Performance Management in Woodside Energy - Case Study Example

Table of Contents Executive Summary 2 Introduction 3 Woodside Energy 3 Performance management 4 Performance Management in Woodside Energy 5 Conclusion 10 References 12 Executive Summary Woodside Petroleum Limited is the largest Western Australian oil and gas company. It conducts its performance management on a periodic basis (annual) and sets performance goals at the start of each performance year. An assessment is then carried out at the close of each performance year to see whether the goals previously set have been achieved. In order to make sure that the company’s targets are in line with the board’s vision for the company, PM is carried out against the board’s expectations. Although Woodside has shown continued improvement in their performance over the years, the PM process could bare to stand some improvement in order to improve performance on the global scale. Introduction Performance management (PM) is defined as the process by which human resource managers work together in the planning, monitoring and review processes of the work objectives of their employees and their contribution to the organization in general (Characteristics of Human Perfomance 1983). This process is mainly done once a year although it is more of a continuous process which requires constant tweaking and adjustment in order for it to be the well-oiled machine it should be. This is more than just a review of performance; it involves ceaseless objective setting, progress assessment, and the provision of non-stop feedback to make certain that the set goals and objectives are being met (Glass and Schmidt 1991). Although performance management is often used mainly in reference to employees as individuals, it may also be used to refer to teams, programs, specific processes in the creation of a product or service, departments, or the organization as a whole (Glass and Schmidt 1991). PM may also be defined as the process through which an organization matches their priorities, goals and objectives with their resources and systems and vice versa (Kernighan and Rob Pike 1999). In order for a PM program to do well, it needs to address company performance issues at the organizational as well as at the individual level. It also needs to help foster an organizational culture which is results-oriented and effective. This paper will contain a report on performance management in Woodside Energy. It will also make recommendations for change that may help improve the process. Woodside Energy Headquartered in Perth, Australia, Woodside Energy also known as Woodside Petroleum Limited (henceforth, Woodside) is an Australian company which produces and exports petroleum as well as LNG. It is the largest oil and gas operator in Australia as well as the country's largest independent company dedicated to the production of oil and gas. It is also listed in the Australian Securities Exchange as a public company (Woodside.com.au 2015). July 1954, Woodside was incorporated, and had its name changed from Woodside (Lakes Entrance) Oil Co NL. It was originally named after Woodside, a small town in Victoria State. In the early years, Woodside confined its operations to Gippsland Basin in Victoria, but later moved to Northern Western Australia with the 1960s rolling around. It was during this time that Woodside joined forces with Burmah Oil and Shell to create the first North West Shelf Consortium. Burmah was replaced by BHP which in conjunction with Shell owned 40% shares each in Woodside. BHP went on to sell off all of its Woodside shares while Shell sold down to 34%. Shell originally attempted the acquisition of all of the shares of Woodside which it did not already own but this motion was blocked by the then Treasurer of Australia on the grounds of national interest. Since then Shell has since sold most of its shares and now owns less than 20% of Woodside shares (Abc.net.au 2015). Performance management PM at its best is a holistic process that measures performance against their contribution to the organization in accordance with the set business objectives. The process therefore brings together many aspects of good human resource management practices (when it involves employees) such as performance measurement, learning and development, as well as organizational development. All this sublets of the process make it seem like quite an arduous task, although if the correct procedure is followed, this is often not the case (PricewaterhouseCoopers LLP 2007). Armstrong and Baron (2004) in their CIPD textbook define PM as a process by which individuals are managed effectively with the aim of achieving higher performance levels within the organization as a whole. This therefore means that a set of performance standards (what is to be achieved) are set, and a best course (the means and ways through which these goals will be met) by which to achieve the goals therein is chartered. While this definition agrees that PM is a strategy relating to all of an organization’s activities, it stresses that this is within the contexts of the culture, communication systems, polices, and style of its human resources department. Since human resources’ main resource is the humans, this eventually circles right back to the individual employee. The PM process is supposed to be strategic (based on long-term goals and broad issues); and integrated (able to form connections between the businesses’ different aspects and its people management practices). It should also be able to incorporate: improvement of performance (at the individual level in the context of their teams, and department, as well as the organization itself); constant development; and behavioral management (to ensure that things are done exactly how and when they’re supposed to be done) (Pilbeam & Corbridge 2006). Performance Management in Woodside Energy Performance management is done through the monitoring of key performance indicators (KPIs) which help tell the management how well the company is meeting its own goals. A performance indicator is a term used to refer to “an observable metric that correlates with a certain element of an operator’s performance”. These indicators are used because the performance operators being measured are often too difficult to measure or too broad to be reduced to the size of one single metric that may be easily to quantify. Performance indicators may be used to rate the company’s performance against itself over a period of years or over the industry average. As such, they enable the contextualization of the company within its own goal repertoire or the performance of the industry as a while. By so doing, these KPIs provide crucial information to investors, regulators, the operators, and for public companies such as Woodside, to the general public (Jacobs 2013). Woodside carefully selects all its operator measures, and all the decisions concerning which ones to monitor or not to monitor go through the executive board. These are selected at the beginning of each financial year, and standards are set while taking into account the previous year’s performance, industry standards, and the desire by Woodside to achieve superior stakeholder returns. A performance scorecard is then generated which will be analyzed at the end of the performance year by the board with regard to how the company performed versus the targets that had been set (Woodside Petroleum LTD 2013). At the beginning of the 2013 performance year, for example, the board decided on a performance scorecard outcome target of 0.8 out of a possible 2. Although Woodside reached and surpassed the target it had set for itself that year, PSEs were below target; a record 87 million barrels of oil was achieved, though this was above the target set; the cost of performance and operating was below the target; and Woodside achieved an overall short term award (STA) 14th position on their peer group of 18 (Woodside Petroleum LTD 2013). For the executives, their performance is weighed against their individual performance agreements which are signed at the beginning of every year. This performance agreement contains KPIs within the individual’s area of responsibility. As such these KPIs may include the following, again, depending on the executive’s area of specialty: health and safety (high potential incident frequency, total recordable case frequency); human resources (such as voluntary turnover); environment (such as greenhouse gas emissions, flared gas); financial (like revenue, production costs, earnings before interest and tax, operating costs, drilling costs and so on); and operational (project progress, production volumes) KPIs (Woodside Petroleum LTD 2013). These KPIs are chosen because they align with Woodside’s plans and objectives. Each executive’s performance is then analyzed by the CEO in conjunction with the committee, and then they are rated based on their performance within the confines of the various indicators as well as in the behavior and values they have demonstrated. They are then assigned an STA performance based on their ratings (Woodside Petroleum LTD 2013). Woodside also uses other KPIs, as mentioned above, from one performance year to the next depending on performance goals that the organization has determined at the start of that year. The following KPIs (percentage change) were used for 2014 as reported in the 2014 annual report (2014): reported net profit after tax (US$ million) 2,414 (38%); Sales revenue (US$ million) 7,076 (23%); Cash flow from operating activities (US$ million) 4,785 (44%); Reported earnings per share (US cents) 293 (38%); Total recordable injury rate1 (TRIR) 1.90 (-37%); Ten-year total shareholder return2 (TSR2) (TSR, %) 10.6 (-26%); Ten-year TSR (Quartile) 2nd quarter ( n.m4); Production (MMboe) 95.1 (9%); Proved reserves (MMboe) 1,048 (-8%); Proved plus probable reserves (MMboe) 1,339 (-7%); Contingent resources (MMboe) 1,743 (3%). All these measures are compared to the performance in the previous year, then percentage change over the original is then calculated (Woodside Company Limited 2014). Jacobs (2013) suggested a number of KPIs by which environmentally responsible companies with offshore mining wells within the oil and gas industry should rate themselves. These KPIs were divided into three groups of leading, intermediate and lagging indicators. In the past, less consideration has been given to the use and development of performance indicators correlating with pubic health or the environment. Although this has been the case in the past, KPIs on safety performance have since been increased with Woodside developing strategic health and safety goals to be achieved by 2017 (Woodside Company Limited 2015). In order to achieve the desired health and safety culture at Woodside, a program was developed to help support this endeavor concerning human factors and leadership excellence. An employee engagement campaign was implemented in a bid to improve better process safety. Mental health awareness and the performance of contractors is a key focus on this journey. A program was also implemented to help streamline Woodside’s safety, health, and environment guidelines and procedures during which the company’s business practices were aligned with international standards with the aim of improving overall efficiency. Evidence s to how improved safety performance is being achieved in 2015 can be found in the following performance indicator: total recordable injury rate (TRIR) which went down 3% in 2015 as compared to 2014 (Woodside Company Limited 2015). In May 2015, Woodside received the 2014-2015 award from the Australian Petroleum Production and Exploration Association (APPEA) for Environment Excellence. This award shows Woodside’s consistent and continuous approach towards planning strategically, culture and leadership, evidence-based making of decisions, good management of risk, and engagement with the community. Woodside is committed to sustainable practices for the environment, towards which end a study on the underwater habitat at Murion and Ningaloo islands as well as the Western Australian outer shark bay region was completed (Woodside Company Limited 2015). This study was carried out in conjunction with the Australian Institute of Marine Science as well as the Western Australian Department of Parks and Wildlife. It also builds on whatever knowledge base Woodside already had concerning this issue. The data is used to provide science-based support for Woodside’s preparedness in case of a major oil spill. The company remains focused in the quest to achieve environmental excellence. As of June 2015, Woodside’s flared gas intensity was 11.2 t/kt in comparison to 12.9 t/kt in 1H 2014. Although this indicates a decrease, the organization continues to show its commitment to achieving better ratings on their environmental KPIs (Gligorea 2013). Although Woodside has made continuous steps towards achieving its objectives and measures performance on a periodic basis while comparing performance with the board’s goals, the company has not divided their performance goals by time. Woodside seems to set its targets to be achieved by certain years, but does not show how this is to be achieved over a more structured time scale—that is there are no short, intermediate or long term goals enunciated within their annual reports (Jacobs 2013). Following the evidence presented in Jacobs’ (2013) report concerning KPIs for environmentally sustainable companies within the oil and gas industry with offshore mining, it would be prudent if the company categorizes its performance goals not just in sectors such as safety, or environment, but also within time. Short term goals should be laid down as such and these should fit within the broader picture of long term goals. The PM process of Woodside as such needs adjusting in the way that strategic goals are made and set. Woodside was ranked 11th on the top 11international energy companies based on three sets of KPIs: safety performance, Employee turnover, and taxes paid. Compared to the higher ranking companies on the list such as Statoil USA (at position one), for example, Woodside performed poorer when their KPIs were compared. This means that should Woodside seek to improve their performance on a global scale, going by these three KPIs, the company needs to focus its efforts on improving the effectiveness of the processes measured by these three KPIs. To do this, the company would need to improve employee turnover perhaps by increasing employee satisfaction. In keeping with Woodside’s evidence-based system of decision-making and goals setting, studies need to be conducted in order to reveal the cause of the high employee turnover rate and to start the process towards reducing this rate. Safety performance is already an issue of focus, and thus the goal should be to ensure that Woodside’s performance in this area rivals the international standards set by other oil and gas companies, and the same goes for taxes paid (Osman, Anouze & Emrouznejad 2013). Conclusion Performance management is a complex cycle through which a company is able to streamline its performance towards their objectives and tell how well they are doing in the process of achieving these targets. The company is also able, through PM, to compare its performance to others within the same field thus amend their objectives in order to improve its processes and thereby achieve a competitive edge. PM is a tool by which companies can objectively assess their performance and make the necessary adjustments in order to stay on the straight and narrow and perform as they should on the global landscape. References Abc.net.au, (2015). PM - Government rejects Shell bid for Woodside Petroleum. [online] Available at: http://www.abc.net.au/pm/stories/s281616.htm [Accessed 13 Oct. 2015]. Armstrong, M. and Baron, A. (2004). Transcript of Armstrong, M. and Baron, A. (2004) Managing Performance: Per Armstrong, M. and Baron, A. (2004) Managing Performance: Performance management in action. London: CIPD. Characteristics of Human Perfomance. (1983). Bell System Technical Journal, 62(6), pp.1617-1617. Glass, N. and Schmidt, M. (1991). Pro-active management. London: Cassell. Gligorea, R. (2013). Key performance indicators in the oil & gas industry – BP Company. [online] Peromance Magazine. Available at: http://www.performancemagazine.org/key-performance-indicators-in-the-oil-gas-industry-%E2%80%93-bp-company/ [Accessed 12 Oct. 2015]. Jacobs, W. (2013). Suggested Indicators of Environmentally Responsible Performance of Offshore Oil and Gas Companies Proposing to Drill in the U.S. Arctic. Emmett Environmental Law & Policy Clinic. [online] Cambridge, Mass: Harvard Law School. Available at: http://blogs.law.harvard.edu/environmentallawprogram/files/2014/01/Indicators-paper-FINAL_1-6-14.pdf [Accessed 10 Oct. 2015]. Kernighan, B. and Rob Pike, (1999). Finding Perfomance Improvements. IEEE Softw., 16(2), pp.61-65. Osman, I., Anouze, A. and Emrouznejad, A. (2013). Handbook of research on strategic performance management and measurement using data envelopment analysis. Business Science Reference. Pilbeam, S. and Corbridge, M. (2006). People resourcing. Harlow: Financial Times Prentice Hall. PricewaterhouseCoopers LLP, (2007). Guide to key performance indicators: Communicating the measures that matter*. [online] PricewaterhouseCoopers LLP. Available at: https://www.pwc.com/gx/en/audit-services/corporate-reporting/assets/pdfs/uk_kpi_guide.pdf [Accessed 12 Oct. 2015]. U.S. Office of Personnel Management, (2015). Organizational Performance Management. [online] Available at: https://www.opm.gov/services-for-agencies/performance-management/organizational-performance-management/ [Accessed 11 Oct. 2015]. Woodside Company Limited, (2014). ANNUAL REPORT 2014: Realising ou R Global Vision. [online] Woodside: Woodside Company Limited. Available at: http://www.woodside.com.au/Investors-Media/announcements/Documents/18.02.2015%202014%20Annual%20Report.pdf [Accessed 14 Oct. 2015]. Woodside Company Limited, (2015). 2013 Half-Year Report. [online] Woodside: Woodside Company Limited. Available at: http://www.openbriefing.com/AsxDownload.aspx?pdfUrl=Report%2FComNews%2F20150819%2F01651773.pdf [Accessed 14 Oct. 2015]. Woodside Petroleum Limited, (2015). Woodside 2011 - 2015 R econciliation A ction P lan. [online] Woodside. Available at: http://www.woodside.com.au/Working-Sustainably/Documents/2011-2015%20RAP.pdf [Accessed 13 Oct. 2015]. Woodside Petroleum LTD, (2013). Woodside Petroleum LTD ANNUAL REPORT 2013. [online] Woodside Petroleum LTD. Available at: http://wpl.onlineannualreports.com.au/#folio=64 [Accessed 11 Oct. 2015]. Woodside.com.au, (2015). Profile | About Us | Woodside Energy. [online] Available at: http://www.woodside.com.au/About-Us/Profile/Pages/home.aspx#.Vjz9YkK6SSo [Accessed 13 Oct. 2015]. Read More