Can reducing headcounts be beneficial for oil and gas companies?

Can reducing headcounts be beneficial for oil and gas companies?

Can reducing headcounts be beneficial for oil and gas companies? When oil prices plunged deep and hard in 2014, many Canadian energy companies were forced to cut costs and reduce headcounts. While being forced to slash manpower undoubtedly hurt, it was pain that has translated into gain for some.

According to a new EY market study, done in association with the University of Calgary’s Haskayne School of Business, 81% of oil and gas companies that performed staff cutbacks between 25% and 30% during the downturn reported the highest level of reorganization success.

“Our study results point to a clear relationship between greater headcount reductions and overall perceived success of reorganization efforts,” said Lance Mortlock, EY's Canadian strategy services leader for oil & gas. He noted, however, is that the correlation degrades for companies where headcount reductions exceeded 50%, with the optimal headcount reduction being between 25% and 35%.

More than 350,000 people in the oil and gas industry have been laid off since prices began to sag in 2014. Alberta accounts for nearly 30,000 job cuts since the fourth quarter of 2014, based on labor market data from the Canadian government. “Not surprisingly, many companies were focused on short-term survival when oil prices initially dropped so dramatically in 2014,” said Peter Sherer, associate professor of strategy and organizations at the University of Calgary’s Haskayne School of Business.

In the EY and the Haskayne School of Business’s joint report, titled Canadian oil and gas reorganizations: From surviving to thriving in challenging times, 80% of respondents reported headcount reductions over the past two years. Of those, 64% used the chance to restructure internally – shifting work, role changes, streamlining processes, or consolidating areas, functions, or business units.

“It's tempting to simply jump into survival mode and make quick, short-term tactical changes when times are tough,” said Mortlock. “But thinking long-term, strategically and properly assessing your current state helps drive more sustainable success.”

Those polled indicated a direct correlation between heightened upfront rigor and higher levels of reorganization success. Companies that successfully reorganized tended to consider both short- and long-term goals, conduct external benchmarking, and make actual changes to the way work gets done.

“Structural change is under way in the oil and gas industry, and successful companies will have to fundamentally change their business constructs, and refocus on their people and processes to be competitive,” said Mortlock.

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