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Case #8: Outsourcing at Office Supply Inc.
Through the initial integration of information technology into its core business, Office Supply Incorporated (OSI) attained a large cost advantage over its competitors and reaped rewards in both profits and stock prices. Unfortunately, as Nicholas Carr outlines, IT is becoming more of a commodity for companies and less of a source for strategic differentiation. Moreover, lack of IT expertise within OSI has begun to inhibit the growth of business operations and rising IT costs are shrinking profits. Jim Anfield’s proposition for OSI to outsource its IT infrastructure to Technology Infrastructure Solutions (TIS) provides the opportunity to not only match the pace of business growth,
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Compensation for these employees could be significantly reduced as TIS would use people with specialized training for the tasks at hand, meaning they could maximize efficiency. This would remove the cost added when inexperienced or untrained employees spend extra time solving a problem that they do fully understand. Similarly, OSI would not need to pay for the full salary of each employee as TIS’s business structure allows each employee to work on multiple projects simultaneously. Additionally, TIS employees were paid lower salaries than OSI employees due to the low living expenses in Denver versus the higher cost of living in Chicago. Finally, in using TIS’s expertise OSI could reduce the number of servers needed to support their systems and cut the cost of each server by leveraging TIS’s bulk purchasing advantage. The main challenge to achieving these cost savings is reaching TIS’s necessary profit margin without negating the other effects. However looking at Exhibits 6 and 7, we see that TIS believes they can provide a cost savings of 10% for software, 5% for disaster recovery and 10% for network fees. Assuming their assumptions are correct, these margins should
Page 3 of 4 provide sufficient room for TIS to turn a profit while still providing OSI a cost advantage. Thus, in each of these ways, outsourcing to TIS can provide significant cost advantages over OSI’s current IT infrastructure. Carr’s last two rules, “follow, don’t lead” and