Supermarket chain Somerfield has signed a seven-year deal with Tata Consultancy Services to outsource the management of its entire IT infrastructure to India.
The retailer, which is under pressure to make savings following its takeover by a venture capital consortium, is expected to cut its IT costs by a third over the life of the £33m deal.
Ovum analyst Samad Masood said the deal put Somerfield at the forefront of a new trend to offshore the management of IT infrastructure alongside application development.
“IT infrastructure offshoring is becoming more common. You can use remote technology to manage infrastructure, servers and networks, so it is much easier to do than it was in the past,” he said.
Under the deal, TCS will take responsibility for managing Somerfield’s mainframes, Unix and NT platforms, and delivering IT services to 900 retail outlets and eight distribution depots.
The supplier plans to exploit developments in technology to administer user accounts, deploy software upgrades and manage capacity remotely from India.
About 115 of the 141 IT jobs at the retailer’s Bristol IT headquarters will be cut, but Somerfield plans to retain a 25-strong team to manage the contract.
“Somerfield will retain responsibility for strategy and significant elements of business analysis, project management and architectural oversight. All other IT delivery functions, excluding development, will be outsourced to TCS,” said Mike Bell, Somerfield’s director of business systems.
Bell said the deal would help Somerfield cut costs, reduce risks, and provide it with access to a wider breadth of knowledge and experience.
TCS has agreed to meet the retailer’s existing service level agreements, with additional targets for improvement by March next year.
Masood said that other supermarkets were likely to follow Somerfield’s lead as they expand overseas and seek to centralise their IT departments in one location.
But the deal comes just over a year after Sainsbury’s pulled out of a 10-year, £1.7bn IT outsourcing contract with Accenture, highlighting the potential risks associated with Somerfield’s move.
Retail analyst Richard Hyman of Verdict Research said that, despite the expected benefits, Somerfield’s move carried risks. “IT represents a substantial flow of money and it is very tempting to think India represents a fantastic opportunity to save. But there are risks involved and you do lose a bit of control,” he said.
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