IBM goes the distance with Marathon

Valuable advice from an oil company exec who outsourced three major accounting processes

When Houston-based Marathon Oil, the fourth-largest integrated oil and gas company in the United States, started looking for ways to become more efficient and cost-effective in the spring of 2003, it turned to BPO (business-process outsourcing). According to Cal Leeke, Marathon’s finance and accounting governance manager, given the far-flung and cyclical nature of the company’s operations across the globe, it made sense to shed some “repetitive and routine activities” that a vendor could do better.

“We wanted to have the capability to vary our cost-of-accounting services as our portfolio grew or shrank,” Leeke explains, “and to get a variable staffing model.” Outsourcing was common in the oil and gas industry, but accounting BPO was a little newer, Leeke says. So the company put together a “business transformation” team to look at the options.

With the help of TPI, an outsourcing consultant, Marathon issued an RFP for several business processes including production-revenue accounting (tracking royalty payments to oil and gas leaseholders), fixed-asset accounting (recording investments and expenses on wells and equipment), and joint-interest accounting (for shared ownership of wells).

In May 2004, IBM won a multiyear contract with Marathon. IBM happened to already host the SAP system on which these processes ran under a separate contract. After a three-month transition and knowledge-transfer period, IBM took over with a dedicated BPO staff of approximately 200, including 65 who had transferred from Marathon. No technology transition was required because IBM was already operating the SAP system. “We didn’t outsource all of finance, so in that sense nothing changed,” Leeke says. “They sign on to our network and go through the same infrastructure we did internally.”

Having been through the experience, what advice does Leeke have for enterprises contemplating a BPO project? First, get your process straight before you outsource. “You don’t want to outsource a mess,” Leeke says. “You want to have a well-defined process. Make sure you understand it before you hand it off.”

Another recommendation: Hire a specialized outside consultant and law firm to help negotiate the deal and the contract. “If you’re new to this, you’re kind of a babe in the woods,” Leeke says. “They have market and vendor knowledge and can give guidance about what to include in the RFP, what to look for in response from a vendor, and what to push them on.”

Leeke also advises that outsourcing shouldn’t be done in a rush. “It’s not something you can do in a couple of months, especially if it has a fair amount of scope to it,” Leeke says. “It’s going to take time for you to document all the work you want the supplier to bid on, time for them to respond and walk through their solution, and time to evaluate all the proposals.”

It may also take time to communicate your outsourcing plans to employees and involve them in the handover. “It’s not easy to communicate that you’re looking at sourcing, but you need to keep them up-to-date,” Leeke advises. Also, “involve as many employees as possible in writing the SOW [statement of work] and evaluating the vendor’s proposal. You need all the subject-matter experts you can utilize. This is not always easy if they think their jobs are at risk.”

Choosing the right BPO vendor may be equally difficult. Leeke recommends picking a player with deep-domain expertise. “Knowledge in the oil and gas business was very important to us,” Leeke explains, “particularly on [the] production-revenue side, accounting for oil and gas as it comes off the lease.” But, he adds, that doesn’t mean letting the outsourcer drive. Leeke advises waiting a year before allowing a BPO provider to make any significant changes to your process.

And finally, Leeke says, you still need to sweat the details. “I think you’ll see a lot more outsourcing on the finance and accounting side,” Leeke says, “but it takes a certain amount of oversight given Sarbanes-Oxley certification requirements. We have a very intimate knowledge of the process and the controls. It’s not something you can throw over the fence. It’s a partnership.” In other words, outsourcing lifts a huge burden, but the responsibility for the results still rests with the customer that signed the outsourcing deal.

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