When one crisis meets another: Focusing on talent for the long term
Assessing talent risks
With the spate of payroll reductions and project postponements that have come in the wake of falling oil and commodity prices, energy and natural resources (ENR) companies may be lulled into thinking that their talent crisis has been solved. If it were only so easy. The talent shortage that has challenged the industry for over two decades is still very much a concern. To truly resolve it, industry executives need to give talent as much attention as they did when the price of oil was over US$100 per barrel.
It is true that the low price of oil has led to the suspension or postponement of some projects. It is also true that many companies have announced extensive layoffs as they search for savings in the face of declining revenues. But the industry has a history of overlooking issues related to its talent needs; long-term strategic planning has not been the priority for many companies, and most short-term strategies have fallen short in solving the problem. This unintentional neglect has led to significant shortages, inflated salaries, the overuse of third party contractors and widespread poaching. It has also left the oil and gas sector a step behind other industries when it comes to attracting talented people in the millennial generation.
Failure to implement a long-term strategic plan for talent means incurring a range of needless business and organizational risks (see Figure below). Assessing and quantifying talent risks can be extraordinarily complex but in the experience of our professionals, those risks are real.
Take payroll reduction as an example. Anthony Lobo, Partner, Transaction Services, and Head of Oil & Gas for Europe, Middle East, and Africa (EMEA) and Asia Pacific, KPMG in the UK, points out that layoffs can have unintended negative consequences: “The projects that will be most impacted are those high-cost, highly technical projects that require the very best talent. For companies, the challenge will be in redeploying that talent to profitable ends. We may see them moved to existing marginal fields to see if these can be made more viable.”
When companies don’t plan properly, they are forced to scramble for scarce talent. Our interviews revealed that recruiting skill is very much a cross-border practice. Engineers from Asia are working in South America; African operations are populated with technical people from Europe and North America. That trend comes with a hefty price tag for relocation and migration.
Equally common, and just as expensive, is the practice of poaching, when talent goes to the highest bidder. The advantage is that the receiving company gets the exact skills and experience it needs. Robert Bolton points to the disadvantage: “If everyone starts doing it, it can develop into a war of attrition and is perhaps less effective except for those who get first-mover advantage. If you move into a ‘tit-for-tat’ situation, no one wins.”
Although the industry is increasingly global, with most big energy companies operating
on every continent except Antarctica, some aspects of the talent crisis are distinctly regional. Specifically, our global partners told us the following:
- Demographic problems such as early retirement are more acute in North America and Europe.
- Branding is of less concern in Latin America. According to Manuel Fernandes, Lead Partner, Oil & Gas, KPMG Auditores Independentes, KPMG in Brazil, “Here, the energy sector is considered a good place to start a career.”
- The oil price drop is having the greatest impact in high-cost areas such as the North Sea. The situation in the Middle East is more stable, and Asia is also strong.
- Companies operating in Africa have unique challenges, according to Anthony Lobo: “In west Africa, the issue of local participation is emerging as a political issue. Governments want more work to flow to local suppliers, but many of these suppliers lack the technical skills. Talent isn’t the issue; there are plenty of young, bright, ambitious engineers on the continent. But there is a shortage of leaders to help train them and bring their skill levels to where they need to be.”