it have the qualified people it needs to support that growth? Recent research by Oliver Wyman (formerly Mercer Management Consulting) in- dicates that over the next decade, attracting and retaining skilled workers will be one of the biggest risks to industry success. over the next decade, attracting and retaining skilled workers will be one of the biggest risks to industry success. Upstream and midstream business are ex- pected to be the most affected, as large numbers of experienced workers retire and competition for new talent heats up. This is not just an HR issue: Knowledge, not assets, will be the source of future value growth in the sector, and a short- age of well-qualified professionals will constrain the abilities both to grow in scale and to com- pete in an ever more crowded field. Oliver Wymans recent global survey on oil and gas employment trends indicates that indi- Workforce Issues Talent Management Challenge in the Oil and Gas Industry Bob Orr and Bridget McVerry vidual oil gas companies interviewed as part of that study expect to face significant talent chal- lenges over the next five to ten years. The survey revealed a number of key issues that need to be addressed to improve the future talent outlook. While the aging workforce is a valid and growing issue, particularly in the Western Hemisphere, the more prevalent concern across the global oil and gas industry is the ability to find and retain qualified talent (Ex- hibit 1). Companies are facing an experience gap, which could significantly impact their ability to compete in the global market. As one independent oil company representative stated, The people are just not there. The ability to find experienced candidates with the skills needed to meet anticipated de- mand emerged as the top challenge facing the sample group of companies. As one independ- ent oil company representative stated, The people are just not there. Approximately 70 percent of participating companies indicated this challenge as their highest-priority issue a third of all respondents cite this issue as crit- ical to solve. Because the business model of service firms is to offer oil and gas companies a high-quality workforce with specialized in- dustry knowledge, a shortage of experienced workers in the labor market will challenge their ability to deliver value to customers. Attrition and retirement are expected to in- tensify the demand for experienced resources. Bob Orr (bob.orr@OliverWyman.com) is a di- rector and head of the Oil and Gas Practice for Oliver Wyman, in Houston. Bridget McVerry (bridget.mcverry@OliverWyman.com) is a prin- cipal in the firms Oil and Gas Practice. 18 2007 Wiley Periodicals, Inc. / DOI 10.1002/gas NATURAL GAS & ELECTRICITY DECEMBER 2007 Two-thirds of survey participants specifically highlighted attrition among employees with over ten years of tenure as a high-/critical pri- ority issue. Once again, the issue is of greatest concern to service companies, which provided a substantially higher ranking than independ- ents in this category. Company concerns regarding the inadequate supply of experienced talent, coupled with in- creasing demand, is likely to intensify the cur- rent level of competition for workers. As a re- sult, companies feel increased pressure to retain their experienced employees. The importance of retention is reflected in the survey results. How- ever, the industry is beginning to realize that tra- ditional approaches to retention are not enough. While developing a strong corporate culture and work environment are important, additional professional opportunities and financial rewards are expected to be a more successful strategy for retaining experienced talent. Competitive compensation is widely recog- nized as a foundation for retention. In the cur- rent growth environment, there are a number of lucrative opportunities available to experienced workers. As competitive offers are increasing, according to the representative of one national oil company (NOC), so are the opportunities for employees to change their employer. Al- though most companies do not aspire to be the highest payer in the market, most recognize the necessity to offer a competitive package to their current and potential employees. Although most companies do not aspire to be the highest payer in the market, most recognize the necessity to offer a competitive package. However, it is becoming clear that compen- sation alone is not a sustainable solution to re- tain talent. Instead, the importance of provid- ing clear and challenging career opportunities is beginning to emerge as a higher priority. Over 85 percent of survey respondents cited providing opportunities for career progres- sion and personal development as a high-/ critical priority issue to address. Exhibit 2 shows a number of such strategies that compa- nies are employing to address the issues. The survey results indicate that too many companies have yet to realize the scope of the problem. For example, when addressing regional tal- ent gaps, oil and gas companies tend to focus on internal solutions. However, this approach will not be sustainable in the long term, and DECEMBER 2007 NATURAL GAS & ELECTRICITY DOI 10.1002/gas / 2007 Wiley Periodicals, Inc. 19 Exhibit 1. Oil and Gas Industry Talent Management: Highest-Priority Challenge 20 2007 Wiley Periodicals, Inc. / DOI 10.1002/gas NATURAL GAS & ELECTRICITY DECEMBER 2007 E x h i b i t
2 . S t r a t e g i e s
O r g a n i z a t i o n s
W i l l
E m p l o y
t o
A d d r e s s
R e g i o n a l
T a l e n t
S h o r t a g e s strategies focused on developing local pools of talent are expected to have the greatest impact. Rather than current piecemeal approaches, what will be needed to address this challenge effectively is an integrated, top-down talent management strategy that ensures that a com- pany can maintain and grow its workforce in line with its long-term business goals. WHERE HAS ALL THE TALENT GONE? The pressures to find and hold on to quali- fied people are expected to intensify as the oil and gas industry expands over the next decade. Exhibit 3 shows the percentage losses ex- pected, by skill area. The looming talent chal- lenge is the result of a number of different, colliding factors. 1. An aging workforce. The average oil and gas industry workers across the value chain are in their mid-40s, with more than a third expected to retire by 2012. Companies in more mature geographies, such as North America and Europe, will be especially hard hit by this loss of experienced workers. See Exhibit 4. 2. Fewer experienced candidates. Competition is increasing for an insufficient supply of experienced workers. Integration across the value chain is driving the need for more DECEMBER 2007 NATURAL GAS & ELECTRICITY DOI 10.1002/gas / 2007 Wiley Periodicals, Inc. 21 Exhibit 3. Expected Talent Gaps Exhibit 4. Average Age Distribution specialized (and, hence, scarcer) skill sets. Other trends contributing to this shortage include the slashing of industry workforces two decades ago, the replacement of tenured employees with entry-level work- ers, and training reductions due to operat- ing margin pressures. 3. Industry globalization. NOCs are expand- ing operations into new geographies, while the international oil companies are looking to build local workforces and rely less on flown-in talent. In many countries, how- ever, fewer people have the requisite skills; thus, those that do are highly sought after. 4. Difficulty attracting entry-level talent. Al- though there is expected to be an adequate supply of entry-level workers with basic skills and knowledge, these workers have many employment options both inside and outside the energy space. Harsh, remote ex- ploration and production (E&P) locations and oil and gas industry reputation also have an impact on attracting new talent. WANTED: TOP-DOWN TALENT MANAGEMENT There are some positive trends in terms of talent availabilityan increase in college gradu- ates with usable skill sets, a move toward local- ized workforces, and the use of creative retire- ment strategies to keep experienced workers in place. However, most oil and gas companies do not appear to be well positioned to take advan- tage of these trends. They are still focused on the scramble for a small pool of top candidates (or, in the case of NOCs, on hire and hold for an employees professional lifetime), and have yet to develop broader and more innovative ap- proaches to sourcing workers. Most oil and gas companies are still focused on the scramble for a small pool of top candidates. Most important, most oil and gas compa- nies lack an integrated talent management strategy that simultaneously focuses at a high level on attracting, developing, and retaining employees with the knowledge and capabili- ties required for success. Exhibit 5 offers one such approach. Source and Recruit Oil and gas companies must get ahead of the curve in terms of knowing what their talent needs will be tomorrow and developing an over- all approach to sourcing. This starts with an as- sessment of operational plans, growth targets, and the existing workforce to identify potential 22 2007 Wiley Periodicals, Inc. / DOI 10.1002/gas NATURAL GAS & ELECTRICITY DECEMBER 2007 Exhibit 5. Key Levers in Talent Management gaps. Developing new, nontraditional talent pools to address evolving needs is the next criti- cal piece of the puzzle, as competition for candi- dates intensifies. To get prospects in the door, the company will need to ensure that its brand image helps differentiate it and will appeal to candidates values. Finally, a structured recruit- ing process must be developed that assesses can- didates from the perspective of capabilities, knowledge, and cultural fit. Develop and Manage Knowledge transfer and investment in staff training and development will be essential to long-term business success, particularly if a company recruits talent with more generalized skills or from other industries. Structured pro- grams should be put in place to ensure knowl- edge transfer from older, more experienced employees to newer employees. In some cases, a mentoring or journeyman approach may be useful for developing very specialized skills. High-quality employees also value formal ca- reer management and leadership development opportunities. Challenging roles and career path opportunities can help retain the best employ- ees, while there is certainly a competitive advan- tage to be had from proactively building a com- panys next generation of leaders. Reward and Retain Competition for talent and the prolifera- tion of other opportunities increase the im- portance of a well-defined plan for retention and employee recognition. Failure to invest in retention also can lead to a prohibitively ex- pensive cycle of recruitment and training, not to mention jeopardizing a companys perform- ance. Retention plans should be targeted based on the demographics of the talent pool, with specific efforts focused on retaining workers nearing retirement age. Also important are benefits programs that enhance a companys reputation for taking care of its own. OLIVER WYMANS APPROACH TO TALENT MANAGEMENT In the face of the coming talent crisis, all oil and gas companies will likely need to ad- just their talent management strategies to sup- port shifting business requirements and coun- teract increased competition for their most valuable employees. Through recent work for energy compa- nies, Oliver Wyman has developed an ap- proach to assessing current talent management efforts, identifying gaps and opportunities, and developing integrated action plans that is results-oriented and that can be aligned with each companys unique structure and long- term goals. Wymans approach is shown graph- ically in Exhibit 6. If you would be interested in discussing Oliver Wymans perspectives on talent management challenges in the oil and gas industry, please con- tact one of the authors of this article. DECEMBER 2007 NATURAL GAS & ELECTRICITY DOI 10.1002/gas / 2007 Wiley Periodicals, Inc. 23 Exhibit 6. Oliver Wyman Talent Management Strategy Approach