A global enterprise operating in a host country – HR strategy
Premium Oil and Gas (POG) is the Dutch holding company of one of the world’s largest petroleum and gas groups. The organisation employs over 80,000 staff in 80 countries and is best known to the general public through its 25,000 service stations.
POG’s main activities are the exploration and production of crude oil and natural gas, together with the marketing, supply and transportation of these products. The company earns revenues of around ?100 billion per annum based on its daily production of two million barrels of crude oil and eight billion cubic feet of natural gas, plus daily sales of six million barrels of refined products.
Over 90 per cent of POG’s executives are Dutch nationals, of whom five per cent are women. This
concentration can be explained by the company’s Dutch origins and its consequent patterns of recruitment. Recently, however, POG’s Chief Executive Officer, Ruud van der Zende, has pronounced that for the company to achieve its aspiration of being a ‘truly great global company’ it must work towards building a top management team that is visibly diverse. It should also continue to strive towards being ‘genuinely meritocratic’ at every level, attracting and retaining talent across the globe regardless of
background, gender, nationality or sexual orientation. POG’s stated intention is to respect different cultures and the dignity of individuals in all countries.
The company also aspires, says van der Zende, to be a ‘modern, global learning organisation’. This
will, he claims, enable success to be spread right across the company. The aim is to run a company that
is responsive and flexible and that is distinguished by core values and objectives that are embedded everywhere.
This vision represents quite a challenge for a giant of a company that seeks to connect its central (group) headquarters with more than 120 decentralised business units. Business unit leaders are ‘encouraged’ to operate in many ways as if they are running their own separate business, but they are
also ‘required to comply with group policies and are absolutely accountable for the achievement of annual performance targets, which are subject to regular monitoring’. The rationale behind this management structure is its professed ability to ‘facilitate rapid responses to new situations without the need for constant referrals to headquarters’.
One such business unit is POG Azerbaijan, enticed by the oil and gas reserves of the Caspian Sea, which are comparable to those in the USA and the North Sea. POG has been involved in offshore exploration in Azerbaijan for ten years, but has only recently begun actual production, delayed by political uncertainty and complex government relations. The development of offshore platforms and export pipelines represents for POG a ?10 billion investment, which is critical to its long-term future.
The CEO of POG Azerbaijan is an experienced Dutch expatriate, Edwin de Boer. He heads up a company of almost a thousand employees, of whom 40 per cent are Azerbaijani nationals. However, over the next five years the workforce is set to double and de Boer has targeted to increase the local workforce to 90 per cent of the total. Privately, though, he thinks this is unrealistic. Recruiting qualified engineers (mechanical, electrical, production, instrument) and geosciences specialists will present particular difficulties, even though the company has an annual recruitment programme for graduates and trainees every spring. Other areas for active recruitment include drilling, commercial, health, safety and environment, public relations and human resources.
Interviewed recently for the company magazine, de Boer explained how one option for POG Azerbaijan would have been to rely on experienced expatriates to do the whole job, but that was not POG’s way. His focus, he said, was on the recruitment of nationals, who could be developed so that they can ultimately manage the operation. Right now, 40 Azeri employees were undergoing technical training at POG’s development centre in the Netherlands. For one thing, he continued, it costs considerably more to bring expatriates to Azerbaijan and it was important to employ those who understand the local environment, who know how to get things done. This fitted in with the company’s belief in recruiting the
best-possible staff to plan, build and operate the platforms and pipelines. A constant concern, however, was that Azeri standards were currently well below international standards on health and safety.
Recruitment and selection is a key function in a meritocratic company committed to employing the ‘best of Azerbaijan’s well-educated workforce’. Unfortunately, expatriate and local managers are known to ‘turn a blind eye’ to the nepotism and networking that secures employment. In order to combat such
possibilities Group HR has instituted its assessment centre process for the Azerbaijani operation, including the use of standardised psychometric testing, designed to ensure consistency of selection worldwide.
However, the local HR services manager has expressed some reservations. Ongoing evaluation of the process has raised questions over the validity of westernised tests for the selection of nationals. In addition, candidates have shown their distrust of a process they see as impersonal and alien, at odds with more familiar face-to-face methods of recruitment.
With regard to training, Group HR, based in Amsterdam, is very much the champion of the ‘learning organisation’ advocated by van der Zende and is investing heavily in the Learning and Development (L &
D) division of its Azerbaijani subsidiary.
The L & D team of five local staff, headed by a Dutch expatriate, is fully stretched. Its main responsibility is for the six months’ dedicated training provided for each new intake of technician grade
personnel, who are selected for their technical expertise and (preferably) previous experience with one of the national oil companies. In practice, L & D has to deliver three training and development programmes a year, covering a total of 120 entrants. Ominously, the planned expansion of POG’s Azerbaijani operations will require future investment in the training of 600 over the next five years.
In addition to specialist modules in technical subjects and company procedures, English as a foreign language is taught every day throughout the six months. By contrast, the expatriates are not required to learn either of the local languages of Azeri or Russian.
Another key module is ‘Communication and Team Working’, which is seen by Group HR as a
vehicle for promoting POG’s corporate culture. Trainees find aspects of this module particularly alien. They are inherently suspicious of western multinational corporations, unlike their Azeri colleagues with several years’ service, who appear to have internalised the POG ‘mindset’ and as a consequence tend to deride their newer co-workers’ reluctance to follow suit.
In communication skills, trainees undertake activities that encourage them to adopt behaviour patterns that are consistent with the open and questioning culture of POG. Trainees are taught not to be afraid to ask questions, to raise issues with their managers and to learn from their mistakes. Trainees have found these ‘simple’ lessons problematic and the trainers have experienced initial difficulties
engaging the trainees’ active involvement.
For locals to ask a question is to admit to not knowing, incurring ‘loss of face’. To raise an issue with a manager is also resisted. In a society typified by deference to authority there is a fear of undermining
your superior’s authority, with the danger of damaging relations with that manager. To learn from one’s mistakes is also difficult, since it first requires admission of being responsible for an error!
Group HR has assumed that a collectivist society like Azerbaijan will be ideal for ‘teamworking’, so that any skills training in this area should be fairly straightforward. Yet trainers have found this especially challenging, since Azerbaijan is also a status-conscious society. Group HR aims to promote teamworking based on shared responsibility and equality of status, whereas in Azerbaijan team members are recognised for the status they bring with them. Hence, their teams inherently operate on the basis of the recognition of inequality.
Initial delivery of ‘Communication and Team Working’ modules has been by a visiting British academic, who is perceived by his trainees as an ‘expert’. He shares each session with a local L & D officer, a highly qualified but young female, with the intention of eventually devolving the training delivery to her. Unfortunately, such a transition is proving impossible. The trainees resent being addressed by such a person, since Azeri male oil workers find it offensive to accept advice or instruction from a local female, and the head of the L & D team is reluctant to cause an upset.
There is no doubt that it will be the effective contribution of the company’s human resources that will secure its future success at a time of significant expansion, but this case study raises some pressing HR issues and there remains a big concern over the degree of integration between Group HR and the HR function in Azerbaijan and a need to embrace the rhetoric from Amsterdam and the reality as seen in
Activity Managing HR in a global enterprise
1. POG can be identified as a MNC and a global enterprise, but how would you classify the
a) organisational structure,
b) orientation to national culture, and
c) staffing arrangements?
2. What evidence is there to suggest that the senior decision-makers of POG aspire towards
creating a ‘transnational’ organisation?
3. To what extent and why does POG fall short of being a ‘transnational’ organisation?
4. To what extent are the HR issues identified in POG Azerbaijan explained by a gap
between Group’s rhetoric and the locals’ reality?
5. What steps would you recommend to secure and develop the effective contribution of the
company’s human resources towards achieving POG Azerbaijan’s long-term success?
6. Reflecting on your reading and analysis of this case study, what have you learnt about managing human resources in an international organisation?