Five Executives Remember Creating BPO at PwC | Article

What was in the water at Pricewaterhouse Coopers (PwC) that made its outsourcing team the founders of BPO? In just five years (1996-2001) the PwC team looked into their crystal balls, wrote on napkins how they thought things could go, and then worked hard to make their theories a reality. They created roads when there weren’t any paths.

Today’s BPO world is pretty much as they sketched it. And the PwC BPO alumni are senior leaders at several top outsourcing service providers or industry advisors. Here’s how five key team members remember those heady days.

Marcus Holloway, Executive Vice President, Integrated BPO, Sutherland

Holloway, who was Managing Director, Finance & Accounting Outsourcing in the UnitedStates, saw the BPO challenge clearly: “How do smaller companies get the same benefits from outsourcing as big ones like GE?” The answer was just as clear. “As an economics major in college, I realized scale drives performance by orders of magnitude over everything else,” says Holloway. “Let’s pool resources and get scale.”

Holloway was working at KPMG specializing in benchmarking. He says he tried to convince them to figure scale into the outsourcing mix, but they were not responsive. Then he saw a photo of Jag Dalal, a Partner in the BPO business at PwC, on the cover of Infoweek. He phoned Partner Tom Beyer when he went to Stamford, Connecticut, the BPO division’s East Regional headquarters, for a benchmarking meeting. He met Beyer on a Friday afternoon. On Saturday morning the partner called and told him he was preparing an offer letter. Holloway joined the PwC team a week later.

“That’s how we operated in the beginning,” recalls Holloway. By contrast, he says the audit group couldn’t produce offer letters in a week.

Holloway says the mindset was different in the group, too. “We didn’t fill out time sheets like the rest of the firm. It was our job to be strategic. We spent a lot of time just thinking,” he recalls.

It wasn’t easy, though. The group believed in its mission but wondered “if we were really going to sell something with this,” recalls Holloway. He credits the entire firm for promoting this group’s efforts “and legitimizing BPO before it was real.”

In addition, they worried about risk. “We convinced ourselves we could manage the risks that appeared,” Holloway notes. “We believed we could tackle any business challenge because we had all of the horsepower of PwC watching our backs.”

Fortunately, Holloway says the group scored some early successes “before the partners’ patience ran out.” The first takers were BP and Amoco, followed by Nortel, Equifax, and Delta Air Lines. “They were iconic buyers in their day. The rest is history,” says the executive.

Holloway points out the PwC team was the first group to put together a multifunctional deal. Until then, companies outsourced IT or F&A, but not together. “We blazed the trail in how to structure a contract and a statement of work,” he points out.

“Members of the team we assembled in Stamford are still my best business colleagues. It’s not surprising they are the leaders in this industry,” he says.

John Matthew, Associate Director, Business Development, E & Y

Matthew, then a Manager for the Global BPO group, was always interested “in understanding companies’ business issues.” He says joining the BPO group as a marketer was a career detour from “a straightforward path to success as an auditor.”
But he sensed “this was a special time for PwC.” He recalls that back then outsourcing “was taking over a data center or IT work stream. Taking over an accounting group — that was revolutionary.”

Brainstorming was a key part of the job. “It was wild,” he notes. The team held brainstorming sessions at every client location. “This worked because we were a diverse group that did not come up the Big Four accounting ladder. We had diverse skill sets, which allowed us to look for unique solutions and then determine the best way to deploy them. Back then there were no cookie-cutter solutions,” Matthew continues.

The hardest part for the team was figuring out how to document the processes so anybody anywhere could do them. “We had to mitigate the risk so that staff at our centers sometimes far removed from the client location executed transactions without exception,” he says.

The hardest part for the buyers was “to get comfortable with someone else taking over the process they thought was core but wasn’t.” He points out “the CFOs were too leery until they understood that focusing on non-core activities within a finance organization was not a useful deployment of investment or capital.”

But the buyers they did have shared in the excitement. “They, too, knew we were doing something revolutionary. They knew we were redefining their companies. It was a new way of doing business, a paradigm shift towards focusing on their core competencies and re-deploying investment dollars accordingly,” says Matthew.

Matthew said the team was extraordinarily collegial. “Everyone came up with ideas. Then we focused on the common threads. Finally, we figured out what was practical,” he says.
The team had to create its own tools. There was no outsourcing template. “Capturing information wasn’t easy back then. We had to create our own baseline costs. We had to articulate that the intrinsic value of their process was not what they thought,” Matthews adds.

Claude Hartridge, Vice President, Head of BPO Business Development in North America for Capgemini

Hartridge, who was Head of Global BPO Business Development and member of the Global Executive team based in Europe, notes that PwC joined the BP team because the energy company wanted two suppliers in its outsourcing venture. (Accenture was the other.) Since BP had a longstanding consulting relationship with PwC, it invited the new BPO group even though this was its first BPO engagement.

Hartridge, the partner who negotiated the global BP deal in North America, points out it was the largest finance and accounting outsourcing deal for many years. A staff of over 1,000 employees in Tulsa, Oklahoma generated $1.1 billion in contract bookings, while the remainder of the world added another $400 million.
Hartridge says two key attributes of PwC made a difference in growing the BPO practice: its entrepreneurial spirit and the drive of the practice leaders. When he joined PwC, he asked the partners, “Are you willing to spend up to $75 million to build the practice before you earn a dime on it? They chewed on that and eventually agreed,” he recalls.

Hartridge believes being a separate service line was crucial to the group’s success. It even had its own budget. “We had a seat at the table, somewhat on equal footing (although smaller in size) to the other practice areas. This was key to our independence and allowed us to pursue our own priorities. We were not stuck in the morass of the audit conservatives and didn’t have to kowtow to the consulting strategy,” he says. He adds this was a cutting-edge move since other firms placed BPO in either their audit or consulting practices.

“We were evangelical about BPO,” Hartridge remembers. “There was great skepticism, but we believed in the art of the possible. We knew we could make things happen that hadn’t been done before.”

A big obstacle was companies were worried about losing control. But PwC eventually won out because the pain of not trying the solution became too great. “Delta Air Lines had people spread out across the globe. We took a huge problem off their plates so they could focus on what they did best. The early adapters didn’t have enough critical mass to solve their BPO problems themselves, so they turned to us in desperation. They were willing to take the risk even though BPO didn’t have a track record,” he says.

He points out he was responsible for opening the group’s Center for Excellence in Krakow to service these European clients. “It started with fewer than 25 staffers and is still open. Today the Krakow center, which is owned by Capgemini, has a BPO workforce of over 2,200, he notes.

Keith Strodtman, Executive Vice President, HR Outsourcing, Ceridian

“The people were everything,” says Strodtman, who was Director of HRO Services in the UnitedStates. “They were smart, creative, and willing to look at things in new ways. It was exciting working with people who just weren’t satisfied with the status quo. We were always looking for a way to solve our customers’ problems. We didn’t let barriers like deal structure or a lack of a global delivery model keep us from coming up with a solution.”

At the time Nortel became a landmark HRO BPO deal. The global deal included Nortel employees in North and South America as well as Europe. “We started with the unknown,” says Strodtman. “We knew there were great potential losses if we screwed up!”

Back then, he says “there was not a lot of work within BPO technology.” He recalls that PeopleSoft, then the leading HR technology, did not have much self-service. “We had to build it,” he reports.

Before 2000 he says the biggest challenge was technology. “Technology and the investment we had to make in reengineering kept me awake at night,” he recalls. Today’s platform-based solutions “are predictable. Back then we had to come up with our own ERP solution, which was always subject to high cost overruns. We had to have faith in our reengineering prowess,” he continues.

Strodtman also believes the PwC BPO team was successful because “we had the benefit of the consulting group that knew the technology well.”

But the Ceridian executive says PwC had to sell BPO as a concept. “We had a grand vision. How do you help buyers rework their back offices?” he says.

Strodtman marvels at the fact that Ceridian, a midmarket service provider, still uses many of the same shared-services models and change management disciplines the BPO team came up with at PwC “even though the HR BPO market has changed dramatically in the last 15 years.”

In addition, three of the early PwC team members focusing on HR BPO “are still on my team,” Strodtman reports.

David Narrow, Consultant

David Narrow was the source for the now famous “napkin article” written by yours truly. Narrow, who was then the Partner with global responsibility for Finance & Accounting BPO, was having dinner with an executive of a major oil company in Singapore. To demonstrate his thoughts on the how to reshape the back office of the future, he drew a simple diagram on a napkin to clarify his thoughts. That chart became the road map for the F&A BPO industry.

“After the napkin chart, I realized BPO was about two things: labor arbitrage and process improvement. And I knew this was what the future was going to look like,” he says.

The biggest benefit was the commitment and backing of the top leadership at PwC, according to Narrow. For example, John Barnsley, the firm’s Managing Partner in the UK, was a believer. “It was key they supported us in starting this new business,” he recalls.

Narrow says the unit attracted great people because it was a new business. “We came up with a different way of doing things. A lot of partners took an entrepreneurial view and wanted to be a part of this.”

He says PwC landed the landmark deals because the other accounting firms “didn’t understand where we would be in a few years. They were fighting the last battle. We understood you have to leap forward.”

Narrow says the PwC team had two advantages when it talked to a prospective client about F&A BPO.

  1. Instant credibility. At PwC, “accounting R Us,” he says with a laugh. “Everyone knew we had the accounting skills.”
  2. BP was supportive as its foundation client. “BP supported us, knowing we were learning how to do this,” Narrow says. He is thankful BP’s CFO told him, “We know you will get us there.”

And that’s exactly what the BPO team at PwC did: get us there.

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