2000 Editor’s Choice Award
From the Editor: This relationship has already received an Outsourcing Center award for its superlative relationship in South America. This award is for its work in Europe. And that’s the lesson here: a truly beneficial outsourcing relationship has the ability to expand. The two parties can easily replicate their successful relationship elsewhere. Longevity makes this possible.
BPAmoco is one of the world’s leading providers of energy and petrochemicals. As the third largest integrated oil company in the world, it enjoys considerable reach and scale. BPAmoco recognized that its core skills revolve around the products that it markets to its customers. Its accounting and transaction functions are not part of that core. “We can certainly get comfortable with a third-party providing that service, allowing us to focus our attention on those things that we are good at and need to be good at,” suggests David Hulf, CFO of BPAmoco Oil Europe. But only an outsourcer of equal stature would be able to supply BPAmoco’s needs.
“If people think that outsourcing is just about reducing costs, they are missing something,” Hulf says. “Of course there is an element of cost savings–we do want to lower the long-term relative costs of providing accounting services to our business. But we could have gone down that path ourselves. Our view was that a third party could bring economies of scale that we probably couldn’t get ourselves. Also, in a way that we probably couldn’t do, a third party would be able to focus on the process to make it more efficient.”
BPAmoco decided to go with PricewaterhouseCoopers (PwC) in the fourth quarter of 1996. They chose PwC because it was looking for a company that shared its vision of the future. BPAmoco also wanted a supplier that was willing to drive change. “We were looking for someone who could align their interests with where we wanted to go,” Hulf says. “With PwC, there was sufficient commonality around this. That was the key element to feeling comfortable with them.”
Over the next nine months, PwC built a state-of-the-art service hub in Rotterdam and moved BPAmoco’s back office accounting operations into it. The accounting processes included the financial accounting, cash and banking, inter-company accounting, payroll, and some procurement and routine operational reporting. These services had been previously done internally by BPAmoco in Germany, Benelux, and Austria. PwC explains that this is the first cross- border hub to be established by a third party.
The Process of Change
Because of the magnitude of the change, there were some things that Hulf was not able to appreciate when the outsourcing began. He recalls in particular that when a process is outsourced a company begins to clearly realize the cost of its operation. “You don’t understand or know the cost of the service and the quality of it when it is internal,” he explains. “But when it goes outside, it becomes very obvious. You get an invoice and you see the quality of what is being provided every day. Once that occurs,” he adds, “you have the upper hand at actually starting to influence the quality and the cost.”
The biggest challenge of a huge change such as this is the knowledge transfer. “Not everyone is going to move over to the supplier,” Hulf says. “It is a challenge to take a new set of people and enable them to provide immediately the quality of service that is required. You are transferring the knowledge from the people who previously did it to the new people. And that is very critical,” he says. Hulf explains that BPAmoco learned several lessons with PwC about the amount of time that a company needs to invest in the knowledge transfer. “There has to be an abundance of communication,” he says, “and PwC has spent quite a bit of time just listening to BPAmoco–and being patient as well.
Evolving Benefits of Partnership
BPAmoco wanted a long-term relationship with its supplier, so it was important for its supplier to be willing to share risks and rewards as an alliance partner. PwC was willing to share in the investment risk of setting the operation up. “They share a vision of how we want to drive value out of the processes,” Hulf says. “It matters to us that PwC is very committed to growing the business.”
As time moves, their goals and objectives evolve. BPAmoco and PwC established a very clear governance model that allows high levels of strategic discussion concerning what will be in place in two or three years. BPAmoco’s initial goal was to set very clear cost challenges in order to achieve a viable, competitive position. “To a large degree, those challenges have been met,” says Hulf. “But once you get past that, you move toward a relationship where you figure out how to get the next 50 percent in savings.” As their relationship evolves, Hulf says, “PwC constantly brings new ideas to help us get to a new place.”
Lessons from the Outsourcing Primer:
- A successful outsourcing relationship must provide economies of scale the buyer can’t provide itself.
- Make sure the supplier shares your vision of the future.
- Outsourcing accounting processes allows the buyer to influence the quality and the cost of these services.
- Knowledge transfer to the supplier can be a big challenge. Invest as much time as needed to ensure an abundance of communication.