From its recent peak of US$115 a barrel, the Brent crude oil price had collapsed to a level below the US$50 mark by late January 2015 causing the existing resources to become more costly to access and skilled people even more difficult to attract, according to Chris Shennan, global head of oil and gas consulting at Hay Group
Shennan said, “In an environment where prices may continue to fall further in the first half of 2015 before potentially starting to move up in the second half of 2015 — what are the key people issues on the agenda of industry executives and how should they respond?
“Of course, pay and engagement are always on the list and times of intense price pressure bring unique challenges to these areas. But there are two areas that are climbing the list of priorities — whether and how to restructure and whether mergers and acquisitions are on the horizon.”
A healthy organisation
"Inevitably in times of global oil price dip, organisations look to re-assess their structures. Too often, we see decisions made on gut instinct resulting in across the board reductions. The more rational approach is to assess where efficiencies and effectiveness gains are possible through better decision making,” he noted.
According to the global head, in times of high oil prices, organisations allow a greater focus on maintaining talent structures than the needs of pure efficiency.
“This relaxed tendency shows itself in a number of ways. First, the average span of people control for managers in the organisation reduces, meaning more managers are needed that would add cost and more layers are required, which would slow the speed of communication. Our efficiency models show that in an organisation of 200 frontline supervisors, increasing the average managerial reporting line from four to six reports per manager can remove a level of management and decrease management headcount from 68 to 41. Secondly, there is the issue of who’s reporting into whom in the first place,” noted Shennan.
“Here, people and roles tend to merge. Having defined what the boss is accountable for, organisations have to assess the relative contribution of their direct reports. You can divide responsibilities narrowly amongst many or broadly among few. The key is to avoid replicating the same skill and experience that exists in the boss,” he added.
Finally, it is essential that decision-making responsibilities are clearly defined and absolutely clear, stated the global head. “People need to understand when they should make decisions and have the freedom to do so. Matrix structures can aid the decision making process but too often we see badly designed ones building in cost without clarity, which is a dangerous combination,” he said.
The urge to merge
A collapse in oil prices in the early 1980s and again in the late 1990s generated a wave of industry consolidation. BP acquired Amoco, Exxon merged with Mobil and Chevron purchased Texaco.
“Most 90-day deal implementation plans aim to achieve quick wins by integrating ‘hardwiring’ – the tangible assets such as IT, financial systems and property portfolios. Yet as history shows us, most of these acquisitions will fail to achieve their original objectives, often because parties tend to underplay or not fully understand the intangible assets of people, culture, structure and capability,” noted Shennan.
It can be tempting for companies to simply slash costs wherever possible, but only those who take a more measured and focused approach would survive the global dip in oil prices, concluded Shennan.
