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Linking talent strategies with business goals

Speech given by Hugh Mitchell, Chief Human Resources and Corporate Officer, Royal Dutch Shell plc, at the Economist Talent Management Summit, London, June 9th, 2011.
Hugh Mitchell

Behind the global energy challenge there also lies a human resources challenge. Transforming the world’s energy system will require a deep pool of advanced technical talent deployed on a truly global basis. In this speech Hugh Mitchell, Shell’s Chief Human Resources and Corporate Officer, explains what Shell is doing to recruit and train the talent needed to support our long-term business strategy and deliver more energy in a more sustainable way.

Linking talent strategies with business goals

Energy has been in the headlines a lot lately, with Germany deciding to shut down its nuclear power plants, civil war in Libya affecting oil supplies, and other events.
  
So if you’ll bear with me, I’d like to build on that topic. Today I’d like to begin by briefly reviewing the long-term global energy challenge confronting us all – a challenge we see echoed in today’s news reports. 
  
Then I’ll explain why behind this global energy challenge there lies an HR challenge, and why transforming the world’s energy system will require a deep pool of talent deployed on a truly global basis.
  
Finally, I’ll give some insight into how my company, Shell, is managing our global workforce to address the energy challenge and support our business strategy.

The energy challenge

The global energy system is in the early stages of a historic transformation.
  
According to the International Energy Agency, worldwide energy demand could double in the first half of this century, driven by a rising population and economic growth in developing economies.
  
Demand will grow particularly fast in Asia, where a new generation of consumers are buying cars and televisions their parents could only dream of.  In China, energy use could increase by 75% between 2008 and 2035. In India it could double.
  
In order to keep pace with this demand, the world will need to develop all energy sources, from oil and natural gas, to biofuels, nuclear power, solar and wind.
  
Indeed, the International Energy Agency estimates that the world may need to invest $33 trillion in new energy infrastructure over the next 25 years – more than $1 trillion a year.
  
At the same time, many consumers and governments across the world are increasingly determined to reduce the environmental impact of energy consumption.
  
If we are to avoid the worst effects of climate change, the world will have to increase the contribution of renewable sources like biofuels, wind and solar.
  
At Shell, we think that renewable energy sources could supply up to 30% of global energy by 2050, compared with 13% today.
  
That would be a massive achievement. It will require building entire industries from today’s relatively small base, with HR functions delivering a new generation of skilled workers to make it run.
  
About another 60% of energy in 2050 will continue to come from fossil fuels, including coal, oil and natural gas, and about 10% from nuclear. So we will have to develop innovative ways of finding more energy to meet the world’s surging demand, and of making cleaner fossil fuels.
  
All of this will require a deep pool of motivated workers with technical expertise in a range of disciplines, from microbiology to lean manufacturing. And they will need to be recruited and developed over many years by HR professionals around the globe.

The growth of gas in China

To illustrate what I mean, look at the example of China’s effort to increase the use of natural gas.
  
The Chinese government wants to more than double the share of natural gas in the country’s energy mix to as much as 10% by 2020.
  
That’s because natural gas is a much cleaner fuel for generating electricity than coal, which currently provides over two-thirds of the country’s total primary energy. Modern gas-fired plants emits only half the CO2 of modern coal plants, and 70% less than older ones.
  
Gas plants also emit less sulphur dioxide, heavy metals and other pollutants. And they are ideal companions to intermittent power from renewable sources like wind and solar, because gas-fired plants can be started and stopped with relative ease. 
  
We’re responding to this growth in China by increasing gas exploration and production throughout China, in partnership with state-run national energy companies.
  
In Changbei, in Shaanxi Province, we’re working with Petrochina to tap potentially large reserves of tight gas trapped in geological formations which are relatively impermeable.
  
As recently as ten years ago, the industry considered these resources too difficult and costly to access.
  
But having mastered advanced drilling techniques, we’ve increased the rate of gas recovery from each well, making them economically viable.
  
The implications of this innovation are dramatic: in North America, the gas resource base is now large enough to meet current US gas consumption for over a century.
  
Now other countries around the world are looking to use new technology to unlock more of their own gas resources. 
  
In China, gas fields like the one at Changbei could meet a significant proportion of the energy needs of cities like Beijing.
  
For Shell, this represents a great business opportunity. But for our HR function, it’s a major challenge.
  
Extracting tight gas is difficult, and requires advanced technical skills. And because China is a country where Shell hasn´t had a strong production presence in the past, we don’t have a deep pool of technical talent on standby.
  
Our workforce needs are going to be significant: in the next few years, we aim to employ around 500 staff in our Chinese exploration and production business, 80% of whom will be skilled technical professionals.
  
And as exploration projects become production projects, we’ll need even more people. By 2020 we could need three or four times as many subsurface and production engineers in China as we did in 2010.
  
Finding all these skilled workers will be no easy task.
  
We estimate that up to 90% of Chinese workers with the technical skills we need are already employed by national oil companies. But we aren’t going to poach from our partners.
  
99% of those we can approach have no experience in tapping shale gas, tight gas and coal bed methane.
  
And with other energy companies also investing in China, competition for skilled staff is increasing.
  
Despite those hurdles, we know we must recruit and train thousands of skilled workers in order to deliver our business strategy.

Addressing the energy challenge

So the world faces major energy challenges in the years and decades ahead. And for businesses, that also poses big people challenges.
  
At Shell, we like big challenges. Those of us in HR are already doing a number of things to prepare our people to take them on. I think three of the most important ones are: 
 

  • Recruiting enough talented people with bright ideas that will help the world build a more sustainable energy system.
  • Giving them the training and experience they need to put their good ideas into practice and have an impact.
  • And managing that pool of talent on a global scale to be sure the right people are in the right places to drive the success of our business.

Recruiting new talent

First, recruitment.
  
As I said, the highly skilled nature of many jobs in the energy industry means that recruitment can be a challenge.
  
We start with a truly global approach.
  
After all, many of the world’s growth markets are in countries like China where international energy companies have traditionally lacked a strong presence.
  
Moreover, companies like Shell increasingly gain access to these countries based on our ability to improve the skills of local staff. 
  
So we assess which of our businesses will grow, which will decline and how our geographical footprint will change over time. And we then assess the demographic profile of our 93,000 employees against these changing requirements.
  
This allows us to pursue a selective approach to recruitment, choosing the markets, skills and schools we wish to target on the basis of both global and local need.
  
This matters because of the intense competition for the engineers and scientists able to deliver breakthroughs in energy production.
  
That’s why we aim to recruit high potential employees early, developing their skills over an extended period of time.

Recruiting through the economic cycle

That’s also why we’ve invested heavily in graduate recruitment during the recent recession. 
  
This is not something our energy industry has always done well in the past.
  
Recruitment has sometimes tended to follow the oil price; booming when prices are high and then slumping during leaner periods.
  
In the late 1990s, for example, we released a lot of skilled staff when the oil price fell to about $10 a barrel, and then found it difficult to scale up again when the market recovered.
  
Today, we’re taking a much more consistent approach, recruiting new talent continuously through the business cycle.
  
We’re also recruiting more strategically: hiring both people who have the skills we need today, and those we’ll need tomorrow.
  
Even during the recent economic downturn and in the midst of a major corporate restructuring at Shell that removed 7,000 jobs worldwide, we aimed to recruit about 1,000 graduates a year, up from around 400 in 2003.
  
About two-thirds of those new recruits are in skilled technical disciplines. When we have had to cut jobs, we’ve been careful not to disrupt the talent pipeline of skilled young workers.
  
We’ve developed close links with leading universities such as Cornell in the USA, Imperial College London, and the Technical University of Delft in the Netherlands, assigning a senior Shell employee to manage our relationship with each university.
  
Every year our engineers and scientists visit universities to discuss career possibilities and conduct interviews in person.
  
That’s helped to improve our standing as an employer of choice among students, ensuring we consistently attract the top talent in every field.

Skills development

That brings me to my second point.   

Once we’ve got the people we need, we must ensure they have the experience and skills to tackle big energy challenges and deliver our business strategy.
  
In fact, for decades, Shell has had a sophisticated system for nurturing our core technical, commercial and functional skills. 
  
One priority is to retain close oversight of employees with the most sought-after skills. This allows us to manage all aspects of their career journeys, from graduate recruitment to pay and performance management.
  
In particular, we need to ensure that our technically skilled employees are globally mobile. So we are preserving a strong pool of expatriate employees, amid fierce cost pressures across the industry.
  
This allows us to continue to develop our engineers on foreign assignments, while maintaining a strong global stock of skills.
  
I’ll come back to the theme of global talent management in a minute.

Project management skills

In recent years, we’ve sharpened our focus on some critical areas of skills development.
  
One of Shell’s main sources of competitive advantage is our ability to manage huge, complex projects in extremely challenging environments.
  
To give you an idea of the size and complexity, take our Pearl gas-to-liquids project, currently nearing completion in Qatar. We’ve invested $18-$19 billion there. At the peak of construction, more than 50,000 workers from more than 50 nations were building a maze of pipes, valves and giant steel vessels on a site the size of 350 football fields.
  
Summertime temperatures in the desert can surpass 45 degrees and there were days when we simply had to tell construction crews to stop work for safety reasons.
  
It will be the world’s largest plant of its kind, capable of turning natural gas into clean-burning liquid transportation fuel, high-quality lubricants and other products. Shell has been perfecting this technology for more than 30 years and holds about 3,500 patents in the gas-to-liquids process.
  
This is just one of many major Shell   projects spread out across the world.
  
We plan investments of more than $100 billion between 2011 and 2014, a period during which 20 major projects are scheduled to start production.
  
With so much activity, it would be all too easy for our approach to project management to lack coherence.
  
So in 2005, we set up the Shell Project Academy, which teaches and assesses the technical and commercial skills our employees need to become first-class project managers. The curriculum covers the entire career journey, giving young engineers a clear route to project management jobs in the company.
  
All of which has helped to improve our delivery of major projects like Pearl, which we expect to come on line later this year and reach full production capacity next year.
  
But we are pressing for renewed momentum here. Last year, for the first time, 10% of Shell employees’ annual bonus was determined by the company’s performance in delivering projects.  
  
And in 2009, we established our new Projects and Technology business, which has assumed global oversight for the technical delivery of our major projects. 
  
Through this, we are driving a culture of continuous improvement and technical excellence.

Boosting our commercial savvy

When discussing Shell’s projects, our deal-making skills also come into sharp focus.
  
More than ever in the current climate, our acquisitions and partnerships must be well-timed, consistent with the business’s growth strategy and financially sound.
  
Around five years ago, we established the Commercial Academy to identify the most talented dealmakers in the company and teach important skills like negotiation and relationship management.
  
With many Shell employees working on deals, whether as deal leaders, lawyers or finance staff, it has helped to boost our M&A prowess.
  
That is reflected in our recent deals. A great example is our agreement to form a joint venture in Brazil with Cosan, the country’s biggest producer of biofuels.
  
The joint venture, named Raizen, will also distribute fuels through a network of 4,500 Shell-branded service stations. Raizen officially began operation a few days ago.
  
The expected increase in biofuels demand makes the timing right for our move into biofuels production. And with biofuels already commanding around one-fifth of the Brazilian fuels market, this is an excellent location for developing our business.

Promoting sustainable development

In the area of skills development, sustainable development is a longstanding priority.
  
The ability of our staff to win the trust and confidence of communities affected by our projects has never been more important.
  
But we can only be successful if project managers and other key staff have strong skills in areas from stakeholder engagement to preserving the integrity of ecosystems.
  
To this end, we run a sustainable development master class programme for project managers, commercial and technical staff.
  
This is backed up by more specific training for projects in areas of acute social and environmental sensitivity. For example, as part of a recent project in Canada that could impact the lives of long-time indigenous residents, we required all our employees to undergo cultural and environmental awareness training. And we sent project managers on a week-long immersion programme.  
  
Voluntary initiatives also deepen our employees’ understanding of sustainable development. In 1998 volunteers from Shell set up Project Better World to offer Shell staff the chance to promote sustainable development in NGO projects around the world.
   
Over the subsequent decade, Shell employees have given tens of thousands of hours of their time and expertise to projects run by the likes of the Earthwatch Institute and United Nations Volunteers. And they in turn have learnt valuable skills that improve Shell’s management of sustainable development.

HR’s contribution: global skills management

Before I wrap up, I’d like to expand on a theme I already touched on several times.
  
Taking a global approach to talent management can be a powerful enabler in achieving business objectives – and in the case of Shell, addressing the world’s energy challenges. 
  
From recruitment to skills development and on-the-job training, it helps build a pool of talented people. And it gives businesses the flexibility they need in a fast-changing world. 
  
At the outset I mentioned the human resources challenges we face getting people with the right technical skills in China, where we are working with national oil companies to increase production of cleaner-burning natural gas.
  
We have taken several approaches to building a pool of skilled workers there.
  
We’ve taken local hires in technical disciplines and sent them on short-term assignments in other locations.
  
For example, by sending young Chinese gas engineers to Houston to get deeper hands-on experience in a country where we have for decades been developing the know-how to tap tight gas resources.
  
We have recruited new talent from elsewhere in the region, for example by encouraging Malaysian retirees to come and work for us in China.
  
And we have relocated existing Shell employees with the necessary skills to China. We’re planning to send about 50 more expatriate staff there this year.
  
But developing a deep talent pool in new locations remains a significant challenge, which our HR function must work hard to address.

A global HR function

Of course, this kind of global approach can only work if the HR function is also organized globally. In some companies, HR is fragmented, with reporting lines tied to individual business units, or geographic regions. 
  
That used to be the case at Shell, thanks largely to the way the company evolved in its century-old history. But over the last ten years we have built a truly global HR function, capable of managing our talent across more than 90 countries. 
  
We have a clear line of sight from the top to the bottom of the organisation. All 3,500 HR professionals report though the HR function, rather than the business to which they are attached. And all major HR decisions are taken by a 10-person executive leadership team.
  
And as you have seen in some of the examples I’ve given, we also manage our core technical skills on a global basis. Dedicated talent managers work with global business leaders to assess requirements and to ensure that the appropriate professionals can be deployed where they are needed.

Conclusion

In conclusion, the ability of HR to recruit and manage talent effectively matters more than ever.
  
The twin pressures of rising energy demand and climate change are creating an enormous global energy challenge for society.
  
At Shell, our business strategy is shaped by it.  And that in turn creates a major HR challenge.
  
In order to supply more energy in a more sustainable way, it’s vital that Shell has the right people, with the right skills, in the right places.
  
I think we’re doing that better than ever. But there is still more to do, and more we can learn.
  
And in that spirit, I look forward to your comments and questions.
  
Thank you.