Supermarket giant reclaims its IT

Sainsbury sweeps away Accenture

Sainsbury's decision in October to terminate its £1.8bn IT outsourcing contract with service provider Accenture has raised questions about the commercial benefits of outsourcing IT functions. However, experts said that firms could mitigate the risks associated with outsourcing by breaking down large deals into manageable partnerships with multiple service providers.

The cancellation brings to a close a year-long saga that began last October when Sainsbury's renegotiated the deal to ensure it was more fully involved in the selection and implementation of systems.

Sainsbury's promised it would review the relationship and then signalled the possibility of taking its IT functions back in-house when in March it moved the Accenture-controlled IT team back into its London headquarters.

However, Sainsbury's insists the termination was not caused by dissatisfaction with Accenture's performance. A spokeswoman for the company said Accenture was originally appointed to transform Sainsbury's IT systems and with that work largely complete the firm believes it can now make cost savings by running IT operations in-house.

Jamie Snowdon of analyst IDC said that while firms often need to outsource complex IT transformation projects to more technically-experienced service providers, the outsourcing of day-to-day IT tasks can prove less cost-effective. "If you can run [the IT department] efficiently yourself then you can do it in-house for less than the outsourcer as you don't pay your own IT department a profit margin," he explained.

For large firms like Sainsbury's this is particularly true because they also enjoy the economies of scale and increased purchasing power that allow service providers to carry out IT functions efficiently, Snowden added. But Douglas Hayward of analyst Ovum said the failure of Sainsbury's outsourcing relationship was more the result of management difficulties than inherent shortcomings of the IT outsourcing model.
"Sainsbury's made some bad decisions... and there was poor IT governance and internal politics issues where some were resistant to working with an external consultancy," he argued.

Hayward added that firms can reduce the risks of outsourcing by using a number of partners - outsourcing individual functions to different best-of-breed providers who are easier to manage and monitor than a single large provider.