As companies get more involved with strategic outsourcing, they realize that when they work together as a team, they get far better results. But that takes a real leap of faith. Here are three companies that have made the leap - and will leap again.

When British Petroleum Exploration (BPX) outsourced its financial management and reporting services in 1991, it was the first such strategic sourcing arrangement in Europe. Skeptics shook their heads: Working with drilling and engineering contractors was one thing; handing off responsibility for such a critical financial business process was another. It was too different - a breach in the wall that separates a corporation from the outside world, and it couldn't last.

But BPX was looking for something different. In its North Sea oil-field operations, the $18 billion ann of British Petroleum (BP) had seen production costs triple and the price of oil decline by nearly half in 10 years. As a result, executives wanted to cut costs in business-support processes and focus the company's energies on finding and extracting oil.

To do so, BPX went far beyond the traditional arm's-length outsourcing contract. Financial reporting and the handling of some 13,000 invoices a month were taken on by a shared-services unit created by Andersen Consulting; BPX continued to set policy and make key decisions. The two organizations also developed a common mission statement and a set of shared objectives to guide the partnership.

The arrangement turned out to be "highly successful," says Colin Goodall, CFO of BP Europe. "It enabled us to concentrate on our core business of exploration and production, and resulted in substantially reduced costs." Indeed, as processes were streamlined, the speed of payments increased and costs dropped 40 percent. Three years into the arrangement, BPX's financial operational costs were just half that of the average North Sea energy firm.

That groundbreaking arrangement has not only lasted, it's grown into an increasingly sophisticated network of relationships. A number of other oil companies are now using the shared service. Andersen Consulting has also started handling financial administration for all BP companies in the United States.

Late last year, BP took this trend to the next level when it partnered with Mobil in a refining, distribution, and marketing joint venture. By joining forces, the two created a $5 billion organization with 12 percent of the service-station business and 18 percent of the lubricants market in Europe. "The goal was to take two organizations that are not in themselves market leaders in Europe and bring them together to get scale benefits as well as scale economies," says Goodall.

A third ingredient in the BP/Mobil venture is a seven-year, $240 million agreement that has Andersen Consulting handling seven financial processes for BP/Mobil in 11 countries (BP/Mobil has struck a similar deal with another outsourcing firm in several other countries). This has allowed the new venture to get up to speed quickly and to focus on its customer-oriented business processes without the political and organizational strain of merging the two oil companies' in-house financial operations.

BPX's experience has shown there are several key factors that help such long-term relationships work - starting with flexibility. "The agreement presumes that market conditions will cause us to respond and change what we are doing," says Goodall. "So it's important for us to share our plans and expectations, and to try to give our partners early warnings and signals as things change."

That communication begins at the top. In working with outside firms, BPX sets up high-level joint-governance boards made up of members from all companies involved in an alliance. At another level, Andersen Consulting has taken on about 500 employees from the oil companies, meaning BP will still have access to the knowledge these employees have accumulated. What's more, those employees now have a more secure future: If BP had consolidated in-house operations, jobs would have been lost, says Goodall. But now, those people work for a company where their skills are at the heart of the business.

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Source: www.isnare.com