Unlocking Total Labor Value in the Energy Industry

Collaborative workforce model needed to alleviate global skills crisis in energy

Innovative technologies for extraction and production have dispelled the notion of “peak oil” in a matter of years. But if oil and gas resources are more accessible while developing nations continue to industrialize, why are share prices not surging at large energy companies?

The crux of the problem lies not with extraction technologies but with the capacity to execute to business plans—hindered by a deficit of talent. Chronic shortages of skilled and experienced people are largely responsible for delays in capital projects, cost overruns and underproduction.

Skills shortages in oil and gas have reached the crisis stage, yet many in the industry have not grasped the full magnitude. Job postings for petroleum engineers in Houston, for example, were up 20 percent in 2013, compared to a 6 percent year-on-year increase in all other jobs.1 The production of university-educated talent is not meeting demand, and shortages are evident in nearly all markets.

Resolving the predicament requires a broad perspective: one that calls for closer collaboration with a full range of business partners. Essentially, what is needed is a holistic operating model for talent that views all potential suppliers, business partners and employees. Following this model, reliable data and analytics can track where talent is today, and where it should be in the global spectrum of capital projects and production centers.

Costly consequences of labor shortages

Talent shortages have widened during the past few decades for many reasons. Volatility in oil prices led to leaner internal staffing—luring engineering graduates to other industries. Due to a longstanding deficiency of promising young talent, much of the industry’s workforce is nearing retirement age.

In the meantime, exploration for alternative energy increased demand for talent. Some 2.3 million people throughout the world work in renewables or indirectly in supplier industries, and some sources indicate this tally is conservative.2 More than 1 million jobs are in the biomass and biofuels sectors, solar thermal employs at least 624,000, solar photovoltaics another 170,000, and wind power about 300,000. Newer technologies are causing a shift in the skills needed by companies. Traditional drilling, to some extent, is being supplanted by traditional energy production sectors.

The industry spends US$27 billion on subsea exploration and production, an amount expected to grow to US$130 billion by 2020.3 An Accenture survey found that 84 percent of energy companies leverage an extended workforce to fill their skill gaps.4

The scale and complexity of new projects, and expansion into new geographic regions, have made skilled labor a scarce resource in almost every part of the world. More than three-quarters (78 percent) of workforce suppliers surveyed by Kelly Services, Inc. who deal with large clients indicate their customers face a major shortage in skilled talent.5 Another report estimated that, in oil and gas, more than three-quarters of the workforce resides outside the core organization.6

The shortages have played a role in derailing budgets, resulting in vast cost overruns and schedule delays of concern to shareholders. Survey data from an Accenture study of the oil and gas industry found less than one-third of respondents had delivered to within 25 percent of approved budgets for all capital projects, and only 15 percent had delivered to approved schedules. Nine of 10 respondents mentioned access to talent as the major challenge.

To determine the overall impact of this crisis, Accenture calculated overspend across capital budgets in the energy industries (oil, gas and utilities) at roughly 13 percent. Considering that an estimated US$38 trillion in projects is anticipated by the International Energy Agency over 25 years, the chronic overruns are projected to add US$5 trillion in cost.7

Consequently, businesses need to acknowledge the talent hurdles before making commitments to analysts and investors. Based on multiple surveys, research and working with energy companies, here are five recommendations to alleviate the industry’s chronic shortages.

1. Start by accepting reality: you are no longer in the driver’s seat.

Even after years of difficulty in hiring, many companies regard talent shortages as temporary or solvable by offering higher compensation. Some business managers and human resources professionals continue to operate under the assumption that—when it comes to hiring—they are in the driver’s seat.

The facts tell us otherwise. While employment at large companies continues to be valued by many longtime employees, traditional oil and gas careers are not attractive to many young people.

Working at remote locations with few amenities is not widely appealing, especially to millennials. An Accenture survey found that only 2 percent of US college graduates cite oil and gas as a top choice for work.8 A significant set of candidates perceives the industry as stagnant and lacking in opportunities.

A survey by Kelly Services indicates that Gen Y, the core of the future workforce, highly values interesting and challenging work (80 percent),9 but only 50 percent of current industry professionals rate their work in these terms.10

2. Think creatively about an integrated supply chain for talent.

Business leaders have tended to start with full-time hiring, then supplement with external sources. This practice is slow and no longer realistic, given the scale of the shortages.

Companies need to broaden the perspective, in effect, partnering with other firms to develop integrated supply chains for extended workforces. As an example, a major international energy firm signed a multiyear contract with a labor-staffing provider to manage end-to-end recruitment—encompassing thousands of hires each year for operations in Europe, the Americas and Africa.Based on a Kelly Services survey of workforce suppliers about talent supply chain practices and beliefs, 51 percent say their client base has a formal method to determine preferred arrangement (i.e., direct employment, working as a temporary employee, project-based, statement of work consultants, etc.).11 Companies need to understand the preferences, and also consider where and when each option might be optimal for each business unit and project.

Workforce suppliers who deal with large clients recognize that securing the right talent at the right time leads to benefits for customers in terms of cost savings (cited by 52 percent), access to talent/supply (40 percent) and risk mitigation (7 percent).12 In other words, project owners and contractors share some of same priorities.

3. Monitor quality throughout the ecosystem.

Many companies do a good job of qualifying suppliers initially, but neglect to follow up with tracking and auditing. This lack of performance management adds cost and risk the industry can no longer ignore.

A wealth of digital data sets the stage for analytics that can deliver insights to help managers make better staffing and deployment decisions.

An ideal scenario is to apply the quantitative rigor used in financial reporting to track workforce performance. Managers need to drill down and determine which key performance indicators will help track what really matters in managing an extended workforce. Benchmarks can help each business segment understand which metrics are the most important.

5. Aspire to be the “business partner of choice.”

Advantageous staffing for project work does not always boil down to cost. Specialty suppliers are likely to send their best engineering and IT project talent to business partners with whom they have good working relationships.

Greater flexibility among business partners is needed to improve performance, but some energy companies, unfortunately, are becoming more rigid. Hoping to shed risk, these companies expect service providers to sign on to more indemnification, quality control, vetting and training provisions. In effect, these companies are increasing the cost of doing business—squeezing suppliers’ margins and sometimes being in arrears on payments. Consequently, it is not surprising that a sizable number of contractors prefer to work for mid-sized firms that are less bureaucratic.

Energy firms need to aspire to be more than an “employer of choice”—a term typically associated with full-time work. The term “business partner of choice” makes more sense as an aspiration because it accounts for working with a full range of businesses to execute complex projects.

Becoming a partner of choice takes long-term effort, but companies can take immediate steps. Good logistics planning at remote sites enables more efficient transportation, housing and meals. In addition, consider extending support to project-based workers that traditionally has been limited to full-time employees. Invite them to orientation programs and provide technology tools to help them collaborate effectively with full-time employees and other team members.14

Given the heavy reliance on external labor, companies need to spend more time vetting safety and quality. Due diligence is critical to determine if a turnkey firm has sufficient supplies of high-demand talent to execute a capital project with minimal delay and cost overrun.

Business units within large organizations need to share performance records, so that individuals or providers who fell short on one job are not hired six weeks later by a different unit for a risky job. Shareholders today have a reduced tolerance for risk, and certain employees, contractors and suppliers carry higher levels of risk.

Suppliers are becoming more adept at tracking talent and matching company needs to available skills. Use of vendor management system (VMS) tools enables a more reliable supply; however, be mindful of each country’s performance-monitoring regulations.

4. Know where skills reside and where they can best be deployed.

Whether the business is upstream, downstream or midstream, having reliable information about the supply of resources is vital. Companies typically have some talent information systems in place, but the reach tends to be limited to function, business unit or geography.

Many organizations do a fairly good job of demand planning and the scoping of staffing for high-priority projects. But many do not take the next step: assessing the likely supply of talent available and whether it will come close to meeting demand to deliver on time.

Data shared throughout the business will help executives do a better job of supplying talent where and when it is needed. In addition, new software tools are likely to help companies improve visibility into supply.

For example, SAP acquired Fieldglass this year, whose solutions help businesses oversee contract employees. SAP is combining this platform with Ariba for procurement and SuccessFactors capabilities for human capital management.13 As end-to-end solutions emerge, companies will be better able to manage workforces through well-integrated platforms.

Making headway through greater collaboration

Oil and gas companies will not begin to make significant progress in resolving shortages without first acknowledging the extent of the talent deficit. The cost of labor is already high, but throwing more money at the problem is not the solution. Energy companies need to work smarter to attract and retain qualified, experienced and safety-minded talent.

A holistic, collaborative model is needed: one that looks at the entire talent ecosystem, providing consistent data around people. The knowledge of available supply is a vital input for business planning, so production forecasts come closer to hitting the mark.

Reliable and integrated information systems, including talent analytics, will provide companies with data on skills, timelines, mobility and safety. Having this knowledge will help oil and gas leaders appoint the right people to the right locations at the right time.

Understand that the supply of talent is a top priority, and no single company will solve the problem on its own. Productive and flexible collaboration is the only way to make headway to overcome chronic talent shortages.

References

1 © 2014 Economic Modeling Specialists Intl., a CareerBuilder Company.

2 “Jobs in Renewable Energy Expanding,” Worldwatch Institute, July 2008, www.worldwatch.org.

3 © 2014 OilPrice.com—Used by permission.

4 Traits of Truly Agile Businesses, Accenture Strategy, 2013.

5 Scientific Professionals for the Natural Resources Sector, Kelly Services, Inc., May 2014, www.kellyservices.com.

6 “One Single Source of Security for the Extended Workforce,” Covisint, 2011, www.covisint.com.

7 Accenture research, 2014.

8 Accenture 2014 College Graduate Employment Survey: What Awaits Grads in the Working World? Accenture, May 2014, www.accenture.com.

9 Kelly Global Workforce Index, Kelly Services, Inc., 2013, www.kellyservices.com.

10 Scientific Professionals for the Natural Resources Sector, Kelly Services, Inc., May 2014, www.kellyservices.com.

11 “Talent Supply Chain Management Readiness,” KellyOCG and Inavero, August 2013, www.kellyservices.com.

12 Scientific Professionals for the Natural Resources Sector, Kelly Services, Inc., May 2014, www.kellyservices.com.

13 Ricadela, A, Kirchfeld, A. and Campbell, M., “SAP Agrees to Acquire Fieldglass in Cloud-Computing Push,” Bloomberg News, March 26, 2014, www.bloomberg.com.

14 “Managing the Extended Workforce: A Skills Strategy for Business Agility,” Accenture Outlook Journal, March 2014, www.accenture.com.

Copyright © 2014 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.

About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

About Kelly Services Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a leader in providing workforce solutions. Kelly offers a comprehensive array of outsourcing and consulting services as well as world-class staffing on a temporary, temporary-to-hire and direct-hire basis. Serving clients around the globe, Kelly provided employment to approximately 540,000 employees in 2013. Revenue in 2013 was $5.4 billion. Visit kellyservices.com.

Authors Lucia Bosworth Senior Manager—Energy Industry Group Accenture lucia.d.bosworth@accenture.com Michelle Steffes Vice President—Global Solutions, Natural Resources Kelly Services, Inc. steffmi@kellyservices.com

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