British Petroleum - Human Resources Theories and Practices - Case Study Example

BP: HR Theories and Practices

Executive Summary

The report provides an analysis of HR practices while focusing on the O&G (Oil & Gas) industry. In the UK, the long-term stagnation owing to declining volumes in mature oil fields, falling prices and increasing exploration, operation and production costs have resulted in significant approaches to streamline operations and cut costs. One of the key approaches has been the pay cuts and job losses with companies such as BP announcing major job cuts in Aberdeen and across its global operations as part of its restructuring strategy. The report argues that in light of the aging workforce and talent crises, firms such as BP can adopt technologically mediated training and learning approaches such as e-learning to enhance the skills of its employees. Also, the company should invest more in renewable energy approaches as a means of creating jobs and retaining employees.

Introduction

BP is one of the UK’S leading Petrochemical Companies. With ownership of over 320 company-owned sites and high revenues of $308 billion in 2010 (BP 2010:18), BP has advanced to a leading multinational corporation. The company undertakes various activities such as exploration, power generation, and energy production. Presently, the company faces various challenges owing to changes in the external environment that, in turn, lead to the need to adopt a different operations strategy. For example, environmental issues such as climate change have resulted in the need for sustainability concerns in the industry particularly in every area of operation. Also, the increasing demand for energy coupled with the need for alternative/renewable energy sources has prompted companies to look for renewable energy sources. The purpose of this article is to focus on HR issues in the industry and approaches to HR that can be implemented in the oil industry in light of the toughening market conditions.

The greatest hurdle confronting the industry is the fluctuating oil prices. For downstream suppliers, this fluctuation has resulted in lower base stock prices which, in turn, have improved margins (Wilson 2015:112). However, oil companies have significantly been affected by the price changes that affect the stock value and add pressure to the complex pricing model characteristic of the industry. Meeting customer demand for quality at affordable prices has become a challenge as a decrease in oil price does not necessarily translate to a decrease in the price of the finished product (Wilson 2015:112). Recently, BP announced that they would cut 4,000 jobs globally with 600 of the jobs being from the North Sea operations. The move comes at a time when the company continues to incur losses or drastically reduced revenues in the various markets (BBC 2016). In an attempt to remain operational, the company seeks to simplify its structure and reduce costs without compromising on safety. Resultantly, cutting back on personnel as a means to reduce costs is one of the key strategies implemented by BP and other key industry players such as Petrobras in Brazil (BBC 2016).

The Purpose of HR

The oil industry is threatening to collapse owing to the toughening market conditions. In the UK, recent reports forecast that 43% of the British oil fields in the North Sea will incur losses if prices remain around $30 per barrel (Petroff 2016). Expenditure on oil projects is expected to fall below £1 billion in 2016 compared to the annual £8 billion. Crude prices have declined by 70% since 2014, and OPEC’s decision to continue supplying the market has resulted in crises, as the market is oversupplied whereas there is a slow demand growth (Petroff 2016). Resultantly, HR in the oil and gas sector is facing innumerable challenges owing to the job loss as a means to reduce costs. Furthermore, the current changes in demographics have resulted in an aging workforce, with more than half of the oil and gas workforce facing retirement (Newcombe 2013).

As companies move away from the North Sea to more lucrative opportunities, UK faces a major talent drain in the ever increasing demand for energy. BRIC countries have an expanding middle class which stimulates the demand for oil and gas, a demand that is higher than the talent resources available in the industry (Newcombe 2013). Also, labour supply and demand in the industry remains unbalanced, with areas such as the Middle East consisting of 86% imported workforce (Newcombe 2013). The existing challenges create the need to reignite the role of HR in the industry to ensure that companies remain competitive and survive the present market challenges.

The HR is responsible for the most important resource in an organisation that is the personnel. The purpose of HR is to guide in human resource management, development, and implementation to ensure the achievement of the organisation’s goals. HR communicates to employees concerning the plans of the organisations and the strategy to be implemented. In an organisation, HR is tasked with the responsibility of recruiting, retaining, planning and evaluating employees including the termination of their employment (Philips & Gully 2013:32). The function of HR is becoming more strategic in its scope as businesses realise the impact of HR in its value chain (GET 2016). Currently, HR activities are widening and include change management, continuous learning, intensive and continuous career planning as well as succession and retention planning. In the oil and gas industry, there is a need to realign business strategies with HR strategies to ensure the realisation of organisations goals.

Every aspect of an organisation plays a detrimental role in its strategy. When it comes to HR, management needs to ensure the activities of the workforce are in harmony with the ever-changing business imperatives. Changes in market, regulations and technology amongst others make strategy development an on-going process to ensure the survival of the firm. HR strategies seek to create a purpose and focus for the HR function (Ulrich 2013: 190). The strategies focus on ways to add value to the business and define the mission, vision and priorities of the HR function. Strategic HR refers to activities carried out by HR professionals for the purpose of building organisational capabilities to accomplish business strategies (Ulrich 2013:190). Strategic HR translates business strategies to organisational capabilities and later on to HR practices. Contrarily, HR Strategy refers to building an organisation strategy or action plan that incorporates the HR function and ensures that the HR functions more effectively. The purpose of HR strategies is to articulate what are firm intends to do concerning its HR function. In the O&G industry, whereas organisation strategies are reviewed more frequently, HR strategies are barely reviewed or modified, making the HR function more difficult (GET 2016).

Theories of HR

The concept of strategic HRM is diverse and contradictory. Developed by scholars such as Martell & Carroll, 1995 scholars contend that there is no consensus regarding the definition of the term strategic HRM (Foster 2013:212). However, key themes exist in the concept such as management’s long-term focus on the operations of HR as well as the impact of HR practices on bottom-line organisation performance. The behavioural role theory by Katz and Khan, 1978 identifies employee behaviour as the key to successful strategy implementation (Bamberger et al. 2014:9). Proponents of the theory argue that by aligning HR policies and practices with the overall organisation strategy, employees can meet their role expectations within the firm. The resource-based theory by Barney (1991); Prahalad and Hamel (1990) argues that HR presents a sustainable competitive advantage for an organisation (Bamberger et al. 2014:9). This is because HR presents unique features as it is a non-substitutable source that is inimitable.

The Human Capital Theory by Becker, 1968, argues that similar to other economic assets such as knowledge, the HR resource has a strategic importance to an organisation. Other theories such as the Transaction cost theory by Williamson 1981, argues that strategic HR approach can ensure cost minimisation as it will enhance control and management of HR resource (Bamberger et al. 2014:10). According to the Agency theory by Eisenhardt, 1989, strategic approaches to HR align the interests of the workforce and the organisation thereby ensuring streamlining of employment relations and systems within the organisation. All the theories on HR seem to justify the need to align HR strategies with the organisations strategies and are therefore categorized as rational choice theories of HR (Bamberger et al. 2014:10).

Approaches to HR

It is critical to manage HR in the present environment to gain a competitive advantage. In the O&G industry, internationalisation of firms has resulted in the adoption of International Strategic HRM that incorporates the impact of external forces affecting organisations. There are organisations with a centralised strategy, whereas there are organisations with a decentralised strategy to manage activities of subsidiaries on a global scale. MNE’s have to balance managing across borders and in most instances a balance needs to be achieved between the drive for global coherence and the need to adapt to the local environment in which the firm operates (Crawshaw et al. 2014:93). The pressures of differentiation and integration present the core challenge for the international HR manager as they attempt to reconcile and realise the needs presented by the two competing pressures.

There are several HR approaches that firms utilise in planning and management of international human resources. First, in the ethnocentric approach, MNE’s export HRM practices and policies utilised in home countries to the subsidiaries (Crawshaw et al. 2014:103). Expatriates from the home country manage foreign subsidiaries whereas the firm’s headquarters maintains control over the subsidiaries. The region-centric approach entails a regional grouping of subsidiaries in which staff can manage subsidiaries within the region. There is also the polycentric approach where subsidiaries are independent of headquarters (Crawshaw et al. 2014:106). Ideally, HR strategies for the firm in an O&G industry tend to be influenced by international experience, organisational culture or corporate governance. In the industry, mergers, acquisitions, and strategic alliances have become the norm, for example, the 1998 BP merger with the U.S based Amoco Company, as an internationalisation strategy. However, HR practices have largely remained in the back office as firms advanced in various foreign markets.

In the UK, BP’s HR activities have changed from an ethnocentric approach to a more integrated HR strategy. Before the 1970s, the company depended on expatriates who were assigned overseas to manage subsidiaries. However, challenges in the market such as the employee’s dissatisfaction with the bureaucratic nature of the firm resulted in changes from a hierarchical structure to a more flexible, network approach. BP outsources its HR functions, particularly from the US and UK such as payroll activities, recruitment and expatriation management of employees working overseas (Stimpson & Smith 2015:136). For example, in payroll processing, BP managed to increase its accuracy in this HR function. Also, the company managed to reduce its core HR staff by 65% thereby reducing costs. Whereas outsourcing is beneficial, for example, companies can realise cost reduction particularly if employees are from low-wage countries, communication challenges limit the approach owing to the different language background of employees (Stimpson & Smith 2015:136).

Employee Relations

In market economies, employee relations refer to paid employment or pay-work bargain between employers and employees. The term refers to negotiations between employer, employee and worker organisations to determine the terms and conditions of employment. Collective bargaining is the key approach utilised by trade unions to pursue the needs of members, for example, the determination of wages. In the UK, levels of unionisation and collective bargaining have been strong in the UK (Forde et al. 2005:15). For example, Gallie’s 1978 study indicated that unionisation and collective bargaining in the Kent plant and BP Grangemouth were at 100% (Forde et al. 2015:15). However, the limited productivity of unions led to organisations attempting to shift to a union-free environment. Collective bargaining was used as a strategy to minimise the role of unions, for example, craft workers were elevated to staff status which resulted in increased pay (Forde et al. 2005:15). Presently, in the O&G industry, the crises facing the market have resulted in job cuts as firm’s struggle to reduce costs and make profits. The plummeting oil prices have resulted in pay freeze and cuts in contractual rates as companies seek to streamline their operations to maximise profits. BP employs around 15,000 people in the UK. However, the present crises in the industry have resulted in cuts in contractor pay by the company, which is similar to Shell’s move to cut pay by 15% (Williams 2014). In response to the issue, BP collaborated with Wood Group organisation which employs 12,000 people in the UK in a bid to create 150 new jobs for employees (Williams 2014).

Recommendations

In response to the present issues in the industry, there are several approaches that BP can undertake. First, the company can adopt a balanced strategy that will enable the firm to focus on short-term goals while at the same time building capability and enhancing organisation performance over the long haul (MH & L 2015). Moreover, organisations should work together to establish occupational standards, apprenticeship, competency, certification and training programmes for occupations where gaps exist to improve workforce (Muncherji & Dhar, 2009:140). Companies need to demonstrate exceptional performance in key areas in the HR function, such as staffing and recruitment, rewards and compensation to ensure their long-term success in the market. Therefore, in the case of talent, companies can engage in e-learning and training initiatives to ensure that employees are skilled and remain relatively satisfied (GET 2015).

The decline and decentralisation of collective bargaining in developed countries such as the UK is an issue of concern. This is because of the massive pay cuts and job losses taking place in various industries that result in increasing unemployment. Whereas the reasons behind the massive cuts in the O&G industry is complex, organisations can prevent job loss by providing alternative employment in the renewable sector (Esteban et al. 2011:1543). Renewable energy should be pursued not only for climate change but also as a means of guaranteeing energy security and job protection. Resultantly, companies such as BP can engage in, for example, offshore wind which can employ about 20,000 people, particularly in the offshore sector.