Case Study - Fracturing The Labor Market

M216: WORKING ANALYSIS OF THE CASE
Fracturing the Labor Market – Employment in the Oil Services Industry
I. SUMMARY OF THE CASE

Fluctuating oil prices have greatly impacted employment in the oil services industry.
The change from a $100 per barrel price in 2011 to a $26.21 price in 2016 left a lot of the oil
industry workers unemployed because of slow business. Thanks to new technologies in
drilling, fracking, and locating rich oil deposits, over the past three years, there has been a
substantial growth in the industry which resulted in the doubling of crude oil prices at around
$55 to $65. Since business is booming, there has also been a surge in employment. However,
CEOs in the oil industry are worried that this boom of oil prices will not last given that
finding good shale formations are still a hit-or-miss.
II. POINT OF VIEW

➢ Oil industry company CEOs
III. CENTRAL ISSUE

What HRM strategies can the companies in the oil service industry implement to
achieve optimum business operation with enough employees considering the fluctuation of
oil prices that greatly affect employment?
IV. AREAS OF CONSIDERATION

● Fluctuation of oil price affects employment in the oil service industry. Jobs were rare
and people were out of work when the price of oil was low.
● The rising oil prices fuel orders with National Oilwell Varco Inc. an oilfield-
equipment giant but commitments are very difficult to keep because they can’t afford
the drivers.
● Based on the Bureau of Labor Statistics, total unemployment is at 7.5million while
those with long-term unemployment (workers out for work more than 26weeks) is at
1.8million
● Shift of employment in the oil market segment is not evident while construction
employment grew by 177,000 over the last six months, heavy & civil engineering
construction added 15,000, and 36,000 in specialty trade contractors
● The boom in crude oil for over the past years has been supported by new technology
that enables faster drilling, more intelligent fracking, ang locating a greater quantity of
rich oil deposits
● However, finding good shale formations are still a hit-or-miss
● United States is leading in the last oil surge with Canada following
V. ALTERNATIVE COURSES OF ACTIONS (ACA)
ACA 1: Arrange renewable fixed-term employment contracts

PROS:
➢ Fixed-term contracts which specify the duration of employment (e.g. 6 months or 1
year) provides flexibility to oil service companies if the price fluctuates again.
➢ They can opt to hire more people when oil price is high, and not renew expiring
contracts once the oil price plummets.
CONS:
➢ They may not be able to cater orders quickly because they would need some time to
onboard employees if ever there is a sudden shift in oil price from low to high
➢ Employee retention will be difficult because employees would look for a more stable
job.
ACA 2: Arrange project or task-based employment contracts

PROS:
➢ This also provides flexibility in case oil price fluctuates because employment
contracts will be project or task based depending on the manpower needed by the
company per order.
➢ The company would not have to worry about under-utilized workers because they can
assign an optimal amount of workers per project/order for higher profitability.
➢ The company can continuously improve the quality and efficiency of their services by
only rehiring high performing workers for future projects.
CONS:
➢ They may not be able to cater orders quickly because they would need some time to
onboard employees if ever there is a sudden surge of orders.
➢ Project or task-based contracts might vary in duration and in salary which might not
be appealing for workers who are looking for stability and higher pay.
ACA 3: Implement variable pay that depends on the company performance rather than
a fixed salary
PROS:
➢ Companies will have a relatively lower labor cost versus giving employees fixed
salaries
➢ Encourages employees’ productivity
➢ Employees can benefit immensely when the business performance is stable or
booming.
CONS:
➢ Competition between employees
➢ Industry downturns translate into lower pay and stopping bonuses.
➢ It might be difficult for the company to retain employees when the business is doing
poorly
➢ Employee retention will be a challenge for the company, it can increase employee
turnover that can hamper the quality of work in the company
ACA 4: Promoting flexibility in human resource through self-organized capacity

management
PROS:
➢ Flexibility through self-organized capacity management can empower workers in
managing and taking control of their own schedules and tasks.
➢ Promotes employee motivation and work-life balance.
➢ Shortens the response time for companies, particularly in volatile markets such as the
oil and gas industry.
➢ Generally prevents the amount of work needed in managing capacity, thus limiting
unproductive times for employees and the company.
CONS:
➢ Management of the companies will have lesser control on the work-load of the
employees
➢ Transition to this type of management might be difficult for employees who are used
to traditional types of management.
➢ Chances of employees not working to their full potential due to limited supervision.
VI. RECOMMENDATION
Implementing project or task-based employment contracts seems more appropriate for

oil service companies because of the unpredictability of crude oil prices. Even with the
improved technologies in drilling, fracking, and locating oil deposits, finding good shale
formations are still a hit-or-miss. Given how the fluctuation of oil prices greatly impact the
ability of the companies to employ workers, employment contracts that are based on the
availability of work would work well in the favor of companies. If oil prices are high and
work is in demand, companies can hire the appropriate number of workers depending on the
job to be completed. Once the job is over, the contract ends. This way, when oil prices are
low, companies would not have to sustain the salaries of unutilized workers. However, this
might not impact the long term unemployment rate for the industry since project or task-
based contracts vary in duration and might not last 26 weeks.
REFERENCES
Fixed-term contracts as a source of labour demand fluctuations. (2017, July 14). Taylor &
Francis. https://www.tandfonline.com/doi/abs/10.1080/13504851.2017.1352070?
journalCode=rael20
HR Strategies for Oil & Gas – Latest News. (2017, July 17). Bauerticker.Uh.Edu.
http://bauerticker.uh.edu/faculty-staff/hr-strategies-for-oil-gas/
Member, F. (2013, October 17). KapaFlexCy – Self-organized Capacity Management in

Cyber-Physical Systems. SAP Blogs. https://blogs.sap.com/2013/10/17/kapaflexcy-self-
organized-capacity-management-in-cyber-physical-systems/
What is temporary employment? (2016, November 11). Www.Ilo.Org.

https://www.ilo.org/global/topics/non-standard-employment/WCMS_534826/lang--
en/index.htm
Wilhelm, B., Moritz, H., Stefan, G., & Tobias, S. (2014). PLANNING FLEXIBLE HUMAN
RESOURCE CAPACITY IN VOLATILE MARKETS. IFAC Proceedings Volumes, 47(3),
4459–4464. doi:10.3182/20140824-6-za-1003.01221

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M216: WORKING ANALYSIS OF THE CASE

Fracturing the Labor Market – Employment in the Oil Services Industry

I. SUMMARY OF THE CASE

II. POINT OF VIEW

III. CENTRAL ISSUE

IV. AREAS OF CONSIDERATION

V. ALTERNATIVE COURSES OF ACTIONS (ACA)

ACA 1: Arrange renewable fixed-term employment contracts

ACA 2: Arrange project or task-based employment contracts

ACA 4: Promoting flexibility in human resource through self-organized capacity

Implementing project or task-based employment contracts seems more appropriate for

Member, F. (2013, October 17). KapaFlexCy – Self-organized Capacity Management in

What is temporary employment? (2016, November 11). Www.Ilo.Org.

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