The Oil Industry's Inevitable Worker Shortage - and Six Steps to Prepare your Business

Thursday, October 09, 2014

The Canadian energy sector is facing the largest talent shortage in history, yet many organizations are either unaware of it, ill prepared, unsure how to tackle it or are too busy dealing with other issues. Why? There are some valid reasons. But there is also complacency and some traditional thinking that needs a dramatically different view. Like it or not, the talent crisis will soon start trumping every other business issue. These stakes are high and companies may soon start to flounder unless they face reality and get proactive. And it’s not just an HR issue. It’s very much a strategic issue and needs the full attention of the executive suite.

Technically speaking, the talent crisis/global skilled labour shortage is the growing gap between the diminishing supply of available, qualified people and the increasing demand of employers trying to grow their businesses. This crisis has been created by the perfect storm of demographic trends including baby boomers beginning to retire in vast numbers; far fewer Gen-X workers to replace them; rapid technological change that demands workers with new skills; an increasing global demand for skilled labour in developing countries; and generational differences in the work place.

Lots of research shows why these people trends are now being called a crisis. Data from the Pew Research Center revealed that 10,000 baby boomers will reach age 65 every day during the next two decades. And according to Statistics Canada, the Canadian workforce will decline by more than one million people between 2011 and 2021!

Economists and business advisor's alike have been sounding early warning alarms for years but senior leaders have been slow to react. In 2011 Ernst & Young’s Oil and Gas team surveyed and invited HR leaders and executives from several oil and gas companies in Calgary to discuss HR challenges. Among the many issues these executives faced, they agreed that the talent issue was the most pressing and described it as “a looming demographic and labour market crisis in the oil and gas sector that has the potential to shake the very foundations of the industry.” They went on to say that “the nature of the problem we are seeing in the last one or two years is deeper and more systemic than anything the industry has grappled with before.” That was three years ago—the same year boomers started turning 65.

How will the crisis affect the Patch?

According to Cambridge Energy Research Associates (IHS CERA), more than half of all oilfield professionals will reach retirement age in the next eight years. The Petroleum Human Resources Council of Canada says the oil and gas industry alone expects to lose as many as 44,000 workers through age-related attrition by 2020. According to a 2012 report on Succession Planning by the Alberta Government, 190,000 Alberta workers will retire by 2022. The Alberta Occupational Demand and Supply Outlook predicts a shortage of 96,000 workers by 2023.

A 2012 Odgers Berndston report titled Canadian C-Suite at a Crossroads reported some survey results that illustrated a surprising lack of attention to these demographic changes. They showed that despite the fact that over 60 per cent of senior executives are between the ages of 50 and 59, and despite the fact that nearly half of all Canadian organizations anticipated losing one in five of their executives by 2016, nearly half of businesses lack a succession strategy. And worryingly, 90 per cent believed that the next generation of leaders was not ready to take over.

The data showing skilled labour shortages and loss of leadership is only one side the story. The other side is about growth in the energy sector and the pent up demand for huge numbers of workers for oilsands growth and for large delayed pipeline and LNG projects.

For example, a forecast by Calgary Economic Development showed that demand for geoscientists in Calgary will increase 34 per cent from 2010 to 2020 but a separate report predicts that nearly 30 per cent of geoscientists and 25 per cent of engineers will retire. These are seismic shifts for our industry. And those are just two professions.

Lack of preparation
In his 2012 book, Surviving the Talent Exodus, John Grubbs took a blunt view on companies’ lack of preparation to the talent crisis when he wrote: “How can an intelligent and capable CEO be so clueless? How can a company be so blind to pending challenges?

No right-minded, competent executive will ignore these trends if they truly understand the pending impact on their bottom line. Yet over and over, brilliant leaders inform me that they haven’t thought about the impact generational trends will have on their company.” And very recently the Boston Consulting Group described the crisis in human capital as “scarcely noted, let alone managed.”

We don’t think energy executives have been blind to the talent crisis, but perhaps they’ve been blinkered while focusing on other economic, market and operational challenges - since the global recession, recovery has been slow. As a result the requirement for managers, professionals and skilled labour is not rapidly increasing. Yet.

Another reason for ignoring the trends is that recent layoffs in the oil Recruiting patch have masked the onset of the skilled labour shortage and added people to the available labour pool. Add to all this the delay of several large pipeline projects, which means a postponed demand for a huge volume of skilled workers.

But a more grave danger might be from the complacency due to some traditional mindsets about recruiting in the oil industry and Calgary in particular. These long standing views have discounted the growing storm of the talent crisis. As you know, the energy sector has traditionally recruited from its competitors with ease, especially in Calgary with its concentration of exploration and service company offices in the downtown core that makes it easy for top talent to move to another company with little or no personal disruption. If businesses assume that they will be able to continue poaching talent from other companies they are snoozing towards a rude awakening. As Ernst & Young pointed out: “While all industry sectors will continue to grapple with these tectonic shifts, Calgary’s oil and gas industry is likely to feel them most deeply.”

The major problem is that hiring from another company does not increase the total pool of talent that has started to shrink. So this reliable tradition has now become a zero sum game where nobody wins.

And that’s not all. If you’ve been recruiting people from other countries, guess what? The skilled labour shortage is being felt worldwide, so those countries will soon have shortages too. If you plan to increase compensation packages to hire good people be prepared that your competitors will do the same. Many of these new people problems can not be solved with old solutions.

What if nothing changes?

Several serious and interrelated consequences will develop if nothing changes, including:

As executives retire, companies will lose their leadership, business experience and acumen, strategic thinking and so many other senior level qualities
As leaders, managers, professionals and skilled trades people retire they will take vast amounts of critical knowledge with them
Good people will become much harder (and sometimes impossible) to find, from experienced managers to skilled trades
Competition will intensify for increasingly scarce talent at all levels of your company so it will take much longer and cost far more to hire new or find a replacement. This means down time, lost productivity or project deadlines being missed
Salaries and hourly rates will increase even further above the national average
With increasing competition, turnover will escalate as will the associated (and usually underestimated) turnover costs
As the war for talent escalates, jobs will be filled with well intentioned people but with inadequate skills or experience to perform their role
Less experienced managers and leaders (especially when people skills are lacking) will create declining employee engagement, performance and productivity
Left unchecked, the talent crisis will trump every operational, financial, economic and market challenge. Profits will decline if historic solutions are thrown at the problems rather than planning for more systemic business solutions. That’s why it’s no longer just an issue for HR. The talent crisis needs the attention of the C-Suite because it’s business-critical.

Exodus Despite the undeniable trends and a lack of attention to the talent crisis, several companies and oil and gas industry organizations have been working on creative solutions. These include hiring from and training underrepresented groups such as aboriginal Canadians and trying to attract and train what are known as mid-career transitioners from other industries across Canada. Other helpful approaches are partnering with universities, partial retirement for boomers, more flexible and engaging work environments, and innovative ways to increase productivity.

We believe that some of the most effective solutions are close to home and focus on significantly improving efforts to retain, train and develop your existing staff. If you’re facing a war for talent, you better be good at keeping the people you have, especially those roles in highest demand, and including your managers, mission critical employees, high potentials and your future leaders.

The talent crisis will affect different companies in different ways. It has complex consequences.

If you’re not yet sure how to tackle it, here are six tips for successfully preparing your business:

Get real about your risk. Assess your current and five-year weaknesses and gaps to establish your starting priorities for better workforce planning.
Increase your focus on retention, especially of top talent, managers and future leaders
Get ahead of succession and start to plan deep into your organization
Accelerate the development future leaders
Challenge assumptions and check your existing practices. Get more innovative and flexible (Ask yourself: How can you attract younger generations into the energy industry despite remote offices, working in the field and a perceived lack of social/environmental conscience?)
Optimize the generational differences in your workforce, especially by accepting and understanding huge potential of Millennials (current age 14 to 33)

This article first appeared in Oilweek online October 9, 2014.