Issues of Ageing Workforce at Aramco

Introduction

This study begins with an overview about the Saudi Aramco; it highlights the issue of the aging workforce within the internal structure of the firm in terms of implications, challenges and strategies.

Black gold nowadays reins the world and controls more than half of the world’s money flow taking under its authority all vital aspects of life such as finance, industry education and trade. Throughout the years, many companies and corporation took the initiative to undertake the industry of petroleum, putting into perspective that it is not exaggerating if it is said that when an oil pump stops working it costs a fortune.

Many companies grew, many collapsed, countries had been conquered others were brutally diminished for the sake of this black liquid, but based on an old saying ”survival for the fittest” few companies remained one of them is the worldwide known corporation in the field of oil industry Aramco (Cordesman and Obaid 2004).

Overview about Saudi Aramco

Saudi Aramco is an oil company owned by the Kingdom of Saudi Arabia. This company is internationally well-known due to its completely incorporated operations concerning extracting, draining and filtering oil such as crude oil and natural gas. In addition it is located in a strategic location compared to other oil companies throughout the world. Aramco controls the amount of 259 billion barrel of crude oil of world reserve.

Saudi Aramco pursues to make momentous investments in order to reign over and uphold 12 million barrels per day of sustainable capacity.

What makes Saudi Aramco a global company is the fact that it has 231 trillion standard cubic feet of gas reserves. Such fact makes Aramco the sole producer of the fourth of the average world production of gas per day in the amount of 6.9 billion standard cubic feet (Rasheed 2008).

The internal functional structure of the company holds up to 54,000 multinational employees. The headquarters of the company lies in the Eastern province of Saudi Arabia (Dhahran). Operational facilities stations are spread out through the kingdom for the sake of product distribution that connect all markets into one tunnel in addition to the terminals at the Arabian Gulf port for exporting issues.

Globally, Aramco holds interest of substantial joint venture in the process of refining and marketing in different countries such as China, USA, Philippines, and Republic of Korea. Europe, North America and the Far East are the places in which the services of key market support offices are located (Ahmed et, al, 2004).

For shipping oil to all customers, Aramco owns and operates a fleet of supertankers. In order to expand and spread the economy of the Kingdom, agreements have been signed by the Company with a Dutch company for exploration in order to refine and produce natural gas that is non-associated covering more than 200,000 square kilometers in Rub Al-kali accompanied by a project of $2 billion total cost (ibid, 2004).

About Saudi Aramco and the Rabigh Refinery

The operations of Saudi Aramco contribute largely in enhancing the industry of energy which endow it the leadership position in the production of crude oil, it operates and possesses a widespread network of facilities for both distribution and refining. In addition, Saudi Aramco holds the responsibilities for many functions such as processing of gas and installations of transportation fueling the industrial sector of the kingdom.

The refineries, which are cited across the Kingdome, constantly provide more than a million barrels of products per day in order to meet the Saudi and international markets needs. One of the refineries that Aramco operates is the Rabigh Refinery -160 kilometers of Jeddah- Such refinery has a facility of nearly 400,000 BPD crude oil. Tankers deliver crude oil through the port of Rabigh to Saudi Aramco. This refinery produces mainly fuel oil, jet fuel and naphtha. Liquefied petroleum gas (LPG) and oil are utilized as the refinery’s fuel (Kobayashi, 2007).

Aramco facts

Company Type: completely integrated international petroleum enterprise.

Operations: exploration, producing, refining, allocation, transporting and marketing.

The company occupies the leading role in terms of crude oil reserving and production with the capacity of producing unrelenting crude oil, it exports crude oil and natural gas liquids (NGL).

It is considered the owner of the world’s largest oil fields.

Safaniya’s oil field discoverer and producer, the largest abroad oil fields.

Occupies the fourth rank in gas reserves with the amount of 234.5 trillion cubic feet in 2003.

Occupies the eighth rank in terms of refining and filtering crude oil with the capacity of 3.4 million bpd.

Employees’ Number: 54.000, 85% of them enjoy the Saudi nationality.

Headquarters: Dhahran, Saudi Arabia.

Ownership: 100% by Saudi Government.

Occupies the first rank oil company in the world for 16 year in a row, according to Petroleum Intelligence Weekly OSPAS Project (Ahmed et, al, 2004).

Based on the above information, and by noticing the numbers mentioned, Aramco governs and rules over many levels of authorities, so there must be a huge number of challenges, problems and strategies to locate, address and solve. The aging workforce within the internal administrative structure raises the biggest issues for employers today. Middle age and older workers are increasingly becoming prevalent in the work place. The effect of an aging workforce is one of the main problems that face employers these days. In work places, older employees are becoming progressively widespread which insists in the absence of the young leaderships,

Every individual is affected by aging on many levels such as personal, social and organizational ones. Aging is shown through the changes that occur in performance psychologically, biologically, mentally and socially in the course of time. Aging is a process that starts with commencement and ends with passing away. The three orders of ageing are linked directly to sequential age which can be referred to biological age as the position of an individual that is related to his life length counted in days/months/years. However, the capacity of an individual to adapt his manners to the environment requirements is called psychological age. The third type of ageing, the social type, which is the social standards and norms that are applied to the individual regarding the culture that he inhabits. Such features of ageing play a key role in the process of ageing at work. The ageing and work study is well known with industrial gerontology. Such field concentrates on the employment of workers from middle and old age. The workforce ageing makes a lot of issues consisting of retirement, retraining and training, productivity, performance, and staffing irregularities. While older workers maintain occupying their jobs or even changing jobs, their opportunities determine their careers, retirement preferences and training experiences (Young, 2003).

Workers who are of competence, able and desire to keep working should have the chance to maintain to be dynamic in the future workforce.

Statement of Problem:

Developmental challenges differ according to states and countries in terms of geographic and social situation. Challenges sometime are different and in others are similar so that they can be global and local, or individual and social issues. Such issues expand day after day leading to new difficulties and challenges which, in turn, affect the global economy.

As a matter of fact, Aramco Saudi is considered the largest oil company. This company, of course, plays a critical role in introducing multi-levels of productivity and economy within the Gulf region on one hand, and the whole world on the other hand.

Since Saudi Aramco is the theme of this study putting under the microscope mainly the aging workforce in terms of implications, challenges, and strategies, in accordance with the population of Saudi Aramco, one realizes that the vast majority of the workers at Saudi Aramco are old. However, they have significant positions which may affect the performance of the organization. Hence, it is apparent that the view of the aging workforce at Saudi Aramco towards modern or new technologies is poor and that is due to the fact that the base of the company’s administration depends on the level of experience which is against the youth thoughts neglecting that The youth category has extraordinary abilities and skills when it comes to technologies which can be employed in enhancing and developing investments. Based on such fact, this study comes to identify the sequences of Saudi Aramco holds as a result of sustaining the aging workforce. Moreover, there is an urgent need to identify strategies that can be employed in order to take advantage from thereto. This can be implemented successfully if this category is guided professionally towards using technologies, the results will be significantly notable. If the company wants to reach a high level of productivity, there is a must to overcome the obstacles hindering the best use of human resources in order to foster productivity levels. In addition, the company has to follow strategies that lead to pay more attention and focus on the efficacy and skills of the stuff in the labor market. Such matter can not be done but by engaging the aging workforce who represent the experience with the young category.

Accordingly, the current study is to address the aging workforce at Saudi Aramco in terms of implications, challenges as well as strategies.

Study Objectives

This study aims mainly at identifying the challenges facing Saudi Aramco through highlighting the following points:

The aging workforce at Saudi Aramco.

Determining strategies that can be employed in order to enhance investments and revenues to Saudi Aramco.

Identifying the challenges facing Saudi Aramco in dealing with aging workforce.

Reducing the gap between aging and young workforce at Saudi Aramco.

Study Terms:

The study includes a number of terms that has been defined conceptually as follow:

Saudi Aramco Company: is a national oil company of Saudi Arabia owned fully by the Saudi government. It is the largest oil company and the only dealer of crude oil production and reserves.

Workforce: The workers who are employed in a certain project or activity.

: All those who are working or available to work, as in a company, industry, or on a project.

A strategy: an Alternative chosen to reach a desired agenda, such as achievement of a goal or solution to a problem.

: It can be art and science of the process of planning and organizing resources for their most proficient and effective utilization.

Study Questions:

Q1. How significant is the influence of aging workforce on Saudi Aramco operations?

A. To what extent can Saudi Aramco benefit from the aging workforce productivity?

B. What are the challenges that face Saudi Aramco regarding the aging workforce?

C. What are the strategies suggested to benefit from the aging workforce at Saudi Aramco?

D. What are the sequences of maintaining of the aging workforce at Saudi Aramco Company?

Study Limitations

The study is limited to Saudi Aramco stuff, HR experts, as well as students of HR of the study year 2010/2011.

The results of the present study can be generated to the population from which the sample and the identical populations were selected these results of the study will be limited under the validity and reliability of study instrument and the objectivity of the study sample based on individuals’ answers.

These results also are also limited to the extent of the sample representing the population in the light of the random selection of the study’s individuals.

Literature Review

This chapter addresses the importance, objectives, strategies, implication and challenges facing ageing workforce involved in the administrative internal structure of Aramco. It also includes previous studies concerning the mentioned issue.

Introduction

Because the importance to apply new patterns considering ventures and putting into perspective that intermediaries and employees takes much time, it is vital today to reconsider the situation which in a few years can be expected as an increase of the shortage of skilled labor and an extension effort on the social services caused by the financial crisis. Workers paid attention are specifically those who have not been recruited yet.

On the other hand, there are old aged employees who are more likely to be more or less exempted from staff policies either from growth measures or management of innovation which leads to decreasing the companies’ human resource potentials.

Clear instances of misunderstanding of the strategies of lean management present rising difficulties concerning insufficient capacities of planning and a lack of qualified personnel that require a reassessment of the results of a policy change in order to equalize opportunities among older personnel.

Hence, to extend professional careers, it is vital that the necessity arises to make measures designed to stop early retirement as well as support the older people reintegration in search of recruitment.

Since it is the theme of the present study, it is worth to mention that Saudi Aramco is facing a critical stage of the increasing aging workforce which affects on the productivity status and prevent young abilities to take part in the process of developments.

So what is the ageing workforce?

The aging workforce can be defined as the working individuals whose age is above 40 years old. The aging definition ought to be more comprehensive in order to include two elements: currency of knowledge and chronology. Leaders willing to support and improve a workplace environment that supplies confidence for the employees in order to foster their performance, expertise and knowledge and also through recommendations which will enhance the employee’s performance.

In the 15th Conference for the Middle East Oil and Gas exposition, Abdullah As-Saif, -Saudi Aramco Vice President of Exploration and Production- said : ” Key drivers of delivering energy faster, better and smarter ” that the company has allocated a large display region which reflects the high technologies employed to supervise the unmatched hydrocarbon reserves of Saudi Arabia.

He concentrated on three main elements determining the industry of petroleum: bringing a high skilled new generation to the industry, enhancing development and research, and implementing strategies professionally and efficiently.

The first driver is facing a shortage of skills characterized in an ageing workforce combined with a need for young engineers to participate in the process of producing. He suggested that accessing top students have hence been a notable priority for our industry which will be beneficial for both sides, the company will have the chance to attract young efforts and the students will be trained and employed in one of the biggest enterprises not only in the Arabic region but also worldwide, with the intention that they are engaged as they commence to consider their higher educational and successive job choices.

As-Saif also noted that reaching out that phase will be through developing the contributions made by the industry to the welfare of the world population. There is a need to clarify that practicing a career in energy means dedicating oneself and talents to resolve some of the most complex problems that face human these days. Such problems humanity faces will start to fade away through developing the prosperity of economy, alleviation of poverty, social development as well as environmental protection.

As for the second driver of the industry, in spite of the continuity of the rise in total demand on oil, lots of oil and gas fields in the world, for decades, have been activated in order to produce oil and its derivatives which need further attention and up-to the date technology in order to meet the world’s expectations. As for t fields that are not discovered yet this will lead to make them less productive speaking from the fact that they are cited in more complex environments. Such challenges indicate that the second driver is a key component of the continuous ability of the industry to provide and feed the world with its needs from oil derivatives. Accordingly, lacking such research investments, the pipeline of technology will finally run dry. As a result, the ability to develop supplies will be shocked.

Technological progresses play a critical role in stewardship. In order to harmonize energy production in accordance with environmental protection though sustainable development of economy has to be implemented. Based on that matter, there is a significant role played by the brilliant minds in this industry (Sauer, 2007).

The key challenge of companies addressing an aging workforce is in fact the gap of wage productivity. In the case that the salaries of older workers are over what they product, they represent a possible loss for companies. A head start for considering the direct association between productivity and age can be clearly found in the theory of human capital which states, in short, that productivity is affirmatively linked to the human capital that each individual collects over his lifetime (Krenn & Oehlke, 2001) .

Similar to physical capital, the human one depreciates. In order to expand and strengthen the human capital, there is a need to make investments whether it is of a specific nature or general one. It is well-known that beyond the investments of a certain age slow down as a result of decreasing in the human capital stock. It is of the same nature that the typical level of workers productivity slows down at the end of careers. This is more likely to be due to the biological nature. The cause of depreciation may also be attributed to an economic factor so that when the older workers are not in line with technological advances and the awareness of new skills that will affects negatively the operations of a firm (Gary S. 1962).

It is hard to determine the age when the productivity reduces since human capital is a formal knowledge mixture which in general is accumulated at the beginning of careers, however it can also be informal because implicit knowledge accumulates with skills. In 2008, Skirbekk presents an affluent overview about how age affects the different cognitive and physical skills of employees.

The implicit assumption of the theory of human capital states that productivity and wages are of the same nature and go in line with the course of life so that in the case productivity increases, accordingly, wages increases. On the other hand, over time arguments gathered on the link between the three elements productivity, wages and age.

Lester C. (1975) was of those who suggest that while there is a direct relation between productivity and wage income. He suggests that they are not of necessity to be linked at all moments of a worker’s career. He believes that employers have information about their employees involving the link between profits and productivity during their careers course.

Such knowledge, Lester suggested, is mainly based on the superior principle where the workers’ earnings during the first stage are lower than what they produce. However, their earnings during the second phase are higher than what they produce. Lester clarified that the view of a regular rise in income operates as a motivation for personnel to keep working for that certain employer, in which their investments reach the highest level of returns.

In 1979, Edward stressed that such implied indenture is adhered to be unsustainable in the event that employees work beyond the time when the net current value of salaries is over the productivity profile one. Accordingly, workers are going either to select obligatory retirement schedules or using the schemes of private pension that punish for continuing the employment beyond a specific age. The problem with such implied contracts lies behind the fact that contract sustainability is unenthusiastically affected by aging of the population. Later, Edward (1990) clarified that by suggesting that the aging of population challenges the process of financing the payment contracts firms delay.

The aging of workforce motivates firm owners to reduce the older workers wages or fire them. An extra difficulty is that additional benefits that are related to age swell the older workers costs labor (Naegele,1999). The key questions for organizations, firms or companies are that how to deal with aging workforce? Can companies take advantage from older workers in the sake of increasing productivity at older ages? And do these bodies aspire to rebalance each of productivity and wages by demoting or firing older workers?

In 2010, Van Dalen, Henkens and Schippers conducted a study of which results revealed that there were found two dimensions to motivate productivity perceptions: such dimensions are about soft qualities and hard qualities. To refer to hard quality is to address capacities mentally and physically, flexibility, as well as the want to know and learn, modern technologies and extraordinary skills. While soft qualities mean the commitment to organization, social skills as well as dependability.

The relative benefit of the aging workforce lies mainly in the soft skills they have, while the relative benefit of the younger workers lies mainly in the hard abilities they have. On the other hand, the weights the soft and hard qualities of productivity hold are different notably. Soft qualities carry a weight in the worker productivity evaluation which is less than the soft qualities one. This is proper for evaluating the productivity of both younger and older workers.

Practices related to age are more likely to be accurate or even less accurate than the local actuality which the perceiver is exposed to. However, such stereotypes may lead to firing older workers socially not since employers may perhaps judge workers based on typical and mistaken representations, but also since stereotypes are likely to guild to self-realizing prophecies, when people who are committed to negative pigeonholes behave under such stereotypes.

The negative generalization regarding age among employers could have effects on employers’ strategies towards older stuff. Chiu among others (2001) revealed that the farther respondents recognize older workers as having the abilities to change, the farther positive their opinions are about older workers training. Henkens (2005) explained that off-putting stereotypes on aging workers inspired the support of managers for early departure.

Such diminutive overview of the assumption on the link between productivity and age fetches several points to the center.

Predicting Problems to Avoid Mistakes

After presenting the arguments and strategies raised on aging workforce, there is a need to find a way to avoid making mistakes towards dealing with aging workforce. To implement this, the following is the appropriate to do.

After reaching the moment of retirement a new horizon for new talents appears, in firms and big institutions the concept of young and talented employees is very well received, but what about the leaving skills because of retirement? These departing skills will affect the inner body of the business on many levels such as decrease the possibility of creativity and efficiency in addition to increasing the amount of cost on the financial level. As a solution, some big companies are trying their best to come over this problem by building new human resources plans in order to maintain vital experiences and avoid losing it, but there appear six dilemmas which block the progress of improving human resources abilities, these dilemmas are:

Most firms are able to point out the deep core of the sensitive and critical knowledge among its employees , but when it comes to maintain these experiences they find it hard to overcome this problem such as hiring some talents early enough to train them or at least be supportive to these talents.

Inability to combine between the aging work force and administrative plans in the accessible for upcoming trainees.

The concept of retirement opens the door on companies to lose up to 50% of its personnel in the coming 5-6 years the solution for this problem is by adopting a new flexible retirement plan.

Training someone on a skill that you have means sharing knowledge with this person and people have different attitudes toward this notion, imagine yourself working for NASA or CITY BANK and you have to pass your knowledge and experience to someone else, this problem can be solved through experience sharing programs and motives to give the retiring veteran a reason to pass his experience to others.

The note and data concerning being experienced in a field are becoming a cliché so no one is interested to use these information especially younger employees due to the continuous development in the field of business.

The need for aging or retiring workforce lies in supporting the future workforce , and supporting this future workforce requires involving them in four fields:

HR policies

Passing knowledge through documents, storytelling and coaching.

Use technical application to support effective knowledge.

Be committed to a strategy that guarantees knowledge and experience recovery which can happen through bringing retires as consultants and contractors.

Predicting these problems will help to reduce the effect of leaving workforce and taking away knowledge and experience (DeLong, 2005).

Previous Studies

Milan Vodopivec and Nisha Arunatilake (2008) conducted a study addressing the impact of population aging on the labor market. The study investigated the ways of retirement and the labor market withdrawal determinants. The study explained that the vast majority of old workers of Sri Lanka are involved in a sector of long hours jobs, and their salaries are less than the younger workers’. In addition, the study finds that the duality of labor market characterizing the majority of developing countries holds over to the old age: prior recruitment is the most significant predictor of the employment approach; there are two types: civil servants and formal workers of private sector, who stopped working at the age of 60 since they are forced to retire by the Sir Lankan regulations, and informal workers as well as the self employed ones who stopped working due to poor health.

Hendrik P. Van Dalen, Kène Henkens and Joop Schippers (2009) conducted a study on how do employers cope with an ageing workforce?. In that study the researchers used a Dutch employer’s survey in order to examine the way with which employers deal the prospect of ageing workforce. They provide their analysis with an extra survey in order to compare policies of human resource with practices. The study results found out that a small number of employers are applying actions to foster productivity. Stuff policies are more likely to spare the older workers. Such matter is clear when giving the older workers additional leave, early withdrawal or munificent protection of employment. Worker who are older and their performances are poor have the chance to stay, while younger workers who have similar conditions are sent away.

Recommendations

Conduct more studies on the current issues in order to highlight the impact of aging workforce on companies operations and productivity.

Holding more training courses that gather between younger and older workers in order to exchange knowledge and skills.

Determining several strategies in which aging workforce can benefit from in terms of new technologies and development.

Drawing policies under supervision of aging workforce to take advantage from their experiences and skills.

Conclusion:

The current study is to investigate the aging workforce at Saudi Aramco in terms of the appropriate strategies that should be followed to foster the productivity of the company. The study mainly aims at identifying the challenges facing Saudi Aramco through highlighting the following points: The aging workforce at Saudi Aramco, determining strategies that can be employed in order to enhance investments and revenues to Saudi Aramco, identifying the challenges facing Saudi Aramco in dealing with aging workforce, as well reducing the gap between aging and young workforce at Saudi Aramco. The study addresses the previous studies highlighting the history of the problem of aging workforce among companies and the theories engaged in this regard. Finally the study concludes to mention some recommendations hoping to be of great benefits for the coming studies addressing the same theme.