As others have remarked, I find the problem statement confusing. (In particular, these tired, old optics would have appreciated less eye-bezoggling example strings!) However, a couple of code examples that might help to define the problem:

>perl -wMstrict -le
"my $big = 'xyzzyABCDfoobar';
 my $small = 'ABCD';
 ;;
 (my $padded = $big) =~
   s{ \A (.*?) (\Q$small\E) (.*) }
    { 'o' x length($1) . $2 . 'i' x length($3) }xmse
    or die 'small substring not found';
 print qq{'$big'};
 print qq{'$padded'};
 ;;
 $padded = '';
 my $is = index $big, $small;
 die 'small substring not found' if $is < 0;
 my $op = $is;
 my $ip = length($big) - length($small) - $op;
 $padded = 'o' x $op . $small . 'i' x $ip;
 print qq{'$big'};
 print qq{'$padded'};
"
'xyzzyABCDfoobar'
'oooooABCDiiiiii'
'xyzzyABCDfoobar'
'oooooABCDiiiiii'
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Update: Added die on substitution failure in substitution example.