourcing at OSI – Team 4

Outsourcing IT infrastructure will significantly reduce total IT expenditures 7 Infrastructure Costs over the Next Five Years
$75M

By outsourcing IT infrastructure, OSI will see positive returns over in-house IT as early as year 2. Expected total annual IT cost-savings will reach 11% during year 2 and 16% by year 5.

$70M $65M $60M $55M $50M $45M $40M $35M $30M 1 2 3 4 Years From Now 5 $19 [$10] $19 [$29] $27 [$56] $28 [$84] -$9 [-$9]

Base case Outsourced

Strategy

Costs/Benefits

Implementation

Change Mgmt

Risks

Outsourcing at OSI – Team 4

IT outsourcing improves IT performance, but increases exposure to risk 8 Focus on innovation instead of support. Increased security, relieved liability.

Improved Performance of IT Infrastructure

High performance, externally managed IT.

Reliance on a 3rd party for critical operations.

Less customizable infrastructure...
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