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With oil dancing close to $66
a barrel on the open market, companies are now exploring the remote spots
that hold most of the world's untapped supply. After several years of record
profits, the energy giants have plenty of cash to finance the dig. The main
thing holding them back is a resource scarcer than crude: engineering
talent. Because of layoffs in down times and opportunities in sexier fields
of technology, fewer petroleum engineers are graduating from
U.S. schools. A mere 1,500
are enrolled this year, down 85% since 1982 -- back when
Dallas
was the hit TV show.
This crisis is sparking a war
for talent in the industry. Oil-field services giant Schlumberger Ltd. (SLB
), for example, recently lost a deepwater drilling expert to a client who
tripled his salary. And that was before Hurricane Katrina slammed into the
Gulf Coast. "The people shortage was extremely acute before Katrina and is
now far worse," says Matthew R. Simmons, chairman of energy investment bank
Simmons & Co., based in Houston, Tex. "The major oil companies are now
poaching trained people from the service industry and no service company has
better trained people than Schlumberger."
So is Stephanie Cox, Schlumberger's director of personnel for North and
South America, sweating? Hardly. Through lean years and fat, her company has
consistently focused on cultivating great people, and its bench is deep.
Seated in the company's small outpost in Victoria, Tex., on a baking day in
July -- amid rice, corn, and oil fields -- she demonstrates how easy it is
for human resources executives at the company to pinpoint hot talent using
an online system called PeopleMatch.
Cox sets a formidable, if
hypothetical, challenge for herself: finding a country manager for
Brazil. This is an employee
who must be mobile, can speak Portuguese, and be "high potential" -- meaning
the candidate is judged capable of moving up two grade-level positions.
(Currently, about 10% of Schlumberger staffers meet this standard.) Cox, a
36-year-old mother of two who radiates an aura of calm efficiency, enters
Schlumberger's human resources intranet site and starts filling in a series
of boxes, selecting those personal characteristics much as somebody might
choose a hotel on an online travel site like Travelocity. Although the
search may seem like a long shot, 31 names pop up within a minute.
Getting
Personal
What COX sees are not mere résumés. Through Schlumberger's intranet, she has
logged on to a database that marries human resources information concerning
people's past job performance and salary with each worker's own curriculum
vitae. Those résumés -- which the company calls Career Networking Profiles
-- are far more fun and informative than typical corporate bios. All
employees write their own, generally covering their career goals, family,
past assignments, professional affiliations, publications, patents granted,
and hobbies. Instead of the mug shots that populate most in-house
directories, people often send personal photos. One man holds up a fish
caught on vacation.
This is no off-the-shelf software. Schlumberger built the system itself. And
what Cox did can be done at hundreds of offices in 80 countries, from the
arctic tundra of
Alaska to the arid
desert of Abu Dhabi.
"The capacity to develop talent from anywhere in the world is one of our key
strengths," says Chief Executive Officer Andrew Gould, himself a 30-year
veteran of the company.
Plenty of CEOs preach the importance of talent, but Gould leads a
congregation of true believers. Schlumberger is a rare company that has
turned its human resources department into a strategic asset rather than an
employee-irritating nuisance. Other standouts include midsize financial
services firm Jefferson Wells International, IBM (IBM
), Johnson & Johnson (JNJ
), and Dell (DELL
).
Calling All Supernovas
These companies are all in different industries. They are different ages,
sizes, and have their own growth strategies. But at bottom, all recognize
that the secret of every high-performing company is great people -- and that
there aren't enough stars to go around. Consider the 20 companies that made
Hewitt Associates' 2005 list of great places for leaders. All but two have
beaten the Standard & Poor's 500-stock index companies' 156% total return to
shareholders over the past decade. Some, like Capital One Financial (887%)
and Dell (2,859%) have surpassed it by a mile. "Talent should be a weapon
and should be used as a weapon," says Marc Effron, Hewitt's longtime
leadership expert, now vice-president for talent management at Avon
Products. "But it's amazing how little attention companies put into this."
No kidding. Despite years of rhetoric about talent -- and stacks of annual
reports insisting that people are a company's biggest asset -- most
companies still don't get it. Instead of making a long-term investment in
their employees, corporate chieftains during the bubble years too often went
for the easier short-term payoffs to be found in accounting games. And
instead of devoting their own time to talent management, CEOs have often
punted to outsiders who come with marketing software systems, executive
coaching, and an endless array of overhyped turnkey solutions. Who hasn't
gone through some form of this torture? The 360-degree review that is never
followed up, or 150 question-long employee satisfaction surveys, or
emotional intelligence evaluations that lead to exactly nothing.
Add it all up, and companies will probably spend $50 billion on talent
development this year, according to Jay Conger, a professor at Claremont
McKenna College and London Business School. Nevertheless, says Avon
Products' Effron, "you tend to see people glomming on to the latest fad or
thing they heard about in a conference. But the more you rely on
consultants, the more likely you are to fail."
Nowhere
is talent mismanagement more starkly in evidence than in the corner office.
Hewitt found that 85% of its good companies promoted their current chief
executive from within company ranks, but only 68% of the rest did. The
worst-off have to go outside over and over. Dial, for example, has looked
outside for each of its past three CEOs, all while competing against the
renowned talent experts at Colgate-Palmolive (CL
) and Procter & Gamble. (PG
) Kasper Rorsted, vice-president of HR for Henkel Corporation, which bought
Dial in 2004 and gets 95% of its leaders internally, says, "I would be very
disappointed if the next CEO [of Dial] came from outside the company."
Meanwhile, Coca-Cola Co. has screwed up in a completely different way -- by
picking the wrong insiders. In the past seven years, the company has had
three different CEOs, and each of those Coke veterans has struggled and
failed to renew the company's marketing zest. In the past decade, Coke has
returned only 58% to shareholders, while rival PepsiCo Inc. (PEP
), a model of management consistency, has delivered close to four times
that.
So failure is costly. And it is only going to become more so -- because
talent is growing far scarcer. According to consultant RHR International
Co., the country's 500 biggest companies anticipate losing half their senior
management in the next five to six years. There are too few bodies to
replace them. As the 77 million
U.S.
baby boomers begin to retire, Generation X, now 24 to 40 years old, makes a
paltry successor, with 46 million people. That demographic gulch has been
dug deeper by the efficiency purges of the early 1990s, which wiped out
middle management and taught laid-off workers that there was little reward
for loyalty. The result? "There are very few companies that feel they have
an excess of talent," says Paul Rogers, a partner at consulting firm Bain &
Co.
At the same
time, business has gotten tougher, and companies are counting on their
people to be flexible enough to move at today's accelerated pace, yet
creative enough to excite consumers around the world -- a tall order for a
group that is already doing more than ever. Increasingly, profits come from
overseas, with the global economy growing at twice the pace of the U.S. And
growth in developed markets is often in people-intensive industries such as
technology, information, and communications. Last year this segment,
although making up only 4% of the U.S. economy, accounted for 13% of its
growth, according to the Bureau of Economic Analysis. In today's world, "the
judgment of the employee has value," says Marcus Buckingham, a longtime
Gallup consultant on HR.
Common Traits
So what is a company to do? Is there a magic formula? The truth is that
there is no template that works across all companies in all industries. But
the standouts do have some traits in common. They all customize their own
solutions with modest help from the outside. They put good people in human
resources -- in fact, it can be a fast route to the top at companies that
care about talent. They focus on their best performers. And their commitment
comes straight from the corner office.
For a close look at how all these themes weave together, there's hardly a
better model than Schlumberger. The company, which had net sales in 2004 of
$11.5 billion and net income of $1.2 billion, gets a premium for good
management. T. Rowe Price analyst Tim Parker says good people and technology
have traditionally garnered the company a value 20% to 25% above peers such
as Baker Hughes. (T. Rowe Price is a major shareholder of both companies.)
Those skills have helped the company overcome missteps, including large
investments in technology outside the oil patch, to return 241% to
shareholders over the past decade, well above the S&P 500's 156% climb and
that of most rivals.
Gould has spent almost all of his tenure as CEO focused on building up the
company's already strong human resources department, a dedication to talent
that extends all the way to field managers. When a high-performance person
is lost, it warrants the same full-blown investigation as a technical
mistake causing hours of expensive down time on an oil rig. The probe
includes an exit interview, the results of which are put online, retrievable
by managers throughout the corporate hierarchy. "We essentially treat
attrition, especially if someone has a high potential, as a catastrophic
incident," says S. Eric Bartz, 33, who manages the Victoria facility's crew
of a dozen trucks and more than 70 people. Schlumberger's people "are a big
investment," he says. "Huge."
Investigating Exits
To make sure that it gets first dibs on the best available talent and to
help schools prepare students to meet high technical and quality standards,
Schlumberger has assigned high-level executives as "ambassadors" to 44
important engineering programs. Among them: Massachusetts Institute of
Technology, Kazakhstan's Kazakh National Technical University, Peking
University, and Universidad Nacional Autónoma de México (UNAM). These
ambassadors are generally high-ranking executives within the corporation,
and they control substantial budgets, which they can use to help fund
university research.
H. Sola Oyinlola, a Nigerian who in a 21-year career working for
Schlumberger has held jobs on every continent except South America, is
ambassador to Nigeria's University of Ibadan. The university has struggled
during the decades of political upheaval in
West Africa.
Much of Oyinlola's work revolves around helping the university meet the
company's educational requirements. Early in the relationship, he donated,
on behalf of the company, several million dollars' worth of equipment, which
the university used to create a state-of-the-art petroleum learning center.
Today, Nigeria is a
net exporter of engineering talent for Schlumberger, with more Nigerian
engineers working for the company around the world than foreigners working
in Nigeria itself.
Schlumberger, which employs people from 140 nations, gets points with
clients, many of which are nationally owned, for staffing locally. "It's one
of the strong selling points of Schlumberger in Nigeria that it is not an
imperialistic model," says Oyinlola. That diverse and deep bench has also
helped Schlumberger enter tough markets like Russia and Angola early.
The company's 16 highest-level executives represent 10 different
nationalities. That diversity helps in an industry where most of the growth
is outside the U.S. Geoff Kieburtz, an analyst at Smith Barney Citigroup (C
) who upgraded the stock to "buy" in early June, is predicting sales will
rise to $12.9 billion this year -- 70% of which will come outside North
America -- while earnings will climb 35%, to $1.67 billion. Schlumberger
gets more of its revenue outside the U.S. than any of its rivals.
University alliances are just the start of Schlumberger's strategy. Once at
the company, any engineer headed for the field goes through a three-year
education program that combines classroom time with on-the-job projects.
After an initial two to four months spent working on real jobs, field
engineers come back to one of the company's 10 training centers, where they
spend 12 weeks. The facility in Sugarland, Tex., just outside Houston, is
typical. On a recent afternoon, students sat in small classrooms. On one
side of the hall, a Schlumberger engineer lectured a group of about a dozen.
Across the corridor, other students sat at computers working on projects,
many still in the blue uniforms they wear on the campus' working oil rig.
There's a strong bond formed within the groups. Years after their training,
engineers say, they continue to keep up with classmates flung across the
globe.
After 30 to 36 months, field engineers in North and South America cap their
training by spending two to three days presenting a project that they have
completed, something designed to address a real business need. If they pass,
they are deemed promotable out of the field. Unlike many other companies, at
Schlumberger strong performers from other disciplines often do a stint in
human resources. It's seen as a gold star on a Schlumberger résumé, and 40%
of its human resources staff are so-called visitors. Campus recruiting, for
example, is only open to "high-potential" staffers.
Some don't make it through Schlumberger's extensive training. "It's not
lifetime employment guaranteed," says Cox. Of new engineers hired for the
field, 40% will drop out before their third year is complete. Schlumberger's
research and development group loses only 10% in that early period -- but
only one in four hires will make a full career at the company.
Not everyone is a fan of the system. Some former workers describe the
company as "arrogant" and "insular" and its culture as "cliquish." Gould
isn't surprised when he is asked about the characterization but counters
that "any company that has an extremely strong culture has to live with
those things." Daniel Guermeur, founder of Metadot, an open-source portal
server, spent most of the 1990s working in technology at Schlumberger. He
thinks that the company, which is still a client, is exceptional at
recruiting globally and that it has maintained its technical edge. But he
worries that there is less opportunity today for engineers to move up to top
management than there once was, that as more MBAs move into the company,
it's losing something. "People don't feel secure anymore," he says.
Still, there are many examples of engineers moving up the ranks. Of
Schlumberger top management, 80% started at the company right out of school,
many as field engineers. And the chance to move up keeps people happy who
might otherwise burn out. Bartz, who runs the Victoria wireline station,
joined the company in 1995. An avid sea kayaker, camper, fly-fisher, and
snowboarder, he spent most of his early career as a field engineer in
Alaska. In his office, he keeps a book of photos of that time, including
some of the polar bear that clambered out of the water and sauntered past
his jeep. There is a series, too, of the truck that hauled his rig back to
safety in far northern Canada after it got stuck in a frozen river and he
and an intern spent two days north of cell-phone and satellite range.
For years Bartz wanted only to be in the field. But even for an outdoorsman
like him, that life eventually grew wearing. So the flat plains of Texas
replaced the tundra of Alaska. And while he once puzzled over extreme
technical challenges, he now spends much of his time on personnel matters.
If to an outsider it seems a major jump, inside the company it's seen as
entirely normal. "People who are able to solve problems are going to do that
in a lot of different roles and succeed," says Kenneth L. Havlinek, a
longtime R&D engineer and now the technology manager for Schlumberger's
Product Center. The company seems to have already solved the biggest problem
of all: talent.
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