Drilling the BP Way into Amoco
As Leggate stepped in as CIO in January 1999, he faced the overwhelming challenge of integrating conservative, Chicago-based Amoco's massive IT operations into BP, which had been on an outsourcing binge since the early 90s and had already consolidated dozens of data centres and outsourced much of its help desk and application support work. By contrast, Amoco built systems in-house, and IT staffers feared losing their jobs. Leggate began working with Phiroz Darukhanavala, then vice president for IT merger integration and soon to become the company's CTO and the hands-on leader of the integration efforts, and set out to identify overlaps in the IT departments. Leggate and Darukhanavala (known as "Daru") say they learned from the Amoco merger the importance of spelling out the "rules of engagement" to designate who will create the integration plan. In the Amoco case, BP ultimately stepped in and imposed its will on Amoco, standardizing desktops on a BP operating environment and scrapping much of Amoco's in-house IT systems, keeping only Amoco's SAP platform for US operations.
"You have to make it crystal clear who is in charge when you are integrating two companies' systems," says Daru, who is based in the US. "There are no right or wrong answers, but you need to make a call, or you will be arguing for years."
Leggate was given 24 months to find his half-billion dollars in savings, but it took only 11. "They clearly decimated Amoco," Cross says, noting that Leggate effectively imposed BP's agenda to outsource wherever possible and trim IT staff at Amoco and subsequent acquisitions. After his early success in cutting costs, Leggate's colleagues gave him the nickname "Shiny Brain", a moniker that also refers to his immaculately shaved head.
The integration tasks remain a major concern for Leggate's team. With more than 100 ERP systems and dozens of payroll systems, BP continues to work its way through a morass of back-office integration. With merged companies, Daru says, "We always focus on getting employees connected first so that from day one people can communicate with anyone in the company with merged networks and e-mail. But in all these mergers, the back-office stuff was untidy. It will be a matter of years before it is all cleaned up."
Today, BP is working to consolidate more than 400 data centres and server farms around the world, with plans to reduce the number to "a handful" in the coming few years.
The emphasis on outsourcing is by design. Leggate is pursuing BP's pioneering strategy, which dates to the early 90s when Browne and Cross sought a competitive advantage through efficient ways of buying IT services. BP still outsources on a large scale, with everything from telecoms, application development, data centres and help desk provided by vendors. The company took the model further in 1999 when it outsourced HR back-office processes to the Internet company Exult in a $800 million deal that transferred most US and UK human resource services to a Web portal.
When the strategy began, outsourcing drastically cut BP's IT budget and headcount. In BP's exploration unit (then led by Browne), outsourcing drove an IT budget drop from $486 million in 1989 to $178 million in 1995.
Now, Leggate says, the company has moderated the pace of outsourcing. Both Daru and Leggate say BP has learned to limit outsourcing contracts to three years and to avoid forcing alliances between outside vendors. In November 1999, BP made a $880 million bet to outsource telecom services to WorldCom, before its 2002 accounting fraud scandal was exposed. "Instability in that market has caused us to diversify our buying portfolio, to spread our risk," Leggate says.
Daru, who calls himself Leggate's right-hand-person and quiet adviser, notes that the company is gradually reducing the number of ERP systems and is moving away from best-of-breed packages toward more integrated suites for HR, accounting, retail and other back-office systems. "We're not integrating for the heck of it," Daru says, adding that a clear payback drives integration efforts. Daru calls Leggate a fast learner and considers part of his job to cultivate ties to the IT vendor world while Leggate maintains the critical link to the BP executive suite.
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