Sainsbury mess is no advert for the outsourcing process

Rethink IT, Dec, 2004

The mess announced at UK grocery retailer recently should be viewed as a cautionary tale for every IT manager in the process of considering full IT system outsourcing.

J. Sainsbury, once the top supermarket in the UK, is now trailing in third place overtaken by Tesco and WalMart's Asda, and is giving warnings on its figure, and having to cope with both a share price and debt bond crisis.

It blames much of the affair on IT outsourcing.

Its long term IT outsourcing contract with Accenture saw 800 IT staff moved to Accenture in a move expected to eat up $3.25bn to 2010, and delivery flexibility, cost savings and improved productivity. The deal is now being renegotiated, IT equipment and work on new systems are to be written off, and Sainsbury will take some systems back inhouse. After signing the contract in 2000, it will make its first savings in IT spending in 2007/8.

The news surrounding the firm, with takeover bid rumors and management buy outs speculated in every national newspaper, shine a harsh spotlight on its operations and just what is wrong with them, with IT systems in the frame along with supply chain issues, over complex store formats and a weak customer proposition.

On the IT systems front Sainsbury spoke out when it was outlining survival measures in a conference recently, "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. The objective is to simplify systems to increase effectiveness. Key initiatives have been actioned.

"The roll-out of future systems and upgrades has been slowed down while focusing on driving benefits from the systems already in place. Priority will be on forecasting and scheduling systems.

"Certain systems cannot now be used and others will require additional expenditure to simplify and improve their functionality.

"The contract with Accenture is being renegotiated to involve the company more fully in the selection and implementation of systems and IT solutions. Accordingly the company is rebuilding internal capability."

It's pretty damning stuff and a huge blow for Accenture's reputation but also for the image of outsourcing. Here we have Sainsburys driven to the brink of extinction and its management putting the blame fairly and squarely on the classic dangers of IT outsourcing--loss of control, cost improvements that don't materialize, weakened ability to bring new systems on line, and lack of alignment with the core business.