Outsourcing at Office Supply

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 2,409 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 adjustments. Increased Exposure to Risk Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4 Five requirements for implementing a successful IT outsourcing strategy 9 • Due Diligence • Define • Implement • Review • Maintain Strategy Costs/Benefits Implementation Change Mgmt Service Levels Std. Operating Procedures Communications Plan Metrics and Reporting Quality Assurance Risks Outsourcing at OSI – Team 4 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 ? Definition of 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 (cont’d) A state-of-the-art IT infrastructure has five steps 11 ? ? Solution: IT infrastructure outsourcing Step 4 – Review ? Testing of 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 The transition to new systems will take one year 12 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Identify processes & architecture Definition of processes Transferring IT Restructuring IT Testing and Improvement Cut-over Ensure and improve IT infrastructure 2month 2m 2m 3m 4m 2 weeks 4 years Strategy Costs/Benefits Implementation Change Mgmt Risks Outsourcing at OSI – Team 4 A change management initiative will help OSI keep employee morale high 13

Define Monitor Modify Strategy Costs/Benefits • • • • Procedures for handling change Roles and responsibilities of IT staff Measurements and metrics for change management Assignment of priorities • Execute break out procedures when necessary • Track with the original change management plan • Modify the change management plan as required • Report on changes implemented http://articles. techrepublic. com. com/5100-10878_11-5074869. html Implementation Change Mgmt Risks Outsourcing at OSI – Team 4 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 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 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 Risk of running into disagreements with the vendor Have necessary service level agreements in place Implement change management initiatives for more efficiency Run the parallel systems for the initial year Make customers aware of the changeover and have alternate options available Risks

Operational Operational efficiency decreases due to the change in process Risk System break downs and Service Interruption unexpected behavior might occur during the transition period Brand Damage Customers face issues and lose trust over the organization Strategy Costs/Benefits Implementation Change Mgmt Outsourcing at OSI – Team 4 A solution to save money, increase performance and provide scalability over time 17 Lower IT-cost of about 30% in year 2 and about 43% in year 4. Improvement of performance, security and availability. NPV of $37. 7 million over 5 years.

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 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.

Examine all change requests to determine: Change request prioritization Resource requirements for implementing the change. 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.