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HR Handled Right

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It’s been a tough time for energy executives. The difficult operating and hostile work environment over the past two decades has forced many industry leaders to adopt a “siege mentality,” responding to the extreme volatility with a frenzy of consolidations, mergers and downsizings. Since 1982, the 25 largest oil companies have let go of more than 1,000,000 employees. The Enron scandal certainly hasn’t helped.

Unfortunately, as a result, the energy industry has lost some its glow to potential recruits and existing employees. Not that this industry is alone in its tarnished image; in a recent survey of 215 companies from a multitude of industries, 75 percent of the executives said trust in the workplace has declined. This same study found a direct link between employee trust in top management and staff morale and productivity

What is unique to the energy industry is that the increasing lack of employee trust and loyalty couldn’t have come at a worse time. Industry research consistently shows that it takes 7 years for a new employee to reach full productivity. In the next years, the energy industry is posed to lose some of its brightest and most experienced workers:

  • There are currently less than 600 students enrolled in petroleum engineering.
  • The geosciences workforce has a median age of 46 years, with only 16 percent under the age of 35.
  • Upstream oil and gas companies will lose more than 60 percent of their experienced employees by 2010.

Yet, while human capital in the oil industry is declining, market demands are accelerating. Market demands and geological limits will put increasing pressure on oil and gas companies to produce more petroleum products, from more difficult locations, faster. By 2005, 180,000 megawatts of new, gas-fired power plants will be installed to generate electricity (Solar Today, July/August 2001. p. 38), increasing the demand for natural gas by 20 percent. Taken together, these factors indicate a vital need for energy executives to find ways to capture the existing knowledge of experienced workers, to develop strategic recruiting and retention strategies, and to repair the leadership trust gap.

Crisis Management: Protecting Against Brain Drain

A survey by Cap Gemini Ernst & Young’s Center for Business Innovation survey showed that over 1/3rd of an institutional investor’s valuation of a company is based on non-financial elements such as regulatory/legal compliance, non-financial performance indicators, and community service.

The troubling employment trends offer energy executives an opportunity to create a learning environment (instead of a hostile work environment) that capitalizes on existing knowledge and, in the long run, will attract and retain key employees. Energy companies must take these steps to continue a sustainable business and protect themselves against the loss of valuable knowledge when experienced workers leave or retire.

  • Identify and understand what the company’s current knowledge base, including where and when it needs to be leveraged
  • Identify gaps between where knowledge exists and where it is needed
  • Develop knowledge capture and access strategies to ensure that information is available
  • Develop formal and informal knowledge transfer systems that focus on specific learning and performance outcomes

Tackling the 3 R’s: Risk Management, Recruiting and Retention

Luckily, the same tactics that strengthen recruiting and retention are key strategies for buffering companies from unnecessary employment liability. For instance, employees inevitably leave an organization for one of two reasons; an interpersonal conflict or the lack of development. These are also the two most critical determinants of employment litigation.

By coordinating risk management, recruiting and retention efforts, executives can obtain multiplicative results for less cost. This will initially require a greater investment in the development of new hires and emerging leaders.

For example, hirings and promotions must take into account interpersonal skills as well as technical competence. A mandatory management development program must incorporate communication skills training as well as an understanding of the legal liabilities inherent in a management position. Given the fact that 45% of voluntary termination decisions are made during the first 90 days of employment, a new hire orientation program might incorporate a short-term mentoring relationship, an overview of the corporate policies and procedures, and the development of a performance agreement.

Bridging the Leadership Trust Gap

Finally, energy industry executives can play a personal role in bridging the leadership trust gap. Research has consistently demonstrated that effective business relationships are based on predictability, reliability, and consistency of behavior. To the extent that top management communicates clear expectations, follows through on commitments, and provides clear explanations for decisions, employees will see them as credible and trustworthy. Employees have respect for leaders that make tough but fair decisions, and then communicate the “what” and the “why.” When employees are not given honest and consistent explanations, they make up their own reasons – and often these reasons are inaccurate.

Most importantly, energy executives are the key to inspiring employee loyalty and commitment and preventing a hostile work environment. When leaders are visible and communicate shared goals, common interests, and clear motives, they inspire the emotional bond that is the foundation of employee morale and organizational commitment.

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