Strategic Approach Needed For Oil Company Recruitment

John A. Griffin
Heidrick & Struggles
Houston

Although it's been more than 15 years since the energy bust, the effects of it are still being felt today. It's true that we can extract more oil and gas at a lower cost using fewer people than in years before. But a horrific price was paid for this capability.

Approximately 1 million jobs were lost in the boom-bust cycle of the late 1970s and 1980s. For the people that stayed in the industry, morale has been shaken. And young people who might have entered the field are opting for what they perceive as less risky professions. The trust and bond that existed between company and employee have been shattered.

About those who left, much has been said: They found other careers or new jobs, picked up a hobby, or retired.

More significantly, at a time when the industry is in the midst of renewal and growth, relatively few qualified people are available to the companies driving this expanding market. At issue are such questions as:

• Who will bring in the wells?
• Who will market downstream products?
• Where does the executive talent lie to run today's energy companies and shape tomorrow's industry?

These are only a few of the key questions with which energy companies-independent and integrated-are wrestling today. This article will look at several short- and long-term issues and provide some tips for how to deal with both situations. Make no mistake, however: The root problems will require a generation to solve.

Cycle consequences

In the peak year of 1982, the top 25 oil and gas companies employed more than 1.6 million people (Fig. 1 [64,128 bytes]). According to Arthur L. Smith of John S. Herold Inc. in his company's June 1997 Industry Report, "At a time when unemployment rates have dropped to record low levels, the oil industry has continued to shrink its payroll." Herold sees no turnaround in current data.

What happened in the 1970-80s was not so unusual as it was a confluence of many things of great magnitude happening in a short period of time. They changed the very fabric of the industry.

Wrestling to get control of their costs, energy companies began to downsize. They reduced workforces and outsourced many functions. Reliance on contract services is now a standard practice.

In some cases, outsourcing is an excellent thing to do. It keeps costs down and sometimes can generate a better result. But it means that the talent to generate the result is no longer resident within the energy company and available whenever needed. This translates into a loss of depth of experience within the corporation and across its culture.

We now see the cost of these changes manifested in delayed projects or extended delivery dates. In many instances, companies simply don't have the experienced and qualified people to keep up with demand. New technologies can do only so much to enhance productivity. Eventually, someone has to start making decisions that require experience and technical know-how.

The turnaround

With demand for qualified people rising and supplies limited, personnel costs are rising. In addition, the industry rebound forces companies to seek new skills and capabilities from both existing and new employees.

With all this at play, how are energy companies going to satisfy their personnel needs and prosper?

Top executives now view hiring as a strategic business issue. The successful ones ask themselves questions such as these:

• What do we have in place (bench strength)?
• What do we need (leaders or tacticians)?
• Where is the industry going, and how do we fit?

Then they set priorities for their employee requirements.

The best companies are developing recruitment strategies for hiring and retention of talent. Their strategies look at short, medium, and over-the-horizon time lines. They look at their people as assets that must be maintained and grown or otherwise lost to a competitor.

This approach has significant implications for both the independent and integrated oil and gas company. Increasingly, companies build strategic partnerships with recruiting and compensation firms in order to craft an integrated recruiting and retention strategy.

If your company is developing a recruitment program, you should consider both short- and long-term strategies and tools.

Short-term alternatives

In the short-term, you can bring people back from retirement or careers outside the oil industry to which they moved when the bust began.

Bringing people back to the oil and gas business can be a daunting adventure in salesmanship. You'll have to overcome high levels of risk-driven fear. These are people who have seen the dark side of the bust and don't want to see it again. They are also going to be costly because they have a good sense of what they are worth in the marketplace and will need retraining.

Another option is to search downstream to fill jobs upstream. It can take time to retrain someone, but it's really a task of matching your needs with their business savvy and initiative.

You can also look abroad. A growing pool of qualified resources is developing around the world. But it brings a different set of issues to the table when you start to combine different cultures, languages, and procedures.

Of course, you can continue to outsource functions. Outsourcing remains common in the areas of finance, marketing, and operations. Even in more technical areas, such as engineering and drilling, outsourcing is a growing option.

A more radical approach may also be required. You may want to hire outside your industry or academia. There is talent elsewhere; people who possess it only have to learn your business. The drawback to this approach is the time that the learning requires.

The widespread teaming approach-involving joint ventures, strategic alliances, and partnerships-can add capabilities faster and at a lower cost than building them from internal resources.

Perhaps the easiest but often the most costly alternative is to hire from other companies. The downside is that it takes a premium above market to entice people to change positions, and then you have to attempt to retain them.

Popular thinking is to attach golden handcuffs to your prized executives. Beware, though, if others want your key people: They will pay the price of those handcuffs without blinking an eye. So if you are considering this approach, know that you will have to go in with the attitude of "only victory."

Long-term alternatives

In the long-term, there are several options, all involving a special kind of investment and a new way of thinking about recruitment and retention.

Companies are going to have to form partnerships with and reinvest in colleges and universities-through their students. As a corporate executive, you are going to have to take the initiative to create relationships with talented individuals.

Some of those relationships may include designing cooperative and intern positions that are attractive to the universe of students you wish to attract and then create career opportunities for them upon graduation. You may want to fund their education in the form of scholarships and grants or forgiving loans in return for a term of employment after graduation.

Companies may also create cooperative programs for students or work with institutions to define their curricula in order to assure a future pool of resources in selected disciplines.

Companies may mentor students in order to identify the best and recruit the brightest. They may also have to create entry-level positions that can compete favorably with other career options and then hire when the talent is available. You can't spend this kind of time and effort in recruiting only to put your new talent on hold until there is room for them somewhere.

Young professionals must come to work being productive from the outset. To make that possible, you have to start preparing them years in advance.

Once you enter the recruitment process, you must commit to and provide a career path. College graduates today won't wait for you. They want authority and responsibility, based on education, capabilities, and performance. If you can't give it to them, they will go elsewhere to find it.

For future executives, companies will also have to reestablish development positions internally and create ways to bring their people along once they are on board.

The packages you must craft in order to attract top executives will have to be more creative and flexible than in the past. The people you want may have children and working spouses, which means they have several considerations when confronting a job change or promotion. In addition to higher pay, you should expect to pay for performance and participation by employees in the company's success, either in the form of stock or other incentives.

Industry-wide solutions

The solutions cannot be just company-specific; they must be industry-wide. Industry must accelerate the process of identifying, attracting, and developing talent.

Without a comprehensive and strategic approach, one supported across a great number of energy-related businesses, it falls to individual companies to make this happen. And the ones with the best strategic plans will have the advantage.

Industry must also mount an aggressive private initiative to attract people to fields such as petroleum engineering and geology. John S. Herold Inc. notes that at the Colorado School of Mines, petroleum engineering and geophysics enrollment in 1996 was down 38% and 61%, respectively, from a decade earlier.

That means the human capital shortage will continue for several more years.

The solutions are many but will take a generation to realize. It's imperative for oil and gas executives and industry leaders to think in nontraditional ways when it comes to identifying and recruiting talent.

Recruitment is now a strategic issue. You must plan it as you would capital, equipment purchases, or exploration.