The deal with IBM was signed by the AA back at the beginning of 2005, following the purchase of the AA by private equity group CVC Capital Partners and Permira from Centrica for GBP1.7 billion. At that time, the AA had just 12 months to set up its new IT infrastructure on parting from Centrica and, owing to the size of the requirements, it was not possible to do this in-house. As such, IBM took up the mantle and set up the GBP50 million agreement to provide IT infrastructure services to the AA, taking on AA staff in the process.
The deal will terminate next year, three and a half years into the seven-year arrangement. Meanwhile, AA’s GBP6.2 billion merger with UK-based holiday and insurance services provider Saga has been given EU approval. Saga is renowned for favoring in-house delivery over the use of third parties and, as such, both the IT infrastructure and data centers will be brought back under the control of Saga. Although the AA and Saga will continue to trade as separate companies, there will be a group management team to oversee functional areas and a single IT director (from Saga) across the two companies.
The deal with IBM is not the only outsourcing arrangement that the AA has; there is also an applications contract with Fujitsu Services.
The AA has been at pains to point out that the deal’s termination has nothing to do with the service that IBM provided, but instead that it resulted from the merger with Saga.
Changing business needs are a common reason for needing to invoke an exit strategy, and one of the key functions of the in-house management team (which should have responsibility for an exit strategy) is its involvement in any transition process, including back in-house.
Ideally created before the contract is signed, at the very latest, the exit strategy should be in place six months after the start of the contract, to ensure the necessary areas are under consideration. It is too late to begin developing an exit strategy when, in this case, the merger has happened and there is a policy to bring the work back in-house.
Source: OpinionWire by Butler Group (www.butlergroup.com)
