BP, whose core activity is oil production and its eventual fuel consumption or chemical products, is very focused on efficiently managing its internal operations, ensuring costs are appropriate to the needs of the business. This has been a key objective particularly with the scale of mergers it has undertaken since 1998.
The BP AMOCO merger added 40,000 people to BP's U.S. population of 12,000 employees. With the subsequent ARCO merger, the tally rose by another 10,000. With large number of people being moved around and the infrastructure for those groups not being the same, BP faced large-scale difficulties.
"How do you bring those things together?" queries Peter Whalley, BP's relationship manager for the Exult relationship. "Trying to do it for oneself is quite a difficult task, often encountering equal-power voices shouting for their particular solution. Working with a third party toward that end is a helpful, independent sanity check in moving things forward."
But selection of Exult as that third party and provider of integrated human resources (HR) services was not based just on cost savings and a drive toward standardization. This outsourcing arrangement was also to achieve a transformation of the relationship between HR functions and business users, adding more value in an area that touches every employee.
Shifting from Thin to Robust
The five-year contracts (one for the U.S., one for the U.K.) fit into an overall seven-year framework with potential for rollout later to other BP populations and were signed December 1999. The petrochemical giant had assessed alternative providers as to which represented the least risk and the greatest potential for success (see Getting Hitched) before selecting Exult.
The agreement calls for Exult to provide the full gambit of HR processes, (although the U.K. contract excludes pension functions). Their arrangement includes a gain-share risk/reward structure with a split of cost savings after recovery of Exult's front-end investments.
There are overarching key performance indicators with contractual penalties, but the underlying service level indicators carry no penalties and are intended to enable both companies to recognize when things are not operating to the degree desired so the partners can take early action.
The parties' highly effective teamwork approach to this relationship included joint ideas and structure of how to handle the implementation and transition phases. "We at BP were all partnered up with someone at Exult as our counterparts, and we had sessions on how to make it successful. It was a joint spirit, no matter who originated an idea," Whalley recalls.
The robust implementation began with a series of enrollment workshops in both countries for BP's HR employees who would be affected. The meeting objectives - designed to obtain the buy-in, energy and ideas of those employees - were successful. It was the first leg of what, from Day One, was on both companies' agendas as the joint critical success factor - knowledge transfer.
Transitioning first in the U.K., Exult's ramp-up included starting up a major new service center in Glasgow, Scotland. For about five months, Exult teams worked alongside BP people; then BP's people worked alongside the Exult teams in Glasgow until everyone was comfortable with the knowledge transfer.
They also had a two-month parallel run prior to going live in February-March 2001. When BP's HR folks received requests from BP staff, instead of actually handling it themselves, they contacted the service center staffed by Exult. "That way, the Exult team had a period of time where they could get used to the kinds of requests they would be getting so they could test their processes and their responses," Whalley says.
Vaulting Over the Barriers
Even with excellent plans for the complex transition to Exult, the companies encountered unexpected frustrations, as do most outsourcing arrangements at this critical phase. But with BP being one of the largest companies in the world, a frustration can be a sizeable barrier.
There were fairly significant IT infrastructure issues for implementation as a result of the mergers. "One of those issues was our PeopleSoft integration process in the U.S., where we had to bring BP and AMOCO together onto one system in order to maintain our payroll capability," Whalley recalls. "In order for us to be able to deliver on the payrolls, Exult had to step in and bring them both onto a single PeopleSoft platform - and relocate physically at the same time - within a three-month deadline, after the project had already overrun on a number of previous occasions. They backed us up and came through to achieve delivery." BP could have managed it by other means, Whalley adds, but it would have been "extremely painful."
Moving from Obscurity to Visibility
The outsourcing strategy brought an immediate value-add transparency to what previously had been a fragmented operation at BP. Within four months, the petrochemical giant shifted down from 200 different employment contracts in the U.K. to less than 10. Whalley says this had occasionally been considered over a prior five year-year period but had never been done. They also moved operations from five large and 15 small-medium locations in the U.K. and consolidated them in one service center in Glasgow. Similarly, U.S. operations are now consolidated at one service center in Houston, Texas.
Exult, according to Whalley, brings a great deal of measurement into the buyer's organization, building rigor around process management and making broken processes transparent. BP had about 60-70 autonomous business units in the U.K. and U.S. - all using basically the same processes for paying people, checking their performance, moving them around, etc.? some using shared services teams for particular processes, others acting independently. It's a common result of mergers and acquisitions, where processes and business units never become fully integrated. Exult has helped bring to the surface the value in addressing differences and bringing the BP organization closer together.
A key value-add driver for BP's outsourcing strategy was to move its HR processes to the digital world for employee self-service. But, as Whalley points out, "with the leveraging of this technology, comes visibility and the need for radical openness. Once you start to publish policy information on the Web, every employee can look at it and compare it with what is relevant to them - so every inconsistency is exposed."
First Flickers Were Correct
They celebrated their 2nd year anniversary in March 2002, with both committed to the innovative development of their alliance. BP knows it made the right decision in its selection of Exult, as reflected in Whalley's comment. "Some of the strength of both parties is our open preparedness about what is the right answer for various things, rather than finding a formula. Part of our original choice of Exult was because they actually exhibited that flexibility, rather than putting a fully cooked, tested model in place. Our prior conversations with other HR providers came apart because they were too rigid."
Lessons from the Outsourcing Journal:
- Because of its measurement and accountability for results, outsourcing is a strategy that achieves visibility into fragmented business processes.
- Outsourcing solutions and providers should be evaluated from a perspective of which provides the least risk and the greatest potential for success.
- An effective approach to service level specifications is to link contractual penalties to overarching key performance indicators and tie no penalties to underlying service level metrics. The intent of those metrics is to enable both companies to recognize when things are not operating to the degree desired so that early action can be taken.