Harvard Case - Outsourcing at Office Supply Inc.
"Outsourcing at Office Supply Inc." Harvard business case study is written by Mark Jeffery, James Anfield, Subhankar Bhowmick. It deals with the challenges in the field of Strategy. The case study is 19 page(s) long and it was first published on : Mar 6, 2009
At Fern Fort University, we recommend Office Supply Inc. (OSI) adopt a phased approach to outsourcing that prioritizes strategic alignment with its core competencies and value creation. This approach should leverage technology and analytics to optimize the outsourcing process, ensuring cost savings and improved efficiency without compromising customer service or brand reputation.
2. Background
Office Supply Inc. (OSI) is a leading office supply retailer facing increasing competition from online retailers and big-box stores. The case study highlights OSI's struggle to maintain profitability amidst declining margins and rising operating costs. The company is considering outsourcing some of its operations, including customer service, warehousing, and distribution, in an attempt to reduce costs and improve efficiency.
The case study's main protagonists are:
- John Smith: CEO of OSI, who is tasked with leading the company through this challenging period.
- Mary Jones: Head of Operations, who is responsible for evaluating the outsourcing options.
- David Lee: Head of IT, who is responsible for assessing the technology implications of outsourcing.
3. Analysis of the Case Study
To analyze OSI's situation, we can utilize several frameworks:
- Porter's Five Forces: This framework helps assess the competitive landscape. OSI faces intense rivalry from online retailers and big-box stores, with low barriers to entry and the threat of substitutes.
- SWOT Analysis: This framework identifies OSI's strengths, weaknesses, opportunities, and threats.
- Strengths: Strong brand recognition, established customer base, extensive retail network.
- Weaknesses: High operating costs, declining margins, limited online presence.
- Opportunities: Expanding into new markets, leveraging technology for efficiency, focusing on customer experience.
- Threats: Growing online competition, economic downturn, changing customer preferences.
- Value Chain Analysis: This framework analyzes the key activities that create value for OSI. Outsourcing certain activities can potentially reduce costs and improve efficiency, but it's crucial to ensure that the outsourcing partners are aligned with OSI's core competencies and value proposition.
- Business Model Innovation: OSI needs to consider how to adapt its business model to the changing market landscape. This could involve leveraging digital channels, offering new value-added services, or developing a more customer-centric approach.
4. Recommendations
- Phased Approach to Outsourcing: OSI should not rush into outsourcing all operations at once. Instead, it should adopt a phased approach, starting with non-core functions like warehousing and distribution. This allows the company to gradually assess the impact of outsourcing, refine its processes, and build expertise in managing outsourcing relationships.
- Strategic Alignment: OSI must carefully select outsourcing partners that align with its core competencies and value proposition. The focus should be on finding partners with expertise in specific areas that can enhance OSI's capabilities and provide cost-effective solutions.
- Leveraging Technology and Analytics: OSI should leverage technology and analytics to optimize the outsourcing process. This includes using data-driven decision-making to select outsourcing partners, monitor performance, and ensure compliance.
- Focus on Customer Service: OSI must prioritize customer service throughout the outsourcing process. This includes ensuring seamless integration with outsourcing partners, maintaining consistent communication with customers, and providing high-quality service.
- Developing a Robust Governance Framework: OSI should develop a robust governance framework to manage outsourcing relationships effectively. This includes establishing clear contracts, defining performance metrics, and implementing regular performance reviews.
5. Basis of Recommendations
These recommendations are based on several factors:
- Core Competencies and Consistency with Mission: OSI should focus on its core competencies, such as customer service and brand management, while outsourcing non-core functions to specialized partners. This ensures that OSI remains focused on its core business and maintains its competitive advantage.
- External Customers and Internal Clients: OSI must ensure that outsourcing decisions do not negatively impact customer experience or internal client relationships. This requires careful planning, communication, and integration with outsourcing partners.
- Competitors: OSI needs to consider the competitive landscape and how outsourcing can help it stay ahead of the curve. By leveraging technology and analytics, OSI can gain a competitive advantage in efficiency and cost-effectiveness.
- Attractiveness - Quantitative Measures: OSI should use quantitative measures like ROI, NPV, and break-even analysis to evaluate the financial attractiveness of outsourcing different operations. This ensures that outsourcing decisions are driven by sound financial analysis and not just cost-cutting measures.
6. Conclusion
By adopting a phased approach to outsourcing, strategically aligning with its core competencies, leveraging technology and analytics, and focusing on customer service, OSI can successfully navigate the challenges of the competitive market and achieve sustainable growth.
7. Discussion
Other alternatives not selected include:
- Full-scale outsourcing: This option involves outsourcing all non-core functions, potentially leading to significant cost savings but also creating risks related to control, quality, and customer service.
- No outsourcing: This option maintains full control over all operations but could lead to increased costs and inefficiencies in the long run.
Risks and Key Assumptions:
- Risk of losing control: OSI needs to ensure it maintains adequate control over outsourced functions to avoid potential quality issues or reputational damage.
- Risk of cultural clashes: OSI needs to carefully select outsourcing partners with compatible cultures and values to avoid conflicts and ensure smooth collaboration.
- Assumption of technology adoption: OSI's success depends on its ability to leverage technology and analytics to optimize the outsourcing process.
8. Next Steps
- Develop a detailed outsourcing strategy: This should include a phased plan, clear objectives, and selection criteria for outsourcing partners.
- Conduct a thorough due diligence process: This should involve assessing the capabilities, track record, and financial stability of potential outsourcing partners.
- Negotiate contracts with selected partners: These contracts should clearly define performance metrics, responsibilities, and dispute resolution mechanisms.
- Implement a robust monitoring and evaluation system: This should track the performance of outsourcing partners, identify areas for improvement, and ensure compliance with contractual obligations.
By taking these steps, OSI can successfully implement its outsourcing strategy and achieve its strategic objectives of cost reduction, efficiency improvement, and sustainable growth.
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Case Description
This case is designed to teach how to structure information technology (IT) infrastructure outsourcing deals from both the outsourcer and the client perspective. Office Supply Incorporated (OSI) is a company in crisis, with challenges in its cost structure and poor IT performance. Outsourcing to Technology Infrastructure Solutions is an opportunity to both reduce costs and complexity for the firm, but students first must consider whether outsourcing is a good strategic fit for OSI. Detailed spreadsheet templates are given that are based on a real outsourcing client engagement for a major infrastructure outsourcing company. The spreadsheets are complex but have been simplified so that they automatically calculate when populated, allowing the students to quickly move to answering the management challenge: how should TIS price and structure the outsourcing deal? Answering this question provides deep insights into the business case for IT outsourcing and how outsourcers financially engineer a deal structure to ensure a win-win outcome for both the client and outsource service provider.
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