The news that 1000 PETRONAS employees will be laid off spreads fast, even before the Petronas Townhall 2016 ends. It is then confirmed on its official website,
“Consequently, this group-wide transformation is expected to result in redundancies of under 1,000 positions“,
“The new structure – designed for a flatter, leaner and more efficient business operating model – is a part of deliberate, sequential measures that PETRONAS is undertaking to better navigate the organisation through tough external environments”
Excerpts from Media Relations Department, PETRONAS.
The key word here is efficiency. But how do we measure efficiency? What benchmark can we use to compare the efficiency of Petronas with other oil and gas companies? Efficiency is Output vs Input.
In this case, I use total production (in barrels oil equivalent per day) as output and total number of employees as input, which gives us the ratio of oil production:employees.
Figures in the right most column indicate the efficiency, Exxon with the highest score and Petrobras from Brazil with the lowest.
In other words, each Petronas employee produces more oil than each Shell employee does. There are two ways to increase efficiency, either using input or output. Reduce the number of employees or increase the number of production.
For example, in order for Shell to achieve the same efficiency as Petronas, my calculation shows that Shell would need to lay off 18,000 of its employees. Meaning, Petronas will only start laying off its first employee after Shell terminates 18,000 of theirs.
The latest number of Shell employees who have been and will be laid off is 10,000 people, worldwide. There are 8,000 more Shell staff to go before Petronas staff had to.
In other words, Petronas should still be doing ok and doesn’t have to lay off its people. Plus, we also can increase efficiency by increasing the production.
To achieve the same efficiency as Exxon, Petronas is better off increasing its production with the same number of employees, rather than laying them off. My calculation shows that we only need to increase production by 800,000 barrels per day.
To acheive this level of production, Petronas could acquire more producing asset which I believe selling at a discount.
Nevertheless, this analysis have many weaknesses. For improvement, we need to further separate upstream and downstream. We could also find out the size of non-technical in relative with total production.
Laying off employees should be avoided if possible. Who will be thrown out? Maybe the average, mid-level staff will have to bear the brunt.
How about the high-flyers who are highly valuable not only to Petronas but also its competitors? Wouldn’t they also feel insecure and consider jumping ship before they also get kicked out next?
We could end up losing everything, like the malay proverb says, “yang dikejar tak dapat yang dikendong berciciran.”