Fresh source of profits

BACK WHEN business was simple, companies did everything for themselves. Everybody from the dining-room staff to the lift operators was employed directly. But increasing competition and a focus on costs have caused organisations of all sorts to shed parts of their businesses they consider peripheral to their main activities.

This started with the obvious back-up services, such as catering and cleaning. But management consultants persuaded companies to see more and more activities as "non-core".

The "outsourcing" has led to a landmark deal in the North Sea oil industry between BP Amoco and Andersen Consulting that will last until 2004 and be worth about $100m (pounds 63m) to the consulting firm.

Andersen and BP have been working together in the area since 1991 and Andersen says the accounting cost per barrel of North Sea crude oil has been reduced by about 65 per cent in real terms. "We look to the firm ... to help merge our operations successfully, but also to help us continually find ways of adding value to our business," says Ian Rushby, BP Amoco Exploration's chief financial officer.

Andersen Consulting, part of the global professional services organisation Andersen Worldwide, increasingly sees itself as a facilitator, helping clients "achieve goals that they haven't been able to achieve by themselves".

Last year, $1.2bn of Andersen Consulting's worldwide fees of $8.3bn came from outsourcing contracts with scores of companies in the oil industry and beyond.

EDS, the information technology specialist established by Ross Perot that merged with the consultancy AT Kearney, has been especially active in picking up public-sector out-sourcing contracts in the UK and elsewhere, and various IT specialists and the consulting arms of Big Five accounting firms are also in a market reckoned to be worth about $80bn now and $200bn by 2003.PricewaterhouseCoopers (PwC), the world's biggest professional services firm, is as active as Andersen in oil. It shares the finance and accounting work for BP Amoco with Andersen and fulfils a similar role at Elf Oil's UK operation.

Other sectors, including utilities and stores groups, have started to see the opportunities for cutting their costs by outsourcing accounting. John Barnsley, PwC's global leader of business process outsourcing, says they are seeing the benefits of allowing management to concentrate on producing and so responding to the current mantra of "improving shareholder value". Cap Gemini, the IT group that includes Gemini Consulting, operates Virgin Trains' phone booking service. PwC, which generates a world total of $500m from managing outsourcing programmes for more than 500 multinationals and other large organisations, is involved with EDS to provide finance and accounting services for the BBC.

Those involved stress that outsourcing is not just a case of hiving off services and forgetting about them.

The best results come where there is a genuine partnership between the company and the specialist service provider. "It's more like a marriage than dating," says one.