reserves your leadership - haygroup.com your leadership reserves... · seniority. The pay curve is ... promotion into leadership? Would more ... Oil and gas base salary premium over

Focused as they must be on the many challenges facing the Oil and Gas industry today, senior managers are at risk of seeing their reserves of leadership potential run dry. Our research reveals important new insights into the more effective ways of identifying leaders, developing their capabilities and transforming their performance. >>

Enhancing

reservesGetting a better return on your leadership investment

your leadership

©2014 Hay Group. All rights reserved

Our research extracted Oil and Gas data from Hay Group’s annual Best Companies for Leadership survey database. Launched in 2005, the survey has sought to identify which organisations have the best leadership practices, and what we can learn from them.

More than 18,000 individuals from 2,200 organisations from around the world took part in the latest survey. We asked respondents, who included employees at every level, to rate the leadership development practices within their own organisation – specifically, how well it identifies and develops its future leaders.

We compared data from 33 Oil and Gas organisations with the total cross-industry sample, and interviewed 20 organisational leaders (mostly executive human resource directors), one from each company, to explore the issues we uncovered in the quantitative analysis.

Participants were assured confidentiality and therefore no specific practices are outlined in this report.

How we conducted our research

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1 Building the pipeline

2 Enriching the feedstock

3 Releasing the energy

4 Going below the waterline

5 From insight to action

How a methodical approach can secure the flow of future talent

Business results or outcomes must be balanced by focus on inputs into people performance

Consider radical new techniques to release your people’s untapped vitality

Focusing on submerged values and motives will bring transformational change to leadership development programmes

Important issues for your consideration and clear prompts to action

Contents

Enhancing your leadership reserves


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Introduction

The cyclical nature of the Oil and Gas industry has always created an interesting dynamic.

Development cycles are protracted, so leaders need to think long term and invest in the future. Yet the task of running the business day to day tends to be dictated by relatively short term geopolitical and economic considerations and their impact on commodity prices (fig.1).

Peering out at the foggy road ahead while keeping one eye on the fuel gauge does not make for relaxed driving.

Little wonder, then, that the industry has invested so much in economic modelling and forecasting to achieve some sort of view over the horizon. Or that many leaders are permanently in a state of what might be termed ‘optimistic paranoia’.

To find out more about the current state of mind among Oil and Gas leaders, we drew on data from our annual Best Companies for Leadership survey. We then interviewed an additional set of Oil and Gas

senior executives about current and future challenges for leadership, and their approach to preparing potential leaders to be their most effective. And we compared those findings with our uniquely extensive cross-sector experience to bring an outside-in perspective to the issues raised.

Insights from our research are grouped into four key themes, each with its own significance for your leadership development strategy. We believe that you’ll find many of these insights acutely relevant to your business and will want to consider your next moves in their light. Therefore, we conclude this report by examining the implications and opportunities for individual business leaders and the organisations they lead.

Oil and Gas leaders must balance the need to plan for the future against the challenges of

the present – no easy task.

Now

Exploiting current resources

Consolidating purchases

Investor communications

Operational excellence

Growth pains – structures, systems and processes

Cost management

Partner relationships

Future

Going global – operating e�ectively in di�erent cultures

Reshaping the organisation for future challenges

Market volatility

Organic growth leading to shareholder value

Accessing di�cult oil

The long and the short of Oil and Gas (fig.1)



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Building the pipeline

You’re strong on technical career development. But how do you rate on nurturing the supply of future leaders?

Many participants in our research reported that suitable managerial candidates were not easy to find. Indeed, only half said they had enough employees ready to take on leadership positions – clearly jeopardising their future business goals.

Why the shortfall? One reason is that many industry professionals regard leadership as a distraction from the area of expertise they most enjoy. These experts, prized above all for their strong technical background, often lack the commercial experience required to consider and act on leadership issues.

Spotting tomorrow’s leadersThe most successful organisations determine what skills they need to ensure future success. They then identify the talent pools that could

provide those skills, equipping individuals showing leadership potential with the skills they’ll require in the future.

When you’re looking for the right people, their managers can give you useful pointers. But many participants saw the risk of bias towards team members who make managers’ lives the easiest. Justifiably or not, people who challenge authority can be resented – and not recommended for leadership.

Best practice includes objective methods for measuring potential, such as psychometric assessment, paired with feedback from managers and performance history.

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Catch them early Many participants stressed the importance of identifying future leaders early on in their careers, spotting any weaknesses and acting to redress them. Lack of commercial exposure, for example, could be addressed through secondment into commercial functions such as proposals or business development.

While understanding its importance, many participants struggle with this. Just 53 per cent thought that their employees were encouraged to develop beyond their areas of expertise.

One obstacle to ‘learning outside the box’ is that potential leaders’ expertise is missed by the functions they temporarily leave for their secondment. Nonetheless, by taking a more

active approach to identifying future leaders and planning their route into management, companies can mitigate these issues early on.

We believe that looking at fundamental areas such as ambition and the drive to learn and develop, amongst other growth potential indicators, helps identify budding talent early on.

Once suitable employees have been identified, many participants emphasised the difficulty in managing their expectations. Not all of them will make it to be the leaders of tomorrow. Effective communications between HR, current line managers and the individuals concerned is therefore of upmost importance.

Our senior leadership team regularly raise concerns over where our future leaders are going to come from.

Senior executive at global Oil and Gas company



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Invest in people skillsWhile companies invest heavily in the commercial aspects of their leaders’ development, one area where many fall short is in improving the interpersonal skills that are crucial to being an effective manager.

Our 70 years of experience and research has shown us that leaders who use the right styles of leadership at the right times with the right people will create a significantly better working environment or ‘climate’. Their teams then deliver up to 30 per cent better bottom-line performance – making greater voluntary efforts and producing more innovation, while showing lower absenteeism and attrition rates.

Any ‘high potential’ leadership programme should therefore include some form of structured feedback, through which future leaders can polish their emotional intelligence and leadership styles to ensure the most positive impact on those around them.

“What’s in it for me?”Financial reward and job satisfaction both play their part in encouraging potential leaders to come forward. But pay at higher levels in Oil and Gas may not be sufficiently attractive.

The graph below (fig. 2) shows how the premium paid above average market rates for working in the industry actually decreases with seniority. The pay curve is flatter than in other sectors, such as Retail, which rewards its senior leaders with considerably higher premiums.

Should you therefore be paying more for promotion into leadership? Would more money alone incentivise more people to make the move?

Or is the fear of your potential leaders not succeeding holding you back? If the latter is true, it again highlights the need to take a more proactive approach to identifying future leaders, giving them more confidence that they will be successful when their opportunity arises.

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130135140

125120

Oil and Gas

115110105100

Perc

enta

ge

Retail

Technical expert / mid management Senior management / executive

Base salary level

Oil and gas base salary premium over general market vs retail (fig. 2)

100

89% 75% 81%

Senior leaders focus attention on running

and smoothly

Top 20

75% 57%

Provide incentives to encourage

All others Oil and Gas

60%

Enriching the feedstock

While leaders focus on operational effectiveness, performance management is the missing link. Business outcomes often take priority over inputs into people performance, especially in over-accommodating cultures.

Most of our study respondents were worried about their performance management cultures. ‘Culture’ here goes beyond a process or a system, although those too were seen as needing improvement.

On a positive note, Oil and Gas leaders were intensely focused on operational excellence. As the chart below indicates (fig. 3), they are

better than their average counterparts at running businesses profitably, smoothly and, to a lesser degree, at encouraging operational efficiency.

These high scores are about business results or outcomes. However, our interviews revealed a need to focus on inputs when it comes to people’s performance and behaviours.

Focus on operational excellence (fig. 3)

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Source: Hay Group 2013 Best Companies for Leadership study



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Respondents told us of several specific factors that were obstructing good performance management in their organisations:

n Rapid growth: The organisation has grown too quickly, while performance management systems and processes have not yet caught up

n Diversity: There are varying practices across the company, some of them inherited with a corporate acquisition

n Alignment: Current performance management is not in line with the organisation’s goals

n Capability: Managers are ill-equipped to manage performance, especially behaviours

n Culture: The culture is ‘too nice’, making it difficult to deliver frank feedback or offer constructive criticism

n Retention: The organisation is so under-resourced that people might quit, especially as an estimated 68 per cent of other companies, according to our research, are actively trying to poach them

n Rewards: Success is rarely celebrated, and there is a generally poor link between performance, rewards and incentives.

The matrix organisationOne particular issue we encounter in our work with organisations is matrix leadership or managing within a matrix organisation. Multiple reporting lines can result in ambiguity over who is responsible for managing performance.

Matrix structures are important to today’s organisations as they apply a dual focus: on business line (upstream, geography, etc) and on functional leadership (technical, disciplines, HR, finance, etc). This combination allows you to deliver on your business plan as well as developing functional expertise.

There are many good reasons to operate a matrix structure. The larger the company, the more it can support economies of scale and knowledge transfer. But it can also pose a management challenge for those accustomed to hierarchical silo environments where leadership is more

about control of asset performance and less about the political awareness and influence essential to an effective matrix organisation.

Also, leaders in Oil and Gas typically come from an engineering or technical background, where facts and certainty are highly valued. In today’s complex and uncertain environment, many of them feel uncomfortable. A robust performance management culture can help soothe their anxieties by bringing clarity to their day-to-day activities and aligning them with organisational goals and strategy. This is not only managing technical input but also behaviours surrounding day-to-day activities.

To use an industry analogy – when the quality of the feedstock and process are assured, you can be confident of a quality product. Equally, by effectively managing people’s performance and behaviours, business success is more easily achieved.

Some of our leaders will do anything to avoid a performance management conversation. Most focus on technical aspects of the role and rarely approach ‘behaviours’ as they think these are ‘soft’ areas. The thing is, we need leaders who effectively manage behaviours.




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Releasing the energy

Oil and Gas leaders are typically directive, top-down communicators. There is less bottom-up engagement at the front line and this can hamper change management. You need to use radical new techniques – think fracking – to release your people’s untapped energy.

The biggest challenge for leaders today is how to keep their strategies up to date and fit to face the future. Given the inevitable highs and lows of the business cycle, you need to be exceptionally responsive and flexible.

Unfortunately, the evidence shows that leaders are too often telling their

people what to do. We analysed our database, comparing leadership styles among Oil and Gas leaders to a cross-industry leadership population. We found that 53

per cent of them use a directive leadership style that aims to achieve immediate compliance. That figure compares unfavourably with 37 per cent in the cross-industry sample.

Leaders in the sector can also fall short on inspiration. When asked

whether their leaders create a motivating work environment, our survey respondents rated them lower than the cross-industry average.

In fact, according to another piece of our recent research1 respondents believe leaders are actually creating a de-motivating environment for 64 per cent of their teams versus only 55 per cent for the cross-industry leadership population.

We found that many leaders focus their leadership on achieving tasks and activities. This is unsurprising behaviour for professionals with an engineering or technical background, whose primary motivation is to improve standards and get results. Moreover, the sector is under increasing pressure to make operations safer and more efficient. This increases the need to focus on tasks and effective delivery still further.

1Hay Group research of 538 Oil and Gas leaders from 25 organisations

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100

Growth pains – structures, systems and processes

Leaders are advocates for environmentallyresponsible business practices

Top 20

60Actively applies sustainable and


89% 61% 73% 66%83% 56%

Don’t instruct – inspire Current leadership practice in the sector is clearly far from empowering. What really motivates professionals is being involved in the problem-solving process itself rather than just the delivery. Leaders must therefore inspire greater collaboration and involvement from their people. Our study participants often mentioned leaders who are too hands-on, too operationally focused, to pay proper attention to their staff.

The lesson is clear. Give your people the bigger picture, then allow them to decide for themselves how to respond.

Walking the talkOn a more positive note, Oil and Gas leaders are certainly ‘walking the talk’ about company values and CSR issues. Oil and Gas companies fared better than a cross industry sample on issues such as ‘leaders advocating environmentally responsible business practices’ and ‘actively applying sustainable and energy efficient policies’ (fig. 4).

Traditionally, a management position is achieved after acquiring specialist skills in a particular discipline. Being an expert means you pride yourself on the ability to readily give people the answer when they have an issue.

Focus on global awareness and environmental sustainability (fig. 4)





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100

Growth pains – structures, systems and processes The top team has clearly articulated

a set of organisational values that guide behaviour

Top 20

60Leaders create a work climate that motivates employees to do their best


94% 77% 82% 90% 73% 68%

Additionally, when asked whether the top team articulated a clear set of values, Oil and Gas respondents reported doing this better than the cross-sector average (fig. 5).

This ‘top down’ process – spending time and effort on clarifying and communicating values effectively – is a good way to start cultural change or to build a new organisation. Shared values help people to achieve a set of common objectives, supported by how the leadership team would like the organisation to operate. This is a corporate communications initiative, usually

geared both internally and externally to the investor community and market.

Clearly Oil and Gas companies do a great job of communicating values. However, there is a clear case that managers need to shift their leadership mode from ‘tell’ to ‘engage’. Following the example of technological transformation that is enabling unconventional sources of energy to become feasible, leaders must be prepared to undergo a similarly dramatic change in how they lead their organisations and their people into the future.

Focus on championing company values (fig. 5)


Typical executive education programmes combine courses in strategy, commercial acumen, financial analysis and leadership. While providing in-depth technical training, these programmes do more than simply increase knowledge and skills. They support the organisation’s employer brand and they ensure that senior leaders feel valued enough to merit substantial investment.

This is important as you are far more likely to retain key staff if they are developing additional expertise and skills that add value to their career.

The challenge is to ensure a return on your training investment. A key issue for organisations interviewed is how to equip strong technical professionals for the challenges faced as leaders of an enterprise. The typical response is to tackle the gaps in knowledge and to ensure that potential leaders are able to understand the key business issues they will face. These include the components of strategy, and how to devise long term plans and deploy them effectively. They also need to understand the broader commercial issues and business models, so that they can track down new sources of value for the organisation.

Going below the waterline

For many Oil and Gas companies, one key component of leadership development is executive education. Seventy per cent of Oil and Gas respondents to our survey provide external development opportunities through business school courses, and 40 per cent also offered Executive MBA programmes.

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Knowledge is not enough Executive education programmes major on these issues, and leadership development can become an exercise in acquiring knowledge and foundational principles. We know,

however, that knowledge is not enough. To be really effective leaders, your people’s development must go beyond skills input. Only then can it be truly transformational and differentiate your organisation’s performance.

Below the waterline

Perception of role

Behavioural traits

Values

Motivations

Skills

Knowledge

Above the waterline

Education, courses and classes

Commercial issues and business models

Above the waterline, knowledge and skills are visible and easy to identify. Issues can be promptly resolved.

Below the waterline, however,

the individual’s behaviour. These are harder to see – or change –

Yet they are the very elements on which great leadership development depends.

a shadowy mix of drivers in�uence

What lies beneath (fig. 6)

The importance of diving deepOnly 40 per cent of Oil and Gas respondents currently use assessment centres solely for leadership development – this is on par with other industries. In contrast, 70 per cent of high-performing organisations in our Best Companies for Leadership study do use assessment centres for their leaders.

Professor David McClelland of Harvard University recognised the importance of identifying the deep-seated values and motives that direct our behaviour. As one of Hay Group’s founders, Professor McClelland developed programmes to focus on these areas of human development and

bring transformational change to leadership development programmes.

McClelland’s insight was to ensure that leaders understand what drives them to behave the way they do. By raising their self-awareness, leaders are much better prepared to fine-tune the impact they make on their teams.

We believe that to get the best return on leadership development, your interventions need to have a fundamental impact – above and below the waterline, see fig. 6 opposite – and be followed up regularly to make sure of lasting change.

From insight to action

Our Best Companies for Leadership survey revealed both successes and shortcomings in the Oil and Gas industry’s approach to leadership development. Its findings have implications for individuals and organisations, raising important issues for consideration and clear prompts to action.

For business leaders:To lead or not to lead?That is the question. Your potential leaders must first decide whether or not leadership would be the right step for them. Do they really want to grasp the nettle? How can you help them make this critical decision?

Look in the mirrorWith the focus on knowledge, skills and outputs, leaders in Oil and Gas are presented with many challenges to their development. What really differentiates those who successfully change is that they dig deeper into what motivates themselves in particular situations and how that affects their behaviour as a leader. They regularly and proactively seek out feedback from others, they reflect on how they are perceived, and they question why they do what they do.

Differentiate and celebrateDifferentiating performance and linking this to reward and recognition are both paramount in motivating and retaining your highest performers. Maintain high base salary levels if need be, but don’t dilute the performance management process merely to retain individuals or because managers find it difficult to take bold decisions.

Equally, highlight and celebrate success. This is important, as it not only recognises the individual but also motivates your organisation as a whole.

Share your storyMany leaders in Oil and Gas develop a compelling story for their shareholders and investors. Aligning such stories with your internal narrative is the challenge. Our experience is that it happens only when the communication process is both top-down and bottom-up.

But don’t confuse giving information with bringing clarity. After every conversation or interaction with your team members, ask yourself if you made your listeners stronger and better able to confront future challenges.



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For organisations:Who do you need?Careful consideration about the nature and number of leaders required for the future of your business is essential. Some organisations think of critical skills as being synonymous with technical skills. As a result, their workforce planning processes can often ignore the leadership positions required over the months and years ahead.

Secondly, if they don’t define that demand, they won’t have adequate processes for satisfying it from the internal pool of current and future leaders. Needless to say, understanding the requirement and managing supply is not only about commercial sustainability but is also likely to save money over the longer term.

Know what success looks likeMany organisations adopt a values-based approach to what they want from their leaders. However, those leaders may find it difficult to develop themselves or their team members according to universal – and potentially vague – principles such as respect, honesty and fair dealing. We believe that formulating clear and specific developmental

competencies are crucial elements in successful implementation of your strategy.

Fundamental factors such as ambition or eagerness to learn are more effective criteria when seeking to identify long term potential.

Develop in depth Some aspects of leadership development are relatively easy; others are not. Successful companies tackle them all, providing well-rounded support for their leaders throughout their development journey. This requires analysis and understanding of the key challenges leaders are facing, and the types of individual you recruit. By providing them with tailored programmes you can help them to focus on key aspects of their behaviour.

Make it engagingPerformance management must be aligned to your business and culture. So it’s important to spend enough time in advance on how the process will be integrated into your day-to-day operations. Although a lot of thinking needs to be put into its design, embedding the process is the hardest task and calls for a multistage approach and careful refinement over time.



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Making performance management empowering

An Oil and Gas company working with us conducted a diagnostic exercise to understand what people actually need from their performance management process. This was a vital step because performance management is often done to people rather than designed and built with them.

The rapidly growing company decided to go ‘beyond appraisal’ in a bid to motivate and inspire at grass-roots level, with the specifics of the process fleshed out in focus groups of employees from across the organisation.

Implementation was supported by management development workshops to ensure alignment with different parts of the cycle, and the on-going process was monitored – proving that it became more effective over time.

Competencies support change management

One organisation that worked with us used executive leadership competency modelling as part of its transformation programme. Over a ten-year period, this involved setting out and clarifying employees’ expectations to align with the shift in business strategy. It was an approach that proved integral to the ultimate success of the programme.

Measure the impact Just as with technical development, improving leadership effectiveness is a process – a journey. Leaders need to practice, to be given feedback and, ideally, to be supported as they go forward.

We have worked with many technical leaders who welcome the idea of being given regular data to sustain their development. Integrating leadership effectiveness measures with other human capital indicators can bring the entire initiative to life and help make new behaviours stick.

Just as with technical development, improving leadership effectiveness is a process – a journey.

Enhancing your leadership reserves2020

However, given short term business challenges and long term uncertainty, you should be careful to put your money where it matters:

1 Building adequate leadership pipelines, including early career identification

2 Effective people performance management

3 Bottom-up engagement to make change happen

4 Making leadership interventions profound and long lasting through frequent practical interventions.

Conclusion

From our conversations with those in the Oil and Gas sector, most have either recently implemented a leadership initiative or are planning one in the next few years,

and therefore thinking about best practices. This is clearly an exciting time for the industry and we are heartened to see this focus in the sector.

Some companies are lagging behind in these areas. But we believe that if you build these principles into your approach, you will get a better return on your investment and move ahead of the competition.

Adam Burden leads a team working with clients in the Oil and Gas sector across Hay Group service lines and expertise areas. His focus is on providing HR services and solutions to support clients in areas of reward, leadership development and engagement. Adam works closely with numerous organisations in the sector, with a focus on upstream and oil field services.

e [email protected] | t +44 (0) 20 7856 7297

Sherief Hammady is a director and global partner at Hay Group and is the UK lead for Oil and Gas consulting. Over the past 13 years he has worked with senior leaders in FTSE 100 and large private sector organisations from around the world, focusing on the human issues that underpin business performance.


Steven McHaffie is an associate director at Hay Group, with extensive experience working with senior leaders in the Oil and Gas sector. He provides project direction, expertise and consulting advice to a number of global organisations, working with them to help deliver enhanced business performance through their people.


Report authors

Drilling into the future


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AfricaCape TownJohannesburgPretoria

AsiaBangkokBeijingHo Chi Minh CityHong KongJakartaKuala LumpurMumbaiNew DelhiSeoulShanghaiShenzhenSingaporeTokyo

EuropeAmsterdamAthensBarcelonaBerlinBilbaoBirminghamBratislavaBrusselsBucharestBudapestDublinEdinburgh

EnschedeFrankfurtHelsinkiIstanbulKievLilleLisbonLondonMadridManchesterMilanMoscowOsloParisPragueRomeStockholmStrasbourgViennaVilniusWarsawZeistZurich

Latin AmericaBogotáBuenos AiresCaracasLimaMexico CityRio de JaneiroSan JoséSantiagoSão Paulo

Middle EastDohaDubaiRiyadh

North AmericaAtlantaBostonCalgaryChicagoDallasEdmontonHalifaxKansas CityLos AngelesMontrealNew York MetroOttawaPhiladelphiaReginaSan FranciscoTorontoVancouverWashington DC Metro

PacificAucklandBrisbaneMelbournePerthSydneyWellington

Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We have over 3,000 employees working in 87 offices in 49 countries, backed by the world’s most comprehensive databases of organisational management information derived from over 125 countries.

Our expertise in the Oil and Gas sector has been developed through working with both international and local organisations across the industry value chain on a range of diverse business challenges. Our client list includes integrated oil companies, national oil companies, oil field services, upstream and midstream operators, refineries and petrochemical organisations. For more information please visit our Oil and Gas hub at www.haygroup.com/uk

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reserves your leadership - haygroup.com your leadership reserves... · seniority. The pay curve is ... promotion into leadership? Would more ... Oil and gas base salary premium over