Profound changes are occurring in the energy industry.
The market – oil and gas, power, renewables, rapidly growing and highly innovative cleantech businesses – is in the midst of a significant transformation that is creating both challenges and opportunities.
This is far more than the latest downturn in an often cyclical market; it is far-reaching and long-term change that is altering the industry as we know it – and it’s impacting the boardroom in a big way.
In the short- to medium-term, challenges such as fluctuating oil prices and capital market demands, industry consolidation, services diversification, new climate change agreements, a growing global environmental conscience, activist shareholders, and the pressures of keeping pace with rapidly developing technologies have created a complex and challenging business environment.
Strong and decisive leadership is more important than ever before. The new energy industry requires an entirely different kind of C-suite leader with a bias towards innovation, the resolve to steer a company through any downturn, and the ability to build a lean, efficient and streamlined organisation that can take full advantage of future opportunities.
Accordingly, across the industry executive boards are questioning whether they have the right leaders in place to tackle these monumental challenges and, where possible, grasp the opportunities that exist.
And the answer isn’t always yes. Indeed, the oil and gas industry – perhaps worst hit by recent developments – has seen CEO turnover increase significantly. In 2013, the median tenure for oil and gas CEOs was revealed as four and a half years, and only a small percentage of companies were led by CEOs who had served longer than 15 years.
“The transition from phase to phase in cycles of business often requires a change in leadership,” says Jim Thompson, energy-focused Partner at Odgers Berndtson’s Houston office. “Many energy companies are downsizing, consolidating and restructuring to survive the changing market, and to position themselves for the upturn when it occurs.
“A certain kind of leader is required to do that, and more often than not it may not be the same leader that steered the business through a successful period of growth.”
Who is the ‘right leader’?
To a large extent the question of the right leader is impossible to answer. The impact of the changing market is being felt differently across the energy spectrum. The requirements for an oil and gas leader – an industry that is firmly focused on managing the downturn – are very different to those of a small, innovative and rapidly growing cleantech business.
“One thing that is absolutely certain in the energy industry is that there will never be one leader that fits all,” says Thompson. “Every single sector, geographical area and company has different requirements and priorities depending upon what phase of business they are in.”
Challenges and opportunities
The oil and gas industry has until very recently been in the throes of a downturn. Projects have been impacted and delayed as companies worldwide have cut budgets and workforce – a study by Swift Worldwide Resources estimates that 233,000 jobs were lost last year – and downsized operations in the quest for short- to medium-term consolidation.
Restructuring has been the key word in oil and gas boardrooms, as companies identify and implement the necessary changes to survive. For leaders, a down-cycle is the toughest, most demanding and unpleasant cycle to manage as the execution of certain key capabilities becomes more critical and mistakes come with a higher price.
“Managing a business in this kind of environment requires a certain type of leader,” says Greg Pocherewny, Partner at Odgers Berndtson’s Calgary office. “It’s not just a matter of cost-cutting, it requires smart and innovative thinking, new technologies and a leader that can keep their team engaged through the low cycle. It’s also very hard to keep talent focused and enthused, so a leader who can create a vision of the future that keeps their best people engaged for the long-term is essential.”
It is essential for the modern oil and gas leader to embrace innovation and understand the value of technology – investment in digital technology such as cyber security and improved data analysis technology has become essential to manage project risk and streamline operations.
“The best technical minds and the most innovative thinkers don’t always make great leaders,” says Pocherewny. “That’s why it’s so important to find leaders that have the courage and vision to bring innovation through to application – and the persistence to see it through.”
The key challenge for oil and gas companies is to attract and retain such talent in an environment where other sectors such as renewables and cleantech provide a rich breeding ground for innovation and high growth.
Spurred by an ever-growing awarenes of the environment, an increasing dedication to achieve climate change goals by governments worldwide and a simple desire for alternate energy sources, these sectors are growing rapidly.
“Future leaders are interested in career opportunities that feature high growth and a focus on innovation,” says Randy McEwan, CEO of Ballard Energy, an emerging cleantech business that manufactures innovative fuel cells.
“What truly differentiates cleantech is the opportunity to shape the future – in a way that drives efficiency improvements, reduces greenhouse gases, cleans water, improves air quality or lowers carbon intensity. It’s the opportunity to be passionate about your career, your company and your industry because you are working to give your children a better world, a world that is sustainable. It’s the powerful trio of growth, innovation and purpose that makes this sector more appealing to leaders of the future.”
However, while appealing, these businesses present their own unique challenges for leaders – including managing the growth curve from start-up to larger organisation, being at the forefront of technological innovation and creating the correct long-term sustainable decisions for the business.
Gerry Lalonde, global chief executive of emerging wind turbine business, Orenda Energy Solutions, says: “A major challenge for executives in the renewables business is that the model depends heavily upon government subsidies in the form of either Feed-in-Tariff programmes or tax/grant incentives. It means that even the best laid plans can be upended by a change in government policy.”
According to Lalonde, the right leader for a renewables business can “find that perfect balance between a disciplined approach to doing business and an ability to change the strategy/tactics at a moment’s notice.
“It means building a company that has a solid infrastructure and technology, but which can quickly be adapted to changing market @odgersberndtson OBSERVE 2/16 39 conditions. It’s also important to create a culture that allows for quick reaction and where change is accepted by employees as a fact of life.”
For Pocherewny, the key difference between oil and gas leaders and those at renewables or cleantech companies is “where their respective passions lie, especially in areas such as innovation and tech – they have an optimism that is contagious.”
“Renewables and cleantech requires very good leaders,” Thompson agrees. “These are not legacy leaders or people that have been around before, instead they are new leaders who are flexible and creative enough to deal with fast moving, rapidly developing businesses.”
The search for resources
Where these leaders come from will be the chief concern for companies industry-wide in the coming years. While, to a large extent, the much-publicised skills shortage that exists in the industry, is confined to areas such as skilled engineering, there is a noticeable lack of leaders rising.
“The next generation of leaders being developed is low in number, particularly in the oil and gas industry where many are approaching retirement,” Thompson confirms. “The long-term challenge for that sector will be how to be an attractive and viable option when renewables or cleantech may be more appealing and are attracting young, talented engineers and leaders. The industry is not doing enough in my opinion, and the shortage will become even more acute in the next five years.”
Succession planning, then, is key. The challenge for potential leaders, however, will be how to integrate into a business that is cyclical and can change at any moment. In the ongoing quest for natural resources, the search and refining of human resources is of paramount concern.
From the industry
by Randy McEwan, CEO Ballard Energy.
There are three requirements that are important.
The first is level shifting – that is, the ability to rapidly transition from macro and strategic to micro and tactical. Most cleantech companies are relatively small or early stage. This means that leaders need to be thought leaders and strategists, while also caring about important details on customers, products, operations, and execution.
The second is the ability to operate in uncertainty, ambiguity and change. Market conditions are highly dynamic. You will never have perfect information and analysis. So, you need to be comfortable making decisions on incomplete and imperfect information and you need to have risk tolerance. The 80-20 rule applies every day.
Thirdly, you need to be global in your thinking. Frequently the customer requirements and economic value proposition vary in different geographic markets. Your business will likely have opportunities and risks in international markets, including customers, competitors, suppliers, government and industry. It’s important to know what’s going on in key geographic markets – lack of visibility will be at your peril.
Be sure to make the right long-term decisions for the business. You need to have the conviction in your business plan to avoid unwise compromises to satisfy
Oil and gas leaders
by Jim Thompson, a Partner focused on energy assignments at Odgers Berndtson Houston.
A successful leader must be:
Courageous: Failing to manage effectively in an upturn typically results in lower growth rates or profitability. Failure to make good decisions in a downturn can easily lead to total failure of enterprise. The scrutiny and focus on leaders is more intense than at any other time.
Realistic: Leaders in a downturn must project a more realistic view, lest they come across as disconnected with their circumstances. The ability to maintain investor confidence in an unpredictable environment and with razor thin financials is nearly an impossible task.
Prepared: Scenario planning is far more critical in this period. A strong motivator: It’s far more challenging to motivate and retain essential employees when times are tough, bonuses are limited
Lucy Harding and Pieter Ebeling, Partners in the Global Procurement and Supply Chain and Consumer...
Lucy Harding and Pieter Ebeling, Partners in the Global Procurement and Supply Chain and Consumer...