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With turnover reduction consistently a top agenda item for companies, why are so many companies unable to stop the bleeding?

After five years of war in the Middle East, extended absences from home, poor working conditions, and high mortality rates for service members, the military was baffled to find re-enlistment rates for combat veterans on the rise. Following a study, the military attributed the anomaly to the following factors:

  • In combat, decision making is pushed down to the small unit leaders
  • Poorly performing members are removed from their units
  • Service members are provided the proper incentives to stay with their unit

After analyzing the results of the study, all branches of the military integrated these factors into everyday non-combat operations. Retention rates now remain steady, even as combat operations dwindle and re-enlistment bonuses shrink.

Companies with the highest retention rates have utilized the same basic principles to reduce the turnover of critical resources. Regardless of industry, empowering local managers, removing poorly performing employees, and providing the right incentives to the right employees will have a positive impact on a company’s bottom line.

Empower Local Managers

After years of growth, many companies have added layers of bureaucracy to their organization in an attempt to maintain the appropriate controls within the company. The resulting organization structure is often built around centralized decision making. The reality is too many controls prevent employees from doing their jobs. Employees spend more time navigating around processes than actually performing work. Frustration sets in and turnover results.

Companies can eliminate frustration by putting the right decentralized organizational structure in place, which empowers managers and employees to make key decisions and focus on serving customers. Leading services companies are reorganizing their business first by region and then by service offering. Organizing in this manner allows companies to maintain a consistent interface with customers and adapt quickly to local market conditions without sacrificing standardization of service offerings. Senior management retains control over the business and operations managers who then keep control over service offerings. Employees can focus on serving customers without the frustration brought on by bureaucracy. Turnover is lower.

One of our clients was losing business because centralized decision making delayed service delivery to customers. All bids were being reviewed at headquarters and were often approved after customers had already chosen a competitor and started the project. Bids that made it to customers on time were often not competitive because regional price differences were not considered. Senior management recognized that centralized organizational and decision making structure needed to be replaced with one more aligned with competitive business drivers.

We helped the company realign along regional and service lines, which empowered local managers to run their business units. With fewer controls, managers could spend more time managing their business and many were able to exceed revenue targets. The increase in business unit efficiency and ownership of local managers was immediate. The unintended consequence was that new ownership also increased loyalty to the company, and turnover among local managers and staff began to fall.

The military created high-performing units by empowering unit leaders to make key decisions under fire. It’s clear that employees will do a better job focusing on client service when allowed to make key decisions without having to work around a centralized structure.

Get Rid of the Bad Apples

Field hands are loyal to their managers, not to their employer. Hands will often move to a new company for as little as a $1 per hour when the feel wronged by a manager. It’s not unusual to see groups of field hands follow managers with strong leadership skills from company to company. An office with a manager lacking leadership skills faces losing all of the good employees and a reduced pool of candidates.

Successful energy services companies are focusing on retaining good managers and eliminating the bad ones. Like rotten apples, managers without leadership skills attract other rotten apples. This includes field hands who may not be the best at what they do, administrative staff who aren’t efficient, and assistant managers who lack key skills. Energy companies who replace bad managers provide better customer service and have lower turnover of key employees.

Senior management at an energy services company was frustrated by stagnant growth at an office in a region that was enjoying triple-digit growth in exploration and production activity. Prices were changed, service offerings were expanded, and the sales organization was re-trained. None of these efforts were successful. The manager felt the pressure was too great and unexpectedly left to work for a competitor. The company was concerned because all of the manager’s subordinates left as well. However, within less than 24 hours, the number of job applicants far surpassed the number of hands that had left and a new manager candidate was identified. Within less than three months, customer satisfaction was high and the office was growing at the desired rate. Turnover had dropped well below industry average. It was at zero.

In hindsight, the company realized the manager lacked leadership skills, which affected all aspects of office activities. The company now has an active program to identify and train managers lacking leadership skills. Those who cannot change are replaced.

The military has learned that replacing a rotten apple can quickly build a cohesive unit. Energy services employees will rarely build ties with a company but will remain loyal to a manager with strong leadership skills. Companies must be prepared to retain strong managers with the right incentives.

Provide the Right Incentives to the Right Employees

Most energy services companies consistently provide the same base incentives for all levels across the organization. In reality, each level needs to be considered separately. Managers often view a complete compensation package as base pay, bonuses and benefits, and long-term potential and recognition. However, field workers would rather have an extra $100 in their pocket than medical coverage or long-term job security. As a result, a large percentage of companies’ revenue is spent providing incentives employees aren’t interested in.

We recently worked with a client whose HR department forced field hands to use their vacation days by the end of the year. However, the hands were often working in overtime by mid-week, and substituting a week’s work for 40 vacation hours would cut paychecks by more than half. Though employees expressed frustration and said overtime was more important than vacation, the company stood its ground and forced hands to take vacation by the end of the year. To the HR department’s disbelief, few hands returned to work after being forced to take vacation because they were already working for another company. Managers were frustrated by losing good hands and started leaving as well. Other hands followed.

When a field hand leaves the company, there’s little impact on revenue and labor can be easily replaced. However, the moment a manager quits, revenue will drop. The military has been successful with providing large re-enlistment incentives to mission-essential service members, while non-essential members received little to no incentives.

Identifying key resources and then retaining them using the right incentives is critical for companies. This is less about ignoring one group of employees for the sake of another and more about providing incentives most attractive to an employee. Providing the proper incentives not only helps companies retain managers, but also helps companies increase retention of field hands who are loyal to the managers.

Strategy for Success

The lowest turnover rate oilfield services companies can generally achieve is 25-30%. However, reducing turnover by just 3% or 4% will have an immediate impact on companies’ bottom line and must start with local management. Giving managers the necessary freedom to make decisions, getting rid of the bad apples, and providing the right incentives to the right employees are all key to reducing turnover. We have assisted service companies in reducing turnover by following these basic guidelines and adapting to industry trends.

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