oil ’s wild ride€¦ · exhibit 3: demand and supply: creating a view of the talent continuum...
TRANSCRIPT
OIL’S WILD RIDE ROUNDING UP THE RIGHT TALENT
AUTHORS
Keric Morris, Partner, Oliver Wyman
John Koob, Partner, Mercer
Jay Doherty, Partner, Mercer
Energy
The on-going fluctuations in the oil price will once again
test whether the industry can shrink its workforce while
holding on to the right talent to grow again in the future.
Just last year, we published an article about the oil and
gas talent gap on how the industry could prepare for a
chronic shortage of experienced employees.
The oil price escalation and resource crunch of recent
years have highlighted the importance of strategic
human resources delivery and talent management.
Effective talent management has been a key constraint
driving both labor costs and a company’s ability to
effectively deliver profit.
With the drop in oil prices, the immediate problem
changes, but the long-term challenge does not. Energy
companies need robust HR processes to manage growth
and contraction while building organisational strength
and capability for the future. Those that are best able
to respond without simply taking a slash-and-burn
approach will be the first to recover and in the best
position to take advantage of future growth.
Exhibit 1: Impact of oil prices on oil and gas labor market
THOUSAND EMPLOYEES
O&G extraction
Oil price
Refineries
Pipeline transportation
250 100
200 80
150 60
100 40
50 20
300 120
350 140
00
19921990 19961994 20021998 2010200620042000 20122008 2014
OIL PRICEUS$
Upstream also followed the price trend – but witha lag and less volatility
Support services followed the price trendclosely – it immediately reacted
Midstream and downstream donot respond as much
Construction respondswith a lag O&G support
services
O&G pieplineconstruction
Petrochemicals, industrial gases, synthetic dyes, and pigments
Source: BLS for labor data, and Platts for Brent oil prices and Mercer analysis. Prices are shown in 2013 current US$
SHRINKING THE WORKFORCE FOR FUTURE GROWTH
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One thing is certain: The impact of the drop in oil prices
affects each company differently, with regional, political,
value chain exposure, scale, cash flow, and balance sheet
strength all playing important roles in determining the
appropriate future strategy.
With previous oil price drops, the main impact of
workforce contractions occurred upstream, particularly
in oilfield services. This trend is repeating, with many
majors and independents already cutting exploration
and production investment this year and downsizing
corporate centres. Consolidation is occurring in certain
sectors like oilfield services. However, with national
oil companies trying to buy reserves on the cheap and
downstream companies benefiting from the market
fluctuations, major players will find opportunities and
risks to evaluate.
There is a clear window in the sector to selectively hire
workers with skills that normally take 12-plus years to
develop. Organizations in a strong financial position
can acquire not only reserves and physical assets,
but also lure top talent. Examples include recruiting
experienced project managers to upstream companies
to deliver critical projects and targeting talent involved
in high-cost programs such as enhanced oil recovery.
However, not all regions will experience the talent shifts
equally. Exhibit 2 maps out where the greatest talent
upgrading opportunities will likely exist in 2015–2016.
Exhibit 2: Projected global labor market response to the downturn
Red/Orange indicate recruiting opportunities for experienced talent
Sharp cutsin workforce
• CAN
Workforce reductions
• USA
• CHN
• AUS
Sector reductions and wage freezes
• MEX
• BRA
• ARG
• NGA
• NZL
Selective reductions by some
• GBR
• RUS
• MYS
Stable
• VEN
• COL
• ESP
• ITA
• DEU
• NOR
• ZAF
• IRN
• TKM
• KAZ
• IND
• IDN
• KWT
Workforce growth
• IRQ
• QAT
• OMN
• SAU
2015–2016 WORKFORCE IMPACT OF LOWER OIL PRICES
Source: Mercer Workforce Sciences Institute
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Exhibit 3: Demand and supply: Creating a view of the talent continuum
SUPPLY DELIVERYDEMAND SCENARIO DEVELOPMENT
INVESTMENTS
TALENT NEEDS
EXISITINGOPERATIONS
TALENTDEPLOYMENT
CONTINGENTAND MOBILEWORKFORCE
TALENTDEVELOPMENT
TALENTACQUISITION
DEMANDFORECAST
TALENT SUPPLYATTRACTION,
RETENTION ANDENGAGEMENT
BUSINESSSTRATEGY
HR STRATEGIC SUPPORT
HR OPERATIONAL SUPPORT/PROCESS CHANGE CORE HR DELIVERY
Many organizations have grappled with the pressures
of too few workers in recent years by developing more
forward-looking HR strategies and investing in programs
and processes such as strategic workforce planning. The
recent price drop is both sharper and more pronounced
than the prior upward trend and will require both agility
and good underlying data to effectively respond.
This will require ensuring that the HR function has
the right processes, tools, skills, and positioning to
effectively support and influence decision-making.
Companies must also create an end-to-end, data-based
approach to staffing in order to create a proportionate
response. This should include a deep understanding of
the economic outlook and trends facing the industry,
their likely impact on the organization, and a strategic
view of how to manage those issues and constraints
from an HR perspective.
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REPOSITIONING HR IN STRATEGIC DECISIONS
The start of that journey is giving HR a greater role in
cost management and in recruiting and retaining talent.
Using HR to simply enact strategic decisions (supporting
business units to deliver against cost down targets) leads
to suboptimal delivery and, in the worst case, long-term
issues retaining the knowledge and capability critical for
future performance. This approach could also potentially
miss some of the creative benefits, pensions, rewards, and
related opportunities to manage costs more effectively
(see “Managing Human Capital Assets During a Market
Disruption” – Mercer 2015), thereby reducing the need for
staff reduction programs, which pose high risks.
To drive robust and effective core talent decisions
requires a change in process – that is, positioning core
elements of HR in board investment (project portfolio
management), corporate and operating decision
forums. In addition, robust talent data is critical,
including numbers, capabilities, workforce drivers,
capability gaps, and supply and demand forecasts,
as well as alternative options (contractor, joint venture,
acquisitions, etc.), to enable the team to challenge and
support decisions on strategy.
DEVELOPING THE SUPPORTIVE THINKING
The focus of many strategic workforce planning
initiatives has been solving the somewhat intractable
issue of meeting the increasing demand for key skills in
the business. It has been a matter of receiving demand
data and creating the right levels of supply. The issues
faced today create a different type of demand and the
need for more predictive analysis. For the best possible
long-term outcomes, the focus needs to shift to working
with the business to support decisions by having access
to robust talent intelligence:
• Establish current skills map (including locations, job families, capabilities, etc.), benchmarked against best practice to highlight gaps and opportunities
• Develop demand scenarios that test the extremes of price movements to understand competitiveness and vulnerabilities in workforce composition
• Define options, including the use of other levers (benefits redesign, alternative workforce configurations, etc.) to achieve the required levels of change in the business while keeping a strong focus on growth as the market stabilizes
OLIVER WYMAN AND MERCER FRAMEWORK
MANAGING TALENT WITH CREATIVITY
A more holistic approach to talent management
enables development of more creative delivery
options and potential strategic investments:
• Use the market downturn as a catalyst to support the great crew change as baby boomers retire. Draw on different models for contract workers, early retirement, etc. while building accelerated knowledge transfer approaches
• Use the market disruption to target, recruit, and upgrade specific skills previously in short supply but needed for growth
• Work with other market players to develop:
− Talent-based joint ventures and key resource sharing schemes, including with contractors
− More radical approaches to using and managing contractors, such as rebalancing the knowledge equation by bringing capabilities back in-house
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EMBEDDING SUSTAINABLE CHANGE IN THE BUSINESS
While the short-term imperative is for the business to
adjust to prevailing market conditions, now may be
the time to forge a longer-term approach to managing
demand for staff. This requires creation of robust
processes that build talent management into investment
decisions and redesign the management approach
regarding business unit demands.
Exhibit 4: Redesigning the talent management approach
FUTURE PROJECTS
EXISTING OPERATIONS
CONSOLIDATION
Scenario preparation Scenario modelling
Entities Express Resource Needsto Completion
Analysis of costs forecasts, workloads
and delivery schedules
Analysis of costs forecasts, workloads
and delivery schedules
Agree on Scenarios
New project resource
needs
Head ofOperation validation
Head ofEntity validation
Head ofProjec validation
Analysis of costs forecasts, workloads
and delivery schedules
Agree on Scenarios
Head ofEntity validation
Head ofProjec validation
Scenario models
Scenario validation
3 times a year
Scenario Modelling
Monthly or more
Modelling(workload revenue)
Monthly or more
Consolidation ExistingOperations and Future
Project Activity
Monthly or more
Businessreview
3 timesa year
Output:SWP
Monthlyor more
Other Clients
• OCD
• Operational entities (Monthly use)
• CFO
• Reporting
Analysis of workload capacity with entities:
• Adequacy
• Subcontracting
Subcontracting
Feedback fromentities and
iteration of thewhole process
Outputsare reviewed,iterated, and
communicatedto stakeholders
Define the sta�ng levels for existing operations(focus on using a standard build approach). Build in changes
in operations and performance improvement requirements
Embed the talent discussion inlong-term scenario planning to
e�ectively model talent constraintsModel
scenariosto balance
ops, finance,HR, etc.
constraints
Demandforecasts forsteady-stateoperations
and newprojects are
consolidatedor remodeledDevelop standard models and
approaches to drive demand forecasting
This will require experimenting with processes and
approaches, from pure analytical modelling to changing
the way resources are managed in the business. For
example, it may mean rebalancing the needs of the
business or project with the needs to develop staff
(creating teams with blended skills, rather than putting
the A team on the biggest projects and the rest on what
is left) and creating a better staff value proposition
(professional development, career paths, etc.).
Other, more far-reaching changes will also be required.
For example, companies must develop the metrics to
support effective delivery (from investment decisions
to project and site closure) and strengthen the ability of
the HR team to challenge and support the business on
core decisions utilizing more data-driven approaches.
The process will also need to be dynamic, reviewing and
revising the approach to allow for changing business and
market needs.
The overall dynamics in oil and gas are changing to
a more market-led approach, and while the drop in oil
prices is only a short-term phenomenon, the return
to oil prices at mid-2014 levels is at best some way off.
The operating models need to change to reflect this and
the way that talent is managed also needs to change
to effectively build for the future. The last downturn
saw a considerable amount of knowledge and talent
flight, slowing the recovery. While driving a more radical
redesign of HR processes/positioning and staffing
approaches will have an impact on current cost down
programs, positioning the business now to reflect the
current market conditions while keeping an eye on the
future will enable businesses to recover more quickly
and be better equipped to ride the next upswing.
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This article is part of a series that explores the impact of the 2015 market disruption on the global oil and gas industry.
MARSH & MCLENNAN COMPANIES APPROACH TO MANAGING THROUGH THE DOWNTURN
Managing Risk,Driving E�ciencyBlending operational excellence and riskmanagement to drive value
Right-Sizing ITDriving performancefrom existing investments
The Talent ContinuumUsing a data approachto drive strategic humanresources delivery
Process StandardisationDriving for repeatable,low-cost processes
PMI in the downturnUsing M&A in the downturn
to reposition the business
Optimising JVsCreating more flexible
joint-venture approaches
Innovative Supply ChainsRedesigning and
cutting risk in supply chains
Regulatory ChangeInfluencing regulators
to reflect market changes
OIL’S WILD RIDEREDESIGNING
THE OPERATING MODEL
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ABOUT OLIVER WYMAN
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm’s 3,700 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. Follow Oliver Wyman on Twitter @OliverWyman.
ABOUT MERCER
Mercer is a global consulting leader in talent, health, retirement, and investments. The company helps clients around the world advance the health, wealth, and careers of their greatest asset – their people. Mercer’s more than 20,500 employees are based in more than 40 countries, and it operates in more than 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies.
ABOUT MARSH & MCLENNAN COMPANIES ENERGY VERTICAL
Mercer and Oliver Wyman help organizations in the oil and gas industry outpace the competition through a combination of expert global, regional and local resources; deep project experience across the value chain; unequaled global oil and gas workforce data and insights; and cross-industry adaptive innovation. Working together with companies, we can go beyond simple benchmarking to identifying the future competitiveness of your workforce and craft solutions unique to the industry that move the workforce toward optimum. To learn more, please visit www.mercer.com/energy and www.oliverwyman.com/insights/energy.html.
FOR MORE INFORMATION ON THIS REPORT, CONTACT
KERIC MORRIS
Partner Oliver Wyman [email protected]
JOHN KOOB
Partner Mercer [email protected]
JAY DOHERTY
Partner Mercer [email protected]
Copyright © 2015 Oliver Wyman & Mercer
All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Mercer, and Oliver Wyman and Mercer accepts no liability whatsoever for the actions of third parties in this respect.
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