British Petroleum Keeps Strategic Focus | Article

Best BPO Relationship

1998 Editor’s Choice Award
PricewaterhouseCoopers/British Petroleum

looking through a big pipeFrom the editor: At InfoServer, we’re paying increasing attention to non-IT or business process outsourcing (BPO) services over the coming year. The growth of BPO is an important emerging industry phenomenon that is driving tremendous value into the buyers that choose it. The British Petroleum/PricewaterhouseCoopers relationship offers a highly successful example of this phenomenon.

Of particular interest is the commitment of PricewaterhouseCoopers to provide back office services around the globe to a company which has clearly seen the vision of shedding it’s non-core processes.† British Petroleum has demonstrated an understanding of the benefits of letting others manage the company’s non-core processes, so that it can focus on the processes which drive value.

In January 1999, British Petroleum completed its $55 billion acquisition of Amoco, creating Britain’s largest corporation and the third largest oil and gas company internationally. But even before this mega-merger, BP had been aggressively expanding throughout the oil-rich regions of the world, investing heavily in exploration and production, and building global refining and marketing networks. Over the years, BP earned the reputation for prudent management, operating efficiency, and cost control.

Nothing breeds success like success. At British Petroleum (BP), outsourcing has been a central tactic in the strategy of running the lean, flat organization necessary to stay nimble in an industry populated by many of the world’s largest enterprises.† And that agility is essential. Success in the exploration and production of oil and gas requires quick response to changes, whether they are in the form of dramatic shifts in demand as evidenced by the recent economic crisis in Asia, extreme variations in supply, or unpredictable price fluctuations.

In meeting those challenges, BP has relied on outsourcing to gain efficiency in operations, minimize costs, and stay focused on strategy to stay lean, flexible, and responsive. By outsourcing accounting functions in their South American operations to PricewaterhouseCoopers (PwC), BP has added another weapon to an outsourcing arsenal that has already been successful in the U.S. and Europe.

“Our experience in the U.S. and Europe has provided useful and practical information and direction in developing their staffing strategy in our operations in Columbia and Venezuela,” notes Martin Walters, Manager, Procurement and Administration for British Petroleum Exploration and Production.

The Business Issue

“We know that the accounting functions are not our core business and strategic strengths,” observes Walters. The practical implication is that non-core business functions are at a disadvantage when competing for senior management attention and support. Another consideration is the fact that career opportunities for accounting and related legal experts within an oil and gas production operation are more limited than within an organization devoted to the function. Walters concluded that outsourcing the accounting functions has benefited BP’s strategy for gaining efficiency, reducing cost, maintaining a high level of expertise, and providing career development opportunities. PricewaterhouseCoopers made a commitment to establish Centers of Excellence in Bogota, Colombia and Caracas, Venezuela. From these centers, PwC provides a range of financial accounting services, including accounts payable, payroll, joint venture, treasury, fixed assets, tax compliance, and head office reporting. PwC also brought in nationals who understand each country’s business practices, tax and labor laws, and regulatory issues. In many ways, PwC is supporting BP’s expansion around the world, and takes the pain out of growth by serving as the company’s global back-office in far-away regions.

Expanding the Relationship

Based on their successful expansion with PwC in Europe, British Petroleum added the Columbia and Venezuela operations.† Once the decision to outsource accounting functions had been made, BP selected as their supplier PwC, a company that already had substantial experience in business process outsourcing with BP’s European operations and was eager to expand operations in Colombia and Venezuela. “We could be confident that PwC had a thorough understanding of the most efficient and appropriate processes and systems for our organization, and that they could anticipate and manage any changes that would be required or beneficial,” says Walters.

The results have been pleasing for both organizations. A joint review board meets quarterly to examine performance against objectives as detailed in the service level agreement, identify areas of opportunity for improvement, resolve issues, and revise service level performance criteria if necessary. “The meetings ensure that learning is shared between us,” observes Walters.

Keys to Success

Walters cites several factors that have been instrumental in the successful working relationship. In particular he believes the involvement of the senior partners of PwC in London provided drive and vigor to the new arrangement. “As in most business situations, a lot depends on the relationships you build with your supplier-partners. My belief is that we have a good relationship with PwC in South and Latin America, and they have been responsive to our needs,” notes Walters.

The strength of the relationship at the senior levels has helped both parties keep focused on the strategic objectives. “This is especially important during the heat of battle when issues arise,” says Walters, “and we were able to keep the team committed to making the total deal work. The result has been that BP has been able to keep focused on strategic business issues where we can add value.”

Future Looks Bright

Walters predicts that BP will continue to build on its successful strategy of outsourcing non-core functions where practical. He anticipates an examination of information technology operations and human resources back-office functions. The track record has been so encouraging that, “the experience we have had to date could well serve as a model for other BP operating regions,” concludes Walters.

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