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.

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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…

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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.

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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

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#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.

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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.

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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.

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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?

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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.

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#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.

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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.

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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.

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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.

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…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.

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#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.

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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.

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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.

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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.

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• 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.

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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

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© 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

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