In order to meet growing energy challenges, energy companies such as Shell must maintain a global talent pool. Although the average age of Shell employees is not increasing, population ageing is a source of complexity and volatility for the energy industry. Specialised skills like deep-water drilling can take decades to acquire and when older workers retire it can be difficult to replace them. In this speech Hugh Mitchell, Shell’s Chief Human Resources and Corporate Officer, explains what Shell is doing to ensure that workforce ageing does not lead to the loss of critical skills in the longer term.
Grey jobs: challenges and solutions in the workplace
Thank you. It’s a pleasure to be here, and to take part in such a thoughtful and stimulating debate.
This is also an appropriate venue: Chatham House was once the home of William Gladstone, who was Prime Minister four times: once in his late fifties, twice in his seventies, and again between the ages of 82 and 84.
Clearly, working until later in life is not an entirely new phenomenon.
Previous speakers have focused on ageing in Europe, and its effect on public finances. I’m going to focus on the global outlook and the impact of demographic change on business, before offering some thoughts on the basis of Shell’s experience as an employer of 93,000 people in over 90 different countries.
At the risk of contradicting some of what you’ve already heard, I’m going to begin by saying that, for Shell at least, there is no ticking time bomb.
Continuous recruitment of young graduates means that the average age of our employees has remained stable at around 41 for the past five years.
Outside Europe, the average age is actually decreasing.
Around 60% of our staff are under 45, and there’s no looming crunch point at which they will suddenly all retire.
The global energy challenge
We do, however, face big challenges in some areas.
With the global population set to rise from 7 billion today to 9 billion in 2050, global energy demand could double or even triple in the first half of this century.
Demand will grow particularly strongly in developing countries, where a new generation of consumers are buying their first cars, computers and fridges. By 2035, energy consumption in non-OECD countries could rise by nearly two-thirds, compared with just 3% in OECD member countries.
Even if we assume energy supplies will grow and energy efficiency improve, this could still leave an enormous gap between supply and demand – a gap equivalent to the size of the world’s whole energy industry in 2000.
At Shell, our scenario planners call this a “zone of uncertainty” looming over the global economy. To bridge it, we will need an enormous expansion in energy supplies, coupled with extraordinary measures to moderate demand.
The workforce challenge
In this context, an ageing population is a further source of volatility and uncertainty. And although Shell doesn´t have an overall problem with workforce ageing, it is exacerbating the energy challenge in some parts of our business.
In particular, we depend on highly skilled engineers and scientists. People like reservoir engineers, geologists and deep-water drilling specialists have deep technical expertise acquired through decades of experience. When they retire they can be difficult to replace.
According to one recent report, the energy industry could lose 5,000 experienced scientists and engineers between 2010 and 2014.
We´re also vulnerable to skills shortages in emerging markets where demand growth is outpacing the availability of experienced energy workers.
In China, for example, energy demand could increase by up to 75% in the next 25 years. Clearly, it will be a challenge to find enough skilled scientists and engineers to meet that kind of growth.
Occasional skills shortages have also been exacerbated by the volatile nature of our industry. In the past, recruitment has sometimes tracked energy prices, slumping when the oil price fell and then creating staff shortages when the price went up again.
And the physically demanding nature of some jobs poses a further challenge: older workers may be less willing or able to do manual work offshore, or spend years on construction sites far from home.
Recruiting through the cycle
At Shell, we’re working hard to avoid a scramble for skills in the future.
One way we´re doing this is by recruiting through the economic cycle.
We need to ensure that as employees retire from the top of the career ladder, there’s enough new talent coming in at the bottom to replace them.
Even during the recent severe economic downturn and a corporate restructuring which removed around 7,000 jobs worldwide, we’ve aimed to recruit about 1,000 graduates a year, up from around 400 in 2003. Two-thirds of our graduate recruits are in technical disciplines, and we hope many of them will go on to become experts in their field.
Taking a strategic approach
It’s also important for us to take a strategic approach to resourcing; recruiting people who have not just the skills we need today, but those which we´ll need tomorrow.
In 2002 we introduced the Shell People system, a global information system which gathers data on all our 93,000 employees.
Using that data, we continuously model the demography of our workforce to identify developing skills gaps, and then act to fill those gaps before they grow.
For example, a few years ago we realized that retirements could cause a shortage of project managers capable of overseeing major projects. We have $100 billion of net capital investments planned between now and 2014, many of them large and complex construction projects.
An example would be Pearl, which is the world´s largest plant for converting natural gas into fuels and lubricants. To give you a sense of the scale of such a huge energy project, it took one million hours to design, four years to build, and at the peak of construction it used enough steel and pipes to build two-and-a-half Eiffel Towers every month.
So excellent project managers are essential. To ensure we have them, we created the Shell Project Academy, a partnership with four universities worldwide teaching project management skills.
In other cases, we can fill potential skills gaps by tapping into our global talent pool. In one recent example, when no local staff had the right skill set to replace a departing manager of a key asset in Brunei, we reassigned an American from the Netherlands to fill the role.
Retaining critical knowledge
But preventing skills shortages is not just about replacing workers as they retire. To ensure continuity, skills must also be transferred from one generation to the next.
We do this through something called the ROCK process – Retention of Critical Knowledge.
Each year, our HR department compiles a list of people who are likely to retire and have unique skills which may be difficult to replace.
Through a series of structured interviews with managers, colleagues, and the retiring expert a detailed guidebook summarising the individual’s technical knowledge is developed, which is accessible to his successor.
This relatively simple process helped ensure that best practice which took years to learn did not disappear overnight.
We also transfer knowledge by giving older workers formal roles as mentors to the next generation.
For example, our nine Chief Scientists are all world experts in technical fields like geology but have jobs designed to keep them engaged in hands-on practical work as role models and mentors for younger staff.
Around 7,500 expatriate workers play a similar role, passing their skills on to younger local colleagues in places like Brazil and Singapore, as well as here in Europe.
For example, Fred, a Dutch engineer specialising in constructing gas pipelines, recently retired in Qatar.
After taking a well-earned break, Fred returned to the Netherlands, where he now works three days a week teaching younger engineers.
He gets to spend less time working and more time with his family, and we get to keep benefiting from his decades of experience.
The bigger picture
To finish, I’ll talk briefly about the bigger picture: what Shell´s global experience can teach others about managing an ageing population.
Perhaps the most important lesson is that there is no one-size-fits-all solution.
This is partly because demographic trends are far from uniform: here in Britain the population may be ageing rapidly, but in many emerging markets the opposite is true.
In Oman, for example, less than a thirtieth of the population is over 65, compared with a sixth here in the UK. While the average Brit may be 40 years old, the average Omani is just 24.
Raising retirement ages
This demographic diversity means that unilateral policies like raising the mandatory retirement age are not enough.
For one thing, governments aren´t gaining much ground through that approach. By 2050 the average official retirement age for men in the OECD is expected to have risen by 1.6 years. But over the same period the average life expectancy will have risen by three years.
What is needed is not just later retirement, but more flexible retirement. In a knowledge economy, it doesn’t make sense for someone to work continuously until an arbitrary cut-off date and then stop working completely, forever.
In some countries, such as the Netherlands, pensions are already fairly flexible, and people like the gas engineer who I mentioned earlier can work part-time while receiving a company pension part-time.
But in other countries there is less flexibility. For example, US regulations prevent individuals from continuing to work for an employer once they begin receiving a pension from them, so such part-time pension arrangements are not permitted.
Governments need to think carefully about how they can remove these barriers, and help people prolong careers or start new ones later in life.
As people live longer, retirement should become a process, not an event.
At Shell, tackling global challenges like rising energy demand and climate change has taught us that seemingly intractable problems are solvable as long as you take a strategic, collaborative, global approach.
Population ageing is another such challenge: one which can be met if governments, businesses and individuals all work together.
And in that spirit, I look forward to hearing your questions.