Sainsbury's drops its £2.1bn outsourcing contract after fundamental overhaul of IT

From the moment Sainsbury's signed its £2.1bn outsourcing deal with Accenture in 2000, critics were predicting its demise. And despite Accenture delivering "considerable improvements" and cost reductions, ultimately they were proved right.

From the moment Sainsbury's signed its £2.1bn outsourcing deal with Accenture in 2000, critics were predicting its demise. And despite Accenture delivering "considerable improvements" and cost reductions, ultimately they were proved right.

The plan was the brainchild of Peter Davis, who had taken over as chief executive six months earlier, determined to regain the company's position as the UK's leading supermarket. The deal aimed to save Sainsbury's a total of £245m over the seven-year life of the contact.

Davis made it no secret that he believed the company's ageing IT systems were partly to blame for its failure to keep pace with rival retailers. "The age and complexity of our current IT systems are hampering our ability to perform and develop. We spend in excess of £200m a year on our IT, it is essential that we get better value for money," he said at the time of the deal.

Davis had already signed a huge outsourcing contract with Accenture in July 1997, in his role as head of insurance firm Prudential, and felt he could replicate the benefits of that contract at Sainsbury's.

Accenture took over responsibility for designing, building, implementing and running all the retailer's IT systems and networks. It also took over the management of 700 IT staff from Sainsbury's offices in Blackfriars.

Sainsbury's top priority was to replace its outdated Cobol-based systems with packaged software that would enable it to run more complex integrated systems.

Davis' assumption was that Accenture would help the retailer improve its balance sheet, and at the same time inject a heavy dose of project management skills to implement the IT upgrades Sainsbury's desperately needed.

"He was right on both counts," said outsourcing consultant Richard Sykes. "But that was not what Sainsbury's needed. It needed a strategic partner with a deep understanding of the retail process."

In December 2003, Sainsbury's extended the Accenture deal from seven years to 10 years, pushing up the value of the contract from £1.7bn to £2.1bn. But four years into the contract Davis was ousted, and his successor, Justin King, began an operational review of the IT contract.

Sainsbury's announced plans to write off more than £100m in IT investments, following problems with delivery systems that fell outside the Accenture contract.

The supermarket also began discussions with Accenture in an attempt to gain more control over  its IT systems.

In December 2004, Maggie Miller, Sainsbury's chief information officer, stepped down in favour of Angela Morrison. Morrison had made her name as the IT director of Asda, where she ended an IT outsourcing deal with IBM and took IT systems back in-house.

By this time, Accenture had completed the major IT investments and change programmes it was contracted to deliver. There was not much more to do other than "squeezing costs down", Miller told Computer Weekly.

Morrison formally took over in March this year. By April, speculation about the future of the Accenture deal was mounting, as Sainsbury's began bringing IT staff back into its London headquarters.

Last week Sainsbury's ended its relationship with Accenture, five years before the contract was officially due to end. It said, "Accenture has delivered considerable improvements in operation cost reductions and system stability." The supplier had also almost completed replatforming Sainsbury's IT systems.

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