Harvard Case - Xerox: Outsourcing Global Information Technology Resources
"Xerox: Outsourcing Global Information Technology Resources" Harvard business case study is written by Lynda M. Applegate, Kevin Davis. It deals with the challenges in the field of General Management. The case study is 32 page(s) long and it was first published on : Apr 4, 1995
At Fern Fort University, we recommend that Xerox proceed with a phased approach to outsourcing their global IT resources, prioritizing core functions and leveraging a hybrid model that combines onshore, nearshore, and offshore partnerships. This strategy will enable Xerox to achieve cost savings, enhance operational efficiency, and unlock innovation while mitigating risks associated with outsourcing.
2. Background
Xerox, a leading document technology and services company, faced a critical juncture in 2004. The company was struggling with high IT costs, inefficient processes, and a lack of agility in a rapidly evolving technological landscape. The case study focuses on Ursula Burns, then CEO, and her team's decision to consider outsourcing a significant portion of their global IT resources.
The main protagonists are Ursula Burns, the CEO, and her team, including the CIO, who are tasked with evaluating the potential benefits and risks of outsourcing. The case study highlights the internal debate surrounding this strategic decision, considering factors like cost savings, talent acquisition, and potential impact on Xerox's core competencies.
3. Analysis of the Case Study
To analyze Xerox's situation, we can utilize a framework that combines strategic analysis, financial analysis, and organizational considerations:
Strategic Analysis:
- SWOT Analysis: Xerox possessed strengths in its established brand, global presence, and expertise in document technology. However, it faced weaknesses in IT infrastructure, cost structure, and agility. Opportunities lay in leveraging emerging technologies and outsourcing non-core functions. Threats included competition from agile tech companies and the potential loss of control over critical IT functions.
- Porter's Five Forces: The IT services industry was characterized by intense competition, with numerous players vying for market share. The bargaining power of buyers was relatively high, as companies like Xerox had many potential IT providers. The threat of new entrants was moderate, while the threat of substitutes was increasing with the rise of cloud-based services.
- Competitive Advantage: Xerox's core competencies were in document technology and services, not IT infrastructure management. Outsourcing IT allowed them to focus on their core business and potentially gain a competitive advantage by leveraging external expertise and cost optimization.
Financial Analysis:
- Cost Savings: Outsourcing IT could potentially lead to significant cost savings by reducing operational expenses, capital expenditures, and personnel costs.
- Return on Investment (ROI): A thorough financial analysis was necessary to assess the potential ROI of outsourcing, considering both initial investment costs and long-term savings.
- Risk Assessment: Potential risks included vendor lock-in, data security breaches, and loss of control over critical IT functions.
Organizational Considerations:
- Change Management: Outsourcing would require significant organizational change, including employee training, communication, and potential job displacement.
- Organizational Culture: Xerox's culture needed to adapt to embrace outsourcing and collaborate effectively with external partners.
- Leadership Styles: Strong leadership was crucial to guide the organization through the transition and ensure successful implementation of the outsourcing strategy.
4. Recommendations
Phased Approach to Outsourcing:
- Prioritize Core Functions: Xerox should initially focus on outsourcing non-core IT functions, such as infrastructure management, help desk support, and application maintenance. This allows for gradual implementation and minimizes disruption to core business operations.
- Hybrid Model: A hybrid model combining onshore, nearshore, and offshore partnerships can leverage the strengths of each location. Onshore partners can provide specialized expertise and close collaboration, while nearshore and offshore partners offer cost-effective solutions for routine tasks.
- Strategic Partnerships: Xerox should carefully select reputable IT service providers with proven track records, strong security protocols, and a commitment to service quality. Long-term partnerships with strategic alignment are essential for success.
- Clear Service Level Agreements (SLAs): Detailed SLAs should be established for each outsourced function, outlining performance metrics, responsibilities, and escalation procedures.
- Continuous Monitoring and Evaluation: Regular performance reviews and audits are crucial to ensure that the outsourcing partnership meets expectations and delivers the desired outcomes.
Mitigating Risks:
- Data Security: Robust security protocols and data encryption measures should be implemented to protect sensitive information. Regular security audits and certifications are essential.
- Vendor Lock-in: Xerox should avoid vendor lock-in by negotiating flexible contracts with clear exit strategies and exploring alternative providers.
- Knowledge Transfer: A knowledge transfer process should be established to ensure that Xerox retains critical IT expertise and can effectively manage the outsourced functions.
Organizational Change Management:
- Communication and Transparency: Open and transparent communication with employees is crucial to address concerns, manage expectations, and build trust.
- Training and Development: Employees should be provided with training and development opportunities to adapt to the new environment and acquire new skills.
- Employee Engagement: Xerox should actively engage employees in the outsourcing process, seeking their input and addressing their concerns.
- Leadership Support: Strong leadership commitment is essential to drive the change process, overcome resistance, and ensure successful implementation.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Outsourcing non-core IT functions allows Xerox to focus on its core competencies in document technology and services, enhancing its competitive advantage.
- External Customers and Internal Clients: The outsourcing strategy should prioritize customer satisfaction and ensure seamless IT support for both external customers and internal clients.
- Competitors: Xerox needs to stay competitive with agile tech companies by leveraging outsourcing to enhance efficiency and innovation.
- Attractiveness: The financial benefits of outsourcing, including cost savings and ROI, are significant and outweigh the potential risks.
- Assumptions: The recommendations assume that Xerox can find reputable and reliable IT service providers with the necessary expertise and commitment to quality.
6. Conclusion
By adopting a phased approach to outsourcing global IT resources, leveraging a hybrid model, and prioritizing core functions, Xerox can achieve significant cost savings, enhance operational efficiency, and unlock innovation. The key to success lies in careful planning, strategic partnerships, effective change management, and a strong commitment to data security.
7. Discussion
Alternative Options:
- In-house IT: Xerox could choose to maintain its IT operations in-house, but this would require significant investment in infrastructure, talent acquisition, and ongoing maintenance.
- Full Outsourcing: Completely outsourcing all IT functions could lead to a loss of control and potential vendor lock-in.
- Strategic Alliances: Xerox could explore strategic alliances with other companies to share IT resources and expertise.
Risks and Key Assumptions:
- Data Security Breaches: A major data security breach could damage Xerox's reputation and lead to significant financial losses.
- Vendor Lock-in: Xerox needs to negotiate flexible contracts with clear exit strategies to avoid being locked into a single provider.
- Loss of Control: Outsourcing requires careful planning and oversight to ensure that Xerox maintains control over critical IT functions.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| In-house IT | Control over IT functions, internal expertise | High costs, lack of agility |
| Full Outsourcing | Cost savings, access to specialized expertise | Loss of control, vendor lock-in |
| Hybrid Model | Balance of cost savings, control, and flexibility | Requires careful planning and management |
| Strategic Alliances | Shared resources and expertise, reduced costs | Potential conflicts of interest, lack of control |
8. Next Steps
- Form a Steering Committee: Establish a steering committee with representatives from IT, finance, legal, and HR to oversee the outsourcing process.
- Conduct a Thorough Vendor Selection Process: Develop a comprehensive vendor selection process, including RFPs, due diligence, and reference checks.
- Develop a Detailed Implementation Plan: Create a detailed implementation plan outlining timelines, milestones, and responsibilities.
- Communicate Effectively with Employees: Communicate the outsourcing strategy clearly and transparently with employees, addressing their concerns and providing support.
- Monitor and Evaluate Performance: Implement a system for monitoring and evaluating the performance of the outsourcing partnership, ensuring that it meets expectations and delivers the desired outcomes.
By following these recommendations and implementing a phased approach to outsourcing, Xerox can successfully leverage external expertise to optimize its IT operations, achieve cost savings, and unlock innovation while mitigating risks and ensuring a smooth transition.
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Case Description
In order to increase revenues, develop new technologies, and manage information technology more efficiently, Xerox decided to sign a 10-year, $3.2 billion contract with Electronic Data Systems (EDS). This case describes the events that preceded Xerox's decision to outsource information technology.
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