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When Baker Hughes asked Peter Ragauss to become its chief financial officer in 2006, the company’s audit committee warned him that internal controls at the oil-field-services company were haphazard at best. In fact, a few years earlier, the Department of Justice had come knocking about bribery and other violations of the Foreign Corrupt practices Act (FCPA). But the former BP division controller was primed for the challenge of fixing the mess. “I felt if anybody could do it, I could,” he says.
Fast-forward seven years, and Ragauss has strengthened Baker Hughes’s controls. (The DoJ charges were settled in 2007.) But that’s only the beginning. The CFO and his team have consolidated legacy systems and operating processes, reduced transaction costs, enhanced data insight for decision-making purposes, and beefed up planning and forecasting. In the process, finance has become a strategic partner with the broader business.
The company was formed in 1987, after the merger of Hughes Tool and Baker International, each of which was the combination of countless organizations over more than a century that had developed crucial technologies serving the petroleum sector. These various legacy companies developed into autonomous divisions that defied integration—not an uncommon situation with many other large companies in the oil patch.
“My task was to harmonize finance, standardizing the financial-accounting function and the planning-and-budgeting function across the enterprise,” Ragauss recalls. Each of the company’s seven divisions was a separate organization, with a division finance leader who reported to a division president, not to the central CFO.
Without interdivision affiliations, the company was squandering cost synergies, internal controls depended on each division’s separate audit group, and the processes for closing the books across the 80 countries in which Baker Hughes did business at the time varied dramatically.
Meanwhile, effective data insight was nearly impossible. Five divisions had their own variant of the same SAP enterprise accounting system, and two were still operating on legacy systems. Even the invoices were different, as was the format for the quarterly planning reviews.
The company retained Accenture to help Ragauss launch what would be dubbed the One Baker Hughes Finance Transformation Program.
The CFO assembled 30 finance managers from across the enterprise of a three-day, no holds-barred assessment of what was broken and how it could be fixed. Among the key decisions was to consolidate the internal audit functions in the seven divisions into a single central audit function.
Accenture was tasked to assess the consolidation of each division’s back office payables, receivables and general ledger transaction processing. It determined that an outsourcing arrangement involving four shared-services centers in Latin America, the Philippines, and other major locations would be cost- effective and consistent, and improve transactional work.
With the removal of divisional barriers, the pace of change accelerated. By 2010, Ragauss had separated the finance and accounting functions into the enterprise finance organization (EFO) and financial planning and analysis (FP&A), respectively.
Today, the group is the company’s accounting and reporting backbone, with about 1,300 employees operating from six regional internal accounting centers and smaller country accounting centers, and manages the offshore work done by Accenture.
Over the past seven years, the hard work has paid off. With the new regional accounting centers and with back-office processes run by Accenture, closing the books has been pared from a 12-day exercise to 7 days, with the target of a 5-day, paperless close on the horizon.
Ragauss continues to benchmark the finance organization, which has moved up to Hackett’s third-quartile and is expected to attain second-quartile status by year-end.
Meanwhile, internal controls are up to snuff. “We did everything we could, from computerizing expense reports and approvals to eliminating checks and petty cash, so everything can be tracked now,” says Ragauss. “We’re pretty comfortable nothing will slip through the cracks.”
Today, finance has become a strong partner with Baker Hughes’s business leadership. “We’re setting goals that transcend the delivery of traditional high-performance finance services,” Ragauss says, “and we’re not resting on our laurels.”
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