Sainsbury's is ending its 10-year outsourcing contract with Accenture three years early and bringing its IT operations back in house over the next six to 12 months.
The retailer said that, as part of its plans to revive its fortunes, its IT focus has changed and now "is the right time to rebuild expertise back in-house".
It said detailed plans are now being drawn up for the migration of the IT services and future development needs from Accenture to Sainsbury's.
"Everything will be back in house in the next six to 12 months. We said back in October last year that we would be reviewing the contract with Accenture. The decision has been made that was announced today," a Sainsbury's spokeswoman told silicon.com, ZDNet UK's sister site.
The retailer signed the 10-year contract with Accenture in November 2000, hoping to save about £35m per year on its previous £200m per year IT spend.
Key IT development will continue as planned, the retailer said. It said the priority throughout the migration period will be to make sure customers and staff are unaffected by the change, particularly through the Christmas and Easter trading periods.
The retailer said in a statement: "During this period all Sainsbury's IT systems will remain fully operational and there will be no change in the IT service provided."
Around 700 staff at Accenture work on Sainsbury's IT systems but the retailer could not say how many will transfer back.
Sainsbury's said it will make future cost savings so that the exit costs "are expected to pay back in the short term".
Douglas Hayward, senior analyst at researcher Ovum, said that the problems with the deal show what can go wrong in any outsourcing relationship.
He said in a research note: "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.
"It's a warning that business benefits don't necessarily follow from IT infrastructure renewal unless the business itself is well run and the two sides are properly connected. New IT infrastructure can't compensate for poor business management. In that sense, Sainsbury shows us the limits of transformational outsourcing."