Will the Oil & Gas sector avoid repeating HR errors of the 80s and 90s?

As the wave of headcount reductions continues across the global oil and gas industry, concerns last heard in the 1980s and 90s are resurfacing.

Hindsight to 20-30 years past has tended to focus on the de-skilling of the core oil and gas companies that took place at the time, and their weakened positions when the industry sought to recover and grow. 

Management delayering and outsourcing had been the essential route to radical cost reduction across the industry. This chosen path had hard-hitting consequences, subsequently yielding an industry with a significantly weakened corporate memory, shortfalls in management capacity and a reliance on outsourcers with significant new pricing power.

While the issue of management capacity could be rebuilt over the relatively benign ‘noughties’, the industry failed to succeed in reining in the cost of outsourced activities, as a double whammy of increasing commodity prices and the drive for growth fueled significant cost escalation.

As recently as 2014 and early 2015 the industry was committed to not repeating the mistakes of the 1980s and 90s. Fast-forward eighteen months and the evidence is seen by many as weighted towards such an eventuality.

Graduate intake programmes have been scaled back, with the prospect that this will sustain for years to come. The junior management of 2020 – 2025 are not being recruited and developed, consequently sowing the seeds for the capability gap experienced by the financial services sector following the same practices after the 2008 crash. Moreover, the oil and gas industry, if not the energy industry at large, is no longer attracting the current crop of graduates to it as a powerful and progressive career choice.

To date, there is little, if any, evidence of a significant movement to insource activities and rebuild lost capabilities. Whilst the market opportunity now exists to recruit the necessary human resources, there are wider challenges at play. 

The fact is that at their core, and with even further management capacity reduction, there is limited capability and appetite to build for the future. Apart from market pursuit of value, the prevailing priority is one of retrenchment. It may also be the case that oil and gas has at last had the opportunity to achieve the benefits of the flexibility which outsourcing can convey in response to downturn!

There is also the oft-forgotten matter of what happened within the ‘lost years’ of the 80s and early 90s. Those were the days of frequent “trophy” reporting of headcount reductions – where the benefit of analyst sentiment on management action was generally a priority over business performance. Employees left their employment on a Friday often without clear business understanding of what gaps they would leave, what activities would no longer be performed, and without plans to sustain or reorganise in the new downsized world. 

Some enlightened activities are being taken however, which suggest that not everyone has forgotten the need to not repeat the mistakes of their predecessors.

We see organisations looking intelligently at how strong the cohesion and alignment is within and across their operations, seeking opportunities for improved efficiency and effectiveness. This is within commercial operations and between plant / technical and commercial. Activities are being eliminated and management rationalised in a structured way that ensures performance is improved and cost reductions are sustainable. This is both short and medium-term motivated.

Fresh consideration is also being given to understanding how business cycles in the oil and gas sectors may be different in the future. Technology developments such as fracking and environmental agendas towards “significantly less than +2C” are just two elements of change, which also includes the impact of new business models, new sources of finance and the changing role of NOCs. 

This is a key driver to consideration of the kind of flexibility that will, in the future, be required from resourcing models – and, indeed, from the relationships between IOCs and outsourced service providers.

The current wave of delayering represents a great opportunity for the next generation of managers in the oil and gas sectors. The support provided for their development into these new roles is now being recognised as essential to ensuring that they are capable and empowered to bring fresh thinking to their new responsibilities. This is essential to enabling them to look at their environment and organisations with fresh eyes, with the confidence to act.

Lastly, let’s not forget the need to keep the people lifeblood flowing through the business system. Maintaining the flow of new graduate intake is ensuring that future management generations are being recruited and developed. Based on a well-structured development programme, the interest and curiosity of young enthusiasts adds essential perspective and value to the organisation and those with whom they work. 

Gas Strategies is a global specialist professional services organisation providing commercial energy advisory services across all continents, through consulting, training and information services.

If you would like more information about how Gas Strategies can help your business with Consulting services across the value chain or provide industry insight with regular news, features and analysis through Information Services or help with people development through Training services, please contact us directly.

 

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