Supermarket giant Sainsbury's is set to terminate its IT outsourcing contract with Accenture five years early and take its systems back in-house.
"In 2000 the company signed a 7 year deal valued at £1.7bn with Accenture, to transform its IT operations and improve the efficiency of the business. In 2003 the contract was extended to 2010, and its value increased to £2.1bn.
"Sainsbury's chief executive Justin King said: 'Five years ago Sainsbury's IT systems were suffering from severe lack of investment and development. Accenture has provided our business with system reliability and stability which we would not have been able to provide ourselves. We believe the time is now right to develop further our IT capability in-house.'" (Computing, 3rd November.)
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So, a year after opening negotiations with outsourcer Accenture about fixing problems with its IT systems, it appears that negotiations have failed and Sainsbury's has decided to 'insource' its IT back in-house.
Industry observers quoted in the Computing article attribute 'too little retail-specific knowledge from Accenture'[!] as one of the reasons for the contract's termination. But Sainsbury's had to take back IT anyway simply in order to regain control over its own business. Once you hand over IT to someone else, you lose the ability to develop the systems yourself.
Now, five years on, is it now too late? After all, the whole point of outsourcing is to save costs by running down your own IT department. And since the best people want to be where the action is, many IT staff who weren't outsourced will also have left. Is Sainsbury's own IT department capable of handling the work?
Sainsbury's can of course hire new IT staff. This will improve their technical expertise, but what they also need are systems people who understand how the company runs its daily operations. The key people in an IT department are the people who understand both worlds ' on the one hand they have a detailed knowledge of the company's operational systems, and on the other a detailed knowledge of its IT.
You can't buy people with this level of knowledge: you have to grow them in-house, and it takes years. When managers outsource an organisation's IT department, they squander this precious resource of intellectual capital which has taken so long to build up.
But surely Sainsbury's could simply take back the people who have been running their systems at Accenture? That depends on whether any of them will want to return.
To take a similar case, the BBC recently outsourced its Technology Unit to Siemens. A BBC friend of mine who was on the receiving end tells me that the sense of anger and betrayal among the staff was intense. Whichever way management dressed it up, effectively they were being sacked. They might still have a job to go to, but their career with the BBC was at an end. Sainsbury's staff will have felt the same way.
But after a few months with Accenture they will have got over it, and for the better ones new career opportunities will have arisen in other parts of the organisation.
So now, with any loyalty they might once have felt to Sainsbury's destroyed, how many will want to return? It's dumped them once; it can do it again. And will Accenture be willing to lose some of their best employees in order to help out an ex-customer? My guess is that a few of the staff who handle the day-to-day operations will come back, but the high flyers whose skills are needed for developing new systems - I doubt it.
So Sainsbury's is left with an IT department that's dead on its feet, but which apparently is going to take over the operation and development of a warehousing IT system which a) doesn't seem to work very well and b) has been written by another company that doesn't know all that much about retail.
It's the fault of the previous management rather than Justin King, but Sainsbury's has a mountain to climb here. And all the while the big beasts of retailing Tesco and Walmart, both of whom reject outsourcing, are powering ahead on the back of their own leadership in IT.