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Published: November 27, 2012
 / Winter 2012 / Issue 69

 
 

Talent Is a Strategic Asset: A Virtual Roundtable

At Devon Energy, building the most critical capabilities requires a high-touch approach to human capital and the HR function.

 

 

 

Many business leaders talk about treating human capital as a strategic asset, but few companies put the idea into practice. For many years, this was especially true in the oil and gas industry, where HR strategy — including recruiting, training, career development, and succession planning — was not seen as a top priority. More recently, however, the HR function in many energy companies has begun struggling to fill positions. The industry is suffering from a pronounced shortage of skilled, experienced technical professionals — especially those who can design, operate, and manage complex oil and gas exploration and production projects. This is an unintended consequence of the industry’s talent practices in the mid-1980s: When the oil price fell, companies stopped hiring, and a generation of geological science and engineering students chose other fields of study instead. Now, as turnover rates rise and competitors lure away skilled engineers, this talent gap means that human capital capabilities have been strained for nearly every company in the industry.

One notable exception is the Devon Energy Corporation — a rapidly growing oil and gas company. Devon has built its HR strategy around attracting and retaining high-caliber people, and putting in place a thoroughly capable HR structure to support and develop them. This contrasts with the widely held idea that line managers should be directly responsible for appraising, developing, and setting the career paths for people. At Devon, those are seen as specialized professional responsibilities.

Devon is also known for its disciplined overall strategy, focused on a few strong capabilities, in which it continues to invest heavily. Founded in 1971 in Oklahoma City, the company operates exclusively in the United States and Canada, producing about 680,000 barrels of oil and natural gas equivalents per day. The company has always had a distinctive culture; it was started by a father-and-son team, John and Larry Nichols, who were known for their pragmatic, self-effacing approach to business. One of the company’s core leadership values, which was inspired by the Nicholses’ personalities, is to be “egoless.”

At the start of the 2000s, Devon held a diversified portfolio of assets, including international oil fields and deepwater drilling programs in the Gulf of Mexico. But the company then began concentrating on the newly emerging shale-based resources onshore in North America. It reasoned that its most distinctive advantage was in hydraulic fracture well completions and other shale-related technologies. Soon Devon was the largest operator in this sector, managing many of the prominent shale gas and oil deposits in northern Texas (home to the Barnett Shale, estimated to be the largest such field in the U.S.), Oklahoma, and Canada.

This strategy paid off as oil and gas demand increased during the early and mid-2000s, but Devon, like all other oil and gas producers, remained vulnerable to the industry’s cyclicality. When the recession came in 2008, and decreases in demand reduced hydrocarbon prices, the company’s leaders made the decision to sell off its international and offshore operations and to focus even more on the onshore assets in North America.

Over the next few years, HR strategy and talent practices became a major source of Devon’s competitive advantage. That is the subject of this narrative. It is told by four Devon business leaders who were directly involved. David Hager, Devon’s executive vice president of exploration and production, was one of the executives on the ground who keenly felt the need for change; in effect, he was a client of the HR team. Frank Rudolph, executive vice president of human resources at Devon, was recruited in 2007 precisely because he believed that HR professionals should be directly accountable for building organizational capabilities, not just for the minutiae of HR work. Tana Cashion, vice president of human resources at Devon, was present through the transition and saw firsthand its effect on both the talent-related functions and the company as a whole. And David Eberhardt, Devon’s director of human resources strategy and planning, was brought in to help manage the transition. (Previously, he worked at Booz & Company, the management consulting firm that publishes this magazine.)

 
 
 
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