In an uncommon move in an industry that usually takes a selective approach to outsourcing, retailer Best Buy Co. last week confirmed its intention to outsource all of its IT operations to Accenture Ltd.
Richfield, Minn.-based Best Buy currently employs 820 people in its IT department but said it expects only 40 to remain with the company if it reaches a final agreement with Accenture.
Best Buy spokeswoman Dawn Bryant said that those 40 will oversee IT strategy and manage the relationship with Accenture. About 650 IT employees are expected to receive comparable job offers from the management and technology consulting firm.
Best Buy last week notified the other 130 IT employees that their positions are being eliminated. Bryant said the employees will remain on the payroll for 60 days, after which they will receive severance packages.
Bryant said positions are being eliminated in areas of redundancy, and she stressed that job performance wasn't a factor in the decision-making process. "It's about needing to be really efficient as an organization and being able to react to changing business needs," she said.
The agreement isn't yet a done deal, but it's nearing completion, said Bryant.
Based on information that has been publicly disclosed, the Best Buy deal appears to differ from some other retail outsourcing contracts, including the 10-year agreement that Sears, Roebuck and Co. is negotiating with Computer Sciences Corp.
In the second quarter, Sears hopes to finalize a deal, estimated to be worth $2 billion, that calls for CSC to manage much of its IT infrastructure. About 260 of the retailer's 1,160 IT workers are expected to be affected, but Sears has said it expects CSC to hire nearly all of those staffers.
Testing the Waters
John McCarthy, an analyst at Forrester Research Inc. in Cambridge, Mass., said most large retailers are doing some experimenting with outsourcing and offshoring as they try to beef up technology initiatives on low budgets. But companies typically outsource only a selected or commoditized piece of IT, such as the infrastructure or maintenance. "What Best Buy is doing is unique, and it's unique in most industries," he said. "Most companies don't necessarily want to get rid of all of IT."
Accenture, however, noted that the potential Best Buy arrangement isn't unprecedented. In late 2000, London-based grocery chain J Sainsbury PLC signed a seven-year deal to outsource its entire IT operation to Accenture and claimed it expects to save about $50 million per year. Sainsbury transferred about 800 employees to Accenture and retained a small in-house staff to oversee the company's IT strategy and manage the Accenture contract.
"Sainsbury and Best Buy are very much focused on contracting for bottom-line business results, and they believe they can achieve that by a more holistic outsourcing relationship, rather than outsourcing bits and pieces," said Angela Selden, managing partner of Accenture's North American consumer and industrial practice.
Selden said a retailer can hold a third-party provider accountable with a combination of a service-level agreements and business outcomes that are written into the contract. The outsourcer, in turn, makes sure resources are focused on whatever delivers the most business benefit to the retailer, she explained. "Service-level agreements rarely exist between internal IT organizations and their business counterparts," Selden said.
She said many retailers have capable IT leadership teams, but the pace at which a third party with IT expertise can make changes could make outsourcing attractive to retailers that are saddled with older proprietary or heavily customized systems to manage their businesses. "Retailers are very disadvantaged today because of this archaic infrastructure," Selden said.
Accenture advocates taking "packaged vanilla solutions and weaving them together in as simple a fashion as possible" and changing business processes, rather than heavily customizing software, as the most cost-effective approach for retailers, Selden said.
Selden said she recognizes that the approach would represent a dramatic change for the legions of retailers that claim they had to heavily customize systems because of the unique needs of their businesses. But she said they must change the way they do business in order to be nimble enough to "absorb innovation quickly."
In September, Plano, Texas-based Electronic Data Systems Corp. announced a multiyear contract with Best Buy to provide help desk and problem management services to its stores and corporate users.
Spokeswomen for both Best Buy and EDS said the Best Buy-EDS contract won't be affected by the Accenture deal.