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How will Sainsbury’s and Argos reconcile their sourcing differences?

by Eleanor Winn, Managing Director, Alsbridge

Should the deal go ahead, Sainsbury’s CEO Mike Coupe and CFO John Rogers are targeting £120m in synergies from the acquisition of HRG, with the majority coming from consolidation of store locations and revenue synergies as opposed to “slash and burn” in the back office. Their stated aim is to “Bring together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfillment to store and to home across a wide range of food and non-food products”.

To enable this vision there will need to be a strategy to bring together the best of the IT systems and services to create a best-in-class consolidated multi-channel platform. And of course this will inevitably require a hard look at the third party relationships that each organisation has in place to deliver their IT services.

Accenture has been working with HRG since 2013 in a strategic transformation role to reposition Argos as a digital retailer, and the two organisations are publicly declaring that this has led to a sales increase of £165m and a 28 per cent increase in operating profit. Compare this to Sainsbury’s experience with Accenture, where a similarly ambitious transformation programme ended five years early with an ignominious divorce and chief executive Justin King saying that it was failing to deliver value.

A lot of water has passed under the bridge since then but corporate memory is long and John Rudoe, CIO of Sainsbury’s, will doubtless be pondering his vision for the combined IT organisation and how this will impact the technology and sourcing strategy.

Creation of a single strategy does not preclude continuing to operate separate relationships with the third party providers that are involved in delivering IT services to the two businesses. In fact there may be benefit in a multi-source strategy, particularly if lines can be drawn to delineate between the “fast” digital transformation activities and the “slow” enterprise IT management activities to create a clear bimodal organisation. The challenge comes in the history here, with both organisations pursuing a digital transformation strategy, with their supporting providers Accenture on the one side and TCS on the other. 

Whatever happens there will be a significant change of scope for one or other of these two providers and Sainsbury’s will have to think through some important questions in a structured way, including:

• Does the IT strategy for the combined business clearly align with the previous strategy of one or the other, and therefore point towards adoption of one or other of the IT service providers as the primary relationship?

• Is there any appetite to maintain a relationship with two strategic providers, and if so is the organisation mature enough to manage the inevitable commercial and operational tensions that will arise?

• What provisions are there in the existing relationships relating to change of control and early/partial termination? Are there any penalties for such a scenario?

• Do these two providers have a history of operating effectively in a multi-sourced environment and are they likely to “play nicely”?

Of course, with the recent bid from Steinhoff, all this speculation may be moot, but one thing seems sure and that is that there will be much thought given to this between now and 18th March (the deadline for a revised offer from Sainsburys) both by Jon Rudoe and his team and by the account executives at TCS and Accenture.

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