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Rigid oil company management could crush recruitment, innovation - McKinsey
December 1, 2017 / 3:22 PM / 14 days ago

Rigid oil company management could crush recruitment, innovation - McKinsey

LONDON (Reuters) - Oil and gas companies’ rigid structures are putting them at a disadvantage to other industries, according to at McKinsey study, threatening to knock recruitment, worker retention and returns to investors.

In a survey of “organisational health” - a kind of stress test for company resilience and workforce well-being - the management consultants found that oil and gas companies scored worryingly below the global median average.

Unless oil and gas companies adapt, “they’re going to find it increasingly hard to compete, both in performance and the war for talent,” said Christopher Handscomb, a McKinsey partner.

The survey included staff at all levels of roughly 30 companies, from “supermajors” at the level of ExxonMobil and Shell to national oil companies to smaller integrated players. McKinsey declined to specify which companies were involved to protect their clients.

Oil and gas companies scored particularly poorly on leadership and innovation, the survey found, flagging worries that they are not allowing workers to grow in their roles - a key problem now that top energy companies compete with the likes of Apple and Google for the brightest workers.

One issue, Handscomb said, is oil companies’ top-down, standardised operations for everything from refinery maintenance to the structure of meetings.

“Almost by design, it squeezes out bottom-up innovation,” Handscomb said of the structure.

The report found that the median organisational health index of the oil and gas company sample came in four points below the average of all companies surveyed.

Sectors that did well included scientific and consulting firms and multi-sector conglomerates.

While energy companies’ structure is designed for the unique safety concerns of an industry working to prevent the next Exxon Valdez or Deepwater Horizon disaster, companies must find a way to stop it blocking cutting-edge ideas or crushing worker progress, the survey said.

McKinsey found a “powerful, proven relationship” between organisational health and average return to shareholders, with “unhealthy” companies some four times lower.

Handscomb warned that since the oil price crash and the shale boom significantly narrowed oil and gas profit margins, companies will need to improve to weather what comes next.

“In a higher oil price environment...you can make a lot of money even if you’re not top class in terms of organisational health,” he said. “As you enter more turbulent times, you need a healthy organisation to adapt and be successful.”

At least some company bosses are already concerned. Speaking at a conference in the Scottish oil capital of Aberdeen in September, Shell chief executive Ben van Beurden listed both safety and worker satisfaction as the sort of challenges that keep him up at night.

“If you want to continue to attract the talent...we have to be attuned with what people think and say,” he said.

Additional reporting by Ron Bousso; Editing by Adrian Croft

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