Not all changes were made in a value-focused and sustainable way
According to a new EY market study, completed in association with the University of Calgary’s Haskayne School of Business, 81% of oil and gas companies that reduced headcount by 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,” says Lance Mortlock, EY’s Canadian Strategy Services Leader, Oil & Gas. “The caveat however, is that this relationship becomes weaker once companies surpass a 50% headcount reduction. So we’re really seeing an optimal point where companies reduced headcount between 25-35%.”
In Alberta alone, the industry has seen direct job cuts of nearly 30,000 since the fourth quarter of 2014 (according to Government of Canada Labour Market Bulletin). According to EY and University of Calgary’s Haskayne School of Business’ Canadian oil and gas reorganizations: From surviving to thriving in challenging times report, 80% of companies surveyed have reduced headcount over the last two years. Of those, 64% took the opportunity to restructure internally — shifting work, role changes, streamlining processes or consolidating areas, functions or business units.
“Not surprisingly, many companies were focused on short-term survival when oil prices initially dropped so dramatically in 2014,” says Peter Sherer, Associate Professor, Strategy and Organizations, University of Calgary, Haskayne School of Business. “While the majority of our market study respondents reported high levels of success with their reorganizations, many indicated that there are further changes to come.”
When it comes to successful reorganizations, survey respondents indicated a direct correlation between increased upfront rigour and higher levels of success.
“With every challenge, there’s an opportunity,” says Mortlock. “It’s tempting to simply jump into survival mode and make quick, short-term tactical changes when times are tough. But thinking long-term, strategically and properly assessing your current state helps drive more sustainable success.”
The report highlights that, among successful reorganizations, companies were more likely to consider their short- and long- term goals, conduct external benchmarking and make actual changes to how work gets done.
“Whatever the direction of commodity prices, one thing is for sure,” says Mortlock. “Structural change is underway 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. Our market study provides key insights about how to start and be successful at the reorganization process.”
To read the full report and survey results, visit: Canadian oil and gas reorganizations
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