business management assignment
1. The Sainsbur y’ s Outsource
This case material is taken from publically available comment from industry
experts, the websites and press releases of the Outsourcing organisation
(Sainsbury’s) and the vendor supplier (Accenture). The purpose of this
collation is to extract from the experiences of this outsource key learning
points and is in no way intended as commentary on the effectiveness or
otherwise of the main participants in this unsuccessful exercise.
1.1. Information Age (IA) Interview w ith Margaret
Miller (MM)
Margaret Miller, Sainsbury's business transformation director and CIO, talks
about the company's ground-breaking outsourcing deal with Accenture.
Background to the deal
Sainsbury's prides itself on its traditional approach to food retailing. But that
traditionalism used to permeate through to its IT operations too.
When Sir Peter Davis took over as CEO at the beginning of 2000,
Sainsbury's IT systems were a mess. The company ran 13 different point-of-
sale systems, some staff were still running Windows 3.1 on their desktop
PCs, and email was provided by a green screen, mainframe-based system.
The under-investment in IT systems directly impacted Sainsbury's ability to
respond quickly to market changes. For example, when rival Tesco launched
its hugely successful Clubcard loyalty scheme, it took Sainsbury's 16 months
to respond.
The company's IT systems needed to be modernised from top-to-
bottom. In a bid to tackle this huge task, Sainsbury's decided to take the
radical option of outsourcing its entire IT function to services giant Accenture
in a seven year, £1.8 billion deal. Business transformation director, and CIO
Margaret Miller, was put in charge of managing Sainsbury's relationship with
Accenture and making sure it delivers value for money. She tells Information
Age why Sainsbury's decided to outsource and how she manages the
relationship.
The Interview
Information Age (IA): Sainsbury's outsourcing deal with Accenture is
arguably one of the most far-reaching in the UK. What challenges was
Sainsbury's facing when it decided to embark on the deal?
Margaret Miller (MM): The genesis was when Sir Peter Davis [Sainsbury's
CEO] re-joined Sainsbury's in 2000. He realised that we had under-invested
horribly in three areas: the stores were looking old and tired, the supply
chain infrastructure was not appropriate for today's world, and the IT
systems were far too expensive to run and were largely inhibitors to business
change, rather than enablers.
IA: In what way were the IT systems holding back the company?
MM: Pre-outsourcing, more than 95% of the IT budget was spent 'keeping
the lights on'. Because there had not been a strong architectural direction
behind the IT spending, a huge amount of money had been spent tactically,
which is the best way of wasting money in IT. Sainsbury's ended up with an
environment that was very complex and very expensive to support. That left
us with very little money to spend on building new systems and capabilities.
IA: How did Sainsbury's come to the decision to outsource and how did
Accenture emerge as the winner in the bidding process?
MM: Sir Peter Davis had worked with Accenture before and it was largely his
decision that we should outsource with them. There was no formal public
bidding process. There were other options considered, but it wasn't a public
tender in the traditional sense. When you look at the alternatives, there are
a lot of suppliers who can do service delivery outsourcing, such as CSC, EDS
and IBM. But if you look at how many can do the transformational
outsourcing that we wanted, I don't know anybody else who would be a
candidate.
IA: So how does the outsourcing deal with Accenture work?
MM: We entered into a seven-year, £1.8 billion deal whereby Accenture
guaranteed to reduce the cost of operations - the cost of keeping the lights
on - by almost 50% over the period. That was predicated on Sainsbury's
replacing all its legacy systems with systems based on uncustomised or
minimally customised packages on a standard architecture.
That meant all our systems - from the desktop to the general ledger, from
the human resources system to our customer data warehouse, from the
online store to all our fundamental operating systems - being replaced over a
period of three to four years.
IA: How did you work out the systems and business change that you wanted
to achieve?
MM: We defined the major high level business processes in the company -
the top 20 processes. Then we asked, of those really top level processes,
where do we want to be leading edge, where do we want to be competitive
and where are we happy to be just run-of-the-mill? We decided that we
wanted to be way ahead of the field in the capabilities that give us customer
intimacy. Whereas, for example, in accounting, we wanted to be reasonably
boring.
That drove the product selection and our appetite for risk in various areas - if
we wanted to be really leading edge in an area, we had to be prepared to
take more risk. If we wanted to be very boring, then we chose a package that
was really main-stream. Oracle Financials is the best example. We went with
Oracle because it’s dependable, boring and reliable, and that's fine.
IA: So what kind of change programme did you devise?
MM: Some of the things we did first were reasonably standalone. We
implemented the customer data warehouse, for example, and then the new
online store.
One of the other things we did during the first year was move everybody to
the new head office building. That involved nearly 3,000 people moving from
nine buildings south of the river to one building in Holborn over the period of
three weeks. At the same time, we migrated everybody from green screen
email and very old versions of Microsoft Office.
Then we started to move into some of the most complex areas, things like
refreshing our point of sale (POS) systems. We had 13 different point-of-sale
systems. If we tried to make a change, we had to do it 13 times.
The mechanics of rolling out the new POS system meant an implementation
in 450 stores, which have anything up to 55 lanes each and, at the same time
we were rolling out the POS system, we were implementing the Siebel
customer information system and replacing all the PCs.
We are only now moving on to the systems that are the most integrated and
the most complex, because those have the longest planning time. For
example, we are about to replace some of our core systems - such as supply
chain forecasting, trading, planning and product maintenance.
Our new portfolio of systems is based on a standard architecture: Oracle
database and Sun Solaris Unix. That's our core platform across the estate,
with the obvious exception of Microsoft Windows on the desktop.
Our application set is based around two or three major planks. The Retek
product set is being used for supply chain forecasting, trading, planning,
product maintenance and so on. And the Oracle product set is being used for
most of the back office, such as human resources and finance. Retalix is
being used for POS and we are also using some specialist software in certain
areas, such as Blue Martini for the 'Sainsbury's to You' online store.
IA: How was the financing of the outsourcing deal worked out (Sainsbury's
pays the same monthly amount over the life of the seven-year contract)?
MM: We wanted to invest a great deal of money over a short period of time
and the 'special purpose vehicle' financing deal we did enables us to do that.
I think the initial concept was first developed for the public finance initiative
(PFI), which is generally used for building bridges and hospitals. Typically in IT
investments, you invest all the money upfront, take the financial hit and then
the benefits come a long way down the line. Our deal with Accenture
spreads those costs out over the lifecycle of the deal. The contract was
devised by us and Accenture, and then put into place by Barclays Private
Equity and its Swan Infrastructure subsidiary.
IA: How adaptable is the contract to business change?
MM: There are specific provisions for dealing with that. The original deal
covered a certain number of stores and a certain level of business. But we
have some specific mechanics for dealing with growing the number of stores
and the volume of goods sold through them.
We knew that over the course of the deal we would be re-furbishing a huge
number of stores and substantially changing the physical supply chain
infrastructure, so when we wrote the contract we did so knowing that it
would have to deal with all this other business change as well.
IA: How do you manage the performance of such a large, all-encompassing
contract?
MM: It's split between hard and soft measures. For example, the delivery
piece of the bonus is split between whether the project has delivered the
benefits that were in the original business cases. Obviously, a lot of that
depends on us doing not just the systems implementation, but on the
business change and the people change as well.
We also do user surveys to find out how people feel the project was
managed. Were they well enough informed about what was happening? Did
they have the right level of engagement? All those sorts of things.
Then, on service delivery, we measure the hard metrics. Did we meet the key
performance indicators in the year? We also do a service delivery survey,
comprising 20 questions on different aspects of the service.
Not only do we use those surveys to drive the balanced scorecard, but we
also try to find out if there are any common themes or emerging trends that
we are not picking up any other way. Is there an emerging problem that we
need to address?
IA: You say that there was no formal bidding process. How have you made
sure that Sainsbury's has got value for money out of Accenture?
MM: To start with, we asked, "What are our IT costs and what rate are they
growing at? Where will they be at the end of the seven-year term?" If we
enter into the deal, what will the total cost over the period be and what will
the exit cost be? Then we asked, "Is that a good deal?"
It was done very much at a strategic level. And when you do the maths at
that level, it's a spectacularly good deal.
IA: Overall, how would you advise others to approach such outsourcing
contracts?
MM: If you have got a strategic outsourcing arrangement, you need to keep
your eye on the end game. Obviously, you have to manage the detail, but
you have to remember what the goal is and why you did it. There is no point
falling out over a point of detail if it compromises on achieving the goal.
2. The Outsource Deal
2.1. Initial deal August 2000
Sainsbury's to Outsource IT and Payroll Functions
August 22, 2000
J Sainsbury plc announced to its staff today that it is planning to outsource its
supermarket IT functions to Andersen Consulting (later called Accenture).
The two companies are currently finalising details of the arrangement which
are subject to final negotiation and approval by the Boards of both
companies at the end of September 2000.
The contract will encompass the designing, building, implementing and
running of all IT systems and networks for Sainsbury's Supermarkets. Circa
800 employees will transfer to Andersen Consulting which will also take over
responsibility for, or manage, all Sainsbury's Supermarket's current IT
contracts with third party suppliers. Further details of the agreement will be
made available following final approval of the contract by the Sainsbury's
Board.
Sir Peter Davis, Sainsbury's group chief executive commented:
"I said at our preliminary results announcement in May that
we needed to improve our business efficiency radically and
with speed. The age and complexity of our current IT systems
are hampering our ability to perform and develop and our
required rate of change is made even more crucial with our
ambitions for e-commerce. We currently spend in excess of
£200 million a year on our supermarket IT systems and
operations. It is essential that we get better value for money
and through Andersen Consulting we have identified a
customer-centric platform which gets us where we need to be
and fast. It will drive a step-change in our IT capabilities and
help us deliver competitive advantage to our customers and
cost savings to our shareholders."
John Adshead, Sainsbury's group board director for IT added:
"Sainsbury's has some excellent IT talent and expertise but our
current systems have evolved over many years and are costly
and complex to run. This move will create a fundamentally
more effective partnership between IT and our business and
give colleagues the opportunity to work with state-of-the-art
technology in a company which has IT as its core
competence."
Bob Willett, global managing partner retail, Andersen Consulting, said:
"Our goal is to enable Sainsbury's to achieve a quantum leap
in IT capability to support its business strategies. As the
Sainsbury's board concentrates on rebuilding the strength of
the brand, Andersen Consulting will ensure it has the
necessary systems and processes in place."
Sainsbury’s to Outsource Payroll functions
Sainsbury's is also completing discussions with Rebus Human Resource to
outsource its current payroll operation for Sainsbury's Supermarkets, Group
departments and its pensioners. Circa 45 employees will transfer to the
specialist payroll provider later in the year.
2.2. Announcement of Contract
LONDON, December 8, 2000 -- J Sainsbury plc and Accenture announced the
recent signing of a seven-year contract that calls for the leading global
management and technology consultancy to manage the U.K. supermarket's
information technology (IT) infrastructure. The agreement aims to radically
improve Sainsbury's business efficiency and effectiveness by modernising its
IT systems, thereby achieving significant cost savings.
Under the agreement, which became effective November 12, 2000,
Accenture will take responsibility for all aspects of Sainsbury's IT services,
including operating existing systems and networks, developing and installing
new systems and managing third-party contracts. Additionally, the
arrangement includes a transfer of approximately 800 Sainsbury IT
employees to Accenture. Sainsbury originally announced its decision to team
with Accenture and negotiate a final contract on August 22, 2000.
"Driving change in our IT capabilities is a fundamental part of
our business transformation plans," said Peter Davis,
Sainsbury's group chief executive "Many of the changes we
need to make are IT-dependent, and Accenture's excellent IT
skills and retail industry experience will help us achieve real
competitive advantage and efficiencies quickly and cost-
effectively."
Sainsbury currently spends in excess of £200 million a year on its
supermarket IT systems and operations. Over the seven years of the
contract, the company's IT costs will be approximately £35 million per year
less than if Sainsbury continued to manage and operate its own IT functions.
"This agreement is consistent with our strategy of teaming
with clients to create innovative arrangements that deliver
value far beyond traditional outsourcing," said Robert Willett,
global managing partner, Accenture Retail practice. "We are
committed to helping Sainsbury achieve repeatable, ongoing
value that will transform customers' shopping experiences and
differentiate Sainsbury from its competition."
John Adshead Sainsbury's group board director for IT added:
"Over the next two and a half years, Accenture will renew all
our key systems, replacing legacy systems with best practice
retail packages. Early implementation of new office systems
and improvements to our eCommerce and HR systems are
planned for April 2001. Within the next year we will have
replaced our point-of-sales systems and substantially
upgraded our category and customer relationship
management systems. By the end of the programme, all major
systems, including depot and store replenishment, will have
been renewed."
Source: Accenture announcement December 08 2000
Sainsbury’s view
November 13, 2000
J Sainsbury plc has now signed a seven year contract to outsource its
supermarket IT functions to Andersen Consulting. The companies originally
announced they were in detailed negotiations in August 2000. The
agreement aims to improve radically Sainsbury's business efficiency by
modernising its IT systems and saving costs.
Sir Peter Davis, Sainsbury's group chief executive said:
"Driving a step-change in our IT capabilities is a fundamental
part of our business transformation plans. Many of the
changes we need to make are IT dependent. Andersens have
excellent IT and retail experience and we are confident they
will help us achieve real competitive advantage and cost
reduction in a timescale and at a cost we could not have
achieved on our own."
Under the agreement Andersen Consulting will take responsibility for
all aspects of IT services including running existing systems and networks as
well as developing and installing new systems.
Source: Sainsbury PLC corporate website, November 13 2000
2.3. The Renegotiations Begin
January 29, 2004
J Sainsbury plc (“Sainsbury’s”) today announces a proposal to simplify the
financing structure of its extended outsourcing contract with Accenture.
In November 2000, Sainsbury’s Supermarkets Ltd outsourced its IT re-
development and operations to Accenture for a period of seven years
through an intermediary company Swan Infrastructure plc (“Swan”).
Sainsbury’s will complete its business transformation programme by summer
2004, including the re-development of its IT systems. In November 2003
Sainsbury’s announced a three-year extension to the contract with
Accenture, negotiated at reduced costs. Peter Davis, group chief executive of
Sainsbury’s said:
“We are pleased with the work that Accenture has completed
on our behalf and we have extended our relationship as our
new IT infrastructure becomes fully operational. We would
now like to acquire Swan to create a direct commercial
relationship with Accenture, as we near completion of our
business transformation programme this summer.”
In an attempt to drive down the price of the Accenture contract,
Sainsbury will simplify existing IT systems as well as those in the pipeline,
because the implementation effort has "failed to deliver the anticipated
increase in productivity," while IT costs continue to eat up more and more of
the company's overall budget in proportion to sales.
Last November, the contract was renegotiated with an eye toward
cutting costs and extended through 2010. In the statement, the supermarket
chain said it wants to renegotiate the contract in an effort to provide its
personnel with more input into the selection and implementation of IT
systems. Sainsbury is also looking to rebuild its internal IT staff and systems.
One of Sainsbury's biggest IT problem areas is the operation of its four
new automated depots, which the company said are failing to perform at the
planned levels. Accenture, which is one of the world's largest providers of IT
services, said that although it's responsible for the supermarket chain's IT
transformation program, including some of the supply chain systems, the
automated depots were never part of its contract with Sainsbury.
Accenture said it replaced the bulk of Sainsbury's core operational
systems, providing "improved reliability and stability of systems" while also
reducing the grocery chain's annual IT operating costs.
Sainsbury said that in its 2004-2005 fiscal year, it will write off $254
million of redundant IT assets and $218 million in automated equipment in
the new fulfilment depots. An additional $54.5 million in inventory losses
resulting from the disruption caused by the new depots and IT systems will
also be written off, the company said. Sainsbury estimates that its
expenditures in its IT systems and supply chain will come in at an additional
$363.5 million over the next two years. The company projects IT budget
savings of $72.7 million by its 2007-2008 fiscal year.
Source: Computer World October 2004
2.4. The ending and moves to b ack sourcing
Sainsbury's is ending its 10-year outsourcing contract with Accenture three
years early and bringing its IT operations back in house over the next six to
12 months. The retailer said that, as part of its plans to revive its fortunes, its
IT focus has changed and now "is the right time to rebuild expertise back in-
house".
It said detailed plans are now being drawn up for the migration of the IT
services and future development needs from Accenture to Sainsbury's.
"Everything will be back in house in the next six to 12 months.
We said back in October last year that we would be reviewing
the contract with Accenture. The decision has been made that
was announced today,"
The retailer signed the 10-year contract with Accenture in November 2000,
hoping to save about £35m per year on its previous £200m per year IT
spend. Key IT development will continue as planned, the retailer said. It said
the priority throughout the migration period will be to make sure customers
and staff are unaffected by the change, particularly through the Christmas
and Easter trading periods.
Around 700 staff at Accenture work on Sainsbury's IT systems but the
retailer could not say how many will transfer back. Sainsbury's said it will
make future cost savings so that the exit costs "are expected to pay back in
the short term".
Source: Zdnet 28th October 2005
2.5. Industr y comment on the change in strateg y
Sainsbury's has put the brakes on new IT investment and is looking to
renegotiate its £1.8bn IT outsourcing contract with Accenture as part of a
new back-to-basics business plan designed to turnaround the struggling
supermarket chain. The supermarket revealed it will take a £290m hit on its
disastrous automated depot and supply chain IT project that failed to get
goods onto the shelves of its supermarkets. The extent of the problems,
which were part of a £3bn project implemented by previous CEO Sir Peter
Davies, are revealed in Sainsbury's new business plan put before investors
today.
The write-off of redundant IT assets will cost £140m and the write-off
of automated equipment in the new fulfilment depots will cost £120m.
Another £30m in stock losses is due to the disruption caused by the new
depots and IT systems. Remedial and completion capital spend in IT systems
and the supply chain is estimated at an additional £200m over the next two
years. Sainsbury's CEO Justin King said the business transformation project
distracted the company from its "customer offer" and so he has laid out
plans to "fix the basics" as part of a £2.5bn "sales-led" recovery for the
embattled supermarket chain.
"IT systems have also failed to deliver the anticipated increase
in productivity and the costs today are a greater proportion of
sales than they were four years ago," it said. "The rollout of
future systems and upgrades has been slowed down while
focusing on driving benefits from the systems already in
place."
Sainsbury's £1.8bn IT outsourcing deal with Accenture also comes under the
spotlight. That deal was only renegotiated to cut costs with an extension to
2010 last November. A spokeswoman for Sainsbury's told silicon.com it is
renegotiating the overall cost structure to improve flexibility" but denied it
signalled a shift to bringing the supermarket's IT back in-house.
"We have a good relationship with Accenture and we have
every confidence Accenture will be able to support the
business going forward."
Accenture said it has improved the reliability and stability of Sainsbury's
systems and reduced annual IT operating costs as part of the outsourcing
deal. A spokesman for Accenture said:
"We are responsible for the IT transformation programme at
Sainsbury's, including some of the supply chain systems.
However, the IT automation systems within Sainsbury's four
new automated depots are not, and never have been under
the scope of the existing contract. We are not responsible for
the strategy, development and operations of these systems."
In the meantime Sainsbury's focus will be on getting cost savings by
simplifying existing IT systems, and in some areas this means manual
processes will be reintroduced where systems are failing. IT and the supply
chain account for almost a quarter of the operational savings target of
£400m by the end of financial year 2007/2008.
By Andy McCue, 19 October 2004
Source: Silicom.com
2.6. Opinion:
Douglas Hayward, senior analyst at researcher Ovum, said that the problems
with the deal show what can go wrong in any outsourcing relationship. He
said in a research note:
"The problems included poor decision-making by Sainsbury
executives, weak outsourcing governance, political in-fighting
at the retailer and a risky 'big-bang' approach that made too
many assumptions and took too many risks. It's a warning that
business benefits don't necessarily follow from IT
infrastructure renewal unless the business itself is well run
and the two sides are properly connected. New IT
infrastructure can't compensate for poor business
management. In that sense, Sainsbury shows us the limits of
transformational Outsourcing”
UK Company Sainsbury turns its back on outsourcing, fuelling speculation
about the value of the practice.
J. Sainsbury's recent decision to part company with Accenture has
inspired mixed interpretations among industry watchers. The UK food
retailer late last month announced plans to take back in-house the IT
services it outsourced to Accenture in November 2000. Under the $3 billion
deal, Accenture succeeded in improving Sainsbury's IT capability and
"delivered improvements in systems stability and operational cost
reductions," according to a joint statement.
Some industry observers view the split as symptomatic of a broader re-
evaluation of older and complex outsourcing projects. Earlier this year, Sears,
Roebuck & Co. terminated a $1 billion-plus outsourcing deal with Computer
Sciences Corp. Last year, JP Morgan Chase ended its outsourcing pact with
IBM. "It's a function of where we are at in the market," said Stan Lepeak,
managing director of research at EquaTerra Inc., an outsourcing advisory
firm.
"A number of larger deals are getting older now. We're getting
to a point where there is going to be a renegotiation, with
user organizations rethinking the original decision."
In April, nearly two thirds of the enterprise respondents to a Deloitte
Consulting LLP survey said they have brought some outsourced services back
in-house. Another factor for this: companies that have come to view IT as
more strategic want to reassert control. Sainsbury wants to control IT for
competitive advantage, said Lepeak, who noted that JP Morgan had a similar
motivation for ending the IBM deal.
At any rate, insourcing—or back sourcing as it has been called—is nothing to
pursue lightly. Lepeak described the process of reabsorbing an IT operation
as "very painful." Outsourcing buyers may face financial penalties for
prematurely ended contracts, he noted.
But the key question is whether an outsourcing customer has the skills
on hand to run an IT shop. Lepeak said some customers may inherit some of
the contractor's employees. But that may not be the case when it comes to
management-level personnel. “Senior managers are not likely to come back
in-house," Lepeak said. The Sainsbury/Accenture statement said "a number
of Accenture employees" will migrate to Sainsbury, but did not provide
specifics.
2.7. The fall-out
Sainsbury’s to Axe Maggie Miller after outsourcing disaster
14 December 2004 Supermarket giant Sainbury's is set to replace its CIO who
presided over its disastrous £1.7 billion outsourcing project with Accenture.
Sainsbury's confirmed that Maggie Miller will be succeeded by Angela
Morrison, director of European strategy at rivals Asda, in March 2005, who
will be charged with reducing the costs of Sainsbury's IT services.
Miller joined Sainbury's in 2000, shortly after it signed a £1.7 billion business
process outsourcing deal with consultancy firm Accenture, due to run for
seven years. But in October 2004, Sainsbury's was forced to write off £260
million in redundant IT assets, and CEO Justin King admitted: ""The IT costs
are a greater proportion of sales than they were three years ago."
Sainbury's greatest problems arose in its project to re-invigorate its
supply chains through new automated centres. Ultimately, Sainsbury's has
had to resort to recruitment and manual effort to restock its empty store
shelves. The deal with Accenture is being renegotiated.
Source: Information Age Feb 2006
2.8. Insourcing
Sainsbury's completes transfer of IT staff back in-house after ending
outsourcing deal with Accenture. Sainsbury's has completed the insourcing
of 470 IT staff, all its IT assets and its third-party contracts from outsourcing
supplier Accenture. Supermarket chain Sainsbury's has completed the
transfer of 470 IT staff, all its IT assets and its third-party contracts back in
house from outsourcing supplier Accenture. The company cancelled its
£1.7bn outsourcing contract with Accenture last October at a time when the
contract had five years left to run. Sainsbury's and the outsourcer have spent
the past six months transferring the people, the systems and the contracts
with other IT suppliers back to the firm. The decision to in source was made
after an operational review under new chief executive Justin King found that
Sainsbury's would be able to recover more speedily if it regained direct
control of its IT systems and staff.
Dan Thomas 03 May 2006
2.9. Sainsbur y’s get into the T op Ten most
disastrous out source deals
(At Number 3). Sainsbury’s ‘Business Transformation Programme’
Accenture’s new stock system apparently couldn’t track stock. Sainsbury’s
take a £550m charge to profits and draft in 3,000 new shelf stackers –
quickly. Meanwhile Accenture respond by blaming Sainsbury’s for
insufficient due diligence.
Source: http://www.accountingweb.co.uk/item/168216
Tuesday 01 November 2005 01:13
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 the
entire 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. 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.