Oil firm’s deal opens pipeline for outsourcing

BP Amoco has signed a massive deal to contract out its HR services. John
Robinson looks at how the move could pave the way for others.

BP Amoco’s decision to contract out its personnel administration to the US provider
Exult, announced three weeks before the end of last year, marks the beginning a
new era for HR – the start of the outsourcing age.

The oil giant has set a benchmark with its £370m, five-year deal. It is by
far the largest contract for HR services ever made and dwarfs the landmark £2m
agreement between Westminster Council and Capita in 1998. About 20 staff
transferred from Westminster. Up to 350 may move from BP Amoco.

But the contract also sets a different precedent. HR service providers, such
as the “big five” management consultancies, said throughout 1999 they
had a number of major private sector clients ready to take the plunge, but all
wanted someone else to go first. They now have their guinea pig.

Peter Horncastle, vice-president of the HR consulting group at Aon, predicts
that more than a dozen similar agreements will be struck in the next year or

“There are a lot of organisations waiting in the wings to see if the
benefit which is supposed to be returned will actually come on stream.”

This benefit is expected to be a reduction in time-consuming administration
duties for in-house HR staff, and, most importantly, an improvement in the
level of service provided.

“Exult should be able to provide a step improvement in the ability of
managers to access and improve personnel data,” says a BP Amoco spokesman.

Scepticism about whether any of the HR services providers can achieve these
goals better than an in-house department, says Horncastle, is what has stopped
a wave of major employers contracting out their HR administration before now. A
reason for this hesitancy is that it seems none of the players in the market,
before now, have convincingly stated how they will achieve these twin demands.

Nick Starritt, group vice-president of HR at BP Amoco, caused mild uproar in
May when he told Personnel Today he wanted to strike a deal to outsource much
of the company’s HR function, but there was no organisation in the marketplace
which could provide the breadth of service it needed.

It is not surprising then that BP Amoco chose Exult, a new entrant with an
evidently clearer vision.

Exult’s stratospheric ambition is to become the complete human resources
department for the 500 largest companies in the world. Ambitious, but it has
now secured number 19 and a notable lead in the market.

Where it seems to have won the day over Pricewaterhouse-Coopers and at least
two others is by stressing the savings to be made via Internet and intranet
technology. By doing so, Exult has not especially broken new ground. Companies
have long known about the cost-cutting potential of this technology. But it is
by knitting together these elements to a model which matched BP Amoco’s vision
that Exult has triumphed.

Under the contract, an Internet-based system called “my-HR” will
give staff and managers access to employee records, career opportunities and
appraisals. Employees will also be able to update this information via a
personalised web page, known as a portal.

Two service centres, staffed by about 300 employees, many of whom will
transfer from BP Amoco, will also be set up to process changes and answer staff
queries. If Exult wins further contracts, the service centres, and the former
BP Amoco staff, will handle those organisations’ HR services as well.

Mark Hodges, vice-president of strategy at Exult, declined to estimate
projected cost savings. But he added that Exult had no option but to meet BP
Amoco’s targets because the company is absolutely dependent on the success of
what is its sole contract.

Exult also has to meet a range of service delivery improvement targets, such
as a reduction in time taken to appoint new staff, a decrease in the overall
cost of recruitment, improved staff retention levels and a cut in the total
cost of employment.

BP Amoco says it expects to see Exult’s impact in these areas by the second
quarter of 2001, a year into the deal. There will be great interest in whether
it meets these targets, from prospective outsourcers and piqued providers.

Angela Baron, IPD policy adviser for employee resourcing, is sceptical about
the benefits of outsourcing large chunks of the HR function. “We have a
huge body of evidence which says that if you manage your staff better, you will
get better performance. So companies need to think very carefully about making
sure they do not neglect that fact,” she says.

BP Amoco is keeping its HR policy and strategy in-house. As a result, it is
adamant that management of staff will improve because these internal personnel
policy-makers will not be distracted by routine administration.

Hodges has hinted, however, that if the deal is successful the company may
take on more strategic HR roles within BP Amoco. Exult’s mission statement
certainly leaves no room for doubt as to its motives.

The oil giant says that agreement only covers personnel administration, but
tellingly adds “at the moment”. This next step will be the crunch and
will be where Baron’s warnings may be most telling. If employers outsource HR
purely to cut costs, the decision is likely to rebound on them in poorer

What is certain, though, is that more organisations are going to go down the
outsourcing route in the wake of BP Amoco’s decision. And where it happens, it
will fundamentally change the way HR works.

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