New Challenges Demand New Energy Leadership Skills

New challenges are cause for a heightened demand for more leadership skills. Three cutting-edge approaches to leadership development are presented alongside five methods to maximize their value.

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New technologies have enabled the energy industry to access a bounty of oil and gas so large that worries about running out have melted away. Some journalists have even turned their attention from “peak oil” to “peak car,” as the number of miles driven by many urban dwellers declines and as teenagers who prefer to connect using social media delay the age at which they acquire driver’s licenses. “Suddenly, out of nowhere, the world seems to be awash in hydrocarbons,” said Michael Greenstone, an environmental economics professor at the Massachusetts Institute of Technology. And yet, abundant and growing supplies that can easily meet the world’s energy demands have not eliminated the industry’s complexities and challenges. Three new challenges that demand new leadership skills stand out.

Consolidation. According to financial analysts, the financial markets understate the value of many energy company stocks, paving the way for continued consolidation that will require more sophisticated levels of financial and organizational leadership. Yet firms are reluctant to take new risks and invest in human capital to develop a higher level of leadership when they may be acquiring or acquired in the foreseeable future.

Changing Roles. The service sector is gaining increased importance within the industry. Service firms represent the bulk of research and development spending, more than twice what exploration and production (E&P) firms now spend. They are increasingly taking risk positions in oilfield drilling and development. This provides E&P firms opportunities to outsource technical development. In addition, supermajors are outsourcing E&P operations to mid-majors and buying back the rights to develop newfound plays. Service firms also represent the bulk of industry hiring, adding jobs at three times the rate of E&P firms. And they are forming direct relationships with national oil companies. All this means that leaders in service sector and mid-major firms are being forced to increase their ability to assess risk, form alliances, and navigate the global industry.

Churn. The industry’s natural turnover is currently compounded by the abnormally high number of potential retirees in the baby boom generation. The aptly named “great crew change” comes at a time when many firms lack sufficient younger talent to backfill because of the inability to recruit during the past 20 to 25 years. This has increased “poaching” as firms raid each other for top talent, contrary to industry tradition. A Hunt Oil executive described the profile of its management group as a “bar bell,” with one end the bulge of retirement-eligible baby boomers and the other end a similar bulge of new hires. The challenge is to accelerate those in the younger bulge into the “age of accountability” and change the shape of the metaphor. In a recent Wall Street Journal interview, BP Chairman Bob Dudley emphasized the importance of accessing new sources—especially women and global talent—to bridge the gap.

The industry is adapting to these trends that demand expanded leadership skills, and providers, including universities, are responding. Here are three-cutting edge approaches to leadership development that require new approaches from providers.

Professionalizing the learning and development function. Many midstream and service sector firms are bringing in learning and development experts with sophisticated educational backgrounds and strong corporate or consulting experience outside the industry. For example, one mid-major E&P firm that Southern Methodist University (SMU) has worked with for many years recently hired an experienced outside consultant to lead its learning function. This focused learning and development responsibilities away from human resources generalists. Another firm, a major player in shale gas production, built a new training center at its headquarters and brought in an outsider with a doctorate in organizational development to lead its learning and development organization.

These moves emphasize the importance of and commitment to building organizational alignment and strategic capability, especially among globally diverse management teams formed as a result of consolidation. However, they changed the relationship with SMU. Previously, the university served as a trusted institution to which management training and development could be outsourced. Now, we are asked to work in partnership with a more robust internal management development function. This demands good listening skills, responsiveness, and flexibility on the part of the university’s senior staff and instructors.

Learning from the industry. The heightened demand for more sophisticated leadership skills requires the industry to exercise its longtime preference to learn from itself as never before. Industry leaders and experts must serve as credible instructors to orient, develop, and align new talent, particularly when more is sourced from outside the industry. For example, Spectra Energy was recently recognized by Chief Learning Officer magazine as one of 2012’s “Learning Elite.” This firm’s elite practice was senior leadership’s participation in its leadership program’s capstone and project reviews. The company’s leaders also serve as part of a facilitation team in the company’s other core leadership development programs. Such innovative practices are selected for balancing priorities, increasing efficiency, and contributing to the organization and industry in ways that enrich the learning industry. These practices require providers such as universities to integrate company and industry leaders into program delivery and support for on-the-job application of new tools and skills.

Evolving content. Service sector firms, in particular, look at risk, alliances, and marketing differently than operators. So management education providers need to develop program content that serves the needs of this sector. Content must address the areas of financial risk assessment, merger and acquisition analysis, and business-to-business marketing that serve the needs of the service sector. Universities can no longer approach the management development needs of the industry as a monolith.

Maximizing Value

Just as business schools must adapt to new demands from the industry, industry firms can take steps to maximize the value they obtain from their relationships with business schools. Here are five things that skilled learning and development professionals and industry leaders can do to maximize the return on their relationship with a business school.

  • Select a partner who shares your vision and fits with your organization culture. When firms recognize that they choose to work with a university because of its subject matter expertise and skill in adult learning, an atmosphere of question, challenge, and healthy dialogue based on mutual respect. On the other hand, failure to establish fit and expectations up front can result in strong corporate leaders seeking to dictate program design or disputing instructors over corporate policy or practice. When firms treat a university like a vendor, they do not get the most value from the relationship, just as when universities treat client firms like buyers. A collaborative partnership can be a casualty when a firm without a strong tradition or experience in management development feels an immediate need, seeks to address it urgently, and brings in an outside leader to accomplish it.
  • Clearly articulate a business case for management development. A large independent oil exploration company’s human resources team partnered with SMU to develop and deliver an intensive 2-week leadership development program for senior managers and directors in line for enterprise positions. The firm’s growth plans and projected retirements showed a cumulative gap of approximately 300 technical managers and executives over a 5-year period, 75% of which would need to be filled with experienced people rather than new college graduates. The faculty and the firm’s C-Team leadership worked together to deliver this program. As a result of the program’s success, the company plans to continue the high-potential program annually and a derivative program for directors/managers who aspire to be high potentials was created. This set of programs expanded the firm’s leadership pipeline by 200.
  • Work with a proven curriculum model. Some leadership development curriculum is characterized as “inside out.” It is research-based and time-tested and begins with developing self-awareness: How do an individual manager’s behavioral styles and preferences appear to others in the workplace and influence his or her ability to carry out specific leadership responsibilities? Next is interpersonal: How discerning is an individual manager about others’ styles and preferences and how can he or she use that to motivate others and form effective teams? Third is organizational: How effective is a manager in mobilizing large groups and getting them to move in one direction and in leading organizational change? The final dimension is external: How effective is the leader in recognizing and serving the interests of multiple stakeholders—shareholders, employees, customers, suppliers, and the communities in which the firm operates—and how effective is he or she in embodying the firm’s beliefs and values in the community? This structure is especially applicable in today’s oil and gas industry in which many highly educated technical professionals have not developed the necessary self-awareness and interpersonal discernment to be effective leaders during times of persistent change and complexity, and when their operations are perceived to threaten cities, towns, suburbs, rural, and offshore areas by turning them into heavy industrial sites.
  • Blur the line between the classroom and workplace. The old rule of thumb is that 70% of management development takes place on the job, 20% through informal relationships, and 10% in the classroom. When practices such as leader-led instruction, executive dialogue, and company projects are part of the instruction, a new rule of thumb applies: 50% of management development takes place on the job, including informal relationships; 30% takes place in formal programs that blur the line between classroom and workplace; and 20% can take place in the community through volunteer service on boards and in projects.
  • Commit to using best practices that support on-the-job application of learning. Major oil companies have participated in programs that identify high potentials and help accelerate their progress toward upper-level global assignments. A variety of tools can support the application of learning, including the use of mentors, work on team projects, and involving participants’ supervisor and management who are able to help participants apply new learning on the job immediately.

Using these best practices in academic partnership will help oil and gas firms meet new industry challenges by developing a larger and more sophisticated leadership group. These practices will help firms maximize the value of their relationships with management development providers, while upgrading their learning and development functions and engaging their own leaders to secure a steady flow of future leaders.