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CASE STUDY IV-4
IT Infrastructure Outsourcing at
Schaeffer (B): Managing the Contract
In March 2007, Alan Harding, the Vice President of IT at
Schaeffer Corporation, was busy preparing to meet with top
management at their corporate offices in Vilonia. In light of
the recent business developments at Schaeffer, important IT
decisions had to be made—and they had to be made soon.
Four years ago, Schaeffer had signed a seven-year,
$200 million outsourcing contract with ABC Corporation
to outsource its centralized IT infrastructure. The deal
meant that Schaeffer would retain its systems development
activities in-house, and outsource data center operations,
voice and data telecommunications, distributed computing
support (including desktops), and help desk support for
employees throughout the company.
But being a multidivisional firm had posed its own
problems when it came to the outsourcing decision. The
concerns centered on Schaeffer’s aggressive growth targets
for Reitzel (one of its three divisions). Senior management
in the other divisions believed that Reitzel was the only
division that would benefit from outsourcing what was
being efficiently run in-house. However, the concerns of
the divisions were addressed, and the deal was signed in
June 2003. What followed was a period of outsourcing
challenges for Schaeffer’s management, and although the
differences between the divisions resurfaced, Schaeffer’s
managers had deftly handled every situation.
Now a new business restructuring meant that the out-
sourcing deal had to be changed. Schaeffer’s management
had recently decided to split its divisions into two inde-
pendent business entities and dissolve the corporate parent.
With almost three years remaining in the outsourcing con-
tract, Schaeffer’s management had several options to con-
sider—and Harding thought it was beginning to look every
bit as complicated as the initial decision to outsource.
Company Background
Founded by Fredrick W. Schaeffer in 1877, Schaeffer
Corporation is the parent firm for three divisions, with total
annual sales of about $2 billion in 2002. Fredrick’s three
son-in-laws—Hiram C. Colbert, Heinrich Reitzel, and
George Kinzer—each managed a division, and ran them as
autonomous business units out of the small Midwestern
town of Vilonia. Originally, the company manufactured
only small farm machines, but today Schaeffer’s three divi-
sions sell very different products. The Colbert and Reitzel
(pronounced “rightsell”) divisions have their own manu-
facturing plants and distribution facilities; the third divi-
sion is now in financial services, providing agribusiness
loans, estate and equipment loans, etc. The products are all
branded with their division’s name rather than with the
Schaeffer name.
Colbert and Kinzer have operations only in the
United States. Their markets are relatively mature, with
minimal to modest opportunities for growth. Reitzel,
however, has grown rapidly in recent years through new
products and acquisitions, and was continuing to expand
globally. As the “corporate growth engine” for Schaeffer, it
operated in 10 European countries and South America, and
still contributed about two-thirds of Schaeffer’s dollar
sales and about 80 percent of its total profits.
In the past, each of Schaeffer’s divisions had man-
aged its own IT infrastructure—separate data centers, its
own computer operations and systems development spe-
cialists, and separate help desk staff. However, in the late
1990s Schaeffer realized the need for consolidating and
centralizing IT infrastructure operations for the entire cor-
poration. The corporate vice president of IT championed
this cost efficiency initiative by eliminating a number of
servers, reducing the number of IT personnel, establishing
a corporate help desk, and so on. During this time,
Schaeffer also purchased licenses for and installed enter-
prise software (an ERP system) to support finance, human
resources, manufacturing, and distribution processes. Each
division was, however, allowed to implement separateCopyright © 2007 by Carol V. Brown, S. Balaji, and Taylor Wells
at the Kelley School of Business, Indiana University–Bloomington. The
authors are indebted to the managers at this camouflaged company who
shared with us their insights. This case is intended to support classroom
discussion rather than to illustrate either effective or ineffective
management practices.