Transformation empowers Baker Hughes to take lead in ‘post-carbon’
Energy technology company Baker Hughes has seen many big changes over its 114-year history: new technologies, market ups and downs, and – in 2017 – a merger with GE Oil & Gas. When the merged company separated from GE two years later, Baker Hughes capitalised on a once-in-a-lifetime opportunity to reinvent itself for a decarbonised energy future.
An ambitious transformation needed a dynamic approach. And a long-standing relationship between Baker Hughes and PwC, built on mutual trust and transparency, offered a unique chance to do things differently. Steering clear of a ‘traditional transformation roadmap’ allowed the teams to fast-track the programme, accelerate change and capitalise on the opportunity.
Starting from a position that ‘the status quo wasn’t good enough’ and identifying rapid, significant improvements brought almost immediate benefits, including year-on-year savings of roughly $50 million early in the transformation programme. From that solid start, we then identified around $700 million cost reduction for 2020. Over the longer term, Baker Hughes has targeted year-on-year savings of up to $1 billion annually.
While its transformation programme is just getting started, Baker Hughes and PwC have already identified ways to restructure other systems and processes. These savings will then be reinvested to evolve the entire organisation into the world’s leading energy technology company.
Now on a rapid transformation to improve efficiency, save costs and innovate as an ‘energy technology’ company, Baker Hughes is driven to decarbonise its business and help customers and suppliers across the industry to do the same. As factors such as oil price volatility, a desire to move to lower carbon and the Paris Agreement continue to affect the sector, Baker Hughes has created a significant opportunity for itself as a leader in Energy Transition.
Shortly after merging with GE Oil & Gas in 2017, GE announced it would fully divest its ownership in Baker Hughes and fell below 50% in 2019. Larger and more ambitious, it set about working with PwC to use its separation as a catalyst for a bold transformation: from an organisation centred on fossil fuels to a market-leader for energy in a post-carbon era.
As an ‘energy technology’ company, Baker Hughes’ strategy and vision were to transform its systems and processes to improve efficiency, cash flow and available working capital – while investing the savings into new products and services to help reduce global carbon emissions. Such a transformation would represent a dramatic shift from the legacy company’s original purpose, but leaders recognised its importance.
With a growing and powerful consensus around a decarbonised future, energy transition was the right thing to do. And digitisation of the energy sector made it increasingly possible. The transformation would also open new opportunities by putting Baker Hughes at the forefront of the movement.
Baker Hughes’ challenge was to achieve that transformation while also reorganising and streamlining post-separation. And it wanted to act quickly, taking a unique approach that other companies might not take.
“In executing this enterprise-wide transformation Baker Hughes have combined clarity of vision with a wealth of expertise in technical and innovative brilliance. Taking Net Zero as a major driver for change, Baker Hughes has shown that what was once viewed as a challenge for this industry is now a real opportunity."
Baker Hughes and PwC assembled a closely integrated team of experts to discuss options and quickly decided on a fresh and unconventional approach. Rather than spend months following the typical roadmap for such a transformation – which would entail writing a detailed business case for change, fine-tuning an in-depth market analysis, putting out RFPs and reviewing demos from various potential suppliers – the team chose to start ‘from scratch’ and identify ways to make rapid, significant improvements.
Within a matter of weeks, the mission to transform the company’s finance function began, centralising activities in a couple of global hubs. This was done in 2017 and that success fuelled the trust and partnership to do more in finance and expand the scope to the other functions. These efforts quickly expanded to include sweeping, simultaneous transformation for other areas of the business, including global supply chain, technology, and product design and build.
The team created an Enterprise Excellence group, which was given a clear mission sponsored by the Board: Drive transformation across the business to realise its energy transition vision, with a surgical focus on outcomes and value.
Thinking big was essential for the programme’s success. With PwC’s close support, Baker Hughes believed it could identify as much as $1 billion in savings. But achieving those savings would be just the first step – the goal was to reinvest that money, transforming the business into an energy technology company leader. From that position, Baker Hughes could drive decarbonisation across the industry with a bolder mission to help customers, supply chain partners and other stakeholders reduce carbon footprints.
Baker Hughes and PwC have worked together as true partners since the beginning of this transformation journey. The companies’ long-standing relationship is built on carefully nurtured personal business relationships, generating high levels of trust.
PwC experts are fully embedded in Baker Hughes’ organisation and work as extensions of the company’s capabilities. The two organisations also regularly learn from one another – as Baker Hughes has transformed, so has PwC. It’s a working relationship that has delivered mutual benefits throughout.
This was demonstrated when the COVID-19 pandemic struck. While other businesses put transformation programmes on pause, Baker Hughes sought PwC’s support to speed up its change efforts during the crisis.
“It’s never a commercial discussion first,” Baker Hughes CFO Brian Worrell says. “It’s ‘What needs to happen at Baker Hughes?’ PwC is completely aligned with what we want to do.”
“The thing that I enjoy about working with the PwC team is it’s never a commercial discussion first. It’s a ‘What needs to happen at Baker Hughes? How can PwC help us achieve our objectives?”
PwC identified year-on-year savings of around $50 million early in the transformation programme, and Baker Hughes expects to see around $700 million in savings for 2020. Over the longer term, they intend to achieve $1 billion annualised savings.
Those saved funds will enable the company to invest in carbon-reducing or carbon-capturing services and technologies, and will leave it better positioned for the Energy Transition. With its new products and services, Baker Hughes will also be able to help customers and suppliers decarbonise their operations.
The first challenge was moving away from the traditional approach to cost-cutting in the oil and gas sector, which is generally reactive and largely dependent on oil price and volumes. Baker Hughes realised that they would only see real change by taking a longer-term view of driving sustainable cost reduction through cost-based transformation.
Then the COVID-19 pandemic arrived, upended operations for many organisations around the globe, starting early in 2020. However, leaders recognised the potential business impacts early and acted quickly to support employees in a switch to remote working, in many cases ahead of governments’ mandated lockdowns.
Baker Hughes also undertook its transformation journey while navigating other ongoing challenges, from changing economics in the oil and gas industry to its separation from GE and both acquisitions and divestitures. Staying on track required unwavering commitment from the CEO on down, as well as a single-minded focus on its ‘north star’ of energy transition technology.
The close and established working relationship between Baker Hughes and PwC avoided inertia, often terminal for transformation programmes. It made it possible to quickly agree on – and launch – a programme that could prove the value of their non-traditional approach and begin producing results quickly.
For transformations of this magnitude to work, there needs to be a strong, significant relationship between the parties, built on trust and proven delivery. And these principles apply to any organisational transformation. Authentic working relationships will allow people to have the right conversations upfront, agree on goals, challenges and direction, and most importantly transform at pace. Being able to trust the collective instinct and experience of the team also made it possible to embark on the transformation without being pinned to specifics from the start, making the project significantly more agile and adaptable throughout.
As the world shifts to an increasingly decarbonised future, Baker Hughes’ transformation to an energy technology company will enable it to become a sustainability leader in an increasingly decarbonised future through the Energy Transition. And the efficiencies and cost savings it is achieving will help others across the industry as well: by developing innovative new offerings for customers and supply chain partners, it can also help those companies save costs and reduce or capture their carbon emissions.
As part of the transformation process, Baker Hughes has seen additional benefits such as supplier rationalisation across key categories, enhanced processes and controls on third-party spend, process improvement in back-office functions, as well as the use of automation to drive efficiency, among others.
"Their reasons for doing this goes well above and beyond the ethical, altruistic and societal reasons and will unlock a huge driver for commercial growth, which will translate into shareholder return in many ways.”
Leader - Enterprise Operations and Transformation, PwC United Kingdom
Tel: +44 (0)7730 146256
