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.