Sainsbury's looks to squeeze more from its Accenture deal as IT staff move back to HQ

IT staff relocated to cut costs as retailer reviews £1.7bn seven-year contract

IT staff relocated to cut costs as retailer reviews £1.7bn seven-year contract

Nick Huber and Karen Gomm

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The decision by Sainsbury's to move its IT staff back into its London headquarters has triggered speculation about the future of the retailer's multibillion-pound outsourcing deal with Accenture.

The relocation of IT staff coincides with a review of the IT outsourcing contract, which Sains- bury's announced last October.

Contract reviews are increasingly common practice when major organisations want to negotiate a more favourable deal from their outsourcing supplier or to tailor existing contracts to new circumstances.

The review of the seven-year contract, signed in 2000 and thought to be worth £1.7bn, coincides with the appointment of Angela Morrison as IT director at Sainsbury's.

In her former role as IT director at Asda, Morrison ended an IT outsourcing deal with IBM and took IT systems back in-house, following the takeover of the supermarket by US retailer Wal-Mart. She was also responsible for migrating Asda's IT systems to Wal-Mart technology.

Nigel Montgomery, director of European research at analyst firm AMR, said Sainsbury's could put pressure on Accenture for a better deal but was unlikely to change its IT outsourcing supplier.

"Sainsbury's has been very savvy about the whole agreement. I have heard several suppliers say they are in the running for the contract but I will be surprised if Sainsbury's get rid of Accenture," he said. "It is in a good position to renegotiate the contract because Accenture will not want to lose the contract.

"Sainsbury's has had to review all its projects, Accenture did a lot of good for Sainsbury's and there is more than one supplier involved. If I were in charge at Sainsbury's I would keep Accenture on board but would renegotiate the contract. I do not think Sainsbury's will want to start from scratch with another supplier."

But Montgomery added that Sainsbury's may increase the number of IT suppliers it uses to reduce its reliance on Accenture.

Another analyst said Sainsbury's had approached several outsourcing advisers to discuss the review of the Accenture contract.

"Sainsbury's is looking to re-evaluate the Accenture deal but it is not putting it out to tender," he said. "I think Sainsbury's will let Accenture sharpen its pencil. The deal is currently too expensive for Sainsbury's. It signed the deal when it was doing a lot better financially."

A spokeswoman for Sainsbury's said the relocation of IT staff was aimed at cutting costs and did not mean it wanted to bring outsourced IT back in-house.

Accenture said, "We are continuing to work with Sainsbury's to help identify additional improvements to the efficiency and effectiveness of its IT operations. Details of those discussions and the terms of our agreement remain confidential."

The review of the outsourcing contract, one of the biggest of its kind in the UK retail industry, follows a difficult period for the supermarket chain.

The retailer faces intense competition from Asda and Tesco and was forced to write off £260m last October following problems with its distribution warehouse management systems, which interrupted stock deliveries.

In addition to the IT systems outsourced to Accenture, four automated service depots lie outside the scope of the deal and accounted for the bulk of the write-off.

BOXTEXT: Sainsbury's IT

December 2000

Sainsbury's outsources its IT to Accenture in a seven-year deal estimated to be worth £1.7bn. "Driving change in our IT capabilities is a fundamental part of our business transformation plans," says chairman Peter Davis.

March 2003

Sainsbury's rolls out Alerts and Resolution Management software to its supply chain. It will eventually be used by all of its 2,000 suppliers.

February 2004

Sainsbury's simplifies its contract with Accenture by buying an intermediary firm for £553m that handled the relationship between the two companies.

July 2004

Sainsbury's chairman Peter Davis stands down because of the firm's continuing poor performance.

September 2004

Sainsbury's trails supermarket rivals in roll out of chip and Pin.

October 2004

Sainsbury's says IT is partly to blame for disappointing financial results and writes off £260m. Review of outsourcing contract with Accenture announced.

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