Opinion: how should HR respond to falling oil prices?

Author: Peter Lawrence | Date: 27 Oct 2015

As organisations seek to optimise costs, HR needs to mitigate the risks to long-term human capital, says Peter Lawrence

Peter LawrenceThe ramifications of dwindling oil and gas profits are being felt throughout the GCC region, as many organisations embark on programmes of ‘cost optimisation’ to protect themselves against falling revenues.
 
A colleague once told me that cost optimisation isn’t the same as cost reduction or cost cutting, but was about getting better value for money and reducing waste. While this is technically correct, often the impact in the real world, on real employees, is quite different.
 
So how can HR professionals translate this organisational strategy into a human capital strategy? I think there are five key responses to consider, each of which will have an immediate effect on costs but also have significant human capital implications.
 
Recruitment freeze
Losing its flow of ‘new blood’ means the organisation risks stagnation. Will staff be prepared to express new or innovative ideas if that means they become more visible and therefore more vulnerable?
 
Enforced retirement age
Losing the most experienced staff could open up large gaps in expertise at key levels of the organisation.
 
Cut permanent staff
This option inevitably reduces the organisation’s capability, because there are less people to do the same volume of work. This may well lead to increased cases of stress and sickness absence, a rise in staff turnover, and, potentially, damage to the employer brand.
 
Reduce outsourcing
Although it’s arguably easier to cut down on the number of contractors and external consultants, this strategy could lead to a lack of flexibility and loss of specialist skills.
 
Choose the cheapest
Where HR and training services are outsourced, organisations might opt for the cheapest provider rather than the one that providers the best solution.
 
During a period of cost optimisation, HR professionals may feel pressure to implement policies that they recognise will have a negative impact on employees. But there is a real opportunity for the HR function to shape business strategy in a positive way, and contribute to the organisation’s short-term survival and long-term success.
 
While each organisation will have its own set of unique requirements, there are a number of number of common techniques which any HR professional would do well to incorporate into their response to cost-optimisation exercises:
 
Maintain graduate and trainee programmes
These are vital to developing a talent pool that will be ready to support growth when the economic upturn comes.
 
Promote coaching and mentoring
Identify people who are willing to pass on their experience and expertise to colleagues - particularly to young, inexperienced nationals. Every organisation needs people who have a passion for coaching, and you should look to retain these individuals regardless of ‘retirement’ age.
 
Cut out the dead wood
Identify and eliminate duplicated or unnecessary roles, streamline processes where possible, and help the organisation refocus on its key priorities. There may be opportunities to automate or outsource HR services to reduce costs and improve the quality of service at the same time. Keep communicating
Be open and honest with employees about the changes the organisation is going through, and put in place measures to address legitimate concerns or issues.
 
Stand by corporate values
If redundancies are needed, they should be handled sensitively and previous commitments, such as redundancy payment schemes, should be honoured. This is your opportunity to demonstrate that your organisation’s values aren’t just empty words, but are intrinsic to day-to-day business.
 
Peter Lawrence is principal consultant at The Human Capital Department