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Addressing the Energy Industry Talent Gap
AFPM Annual MeetingMarch 24, 2015
kpmg.com/energy
KPMG LLP
KPMG GLOBAL ENERGY INSTITUTE
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Media headlines depicting the state of employment in the energy sector are very different between 2014 and today.
Then…
“Construction for the oil, gas and petrochemical industries on the Gulf Coast will require about 36,000 more workers in 2016 than in 2013.”
“Tight Job Market in U.S. Cities Prompts Higher Pay”-Bloomberg, April 17, 2014
Gulf Coast Labor Market Analysis: Increasing Project Activity Continues Tightening Labor Supply
Source: Reuters News, March 19, 2014
Skilled Worker Shortage Threatens US$100-Billion in Energy Projects
Source: Bloomberg NewsMarch 7, 2014
A Retirement Wave and Technical Skill Gap Threaten Oil and Gas Company Growth and Profits
Source: New York Times, May 6, 2014
Price Decline Takes Toll on Oil, Gas Workforce
Source: USA Today, February 2, 2015
Three More Energy Companies in Texas Warn of Layoffs
Source: Wall Street JournalFebruary 2015
Layoffs Hit the Oilpatch, With Worse Yet to Come
Source: Forbes, January 14, 2015
Energy Layoffs Could Come Back to Haunt Oil Firms
Source: CNBCFebruary 10, 2015
And Now…
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
Conversations with industry executives indicate there is desire to approach talent management differently than in previous downturns.
Key Questions
• What can the industry do differently during this downturn?
• How can we position for long-term success?
• What leading practices can be leveraged from other industries and companies in talent management?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
The changing market can be positive for companies who are looking for premium job candidates according to a Rigzone survey.
50%22%More
44%12%
37%29%
Less
No Change
In the next 6 months, how will your hiring of oil & gas professionals differ with the previous six months?
January 2015
July 2014
January 2015
July 2014
January 2015
July 2014
Are candidates asking for more money as compared to 6 months ago?
JANUARY 2015
77% YESJULY 2014
61% YES
versus
How likely is your company to undergo targeted layoffs?
JANUARY 2015
36% LIKELYJULY 2014
11% LIKELY
Are you experiencing an increase in the number of applicants for open positions compared to 6 months ago?
54% REPORT INCREASE IN APPLICANTS
versus
47% REPORT INCREASE IN APPLICANTS
January
2015
July
2014
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
#1) Develop a talent management strategy
Develop a talent management strategy
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Research has shown a correlation between strong talent practices and greater shareholder return.
EBITDA16.2% 14.1%
Net ProfitMargin 22% INCREASE
Return onEquity >$340 ANNUALLY
Return onAssets 49% IMPROVEMENT
Source: The Hackett GroupResults for a typical FORTUNE 500 company (based on $19B revenue)
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Many companies in the energy sector lack a well-defined talent strategy.
Source: KPMG/Rigzone Survey, June 2014
Not Addressing At All
15%
Addressing, But Not Well
Enough29%
Moderately33%
Very Well16%
Leading Practice
7%
Respondents' View On Talent Strategy Within Their Organization
0%10%20%30%40%50%60%70%80%90%
100%
To What Degree Will Talent Challenges Impact Your Organization?
Significant Degree or Greater
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
A strong talent management strategy is aligned to the business strategy, and accountability is shared across the entire leadership team.
How will we win in
the future?
How do we manage
our talent risk?
How do we measure the impact on the organization?
How do we organize and enable our
talent ‘team’?
How do I pull all these unique
requirements into a talent plan for
the future?
PO
LITI
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MIC
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CIA
LTE
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NO
LOG
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EN
VIR
ON
MEN
TAL
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OFI
TABI
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NC
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US
TOM
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E IN
NO
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TATI
ON
STRATEGIC TALENT REQUIREMENTS
TALENT RISK MANAGEMENT
INVESTMENT AND MEASUREMENT
GOVERNANCE AND
INFRASTRUCTURE
YOUR UNIQUETALENT PLAN
ACQUIRE AND PLACE
DEVELOP AND CONNECT
ENGAGE AND RETAIN
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
#2) Utilize analytics for data-driven decisions on talent
Utilize analytics to drive decisions on talent
Develop a talent management strategy
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
A substantial amount of human capital data typically exists for analysis – the question is deciding where to start the analytic journey.
How do I retain my top performers?
How effective are my incentive programs?
What workforce mix do I need in
the future?
How do I determine who brings the most value to the
organization?
How do I proactively predict potential compliance or safety risks?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Case study: Retention of high performers
How do I retain my top performers?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
We can now have a reliable analytical model that can accurately predict which high performers are the highest retention risks ….
Scope:Using historical data, conduct advanced analytics on high performers to:
• Predict retention risk for each individual• Details on contributing risk factors• Identify “levers” that will have most positive impact on retention
Analytical models leveraged: • Logistical regression• Random forest• Support vector machines
Types of data (Not comprehensive):• Performance ratings, promotions and time spans • Level, organization alignment, supervisors• Geographic location (and proximity to their home office)• Years of service• Education demographics• Comp and benefit History (base, bonus, PTO)
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
…and the impact certain incentive levers will likely have on each individual.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
#3) Embrace diversity … of cognitive thought
Utilize analytics to drive decisions on talent
Develop a talent management strategy
Embrace diversity of cognitive thought
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
High performing companies view diversity of cognitive thought as a means to unlock innovation and address talent sourcing challenges.
“Specialists tend to bring an inherent bias to a problem, and they often feel threatened by new solutions.”
- Jonathan Rosenberg, Senior Vice President, Google
Source: http://www.cartoonaday.com
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
Several case studies exist that demonstrate how diversity of thought within a team has enabled organizations to achieve success.
Diversity of Thought: Searching for the USS Scorpion
• May 1968, U.S. nuclear submarine Scorpion disappeared after tour of duty in Atlantic.
• Massive search area = 2,500 miles wide in water depths exceeding 3 miles.
• After intense search and rescue effort, the Navy declared the USS Scorpion and crew to be “Lost at Sea”.
• Eventually, Dr. John Craven was put in charge of the recovery search. His approach was to build his search team “experts” by purposefully creating diversity of cognitive thought.
Case Study
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
17
The final estimate of the submarine’s location took into account the diversity of thought of the entire team vs. the smartest individuals.
Potential Scenarios
Scorpionrecovered within 220
yards
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
• Build classes into formal curriculum• Target leadership, starting with mid level managers• “Quick Hit” - recognizing “Unconscious Bias”
• Expand campus recruiting to “non traditional” degree tracks (i.e., liberal arts, biology, etc.)
• Create new job roles based on desired future skill needs (i.e., data scientists)• Leadership accountability to support hires and develop compelling career tracks
• Crowd sourcing to capture and disseminate operational improvement ideas upward
• Gamification to reward and incentivize individuals for sharing innovative perspectives and ideas
Leading companies are building diversity of cognitive thought into their organization by incorporating a few key tactics.
Incorporate thought diversity into training
programs
Hire the unconventional
candidate
Leverage emerging technologies to gain multiple perspectives
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
19
Utilize analytics to drive
decisions on talent
Develop a talent management
strategy
Embrace diversity of
cognitive thought
• Align talent strategy with business strategy• Accountability shared across all levels of leadership • Key components: Business strategy Risk management Investment and measurement Governance and infrastructure
Examples of high-value use cases:• Predictive modeling to improve forecasts as inputs to workforce
planning• Retention algorithms to proactively predict high performers who may
be at risk for leaving company• Quantify the value of top performers
• Incorporate diversity of thought into learning and training programs• Hire the “unconventional” candidate• Leverage emerging technologies to gain multiple perspectives
Opportunity lies in adversity, and those companies that respond with innovative approaches to talent management will most likely reap greatest rewards
kpmg.com/energykpmgglobalenergyinstitute.comkpmg.com/socialmedia
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Publication Name: Addressing the Energy Industry Talent Gap
Date: March 2015
kpmg.com/app