High turnover in the energy and utility sectors is creating a knowledge deficit, posing significant risks for businesses.
There is another major change occurring in today’s energy industry. It has nothing to do with new technologies or distributed generation, yet everything to do with business productivity and profitability. This problem lies in employee turnover, which is becoming a burgeoning issue in the energy and utility sectors.
An Emerging Talent Shortage
The trend in employee turnover is not a new occurrence. Coined by the Oil & Gas industry as “the great crew change”, the phenomenon describes how high retirement rates and a widening employee demographic gap is creating a significant talent shortage. Essentially as the baby boomer generation of workers begins to retire, millennials are increasingly being hired to replace them. As the older generation takes their veteran knowledge and experience into retirement with them, these new, technically savvy employees are suffering for due to poor on boarding and inadequate knowledge retention and transfer methods. Poor succession planning and inefficient workflow processes are further complicating matters for the incoming workforce, who are struggling to do their jobs efficiently. Such a large gap in terms of age and experience is creating a large knowledge deficit within the industry, which is taking a significant a toll on businesses workforce productivity.
Characterised as “the great crew change”, accelerating retirement rates and the widening employee age gap is causing a talent shortage in the oil and gas industry. This situation has become true of the larger energy industry as well, which is struggling to maintain employees.
Retirement Rates for Utility Employees & Executives
As a result, turnover rates within the workforce are drastically increasing, with the average term for new employees lasting just about 1-3 years. Turnover is high on the executive level as well; executive turnover has increased some 44% in the last 10-15 years, with the average energy/utility CEO tenure of decreasing from on average 9 years to now just 5 years. We’re seeing this on a global level, with European energy companies experiencing some of the shortest executive tenures. These same reasons that are making it difficult for employees are affecting managers and executives as well. Their tenure is largely correlated to their performance, which is rooted in the critical decisions that they have to make. However, it is proving increasingly difficult to do so accurately without the right tools and processes in place needed to illuminate information in an actionable way.
Voluntary Turnover Rates by Industry and Age
Voluntary turnover rates in the energy industry are relatively high compared to other industries, with US companies experiencing the highest rates. High turnover rates of Generation Y employees further demonstrates the trend in young employee turnover. Source: Mercer’s 2015 Survey
According to Pipeline & Gas Journal, “The energy industry is facing an imminent shortage of executive talent as well as a lack of employees with the required competencies that these companies need to compete in the global marketplace,” and “unless they can find ways of successfully embedding the knowledge lost as experienced workers retire or leave — and persuading a newer generation that the sector offers career opportunities exciting enough to stick around for — companies will struggle with growing headwinds and competitive pressures.” In today’s competitive market, however, the advantage is realised when it comes to managing growth, maintaining profitability and mitigating risk in a competitive market. When these areas begin to suffer businesses run into serious trouble, putting their longevity at risk.
Stunted Growth and Lost Profitability
Many energy businesses today are largely focused on growth. They’re looking at how to grow their project pipeline, expand their portfolio and diversify into new technologies- and trying to do so with their current set of resources. Losing employees during this growth period is counterproductive as the process knowledge that is accumulated is lost or poorly transferred onto new employees. This results in repeated errors as new employees are unable to learn from the mistake of their predecessors, and hugely undermines employee performance. Companies can have unlimited budget and opportunities, but if they don’t have the manpower to execute then their potential for increasing profitability is undermined.
High turnover also makes the recruiting and onboarding process extremely resource intensive. As new employees cycle through more frequently, the cost of acquisition increases. Employee acquisition is a measurable part of company’s operational budgets, which detracts from its overall profitability. Hence, the need to improve employee productivity and speed up onboarding is proving critical.
Replacement Cost Percentage by Employee Position
Incursion of Risk
Repeated turnover also incurs risks into a business, both from operational and financial standpoints. When employee performance suffers or executive agendas keep changing, the loss in performance productivity introduces instability. This puts businesses at risk of falling behind to competitors or making poor financial decisions, which can kill a business in today’s fluctuating, competitive market. As energy businesses continue to expand and diversify their business offerings with new services, their ability to manage information and improve means of knowledge retention must be flawless. Unless knowledge is managed in well-defined systems and processes, companies will not be able to manage the changes that changing market conditions or political regulations throw their way.
The Trend is Here to Stay
The trend in employee turnover in the energy industry is not a temporary phenomenon. As the industry continues to grow and evolve with new technologies and services, better strategies are needed to ensure that talent is brought in and that this new generation of employees is successful. Executives need to focus on not only how to attract new, high-quality talent, but how to make them more productive and successful. Today’s energy company requires modern IT systems to enable better onboarding and knowledge transfer methods that align with the company’s growth plans. They need digital systems and processes in place that conducive to the new generation entering the workforce in order to create an efficient work culture that aligns with the new ideologies of today’s generation. In today’s cutting-edge energy industry, attracting and retaining sufficient talent will be the difference between success and failure.