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John Moore  
Is IT Outsourcing Losing Luster?
By John Moore, Ziff Davis Internet


J. Sainsbury's recent decision to part company with Accenture has inspired mixed interpretations among industry watchers.

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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.

But the statement said Sainsbury's IT focus has changed in light of its "Making Sainsbury's Great Again" plan. The program, which aims to boost the company's revenue growth, includes the marketing tag line, "Try Something New Today."

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.

PointerDisney delegates IT to outsourcers. Click here to read more.

"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.

But Douglas Hayward, an analyst at market researcher Ovum, cautioned against drawing too many conclusions from the Sainsbury split.

In a research brief, he disputed the notion that Sainsbury's action signals a trend toward "insourcing" among large corporations.

"We think that Sainsbury's insourcing comes from particular circumstances, rather than structural factors, but it certainly shows what can go wrong in any outsourcing deal," he wrote.

"We've discussed the Sainsbury case before, but 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."

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At any rate, insourcing—or backsoursing 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.

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