The workforce challenges faced by the oil and gas industry are well-documented and a frequent topic of discussion both within and outside industry circles. Those challenges include an aging global population with many experienced employees having recently retired or planning to do so in the near term, a geographic shift in where employees are needed, and fewer new engineers seeking jobs in the industry.

Ernst & Young’s 2008 Strategic Business Risks report found workforce issues to be the number one risk facing today’s oil and gas companies. A recent survey by Ernst & Young and Rice University confirmed the extent of the struggle companies have undergone to recruit, retain, and develop a sufficient number of employees in recent years. Nearly 90% of senior HR executives at 22 top international oil and gas companies believe their industry faces a talent void and call the problem one of the top five business issues facing their companies.

The pursuit of recruits

In describing the workforce shortage in their industry, most of the oil and gas HR executives surveyed acknowledged difficulties in recruiting executives, management personnel, and especially engineers. In fact, more than a quarter of the executives found it “extremely difficult” to hire qualified engineers.

The effects of the shortage of qualified workers have already begun to ripple throughout the oil and gas industry. More than half of the executives surveyed feel the talent void could hinder corporate growth as a result of an inability to staff projects, with a small minority calling these potential problems “significant.”

Impact on other performance areas

Workforce shortages can affect other aspects of corporate performance. When a workforce is stretched thin, there are fewer resources available for research and development. Forty percent of the HR executives thought the talent void could hamper innovation. The same percentage cited its concern that this industry issue could impact safety and operations negatively.

According to the findings, the greatest threat to recruiting and retention is industry competition. Respondents ranked competition from peer companies an eight out of 10, with 10 representing a major challenge.

Also nearly unanimous was the industry’s response to the challenge of increased compensation. Almost half of the HR executives worried that rising labor costs would pose problems for the financial performance of their companies.

Opportunity to differentiate

While compensation is important, the survey results show there is a real opportunity to do something different, stand out from the competition, lure new recruits, and create loyalty among existing employees. The first company with a truly unique, step-out strategy could position itself as the leader in a highly competitive recruiting and retention environment.

So what are the potential “break-out” approaches? How can an oil and gas company set itself apart from the competition and rise to the top of the recruiting ladder? There are several new approaches to organizational structure and recruiting and retention tactics that companies can adopt to more effectively address the talent void.

Organizational

Before getting new recruits in the door, HR departments need to take a look at their organizational structure to maximize its effectiveness.
Adopt a hybrid HR organization. Hist-orically, the organization of HR in the oil and gas industry has oscillated between centralized and decentralized models. Today, we see companies gravitating toward greater centralization. By managing, defining, and coordinating some HR processes on a more focused level, companies can reduce the duplication and inefficiencies associated with decentralization.

Redirect energies from process to strategy. By centralizing key processes, companies will free their best strategic HR professionals to focus on workforce challenges. Top HR professionals can then devote their time and energy to training and development strategies that will help their firm become the employer of choice and weather workforce challenges.

Improve coordination and communication. The survey found more than 50 percent of HR executives called “lack of internal coordination” one of the top two challenges they faced in recruiting. In addition to repositioning current HR talent, oil and gas companies can also benefit from hiring regional recruiting directors and taking other steps to increase cross-division collaboration on recruiting matters.

Recruiting

To develop a new, younger base of employees to fill the void created by today’s retiring workforce, companies would be well-served to adopt recruiting strategies that appeal to Generations X and Y.

Recruit in bulk. There is a great opportunity for oil and gas companies to change the way they recruit new employees. To ensure a full pipeline of new recruits, companies could consider acting like a university and recruiting in bulk. Accept applications and start new “students” every spring and fall. This strategy also provides an opportunity to train new recruits on the best practices of the company in any given division.

Keep it interesting. Gen X- and Y-ers are attracted to diversity and change. In order to catch the attention of these younger workers, incorporate assignment reviews into your offers. Re-assignments, with new work locations, may make the opportunity even more compelling for these groups.

Create an inviting culture. For the most part, the oil and gas industry is considered to be traditional and conservative, while other industry sectors such as high-tech enjoy a more dynamic reputation. There are, however, a variety of opportunities to create an appealing culture within oil and gas companies. Align your organization’s values with your people’s values. For example, offer incentives to employees who conserve energy by walking, biking, or taking public transportation to work. Adapt your location to your workers’ needs by offering child care, bike storage, exercise facilities, and other amenities to make workers’ lives easier.

Tout technology. The industry could and should do a better job of trumpeting the high-tech nature of its work. For the most part, new generations of workers see the industry as staid and slow-moving. In fact, the industry is changing rapidly due to advancements in technology made in exploration and production throughout the world and in harsher, more challenging environments.

Retention

Investing in employees’ continuing education demonstrates a company’s commitment to its workforce. Cross-training employees also helps ensure the company’s long-term ability to staff projects, which is important now that the industry is moving into more challenging and geographically remote areas to explore and produce oil and gas.

Leverage older workers’ knowledge. Be creative in retirement arrangements in order to retain intellectual capital. Consider slower, phased-in retirement arrangements and re-enlist retirees as part-time consultants. Bringing back or retaining older, more experienced workers creates a window of opportunity to mentor new recruits and, over time, ensure effective knowledge transfer.

Invest in culture and language training. Oil and gas companies, in an effort to address the costs of expatriate employees in their global operations, have turned their attention toward hiring a more local workforce. This has helped reduce overhead, but it also has created issues with language barriers and miscommunications as expatriate managers try to bridge the cultural gap with their local workforce.

Corporations could assist in preparing these expatriates by arming them with the cultural and linguistic skills necessary for success.

Train workers throughout the globe. Nearly three-quarters of the HR executives surveyed agreed that the need for training has increased due to changing workforce demographics. Despite the complexity involved in delivering training programs across the globe, the need for global training has never been greater. Now more than ever, companies need to place a high priority on executing training and development activities.

The views expressed herein are those of the author are not necessarily the views of Ernst & Young LLP.