Sunday, March 29, 2009

The Necessity of Human Capital

Our discussion of energy has thus far examined problems from the perspective of technology and governmental policies, but I think another equally important factor is human capital.

Roger Duncan cited our nation’s workforce as one of the seven factors contributing to the crisis, and I completely agree. He noted that a significant portion of his workforce could retire tomorrow, leaving the company with little experienced personnel to maintain current infrastructure while planning for future growth. In the oil industry, Shell claims that 50% of their workforce will retire in 10 years. In my own experience with a major oil company, out of a group of 40 people, about 20 people were well into their 50s, ten were between 25-50 and ten were 1-3 years out of college.

The industrial sector of America is at a crossroads. My own experience with my high school graduating class suggests that business is a far more popular major than engineering, and as such we are steadily outsourcing our engineering and manufacturing aboard. The nature of our corporations has changed to reflect our obsession with profit; GE not only manufactures a variety of high-tech equipment but also owns NBC and operates a financial arm, GE Capital. Traditional engineering and manufacturing outfits such as GM are fading fast while those companies that have survived are cutting R&D budgets.

Solutions to future energy challenges will start with scientists and engineers. Our current engineering curriculum was structured after WWII to help the US emerge as a manufacturing powerhouse. Since then, our curriculum has been copied and implemented around the world, and emerging countries have built manufacturing complexes superior to that of our own. Though highly cost-effective, these countries have little incentive to innovate; the disposable nature of consumer goods will keep us coming back to them for more of the same inexpensive shoes and ever-larger TV’s.

These various observations: the impending retirement of experienced technical professionals, the changing nature of corporations, and the growth of manufacturing around the world are different strands of the new fabric that will define our engineering education in the future. For the US to remain competitive in the global marketplace, we must be the ones providing solutions to future energy challenges.

As recent grads replace retiring people, more creativity will emerge through fresh ideas and new approaches to old problems. I am fascinated by the global oil industry, but I am all for conservation and producing new sources in the most environmentally and socially responsible manner to reduce GHG emissions. The employees of American corporations, from the welders on the shop floor to CEOs such as recently ousted Rick Wagoner, will also be dependant on these fresh ideas in the face foreign competition that can manufacture the same products better for less.

Dean Fenves of the Cockrell School of Engineering hopes to revolutionize engineering education here at UT-Austin. Engineers can and will find solutions to our energy challenges, but only if we allow our creativity to flourish. We must also be engaged with our world and its problems so that our discoveries can be turned into solutions. As politicians get caught up in debating subsidies and investors wonder which clean technology will “win,” I think a more fundamental question to ask ourselves is how are we developing our human capital? I have a lot of reason to be optimistic because of my education and the knowledge that there are many more engineers such as myself to come.

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lighthouseffect said...

This past summer, I worked in the HR department of a large petrochemical corporation, and learned something similar in terms of retirement trends. And it not only relates to engineers, but workers in all functions (marketing, HR, accounting, etc.)

Your comment, "more creativity will emerge through fresh ideas and new approaches to old problems," is particularly interesting. This is because not only will such changes lead to fresh ideas, but this could lead to shifts in a corporation's culture as well.

For e.g., will a company that is extremely cautious about releasing company information start to interact with the public via social networking sites such as Twitter (things that the the next generation has accepted and uses on a daily basis). Or, will a new breed of engineers and strategists push a company's stance from fossil fuels to alternative sources of energy?

The challenge for companies is that they need to hire in large numbers, but they also want to make sure they hire for culture fit so that there aren't major changes to company culture in upcoming years. This of course, can be very difficult.

Another issue that the oil and gas industry may face due to large number of retirements is that the tacit knowledge gained from years of experience may remain with retirees as they retire. So, companies are trying to figure out how they can convert tacit to implicit knowledge. This is another human capital challenge faced by the oil and gas industry in particular.

Interesting times ahead for sure!

Here are a couple of additional links that talk about the worker shortage within the oil and gas industry:,-other-professionals/

iheartgas said...

This post reminded me of a very interesting video I saw the other day, see link:

Not only does it point to problems we face here domestically but then compares it to China and India's birth rate and graduates. Pretty mid-blowing numbers.

I work for an independent and one of the problems we have experienced is a lack of qualified applicants for highly technical jobs and a need to hire foreign students graduating from US schools. Unfortunately however, existing quotas on H-1B visas make it virtually impossible to hire any of them. So in many cases, immigrants that come to America to be educated have no choice but to return to their home country and work.