MCN Direct Newswire

Vol. 3 No. 37, 25 October 2004

This issue is sponsored by:

McGuffie Brunton and TeleWare

This issue news

1. Accenture in spotlight after Sainsbury's profits dive
2. Avis pulls plug on Atos Consulting ERP implementation
3. Capgemini makes second base in India
4. IBM hit by $320m pensions settlement
5. HP wins services contract with WestLB
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. ACCENTURE IN SPOTLIGHT AFTER SAINSBURY'S PROFITS DIVE

Supermarket chain J Sainsbury is renegotiating a £1.8bn IT transformation contract with Accenture after blaming its latest financial woes on its IT systems.

The contract, signed in December 2000, covers a seven-year period and requires Accenture to manage the supermarket's IT infrastructure and take responsibility for all aspects of its IT services. About 800 Sainsbury IT employees transferred to Accenture as part of the deal. But Sainsbury said the transformation programme had not realised anticipated performance and cost benefits, and had distracted it from investing in and delivering what customers want.

Sainsbury added: "IT systems have 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 company will write off a £140m in redundant IT assets and said renegotiations with Accenture will "involve the company more fully in the selection and implementation of systems and IT solutions". This partial withdrawal by Sainsbury from the relationship with Accenture is being balanced by "rebuilding internal capability".

Accenture said: "We have a good relationship with Sainsbury, which has developed over the past four years. We have worked with Sainsbury to replace the majority of its core operations systems, resulting in the improved reliability and stability of systems, reduced annual IT operating costs and new capabilities. We look forward to continuing our work with them."

Sainsbury said sophisticated customer and product segmentation required a complex supply chain solution that could not be delivered to the right scale and that its automated depots were failing to perform to planned levels.

2. AVIS PULLS PLUG ON ATOS CONSULTING ERP IMPLEMENTATION

Avis Europe has terminated a major IT development contract with Atos Consulting after delays and escalating costs caused by fundamental problems with design and implementation.

The car rental company chose Atos Consulting KPMG - now Atos Consulting - to lead a PeopleSoft ERP implementation as part of a finance and IT restructuring programme. Avis bought PeopleSoft licences in the first quarter of 2003, with Atos Consulting in charge of implementation.

But after a project review announced in September, Avis has decided to terminate the ERP development to avoid further cost. The associated IT restructuring project, including some outsourcing plans, will also be substantially reduced in scope.

Avis said its underlying business operations have not been disrupted because the ERP system has not yet been rolled out. But it will take an exceptional charge of 40-45m euros (£28-31m) in the second half to cover the cancelled project and the closure of its credit hire business.

Murray Hennessy, who became chief executive of Avis Europe after the initial ERP decision was taken, said: "We have moved with urgency to review our back-office and IT restructuring project. We will continue to implement the successful aspects of the project, but we will halt immediately the parts of the project that are not going well or will no longer deliver a satisfactory return on investment.

"We are very disappointed that major IT parts of the project have incurred significant exceptional costs and will not deliver the anticipated benefits. We felt it was right to take decisive action on the results of the review."

Avis said its legacy systems will continue to support the business in the short to medium term and that it now plans to make improvements bottom-up rather than through a major top-down project.

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3. CAPGEMINI MAKES SECOND BASE IN INDIA

Capgemini has opened a second IT services centre in India, promising to repeat "the success of operations in Mumbai" in Bangalore.

The Bangalore centre has 600 seats and has started operations with applications management services. It is part of Capgemini's Rightshore outsourcing model and will work alongside the Mumbai centre, as well as Capgemini operations in Poland and China, to deliver IT services to global clients.

The new centre cements Capgemini's commitment to India as its core offshore location and brings its total workforce in the country to about 2,000. But while Capgemini expects further growth in India, it is some way behind competitors such as IBM Global Services and Accenture who have 8,000-10,000 staff in India, and Indian companies such as Tata Consultancy Services, Wipro and Infosys with 30,000-40,000 employees.

Commenting on the Bangalore centre, Capgemini global delivery manager Gilles Taldu said: "Capgemini has selected India as its core offshore location thanks to highly talented, cost-effective and English-speaking software engineers. The opening of the Bangalore centre demonstrates a commitment to our customers that Capgemini will increase its portfolio of high-quality services from India.

4. IBM HIT BY $320m PENSIONS SETTLEMENT

IBM's consultancy and IT services operation showed a 10% third-quarter revenue gain to $11.4bn, confirming its role as IBM's leading division ahead of hardware and software.

But IBM's overall profit was knocked back to $1.8bn (£984m) - the same as last year's comparable quarter - after a charge of $320m for the partial settlement of legal claims against the company's pension plan. Without the charge, net profits climbed 12% to $2bn, on revenues rising 9% to $23.4bn.

IBM signed services contracts totalling nearly $10bn in the quarter and ended the period with an estimated services backlog of $110bn. These figures are down slightly on previous quarters, leading analysts to suggest a potential slowdown in the company's business.

IBM chairman and CEO Sam Palmisano remained undeterred, saying: "We continue to see robust growth in key initiatives. Business performance transformation services revenue grew more than 45% year to date. We saw more than 30% combined growth in the emerging markets of Brazil, China, India and Russia. And we are seeing more and more clients move towards becoming on demand businesses, which is driving demand across our portfolio."

For the first nine months of fiscal 2004, IBM reported net profits (including the $320m charge) up 10% at $5.4bn, on revenues rising 9% to $68.8bn.

5. HP WINS SERVICES CONTRACT WITH WESTLB

German bank WestLB has selected HP Services for a $500m (£273m), five-year outsourcing contract.

The win is a significant step forward for HP in Europe as it attempts to grow its services business to rival competitors such as IBM Global Services and Accenture.

HP will manage WestLB's IT infrastructure, deliver services, undertake application development, and support and develop the bank's website and intranet. About 450 WestLB employees in Dusseldorf, London, New York and Tokyo will transfer to HP when the contract gets underway on 1 January 2005.

WestLB intends to reduce its costs through outsourcing and increase its focus on core functions. Klaus-Michael Geiger, a member of WestLB's managing board, said: "HP offered us a convincing customised service package that will provide flexible and cost-efficient solutions. In addition, it is supported by a cogent strategy for the employees of WestLB Systems."

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