A marriage made in heaven

A tie-up between a major corporate and a young tech start-up can be either a marriage made in heaven or a messy and acrimonious divorce waiting to happen. The Exult /BP tie-up is an extraordinary example of a marriage made in heaven.

In the late 1990s BP, the third largest oil company in the world at the time, did a deal with Exult to outsource all its transactional HR processes (e.g. employee data, recruitment, training, etc). Exult was a four-man start-up based in Newport Beach, California. How did this happen, and what lessons can we learn about how big corporates work with small start-ups to really create change and value?

John Browne, the CEO of BP at the time, had pioneered the successful and cost-effective outsourcing of finance and accounting. Browne wanted to transform the way that HR was delivered.  BP was going through an extremely acquisitive period – having to absorb many new people with high workforce churn. Therefore, the idea of having nimble and standardised HR processes was very attractive.

BP looked at the typical outsourcing approach, talking to all the large Management Consulting firms, but none of them appeared satisfactory as business process outsourcing was an entirely new field for the industry – certainly in the way that BP wanted work. BP decided to take a bet on working with Exult, a start-up in Newport Beach, California, founded by four very experienced business transformation managers who had raised significant funding in order to supply what they saw as a “pent-up” demand. With BP as the alpha client, Exult created a thriving business that three years later had an $multi-billion order backlog. How did they make this happen?

People as well as money
This was more than classic corporate venturing. It was important that BP took a significant equity stake in Exult, as it made possible a collaborative way of working between BP and Exult focused on joint success. Crucially, in addition, senior executives from BP moved into Exult. This was very fruitful, as it gave Exult: a real entrée into BP at an operational level; an excellent understanding of how the BP organisation worked; and plugged some of the Exult’s key skills gaps.

Joint development for the whole market, not just the Alpha client
BP very wisely recognised that Exult was not just creating a service for them – Exult had to develop a product for the whole market. With BP’s total support, Exult deliberately designed a whole series of processes that could be automated, and which could be used by any company.  This joint development process started with a simulation called “A Day in the Life of George” which illustrated how employees would interact with the new HR transactional system and how, over time, technology could enable that change.

Change management baked in
Exult was transforming a vital corporate process, touching many, many people, so excellent change management was critical. Two factors were instrumental in making the change happen:

Firstly, early on BP recognised they had to lead the change management process – it was unrealistic for a technology and process-oriented start-up to handle this. So BP identified key people, champions and subject matter experts, who were fully on-board and who led the change.

Secondly, there was an explicit choice to initially target early wins that took away “pain” from users of the HR systems in order win their hearts, even if those use cases were not particularly financially rewarding. For example, BP moved many people around the world. It was a torturous, multiple week process for seconded employees to find what their HR package would look like. The new system allowed them to do so in minutes, reducing stress at a difficult time.  

Engaging the great and the good
BP’s reputation and connections were brought to bear to create a high-powered advisory group for Exult. The advisory group pulled together the great and the good of the HR world and senior executives in client companies. They acted as ambassadors for the company and provided deep and powerful input to Exult on how they should develop their transactional engines.

What was the pay-off for BP? BP reported saving $100m/year in HR related costs within two years of the Exult tie-up. Exult was sold five years later, for $795million, with BP making enough money from its Exult shares for it to be noticeable, even in their accounts. And indeed, the business model that Exult and BP pioneered 20 years ago continues today.