When it comes to today's bottom line, these are the best of times in the oil and gas industry. Because of greater world demand and geopolitical conflict, worldwide oil prices are higher than ever. Exploration and production opportunities that were once not financially viable are now attractive because of the high prices. Margins for refining crude oil into gasoline and other by-products is also strong in today's environment.

The industry is not without its challenges. As you may know, we work with a number of Human Resources (HR) clients and Information Technology (IT) clients. Both of these key support functions are under a lot of pressure from business units/functions to deliver value these days because of the following challenges:

  • The workforce in the industry is aging. Over the last 15 to 20 years, the industry focused on a cost structure that would deliver profitable results in both the cyclical pricing peaks as well as low price valleys. They kept their most talented/experienced geotechnical people but reduced the hiring of inexperienced engineers and scientists who would need to have their skills/expertise developed over time. They also reduced staff aggressively during periods of price softening. Now much of their intellectual capital (knowledge) is with geotechnical employees in their 40s and 50s. Many companies are now trying to hire more Generation X and Y geotechs in their 20s and 30s and provide them with the development they need.
  • The demand for competent geotechnical engineers and scientists is very high right now. I have heard this referred to as a "War for Talent." In response, companies are doing more to retain their people. As a result, people costs are increasing along with the cost of services and equipment.
  • Technology advances have resulted in an explosion of data. IT groups are challenged with advancing data management to increase availability, accessibility, and utilization of the data.

People Capacity Challenge

The industry is facing and will be facing some significant "capacity" challenges. Most business leaders in the industry will tell you that the availability of competent, key people is their greatest challenge in taking advantage of attractive exploration and production opportunities. Yes, there will be constraints on the availability of equipment and capital but the primary obstacle to growth and sustainable production is the capability and availability of competent people to generate revenue - the "people capacity challenge."

The capacity to generate revenue in an oil and gas company is impacted by the number of competent people available for exploration, development and production of oil and gas (People Capacity). For example, the number and pace of exploration wells to be drilled will be greatly impacted by the number of geoscientists, drilling engineers, etc. But People Capacity is not just about having the right number of people (recruiting and retention challenges), it's also about making those people capable and available (skill development, process efficiency/quality and good technology/tools).

People Capacity is like manufacturing capacity. You want to have enough for what you need while avoiding the unnecessary cost of overcapacity. The challenge in oil and gas is to have the right number of people to generate revenue while the organization's needs are changing -- more people retiring, greater number of attractive exploration opportunities, etc.

Although this article deals with the people capacity challenges that many large oil and gas companies face, many of the same challenges exist for companies in other industries that have the same age demographic challenge combined with a growing market for their products or services. If you are in one of those companies, then I would expect that you can consider the information below as a case study that can be applied in the same way to your company and industry.

Examples of People Capacity Issues

  • A geophysicist with a large oil and gas company told me that their IT group has been under stringent cost constraints -- so much so that he had to spend his time going to a local computer store to outfit his hardware properly to run the applications he needs to help the business find, develop and produce oil and gas. He also said this is not a special case or a one-time thing. How can the Geophysics function deliver valuable knowledge and analysis to those executives making decisions to explore, develop or produce when their capacity is limited by poor IT support? What cost is greater - 1) the cost of additional IT support, 2) the cost of a geophysicist purchasing/installing hardware or 3) the cost of geophysicists not being able to provide their analysis as timely as expected to business leaders? Should HR, IT and the Geophysics function leaders be collaborating on this issue together? I heard a similar story from a Subsurface Projects manager in another large company. This person communicated that with a highly centralized, outsourced IT environment, it now takes 4+ weeks for new, highly-paid employees/contractors to get computers and gain access to the appropriate files and folders they need. This is not just an IT services issue. It's an organizational effectiveness issue where HR should be at the forefront, collaborating with IT to help the business client resolve this issue.
  • Sarbanes-Oxley legislation has caused one of the most resource-intensive compliance efforts in major corporations that I can ever remember. Although this regulation may be positively impacting public perceptions about the reliability of financial statements, it is likely having a negative impact on People Capacity. Should there be more of a healthy challenge of the tradeoff between reduction of risk from greater internal controls with the possible risk of lost revenue because of more limited people capacity? It is becoming a more accepted and recommended practice by many organizations to have business process owners i.e. business leaders have ownership of the process design, the related controls and accountability for the testing results. Although this concept makes sense from a compliance perspective, what impact will it have on the People Capacity if technical and production personnel are spending more of their time on compliance (and diverts their focus from value producing activities)?

Why HR and IT Need to Partner

Increasing your collective employee capacity to generate revenue (People Capacity) should be a common goal for the enterprise -- one which HR and IT share in serving their common client business units/functions. People Capacity is not just a people challenge. It's an organizational capability challenge -- that can be impacted by hiring competent people, retaining competent people, developing competency in the people you have and having processes/technologies that maximize the collective organizational capabilities of those people to focus on the oil and gas opportunities available today. Those who can flex their capacity or have even unused capacity will be the winners.

In addition, if costs in the industry continue to increase and margins become less favorable, the companies where HR and IT collaborate effectively will be more competitive with their productivity and people costs.

My Unique View

I would like to think my view of HR and IT is unique because I provide consulting to both functions. Both of these support functions deliver value to their clients by helping make people and processes more effective/efficient. IT can't deliver as much value for their clients through better technology without considering how people will adopt it and use it. HR can't deliver as much value through attracting, retaining and developing people if they don't leverage technology to make internal organizations effective for their clients. Since I am a consultant with an independent, objective view, I see how HR and IT can operate in silos and don't see the enterprise value they can provide through HR/IT integrated projects and solutions. The days have been long gone of the group that focuses on bits/bytes vs. a group that focuses on people/administration. But maybe it's time to step back and look at how they can serve the same client collaboratively when there are opportunities.

Opportunities for HR and IT to Work Together - To Increase People Capacity

The following are just a few opportunities where larger oil and gas companies can increase People Capacity through collaboration between HR and IT. I recognize that these ideas probably don't fall into the category of "traditional" but should provoke some thought for those having a stake in dealing with people capacity challenges:

Process Improvement

Process improvement projects (including Six Sigma) are really about taking a workflow, defining it, measuring failures/inconsistencies, identifying ideas for improvement, designing/mobilizing/implementing the improvements and measuring/monitoring progress. Business processes really need to be owned by the leaders of the function or operating unit. The IT group can play a big part in these efforts because they can be a process improvement enabler through tools and technologies (software and automation). HR often is also a significant process improvement enabler by helping leverage the contributions of people (clarification of roles, improved communication, career development, etc.) At a minimum, I could see HR, IT and the business function/unit lead meeting to discuss needs for process improvement and chartering an effort when it would be a worthwhile investment of time and money.


It would seem that IT and HR might be able to help the business process owners improve their processes, automate compliance activities, clarify roles and responsibilities for compliance and examine the people capacity impact of the additional compliance work requirements. They need to consider alternatives with SOX leaders that will lessen the impact on People Capacity while still achieving compliance objectives. I am not suggesting that compliance to Sarbanes-Oxley be sacrificed at all. I strongly believe that business leaders (not just financial leaders) should own the processes, the related controls and be accountable for testing results. Ownership and accountability create reliability. SOX leaders and consultants will tell you that some business leaders quietly or openly resist this ownership especially in times when people capacity is limited. One SOX leader described the benefit of having business leaders involved in the process documentation phase, "Our experience has been that the more attention spent on the documentation by business process owners, the fewer the control issues in the audit."

At one of my clients, IT has a seat at the leadership table of the SOX Steering Committee. I have challenged HR to get a seat at that table also because they are advising their clients about organizational effectiveness and human capital strategies. If IT and HR can collaborate on this issue, there is a real opportunity to balance SOX compliance requirements/risk with overcoming people capacity challenges.

Identity Management

When sharing my ideas for this article with one of my CIO clients, this person quickly challenged me with "What's missing is the discussion regarding Identity Management. It is a major issue for many large companies. If we want to get to the next level, i.e. workflow-driven environment where the roles and responsibilities are transparent, effective Identity Management will allow IT to deliver solutions based on those workflows and roles."

Now I wasn't very familiar with the concept of Identity Management. Being involved with this client, I have heard the IT leaders make reference to "IM." I always thought they were referring to Information Management. So I did some research of the Identity Management concept and in addition to learning that not all acronyms (IM) are as they appear, I also learned that one definition (according to Oracle) for Identity Management is "Who has access to What, When, How and Why." Identity Management systems customize access to application and data based on the employee's/contractor's role -- to result in the faster and better utilization of the right data and the right applications for the right business need. Definition and transparency of workflows/roles are key. In many ways, it automates or standardizes the process of granting access but more importantly it increases capability through better access to the data and applications needed.

Think about the comment above from the Subsurface Projects Manager describing the 4+ week delay between when an employee/contractor arrives and when they receive a computer. Some of this issue is likely due to a centralized, lower-touch IT outsourcing model which makes the process of granting access quite slow if Identity Management is not automated or standardized.

How can HR and IT impact People Capacity through an Identity Management initiative? Let's take Reservoir Engineers for example. Their primary role is to help the company optimize recovery of oil and gas reserves. They are often responsible for performing reserve evaluations to estimate reserves and recoveries. There may be a documented workflow and maybe it highlights the data utilized and those that participate in the reserve evaluation. I would guess that the data will come from many sources including the fields being explored as well as fields with similar characteristics. Identity Management could help make the data accessible and available for the reservoir engineer and also help link up the applications and workflow so the reserve evaluation can build in some standardization/consistency where appropriate. If IT and HR were to collaborate on this, IT could help the Reservoir Engineers define their workflow and applications/data requirements while HR could ensure that roles/responsibilities are defined. Then the Identity Management systems could result in faster granting of access and introduction of new technologies that will improve the reserve evaluation.

Barriers to Collaboration for HR and IT

I realize from the outside looking in, from my consultant vantage point, that collaboration between IT and HR seems natural because of their common challenges today. However there are some likely barriers to this collaboration:

  • There may not be enough of a "burning platform" for anyone to want to take the lead on this issue. The executives with single point of accountability over those functions (VP of HR and CIO) will need to debate whether diverting resources to this collaborative effort will deliver greater value than their many sponsored priorities for their functions.
  • Because HR and IT tend to have different cultures/styles and because goals have traditionally not been common, collaborative breakthoughs will not likely occur until the people gain a level of trust with each other and an understanding/acceptance that their objective is common
  • Traditional mindsets exist that label projects as a technology or people project/initiative. In many cases, HR and IT initiatives often can or should include technology AND human capital improvements. Participants in any collaborative effort will have to break away from those mindsets to consider a mindset for integrated people capacity building projects.
  • This collaboration will expand the responsibilities within IT and HR and would therefore also result in increases in headcount within those functions. During this period of rising costs, many business leaders don't want to create a support cost model that will not be sustainable during a period of lower prices.
*      *      *

As I review what I have written in this article, I realize that some of you may read it and say, "Goodfriend is way out there with this one." Well, maybe I am, but my hope is that this article has at least helped you think about people capacity in a different way. Maybe after some thinking about it, you might be able to lead or influence an effort to increase people capacity.

© Michael R. Goodfriend, Goodfriend & Associates, Inc., 2006

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