HR Strategies in the Oil

8/8/2019 HR Strategies in the Oil

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HR Strategies in the Oil & Gas Sector

Organizations in the Oil and Gas sector are realigning their HR strategies to match their core

business objectives. The roles of HR personnel are becoming increasingly challenging due to the

talent-crunch in the sector that is staring right in the face.

The HR discipline is becoming a lot more central to any organization today. Its a truism that the best

asset that most organizations have are their people. The traditional functional department that

managed people is HR, and this function is becoming more strategic in its scope. There is a widening

of activities managed by HR teams- change management, succession and retention planning,

continuous learning, and 360 career planning.

The seven key aims of the strategy are designed to achieve that vision. They are:

y Recruitment and Selection: To recruit and retain high quality people to meet current and

future needs. In doing so, to use methods that help promote equality of opportunity andenhance the public perception of the authority as an employer.

y Employee Development: To have a highly skilled workforce that continues to learn and isable to respond to changes in working practices.

y Employee Relations: To have an excellent, conflict free employer/employee relations climatethat allows the authoritys objectives to be met and change to be accommodated readily.

y Employee Benefits: To ensure that employees are appropriately rewarded and that benefitsare attractive and cost effective in order to recruit, retain, and motivate staff so that they support

and meet the authoritys objectives.

y Health, Safety and Welfare: To establish and promote high standards of health, safety andwelfare throughout the authority to enable staff to perform productively.

y Equal Opportunities: To stimulate and advance equality of opportunity in employment byeliminating discrimination, to for example, ethnic minority groups, women, persons withdisabilities, and on the basis of age, religious belief, social class and sexual orientation.

y Employee Performance and Motivation: To have a high performing, well motivatedworkforce that continuously seeks to improve services.


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More and more companies in the Oil & Gas sector are now recognizing the importance of HR in the

entire value chain. The talent crisis is making their task of organizing their resources all the more

difficult. A key issue for HR managers is to operate in harmony with the constantly changingbusiness imperatives. Hence, they are not given enough time or wherewithal to design long term

strategies to handle the talent crunch. Typically,, most business strategies are reviewed and modified

periodically whereas the management sometimes fails to review the HR strategies whereby making

the task of the HR manager all the more difficult. The good news is that in recent years some of the

companies have realized that there is a grave problem if the role of the HR function is not addressed

by the management. New managerial techniques such as professional recruitment - based on

systematic assessment tests and executive searches; competency based management; career and

succession planning and tailored compensation plans have been increasingly gaining ground. Key

focus areas for regional players are: HR marketing and recruiting; staff development and motivation;

rewards and compensation, and performance management. Companies should demonstrate

exceptional performance in each one of those areas in order to achieve long-term success. For a

potential employee, rewards and compensation matter greatly, but training and development

opportunities are just as important to differentiate a company from its competition.

Emphasizing the role of HR department is more important in the Oil & Gas sector as nationalization

of the labor force is a major driving force. Additionally, every GCC (Gulf Cooperation Council)

country is looking towards implementing innovative HR strategies. The HR departments of a large

number of regional Oil & Gas Producers are currently facing one of the biggest challenges they have

encountered in recent years. The prevalent talent pool comprising mainly of engineers who are vital

for the sustenance of the entire industry may retire soon. Research indicates that the average age of

production engineers in the region is already at around 51 years. Further, recent studies show that bythe end of this decade there will be a 38% shortage in the influx of talented engineers and a 28%

shortage of instrumentation and electrical workers. There is a tremendous pressure on the HR to

replace the ageing workforce within the coming years. Training young professionals to replace senior

employees, who often have more than 25 years of relevant experience, is not at all an easy task for

HR departments. Additionally, job opportunities created in booming sectors such as IT and

Outsourcing appeals to todays youth which further leads to high rate of employee turnover every

year. This talent shortage, along with other recruiting issues creates a big challenge for todays HR

executives.

Another big challenge faced by the HR department is employee development and retention.

Motivation, performance appraisal and reward management contribute greatly towards employee

retention and satisfaction. Satisfied and trained employees, rarely consider quitting their current

profession, even when offered comparatively higher compensation packages. The HR department is

deploying newer and modern techniques to retain existing employees and to attract talented young

professionals to the Oil & Gas sector. One technique that is gaining a lot of recognition is e-learning

and several companies are slowly implementing it.


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Besides, the Herzbergs hygiene factors including company policy and administration, supervision,

working conditions, interpersonal relations (co-workers), company policies, and job security also play

a major role in recruitment and employee retention.

It is important to note that creating a strong Human Resources department is not going to show results

immediately. It is a journey where the fruits are borne over a longer term. The way to get started isto link business objectives to HR objectives; and build a continuous feedback loop: business strategy

drives people management, and people issues influence strategy.

In the midst of one of the greatest periods of expansion in its history, the global oil and gas industry is

facing a labor crisis, brought on by years of layoffs that could jeopardize its future. Even as companies

unveil increasingly ambitious plans to uncover new sources of oil projects that have led oil companies

to boost capital expenditure roughly 20 percent in the last two years the industry has continued to

shrink its labor force. And because the shortage is most severe among specialized workers such as senior

scientists and engineers, it will take seven to 10 years to train replacements to help close the gap. Over the

last 12 to 18 months, a confluence of events, including rising oil prices, planned capital investments, and


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changing industry demographics, has stretched industry resources to the breaking point. From rig workers

to petroleum engineers, theres more work to be done than there are workers to perform it.

The talent challenge is nothing new for an industry like oil and gas, which is subject to wild market

fluctuations. Throughout the 1980s and 90s, in response to softening oil prices, the industry laid off

hundreds of thousands of skilled workers, many of whom abandoned the business altogether in search ofmore stable jobs. Accordingly, recruitment of new employees plummeted, and fewer and fewer university

students were entering petroleum engineering programs. Now the industry is paying heavily for its

shortsightedness. The average oil company employee is nearly 50 years old; in the next decade, more than

half of the industrys employee base will retire, leaving behind a massive void of skilled workers. There

has never been a time when our industry so needs outstanding talent, said Rex Tillerson, chief executive

officer of ExxonMobil. To meet its escalating needs, the industry will have to transform the way it

develops its labor force.

Even now, companies are scrambling to fill critical positions, with many paying exorbitant salaries to lure

highly skilled employees away from rival firms, and implementing short-term solutions such as delaying

retirement and rehiring retired employees. In hot spots such as Canadas Athabasca oil sands region,

where billions of barrels of oil are thought to reside in the ground, engineers and workers are relocating

from as far away as Mexico and China to join the labor pool. The Canadian government has even offered

citizenship to foreigners working on the project as an incentive to attract and retain skilled workers. Yet,

few believe these tactics provide a blueprint for future success.

To move beyond the vicious cycle of laying off workers each time the price of oil drops or paying

exorbitant sums to poach existing talent, companies are recognizing the need to refine their human

resources strategies to focus on the underlying problems. The process starts by determining the

companys hiring needs for the next 10 years and aligning hiring practices with those needs. A sound

human resources strategy must also ensure that existing employees maintain the critical skills necessary tokeep the company competitive. Of course, overhauling human resources practices is not always easy:

When BP set out to improve its hiring and training processes, the exercise led to a complete restructuring

of the companys HR team, including the replacement of more than 60 percent of the companys senior

HR staff.

With a clear internal strategy in place, companies can then focus on replenishing the workforce. Both

Shell and Exxon have recently invested in global training centers to provide hands-on experience to

thousands of recruits. With the ability to train nearly 10,000 students annually, the two companies hope

their training facilities will attract bright young scientists and engineers to the field. BP is following suit,

partnering with the Massachusetts Institute of Technology (MIT) to build a career development program

for new employees.

Companies must also develop retention strategies. These include helping workers develop specialized

skill sets and focusing on the worklife balance. Such planning requires that leaders ask themselves and

their colleagues the right questions to get a sense of organizational advantages and shortcomings. Are line

managers and team leaders encouraged to actively develop staff? Do human resources and technical and

operations teams work together effectively? Are we seen by potential workers as the employer of choice?


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Each of these questions needs to be addressed within the organization. These talent-retention questions

have the potential to reshape the market and even drive consolidation if companies cant find the skills to

embark on critical projects.

Although it may be difficult to get there, the goal is simple: find a better way to manage the industrys

most valuable asset its talent. If companies can continue to build partnerships with universities, investin new recruits via company-funded training programs, and overhaul current human resources practices, it

will be possible to avert another labor crisis before it begins. Although it may take time, abandoning the

reactionary labor practices of years past and focusing instead on realistic hiring goals for the next decade

could eventually correct the current labor shortage and strengthen the industry for years to come.

IMPLICATIONS FOR AN HR STRATEGY

y A need to recruit and retain high quality people to meet current and future needs.

y A need to have a high performing, wellmotivated workforce that continuously seeks to improveservices.

y A need to motivate staff so that they support and meet the authoritys objectives.

y A need to stimulate and advance equality of opportunity in employment by eliminatingdiscrimination.

y A need to have a highly skilled workforce that continues to learn and is able to respond to

changes in working practices.y A need to have a staff climate that allows the authoritys objectives to be met and change to be

accommodated readily

NEED FOR A NEW STRATEGYConsidering the above realities, there is a dire need for a completely new recruiting strategy to ensure that

that the industrys aggressive growth targets are not choked by these challenges. The need of the hour is

to shift from traditional reactive recruiting toward more proactive recruiting, clearly understanding the

various factors of the job market. This recruiting strategy must take into account the following realities.


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2. Retention.The oil and gas industry is bleeding from high attrition. In the service sector, the average

attrition rate for 2006 was 23%. There are several problems which crop up if attrition is not addressed

properly.

3. Recruitment costs.It is estimated that the cost for an oilfi eld services company to replace an

employee is USD 60,000. For an organization with 25,000 employees and a 20% attrition rate, that wouldcome to the astronomical fi gure of USD 300 million. Recruitment costs are not always apparent but, if

not curtailed, can have a huge impact on a companys bottom line.

4. Time factor.Attrition results in huge expenditures of time for management, supervisory,

and administrative personnel, not to mention lost productivity.

5. Intellectual property.Many research & development-based organizations, as well as software and

pharmaceutical companies, are facing the serious issue of intellectual property leaving the company along

with departing employees, which affects the whole organization. Of late, this has become a serious issue

in the oil and gas sector as well.

6. Impact on quality and safety.Many service organizations and rig providers worry that frequent

changes in staffing and the increase in less experienced personnel will cause safety hazards. In addition

are the costs of training all these new people to mitigate safety concerns.

ELEMENTS OF THE NEW STRATEGY

The oil and gas industrys unique challenges beg the need for a new approach when it comes to recruiting.Past recruiting strategies derived from old realities that are no longer applicable. What is needed is a new

strategy originating out of the new reality.

Specialized Recruitment Managers.

To develop a suitable strategy for the organization, a recruitment manager must have a good overall

understanding of the industry as well as a good understanding of his own companys procedures, policies,

products, and services. Strong personnel-oriented managers should

know the right kind of people for the company and be able to develop strategies to attract them. This

position should be an integrated part of a global and regional HR team working to implement a strategy

across regions and countries. The position should be considered a development role for high-potential

managers requiring more exposure to other aspects of the business to move forward in a career.

Consolidating Recruitment Effort.

This should be aligned at the global, regional, and country level to derive maximum benefi t for the

organization. This particularly applies in the case of promoting and organization by making the brand

more visible at career fairs and other activities.


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Raising the Companys Profile.

The challenge here is to market the organization by understanding the main things that people want out of

a career these days, among them opportunity for development, travel opportunities, to be part of a great

culture, to work with a great manager, and to make money. The money is

not necessarily the most important, but you do have to ensure that your salary and benefi ts offer is

competitive.In addition to the products, services, and opportunities that an organization offers, if you canget the offer packages right, develop your own people to be great managers, create a strong culture, and

market yourselves aggressively, you can be an employer of choice. These days, a company must be able

to attract talented young professionals and train and develop them; attract midcareer hires from the oil and

gas industry by being an employer of choice; and attract mid-career hires from other industries.

New Talent Pools.

We need to promote our companies both inside and outside of the industry and in new places that have

not been tapped into heavily. That includes looking at the supply of rotational expatriate employees from

places such as Eastern Europe, India,and China, instead of North America and Western Europe because

those locations contain plenty of available, highly technically trained engineers and they currently come

at a cheaper cost and often with a better

work ethic.

Another idea is to look at ex-military personnel in various places around the world and work to

successfully integrate them into the organization. In general, they are good at taking direction, have a

good work ethic, and are used to traveling away from home for extended

periods of time. Organizations also need to obtain important information regarding the mobility of certain

nationalities. We must be certain that any new talent pools that we select are mobile.

An important talent pool that most companies do not tap into very well is the passive candidate talent

pool. This generally accounts for more than half of the labor market, which means if we can tap into it we

double the size of the candidates available. Passive candidates are people that may be interested inmaking a move but are not aggressively promoting themselves

in the job market. If they can be reached, there is less competition at the selection stage and studies show

that they are significantly more loyal than active candidates and also slightly better performers. How do

we reach them? Marketing, referrals, headhunters for starters

but we need to work further on developing ways to attract them.

University and Technical School Relationships.

We need to start looking at who is going to manage our field operations, who is going to represent as to

our clients,and, ultimately, who is going to manage the company in the future. Graduates are raw potential

talent that companies can develop in-house due to their ability and

proven appetite to learn quickly. They are cost-effective labor at the start, bring a fresh perspective, and

provide future leadership talent. All service and operating companies should be aggressively recruiting

and training this talent pool now. We must also begin working on developing relationships with technical

schools in countries around the world. We want students in their early years of study to know about our

organization and have them want to become part of the company long before they graduate.Developing

relations can involve attending career


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fairs, conducting company or technical presentations, providing internships, awarding scholarships,

conducting joint studies, donating software, and regularly making visits to ensure that faculty members

know the company.

Recruitment Resources.

Most oilfield service companies currently rely heavily on recruitment agencies to help fi ll positions. Thismust continue because it is a great way to fill difficult positions. We need to ensure that we identify the

best sources for talent and give them the majority of our business. We must also establish good

relationships with agencies in places where talent pools exist but where the company may not have

operations. We must also work on developing relationships with a wide network of top-notch headhunters

and keep track of our successes with them. This is a good way to tap into the passive talent pool.

Workforce Planning.

To properly implement a new and more aggressive recruiting strategy, we must first understand what our

long-term requirements are going to be. Many of the positions that we recruit for (e.g.,engineers) will not

actually contribute to the business for a year as their training period is extensive and they must work

alongside a supervisor. Graduates we hire this year are not actually for 2008 but for 2009. How can we

recruit graduates for 2009 if we dont have any idea of what our needs are going to be?

Recruitment Technologies.

Once a candidate has been attracted to the company, you must ensure that he can easily apply for a

position and that his information is professionally managed. Current systems utilizing email and

spreadsheets are not considered suitable for a company with thousands of employees and an aggressive

growth plan. Recruiting software that allows applicants to apply online, be prescreened, and have data

held online are becoming more popular than ever. This allows applicants to apply for as many

opportunities as they like once their data has been entered into the system. It allows a company to

prescreen candidates according to preset questions, track candidate flow, and share CVs globally from adatabase.

Selection Methods.

Every time an organization loses an employee it costs it an average of USD 60,000.

In the case of a graduate, where a year is spent training, the cost can be USD 150,000. It is costly to select

the wrong candidate for the job. It is also important that all personnel who play a role in the selection

process are properly trained in the art of interviewing and selection. Shifting the approach from the old

reality to fi t this new reality will be very signifi cant for companies going forward. The success of the HR

function is going to depend largely on the ability to come up with creative and innovative solutions

regarding every subfunction of HR and, in particular, recruitment.

The Human Resource Departments of regional Oil & Gas Producers face one of the biggest challenges

they have encountered in recent years. The pool of engineers, vital for the whole industry, is getting older.

Our research indicates that the average age of production engineers in the region is already around 48.


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It is well known that there is a worldwide shortage of qualified engineers. Major oil & gas producers are

competing heavily for these scarce resources. Our regional oil producers are often at a disadvantage in

this competition, because they lack the reputation as a first class employer, while international firms like

BP, Shell or Total have a strong Human Resource brand distinguishing them as world-class employers,

attractive to young professionals. The worldwide shortage of engineers in this highly competitive market

is also increasing competition for high potential employees and the situation in the Middle East is gettingworse. All our clients in the oil & gas sector complain about the difficulties of filling vacant positions,

and particularly about the quality of applicants, indicating that getting skilled people is becoming

increasingly harder, says Mr. Marc Hormann Senior Consultant at MESA. There is already competition

in this sector for human resources between GCC countries, a trend which could become a major hurdle

for the regions overall economic development. In addition, most GCC countries have set aggressive

nationalisation targets to replace retiring expatriates with nationals. The national supply base of

experienced engineers is limited, so this requirement turns a difficult task into a major challenge for HR

departments.

In short, the situation calls for a review of current Human Resources management practices and firmly

putting the HR challenge on top managements agenda. Many companies do not manage the HR value

chain as a whole and often lack a clear strategy to respond to todays challenges. A common pitfall is that

HR managers react to the pressure by launching numerous initiatives to solve specific problems, without

the strategic perspective to provide the coordination and a clear vision translated into measurable goals.

It is actually a surprise that business strategies are reviewed and adapted on a regular basis whereas HR

strategies dealing with the most valuable resource have hardly been changed within the last 15 or 20

years, states Mr. Hormann. In recent years some companies have realized that there is a problem. New

management techniques such as professional recruitment - based on systematic assessment tests and

executive searches; competency based management; career and succession planning and tailoredcompensation plans have been increasingly gaining ground. However, most companies seem to be

unaware of the scale of problem and how severely it could damage their current business.

Value Chain for Human Resource Management


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Managing the value chain starts with a comprehensive Human Resource Strategy derived from the

corporate strategy and a clear execution plan. Key focus areas for regional players are: HR marketing and

recruiting; staff development and motivation; rewards and compensation and performance management.

Companies must show exceptional performance in every one of those areas in order to be successful in

the long-term.

When recruiting, many companies overemphasize the importance of the compensation package. While

this is without question a major factor, and the basis of any potential interest in becoming employed by a

company, training and development opportunities are just as important to differentiate a company from its

competition. Compensation packages can be easily matched by competitors, whereas state-of-the-art

training and development programs are hard to imitate. In order to develop the right attractive

employment package it is necessary to conduct professional benchmarking with competitors offerings

and Human Resource strategies.

Once the right people are hired the biggest challenges are their development and retention. Plenty of

companies invest heavily into their management and staff development, but fail to profit from their

investment because employees leave the companies too early, says Mr. Kuntze. Therefore the retention

of employees is one of the key success factors of modern Human Resource management. Retention is

achieved through a combination of motivation and performance and reward management ensuring that

HR Strategy (derived from corporate strategy)

HR

HR

Marketing&

Job

Design &

HR

Support/

Manage-

ment & staff

Staff

Motivation &

Transfer,

layoffs

Stra-

Con-

cepts/

Key

suc-

cess

Integrated approach based on best in class Human Resource Management Concepts

Perfor-

mance

Manage-

Reward &

Compen-

sation


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employees get the motivation, the right amount of responsibility in their job area and right rewards for

effective performance.

All these different fields have to be linked to each other. The performance management process, for

example, should clearly identify high potential employees and suggest further development programs for

them. Many companies cannot tell you immediately who their high potentials and high performers are, a

simple mistake which often leads to the loss of their best people.

Steps to pursue in order to create a powerful HR Brand

Satisfied employees, who are developed, given the right amount of responsibility as well as opportunities

to do different challenging jobs and are suitably rewarded, seldom change their employer, even when

offered better compensation packages. Comprehensive development and training programs offering clear

career paths and a challenging and rewarding work environment are key components of a powerful

Human Resources image that you can think of as a brand. This is especially important for a younger

generation of trained and educated professionals who are more brand aware as well as more brand

conscious and may often choose their employer by its brand and recognition within the community.


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Building a strong Human Resource brand is not an instantaneous step but more like a long-term journey.

In many cases it is possible to make some immediate impact by picking some of the low-hanging fruit,

when developing HR strategies, but typically it takes companies several years to realize significant

measurable results. A strong argument more for not waiting any longer and starting this journey as soonas possible to gain a competitive advantage in the battle for talent.

About Middle East Strategy Advisors (MESA)

Middle East Strategy Advisors (MESA) is an international strategic advisory firm providing services

Consulting, Interim Management and Investment Advisory. The company has offices in Abu Dhabi,

Dubai and Muscat.

The vision of MESA is to achieve lasting and measurable results for our clients with a focus on

countries and companies in transition and development. The MESA focus is on: Turning strategies

into results.

Our main sector focus is in the area of Energy/Oil & Gas, Travel & Tourism, Real Estate, Manufacturing,

Privatization and turn around.

The differentiating feature promoted by all of MESAs team members is their entrepreneurial drive. This

strength combined with the strong company reputation translates to comprehensive and creative

advisory services. The international team consists of consultants and partners who were top performers at

large consulting and investment institutions, such as McKinsey & Company, Bain & Company, Roland

Berger, Ernst & Young, Goldman Sachs and JP Morgan.

Documents

HR Strategies in the Oil