Tuesday, February 28, 2006

February Business Report

[business report]

Effective March 1, 2006 we will be launching our marketing strategy in the Calgary area. Our resources are limited so this will be a low key, but highly effective local 4 month program. The purpose will be to build off the entries in the blog, and get some people commenting. Although it has only been two months I feel that the content value is high and we need to start raising the profile with the producers.

This higher profile, I expect, will start the flow of some donations and this experiment will become a defacto operating company. We are more or less limited to the local market at this time due to financial resources. Hopefully we will have some good news soon in which we are able to expand our geographical scope, because Genesys is a global oil and gas solution.

Some time during the month of March we will begin to see the blog fall within the google search results. I will also report the site to yahoo! and other major search engines to build traffic that way as well.

I am very pleased with the quality of the topics being discussed. I foresee no change in this quality as there are many things that need to be decided upon, discussed, researched and communicated through this very effective medium. In terms of content we have only begun. The source of interesting things happening in oil and gas, and in technology, are providing ample writing material.

We have now made some additional decisions regarding the technical architecture. Please review the data located here; some further justification of those changes are as follows.

  • Moved to the Ingres Open Source database. I was concerned with Oracle and IBM's commitment to BPEL. I don't think BPEL should be used in a service oriented architecture.
  • Elimination of AJAX and all but one dynamic language used in non-production code.
One area that I have spent time on is with the PPDM data model and ontology. I have come to the conclusion that these products are not usable for our purposes due to the unique nature of the organizational perspective we use. The JOC does not lend itself to the same manner of dealing with partners, many of the data elements affected as well.

It is therefore necessary to continue with defining the architecture as a pure system. Moving the PPDM into our design alleviates many hours of excellent work done by those people. However, the joint operating committee is just to unique to retrofit a design that was prepared for silo'd organizations. The financial resources budget for the PPDM membership has therefore been moved under the w3c standard, and will be investigated as to what the cost implications of this move involve.

As in February's report, the objective of this months report is to start the development process with some tools and infrastructure.
    • Revenue to the end of February: $0.00
March 1, 2006 budget items. (All costs are in U.S. dollars and include a 33% premium for the development copyright fee.)
    • Sun Grid The first thing we need is a home for the code. The grid provides everything we need in this instance, and the Grid that I selected was Sun's. At $1 per processor hour, a very affordable way to secure the resources we need. I think that our first years requirements would be amply satisfied with 10,000 hours of processing for the remainder of 2006 calendar year. Total requirement = $13,300
    • PPDM (Public Petroleum Data Model) Makes our development life a little easier through a standard database model. Fortunately we have projected revenues of < $1 million, therefore, our fees for membership to access the data model are small. Total requirement = $CANCELLED see note above.
    • Ingres Open Source database and part time DBA, Total requirements = $57,500.
    • Collabnet. I would like to have a generous budget for this critical tool. Provides the code management, community process, project management and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,500
    • General and Administrative, first 6 months of operation Total requirements = $69,000
    • Membership in W3C Total requirements = $9,500
          • Total Capital and Operating costs estimate, first half 2006... $184,000
  • Sponsor, producer, and user commitments are all accepted.
  • Please recall that this community is and will be supported by the producers. Based on an annual $ assessment per barrel of oil.
  • For 2006 the assessment was fixed at $1 per boe per day per year.
  • A company such as Encana in Canada would therefore be expected to support the community to the tune of $700,000 for the 2006 calendar year.
  • These Monthly Business Report budgets are being proposed as a pay as you go basis for 2006 to support the community and ensure the community develops in the manner that is expected.
  • Your donations are greatly appreciated, no donations means no work is being done.

Sunday, February 26, 2006

"The future of digital commons" on MIT video

[intellectual property] (Click on the title of this entry for the excellent MIT video)

Two librarians provide some of the most thought provoking discussion on the topic of copyright law, access to information and the impact these items have on users and creators of intellectual property. Users should understand the key attributes of copyright law and this is a good place to start. Understanding copyright law may become as basic of knowledge as how you now drive to work in the morning. Although the video is a little over two hours, it will be an investment of time that will pay users dividends for many years.

They refer to Larry Lessig's definition of a what a commons is:

  • The character of the resource. (A physical asset is consumed, a commons can be shared.)
  • How the resource relates to a community.
Much of the work that I am doing in this blog and elsewhere can only be done due to the pristine nature of my copyright. My ability to write in open forums and speeches is unconstrained by publishers, academia, employer or any other group claiming ownership rights. This was a difficult exercise for me to complete, and I am not aware of any other industry that is so positioned. I can say and do what I need with the copyright as I please. No one paid for the information, I funded the research myself and therefore no one else has a say, and therefore this community can develop in a completely unconstrained manner in the best interests of its users, developers and the oil and gas producers.

One of the presenters, Ms. Nancy Kranich has published a pamphlet entitled "The Information Commons, A Public Policy Report" that is available here. This is a comprehensive review of the copyright law, information commons and particularly the Internet. It should be read and understood by all those that are active on the Internet. Additional time should be spent reviewing the links on that website for further information.
"The source and origin of copyright law is ingrained in the U.S. constitution. As Ms Kranich says; Two provisions of the U.S. Constitution are specifically directed toward serving this need for information that is so crucial to democracy. The Copyright Clause does so both by giving authors "the exclusive right" to profit by their writings "for limited times," and by providing that after the limited term of copyright expires, works enter the public domain, where they are freely available to all. The First Amendment prohibits government from abridging "the freedom of speech, or of the press."
Yes this is important, and the internet makes it all the more valuable and dangerous. If you scroll down to the bottom of each and every page of this blog you'll note that all these entries are copyrighted. I am extending the work that was done in 2004 to a broader audience, yet able to maintain the copyright by doing this. Therefore all the information contained within this blog is provided with free access, but the ability to prepare a derivative work is forbidden. The only license that will be provided will be to develop the code, and this will be strictly open source but the copyright remains with me and hence the code, but free access is provided. I have placed this notice on every entry of the blog.
"Until further notice visitors providing comments and information to this blog should assume that all information becomes the property of Paul D. Cox and its licensees. This blog represents a derivative work of the research concepts discovered in 2004. All rights revert to the copyright holder Paul D. Cox. This is consistent with the purposes of blogs as identified in google blogger '6.a content ownership'."
The point of this entry is to highlight that the blog comments and entries are copyrighted. The same opportunities exists today as a result of the power of computers, networks and commons principles for any other area of sciences or engineering. I encourage readers to determine their own futures in this new information age.

Saturday, February 25, 2006

Dr. Giovanni Dosi, "Sources" Parts III, C.

[Innovation] (click on the title to get a summary of all of Dr. Giovanni Dosi's books in publication.)

What we learned from the first installment of this paper I think is significant. The scope and quality of Dosi's research is unparalleled in the field of innovation. His recognition in Europe, and particularly in Italy reflect the somewhat local nature of his work. However, Dr. Dosi is still very young and is highly involved in the community. I believe his work will be better known the world over as innovation becomes more of a competitive advantage.

C. Technology: Freely Available Information or Specific Knowledge

Dosi notes that a firms focus is placed on the capabilities of the firms. That a firm will apply incremental improvements based on the unique competitive advantages that they use to differentiate their products.

"What the firm can hope to do technologically in the future is narrowly constrained by what it has been capable of doing in the past."
Dosi goes on to identify a key analytical point in the difference between technology and information. Noting that information is a subset of technology. Stating that much of the tacit and specific knowledge regarding what a firm does can not be captured either as the firms proprietary data or publicly available knowledge. It is however mobile in the form of the competitive nature that may draw staff away from a producer, or in the form of copying or reverse engineering, which suggests that information travels quite quickly between firms.

From the point of view of this blog, we see that the oil and gas producers are not oriented culturally to a "sharing" mindset. One that this blog suggests as the key requirement of innovation and expansion of their internal capabilities, and hence production base. The focus is on building this internal capability that provides them with the competitive advantages they are then able to exploit. Clearly this is the manner in which they have been successful in the past.

Nonetheless the oil and gas industry has two anomalies they've never faced before.
  • Substantially higher prices for their product.
  • Greater difficulty in maintaining their production volumes, and most importantly, the production volume demands of the marketplace.
Clearly the elasticity of supply is not what was assumed to be true by economists.

This forms a paradox where the firms technology or information, which has traditionally proven adequate, is no longer capable of sustaining the organization or the market demand. (drawing on reserves faster, over the long term, eliminates the firm)

The paradox, contradiction or conflict is the source of the answer so say the great philosophers. Each producer is building their internal capabilities in isolation. This leads to augmenting the capability by increasing the personnel necessary to conduct the science and engineering. This situation is mirrored throughout the industry with extensive, yet relatively specific capabilities silo'd in each organization. As I noted in the Partnership entry here, the resources, specialization and capabilities of each member of the joint operating committee are not necessarily participating. In fact very little if any knowledge is shared.

I believe this cultural difficulty in sharing is the definition of the problem that the paradox identifies. Holding all of the capability as secret only leads to isolated events in which the science is moved. The collaborative environment in other scientific and academic communities recognizes the value of peer reviews and collaboration. Without them there would be no new discoveries.

But there is a bigger issue here. No one in oil and gas is necessarily able to lay claim to the discovery. If things are kept secret, then for the most part they will stay that way for a short period of time. Eventually being exposed to the rest of the industry the discoverer has no legal protection regarding the efforts that went into the discovery. Copyright law establishes a mechanism that allows the author to claim the discovery, but the idea has to be published to secure the copyright. The purpose of the copyright law is to permit society to build off the basis of the ideas of its citizens.

With the global economy quickly becoming an era of commercialization of intellectual property. It is intellectual property that provides the real tangible value that is necessary for any long term sustainable competitive advantage. This value is not being realized through the secretive means of these oil and gas organizations, and is not providing any value for the global economy because of constrained production volumes and high energy prices.

Dosi goes on to state:
"Once the cumulative and firm specific nature of technology is recognized, its development over time ceases to be random, but is constrained to zones closely related technologically and economically to existing activities." page 1131

leading to,
"Each technological paradigm entails a specific balance between exogenous determinants of innovation and determinants that are endogenous to the process of competition and technological accumulation of particular firm and industries. Moreover, each paradigm involves specific search modes, knowledge bases, and combinations between proprietary and public forms of technological knowledge." page 1131
This isolationism is leading to failure on an industry wide scale. When producers can not replace the production they've produced, that is a failure in the largest sense I can imagine. This industry needs to revisit the means of their capabilities on the basis of this information. Are their economic benefits derived from a hand full of employees, or the world wide oil and gas technology, engineering and scientific understandings.

I can not imagine what the world would look like if Dr. Giovanni Dosi kept his works secret.

In the next entry I will finish off section III with "D. How Organizations Build Knowledge Bases."

What is a joint operating committee?

[Definition] [Joint Operating Committee (JOC)]

An excellent question for those, and particularly the developers, with no first hand experience in oil and gas.

Traditionally the oil and gas industry has formed partnerships to mitigate the capital risk involved in the exploration and production business. These partnerships have also formed as a result of the scope of their facilities growing in terms of land and that land may have been leased by another producer. At which time in all cases, the producers adopt the joint operating committee as the method of management of the physical facility and appoint a Chairman as the operator.

After almost a century, the joint operating committee has become the defacto global organization that is responsible for the operations and control of the facilities. All the agreements and documents are executed between all parties, all financial operations from budgets to costs and capital are controlled by the joint operating committee. This forms the majority of the culture of the global oil and gas industry. And this culture is defined through various industry groups of accounting, land, geological and others that have defined the terminology, business rules etc.

During the 1940's and 1950's oil and gas operations were approaching the size that we all know and love them as today. These required different management and organizational structures to specifically deal with a more efficient manner of management. Hence the hierarchy was formed and grew to deal with the business oriented legal and finance issues associated with their share of the physical properties. Over the years the SEC, accounting boards, and Sarbane's Oxeley layered on more requirements and the joint operating committee became less and less the focus of the organization.

Today the focus of the organization is now more on the quarterly performance and the production volumes predictions of the CEO / CFO. The ability of an organization to focus on the operations requires a consensus between the partners represented through the joint operating committee. It is necessary to vote on the manner of, and approve each phase of the operations at every detail through the JOC and these are done more on an annual calendar or when the paper work gets done.

As you can imagine the confusion and conflicting orientation within the firm leads to more pressing needs and the SEC rules. The joint operating committee languishes with all the authority and power to make a difference, but stagnates due to the nature of the fire alarms at head office.

By moving the accountability of the hierarchy to the joint operating committee. Alignment with the legal, financial, cultural, and operational decision making frameworks eliminates the redundant nature of how oil and gas is currently managed. In addition the focus will fall on the production facilities and the opportunities to innovate.

The Genesys system will provide the collaborative environment for the earth scientists and engineers to innovate. These critical skills can also be sourced from the entire population of producers represented on the JOC and enable the firms to meet the markets demands.

How this move of the hierarchy is orchestrated is really the easy part. The SEC, government and other royalty holders, taxing authorities and Sarbane's Oxeley provide the same thing. Compliance is sought through the publication of business rules. And as most developers will tell you, business rules are the type of work that computers do very well. That is why they are published. As the larger population of engineers and scientists collaborate, discover and innovate, the Genesys system will follow along to provide the compliance through the systems business rules.

In a nutshell that is the joint operating committee and how it operates in the global oil and gas industry and the substance of the copyright that I hold. These research findings have been reflected upon by industry leaders as;

"Solving the largest administrative problem for the past fifty years."
"A new discipline."
So join me here and start this revolutionary way of organizing oil and gas. If you have any questions or comments please post them here for all to benefit.

Friday, February 24, 2006

Ray Kurzweil on MIT video.


This video provides a clear picture of our future and is entitled:

Innovation Everywhere How the Acceleration of GNR (genetics, nanotechnology, robotics) Will Create a Flat and Equitable World
By Mr. Ray Kurzweil, who is also the author of the book "The Singularity is Near" the bestseller from 2005 that suggested the convergence of information technologies, genetics, nanotechnology, and robotics are leading to substantially different lives. Among his many unique awards is his recognition and acceptance in the inventors hall of fame. A very entertaining video, one that I highly recommend.

In point form here are the highlights of his speech;
  • Timing is a critical component of success in today's business environment. Noting that Google is in the right place at the right time.
  • Mr. Ray Kurzweil has over time developed a number of mathematic models that he uses to support his discussion.
    • His conclusions / findings.
      • Technology evolves exponentially, non-linearly. However, people perceive technology linearly. This is an important point to remember as people assume the dot com meltdown is only resurfacing. What is happening now is exponentially larger then the run up to 2000.
      • RNAi, (interference RNA) in 5 to 10 years, the benefits should provide longer and higher quality of lives.
      • The paradigm shift rate is accelerating. The shift is achieving 100 years of progress in just the first 14 years of this century (2000 - 2014). We are also going to see 200 times the changes that occurred during the 20th century during this the 21st century.
  • Certain technological trends are predictable and correct. Which wireless standard will become the predominate technology, can not be predicted, however, the impact that wireless will have is very predictable.
    • Applying these attributes to economic principles and specifically to the US debt and GDP provides some interesting perspectives on how today's economic issues are not tomorrow's problems.
  • Information technology will achieve emulation of the human brain in 2013.
  • Exponential growth in the volume of information technologies used will offset the costs. The economy will be predominately based on information technologies in 2020.
  • An intersection of technical disciplines of biology and information technology is happening.
  • "Every form of communications technology is doubling its price-performance, bandwidth, capacity every 12 months." This fact alone supports so much of the underlying changes that we are seeing in these fast paced times. Advanced communication is what separates us from the other animals.
  • IT will be the majority of GNP in 2020's.
  • By 2010 computers will disappear and become ubiquitous.
  • 2002 was the year in which the average age expectancy was 78. By 2017 we may have long life.
These comments provide a strong background for the challenges and times we face in oil and gas. The plurality thesis suggests that the engineering and earth science disciplines will change and advance at a rapid pace in the next 5 to 10 years. I stated that the corporate organization as represented by the hierarchy would be unable to keep up with these changes.

Mr. Kurzweil's presentation shows me that the days of the bureaucracy, of command and control of the corporate mechanisms are in their final days. Although they may appear to be as strong as ever, I would suggest that their capability to deal with their current problems is limited.

The theories represented in this blog are establishing the community that will eliminate the command and control hierarchy's. Now is the time to get involved, find somewhere in this community that you fit and start making the difference that you know you can. If you have organizational budgetary authorization, please do not hesitate to make a donation through this blog to secure the needs of this community.

Wednesday, February 22, 2006

Standards in a flat world.

A quotation that I find of value. From Thomas Friedman in his book "The world is flat".

"Standards don't eliminate innovation, they just allow you to focus it. They allow you to focus on where the real value lies, which is usually everything you can add above and around the standard." p. 76

Tuesday, February 21, 2006

Dr. Giovanni Dosi, "Sources" Parts I, II and III, A) & B)

[innovation] (Click on the title to link to Dr. Dosi's Curriculum Vitae)

Since this blog is about innovation in oil and gas, we should make it the most prominent topic of discussions. With that in mind, I want to expand on the works of Dr. Giovanni Dosi and continue with the research of his work that I started three years ago. I believe that his work has defined the process and methods of innovation in the most effective manner. Therefore, as time permits I will attempt to communicate many of his ideas and thoughts and apply them to the systems development this community is doing here in oil and gas.

Please note that the Plurality thesis contains a large section of these works applied to oil and gas. These can be sourced by selecting the February 2006 archive and selecting the entry for "Plurality Dr. Giovanni Dosi." Please also note that these research summaries are more to inform the reader on the research done, so that the reader may use these as tools in their day to day business and participation in these software developments.

Dosi, G. (1988). Sources, Procedures and Microeconomic Effects of Innovation. Journal of Economic Literature Volume XXVI: pp. 1120 - 1171

If you have access to some databases that hold proprietary data, I highly recommend downloading as much of Dosi's works as you can. This is the main starting point of where Dosi truly began to hit his stride. Recognition after this was a forgone conclusion.

Part I, Introduction

Starting his discussion Dosi dives in and speaks to the motivation that drives the innovative process within organizations. Noting that much of the motivation falls to that one intangible in business, that being a "belief" that the "existence of some sort of yet unexploited scientific and technical opportunities;" provide economic value in excess of its costs." page 1120

Setting out to establish some broad objectives, Dosi then points to the main aim of this work as;

  1. "Identify the main characteristics of the innovation process."
  2. "Identify the factors that are conducive or hinder the development of new processes of production and new products."
  3. "Identify the processes that determine the selection of particular innovation and the effect on industrial structures." page 1121
Lofty objectives that set the stage for the scope of this seminal piece. If we were to identify the main characteristics, the factors that are conducive or hinder innovation, and thirdly, the processes that determine the selection of innovation and its impact on industrial structure we begin to see the value that Dosi's work has the potential of achieving.

Dosi defines two key issues that also provide evidence of the scope of this document and help to define it as a landmark piece. The issues are;
  1. "The characterization, in general, of the innovative process."
  2. "The interpretation of the factors that account for observed differences in the modes of innovative search and the rates of innovation between different sectors and firms, and over time." page 1121
Dosi has therefore framed the scope of his research and clearly undertaken a large project.

Within the context of what would make an innovative producer, Dosi identifies two main characteristics of an innovative company.
  • (a) "capabilities and stimuli generated within each firm and within industries"
  • (b) "broader causes external to the individual industries, such as the state of science in different branches; the facilities for the communication of knowledge; the supply of technical capabilities, skills, engineers, and so on; the conditions controlling occupational and geographical mobility and / or consumer;" and many more.
The perspective of the global oil and gas industry is the focus of this blog and hence this research. In applying and learning from Dosi we need to realize the scope of the academic pursuits within the sciences and social sciences of oil and gas. A key part of the thesis asked where the sciences of physics, geology, geophysics and engineering were heading in the next 5 to 10 years. When we include many of the social sciences involved in business and economics, I feel the importance of Dr. Dosi's work should be foremost in the minds of most of the individuals employed in oil and gas. This also provides for the remarkable opportunity to discover virgin research territory in the areas of these sciences and innovations application.

I also want to reiterate that the context of this blog is to alter the fundamental organizational structure of an oil and gas concern away from the hierarchy towards the joint operating committee. The purpose of this blog is to define the systems that define the organizational structure. With out the new systems developed here, no change in the organizational process can be made and producers innovative efforts remain constrained and difficult.

Part II, Searching for innovations - The general patterns.

Dosi establishes through various statistics the breakdown of the various expenditures incurred in research, applied research and development. These statistics are also broken down between the government, industry, academic research and non-profit institutions.

Nothing of interest jumps out of these statistics other then the annual expenditures seem to be fairly constant over time. They also appear to be sizeably influenced by the American military and space programs. As these two engines of research make a clear demarcation from what the U.S. spends in comparison to other countries.

The consistency of the expenditures from year to year seem to reflect that the amount of research and development spending is constrained by the quality and quantity of the research industry. i.e. spending more money does not necessarily increase the benefits of research and development.

Dosi goes on to note that there are undocumented expenditures incurred in the innovative process of "learning by doing, and learning by using". These are not quantifiable or measurable as they are incurred as required and may be directly associated with the culture of the country and the value assigned to research by the country of origin.

The time frame of this research was 1988 and much has changed since that time. I would particularly assert the value of the Java programming language and the Internet. These two technologies provide a new means of learning by doing and learning by using. Based on the premise of code re-usability, an infrastructure of high quality code has become available through the Internet's revolutionary open source movement. These infrastructures are threatening the large software companies such as Oracle, Microsoft and SAP.

Raising this point and classifying this as a new method of learning by leveraging the works of others, particularly in the java programming language. In a manner of minutes I can download and install state of the art servers, IDE's and frameworks at no cost. The impact of this will begin to bear fruit in all industries as these systems are organized for superior competitive advantages. Leveraging off of the base of Java frameworks that exist today and being planned for tomorrow make most of what Dr. Giovanni Dosi suggests, especially in concert with the Genesys system we are building here, very possible and very real. The missing ingredient is the ability to collaborate and communicate effectively, a.k.a. a system issue.

Part III, Innovation, the Characteristics of the Search Process.

Dosi identifies many of the common characteristics of innovation and notes the critical importance of the economics of technological changes.

A. Innovation as Problem Solving: Technological Paradigms.

Solving problems is the root cause of innovation. This is inherent in most peoples understanding, but Dosi identifies and quantifies the difficulty in moving to an innovative mind-set in the following.
"In other words, an innovative solution to a certain problem involves discovery and creation since no general algorithm can be derived from the information about the problem that generates its solution automatically." page 1126
Or in other words, innovation is not as easy as it appears. Dosi continues,
"Certainly the solution of technological problems involves the use of information drawn from previous experience and formal knowledge, (example, from the natural sciences) however, it also involves specific and un-codified capabilities on the part of inventors." page 1126
Dosi notes the difficulties and complexity of the innovation process and the tie in to the scientific, mathematic and academic pursuits. Drawing on the tacit knowledge of many participants, these collaborations have the effect of releasing the creative process of innovating. The point that I think Dosi is attempting to make here is that this stuff called innovation, no matter what or how you slice it, is not easy. Discovery is a process that takes effort. It is the scope of the effort necessary in the oil and gas industry that the hierarchy is unable to exercise to make these or any discoveries.

The other point that Dosi makes is that when the underlying sciences or engineering paradigms change it has the effect where it can become a major point of innovation, however as noted in the prior paragraph, that innovation will take substantial tacit and explicit knowledge and effort.

B. Technological Paradigms and Patterns of Innovation: Technical Trajectories.

Dosi states
"A crucial implication of the general paradigmatic form of technological knowledge is that innovative activities are strongly selective, finalized in quite precise directions, cumulative in the acquisition of problem-solving capabilities... Let us define as a technological trajectory the activity of technological process along the economic and technological trade-offs defined by a paradigm." page 1128
It could be argued that the discovery of new sources of energy has been constrained by the very low cost of fossil fuels. The opportunity to discover "better" sources of energy to power the world will have to wait until the financial resources and focus is on commercial levels of cost recovery of those technologies. This would apply equally to the pursuit of exploration in remote areas, deeper wells, bypass gas and other methods and sources of energy.

Dosi suggests these economic / technical tradeoffs affect the trajectories of innovation and are influenced by prices that move the trajectory upward. Clearly the fossil fuel prices are reallocating the financial resources to facilitate innovation and an upwards movements in the economic / technical trajectories.

The final point that Dosi notes in this section is that the innovations are sometimes sourced from differences in the underlying technologies. A good analogy for describing this would be when an assumption is altered, then the conclusion is also altered. The underlying technological cost or performance has a direct influence on the performance trajectory of the items being studied and therefore, are a ripe field for innovation.

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Monday, February 20, 2006

Technical decision.

[Technology] [Decision]

Based on my research and understanding, I am now able to define the technical architecture a little finer. This entry will summarize the architecture to date and define the current changes.

I am eliminating the use of two "technologies" or "methods" of programming from all of the code that will be written. I am also including the limited use of one "non-typed" scripting language.

  • Based on the technical vision of this blog and a brief discussion noted here, I am eliminating any and all use of "BPEL" or business process execution language, defined here.
  • The use of AJAX "Asynchronous Javascript with XML, will also be eliminated.
I see these two technologies as stop gap measures that solve today's problems, only to open a pandora's box of issues down the road. In there place Java Applets will be used for the management of asynchronous messaging. Our ability to control the virtual machine on the clients browser provides a more robust system capability at the expense of higher development costs.

The value proposition of the Genesys system essentially allocates these development costs to each barrel of oil equivalent produced. The oil and gas industry is on the verge of breaching $3 trillion in annual revenues. Costs of development will not be an issue, however, system performance and reliability will.

The use of complementary technologies is permissible on the following basis.
  • The Groovy scripting language is a derivative of the Java language. (JSR-241) It can be used in limited testing and other uses, however, never on production builds. Essentially allowing the developer to demonstrate new concepts, or, proof of concepts in a more robust and effective manner. Since groovy uses the same frameworks of the Java language, this provides an effective interim initial step for the developer to implement the code in essentially Java and provide value for the final development.
Therefore in summary, the technical decisions that have been made to date are as follows.
  • Hosting via the Sun Grid. (Reliability, security and data security.)
  • Solaris.
  • Apache Maven.
  • Java 5.0 moving to Mustang when reasonable. (Annotations and Generics are essential.)
  • Ingres relational database. (Oracle's promotion of BPEL is disconcerting.)
  • Sun Microsystems GlassFish Java EE 5.0.
  • Sun Microsystems Web Server.
  • Preference towards Netbeans, Java Studio Creator, Java Studio Enterprise.
  • BPEL and AJAX are banned.
  • Groovy as a scripting language is excluded from production code.
This is the current status of the technical decisions made to date.

Decisions being made in the short term are;
  • Toplink vs. Hibernate. (Oracle's Toplink is included in GlassFish.)
  • Evaluation of BEA.
  • Licensing use and conflicts.
I would solicit opinions and comments regarding the decisions made and the future decisions to be made from readers.

Saturday, February 18, 2006

System security, continued

The heading of this post will lead you to a tutorial paper on Elliptical Curve Cryptography. The document discusses the issues regarding encryption of data. As time passes the value of traditional encryption methods becomes less and less secure. The solution would be to expand the key size to enforce higher levels of security, however, that appears to be providing a solution for only 20 years after the larger bit length becomes standard.

ECC provides the user with progressively steeper levels of security with much smaller keys. As opposed to 2048 bit keys, ECC can provide the same level of security as RSA, with only a 248 bit key. Providing the following advantages:

"This means, in turn, less heat, less power consumption, less real estate consumed on the printed circuit board, and software applications that run more rapidly and make lower memory demands. Leading in turn to more portable devices which run longer, and produce less heat."
Why is this mentioned? Sun Microsystems have incorporated ECC into the next version of thier web server. Therefore, ECC will be the standard method of encryption of all data elements of the Genesys system.

Wednesday, February 15, 2006

Plurality Subtle implications of technology

Note to Reader. I am publishing the "Plurality" document I frequently refer to in this blog. This will enable searching based on the text within the entire document. The word count is approximately 35,000 words and is provided as background for the discussions.

A number of technology changes have occured since it was originally published in 2004. IBM has chosen not to support this effort, and as a result I am replacing the components of the technology architecture as the opportunities and needs require. We are moving to the Sun strictly for their support of Java, and the synergies of the visions. As I recently noted, Ingress would be the database that we will use. Other then that, I have chosen to host the entire development and operating environment on Sun's Grid and as funds become available we will secure those resources.

References are to the literature noted in the bibliography. So here it is, warts and all. I hope you enjoy it, any and all comments are welcomed and appreciated.

Thank you

Paul Cox

Today we need to better understand the subtlety of the implications of technology. Organizations are entering a time period where technology is providing a level of infrastructure that permits its proliferation and adoption that is firstly insidious, ubiquitous and with possible or probable implications that are not fully understood? Three generic examples are cited to show the cause and effect of technologies on an unsuspecting audience of users and businesses.

They are, the downloading of MP3's and Apple's iTunes, PowerPoint as a presentation tool and SourceForge.net. The first two, MP3's and PowerPoint contain warnings of not fully understanding the impact the technologies will have, with the third example expressing the threat that self organizing teams present as an organizational alternative to the comparatively inefficient hierarchical based organization.

All these examples share the same symptomatic cause and effect that the user is attempting to achieve, that is, to acquire what they want through the path of least resistance. The other major new thinking that may develop is that intellectual property and knowledge management are by far the most important aspect of a firms assets, and that they are very temporary as an advantage, aging in quarters, not years. Included within these intellectual property attributes are the organizational innovative capability, or appropriability and IT resources. I am citing this point to reflect that the competitive nature in business today is rapidly changing on all fronts.

MP3's and Apple's iTunes.

The following is a good example of how technology can become disruptive to a well-entrenched business model. Downloading of MP3’s and the effect it has had on the music industry should be well known at this point. The phenomenon of least resistance showed itself through otherwise very honest and hardworking individuals, knowingly breaking the law. These thefts were justified in the users minds by a variety of excuses, and with all that has happened to mitigate the effects, little if anything has been done to stem the waning tide in the revenue of the musicians and music companies. This is also not a recent phenomenon, copying records onto cassette tape was a concern in the 1970’s with the development of the cassette recorder. The downloading issue has been raised as a result of the selection of music made available through the networked user seeking the path of least resistance.
Initial attempts to shut down the vehicles (Napster) proved fruitless as the website's were only replicated quickly, and in far greater numbers, effectively providing users with more outlets in which to acquire their music.

Apple iTunes has provided a strong business model that appeals to the user and provides them with the ability to use their music in the fashion that they have always wanted. This is currently working effectively, with the full support of the law and under contract with the music distribution companies. In hindsight the record companies, in seeking Apple's help, might soon realize they invited a Trojan horse into their camp.

iTunes appears to be the application that users and musicians need as a portal for their communications and distribution of their products. This enabling an alternate solution for communication and distribution of music, which might eliminate the “music business” as represented by Time Warner, Universal and Sony.

All of the machination's conducted by the music industry to control the intellectual property of their distribution copyright, has only provided the music user and musicians with the ammunition and motivation to further eliminate any goodwill towards the music industry. Which musician will be the first to distribute their new music to their fans via iTunes, and how much less will they be asking? ITunes is the only system that maintains the musicians rights of intellectual property, which is another aspect that the competition does not appear to understand. Disintermediation of the music industry will most certainly be the result of these activities.

NASA's comments regarding the dangers of PowerPoint.

We have witnessed the recent NASA comments regarding PowerPoint presentations that place that product in the category of the real “killer app”. I interpret NASA's comments not so much as blaming PowerPoint for the failure of the space shuttle, but more for the phenomenon that users would seek the path of least resistance in getting their message across. We all inherently understand the point that NASA is attempting to make.

The ubiquity of PowerPoint presentations is as a result of their inherent ease of use and effectiveness at selling a message. Any attempt to eliminate the product from within an organization would be devastating to its internal communicative capability. The product works effectively for the reasons that it is used for.

The future implications are that any attempts to eliminate PowerPoint would be more negative than positive, the PowerPoint presenter and viewers need to be cognizant of the limitations of the application, which unfortunately they now are.


SourceForge is not a name that many people would have heard of before. And many will not hear of in the future. This is good example of how minor changes in a business model or technology could have significant implications on how the organization of commercial enterprises becomes redundant and therefore effectively disrupted.

Sourceforge.net is the open source vehicle used to download and manage the open source code that a user wants. It is also the forum where like-minded developers organize and work to build the better, and “free” code that is provided to anyone who wants it. This is strictly on a volunteer basis with the altruistic objective of building better software and is not guided in any form or fashion as a result of anyone’s policies. The Linux, MySQL, Darwin, and other software are being developed through this medium. Self-organizing groups of developers, motivated by similar causes, located throughout the world are tied together through CVS (Concurrent Version Systems) to produce the code they seek. Most never meet the other developers, ever.

This environment has developed over the last few years from a small community to a reasonably moderate size of 800,000 developers working on 80,000 different projects. Mostly organized in an ad-hoc and informal manner, these developers have produced software of the quality that Linux is now the alternative operating system used by IBM, Sun and other vendors, and is beginning to be the preferred system for many corporate servers and considered for the desktop.

SourceForge.net is so significant that it may render the corporate IT infrastructure unworkable in the short to mid-term. This is a pretty bold statement regarding a completely irrelevant and mostly unknown organization. The announcement and an explanation of how this might occur is as follows.
On December 16, 2003 SourceForge.net distributed the following announcement to their membership through their site wide mailing list. The announcement had three components of the same theme.

These were:

  • Donations could be made to the overall SourceForge.net organization.
  • Donations could be made directly to the project of your choice.
  • Donations could be made to the specific developer of your choice.
This one change in the business model of SourceForge.net will provide the economic means for the developer to live in what he may have always considered to be his career objective of full independence, freedom and a means of financial independence. This will provide developers with the confidence and capability, and who may have been moonlighting through SourceForge.net as a means to hone his / her craft, with the motivation to commence drafting that resignation from their day job and securing their long term intellectual property value.

This, of course, won't be all of the corporate IT staff, just the ones that have achieved the level of sophistication and capability that can and usually is measured in the quantum's of 10, 20 and 30 fold to the standard. The technical workers that preferred to work on building their craft outside the organization they work for.

Although the losses may be limited to a handful, they are the critical ones who are known for their capability and will be able to make significantly more money through SourceForge.net than through any other means they could have imagined. They will be further motivated by the fact that their previous employer may become their greatest supporter. Which opens the other side of this threat, namely the opportunity for the companies to acquire several of these high quality developers through


Recently SourceForge.net started a company that provides software tools for corporations to hire and manage the source code through SourceForge.net. The following two url’s are to that company, VA Software and provide the information necessary to understand this opportunity. Of particular interest are the members of the board of directors. (http://vasoftware.com/)

Corporations may look back on their decision to use Linux and other open source code as their biggest error. After all what were they thinking, you don't get anything for “free”!

IBM WebSphere technology’s introduction in oil and gas.

There is a need to look at the past ten years in a different perspective in order to fully appreciate the scope of the concern that this research has for the hierarchical organization. This research is asserting the impediment to further progress is the hierarchical organizational structure or bureaucracy. And by invoking Dr. Anthony Giddens Structuration theory, which states society, individuals and organizations need to move forward together, or not at all, any disparity in the pace of change in one has to match the others, or failure occurs. Dr. Orlikowski’s model of technology structuration also becomes progressively more important during this discussion.

It is implicit in this thesis’ hypothesis that at this time, society and individuals are or have moved on, and the organization, as represented in the hierarchical corporate organization is impeding further progress and performance. Alternate organizations are forming, or can be formed quickly and efficiently to eliminate the need for the organization in its hierarchical form.

The hierarchical organization is directly supported through many tacit and explicit support structures. Key among them is the ERP system that represents the largest single IT investment of an organization. Support systems that provide the hierarchical capability, and specifically the ERP system, are now under direct threat of an insidious and contagious technology. This technology accelerates the organization’s performance to that which is matched by the performance attributes and expectations of society and people. Or as Dr. Dosi (1988) states, “technical progress generally exhibits strong irreversibility features.” This “progress”, as demonstrated in the prior technology examples is impossible to stop and needs to be fully understood and embraced as the only tactical and strategic method of dealing with it. (p. 1144)

There has been much debate in the past few years as to whether technology was evolutionary or revolutionary. These past years have provided cold comfort to those who believed the best days of technology are behind us and that will be the end of the bubble, and the geeks. I am asserting that the technology revolution sustained a serious blow to its credibility and capability during the past four years. The only requirement for the technical revolution to continue is for the coup to trigger the signal. Metaphorically speaking, of course.

I perceive these technologies to be a threat to the status quo of an organization because of the inherent ability of the technology to reproduce itself quickly. A good analogy would be the differences between a user that is networked and a user that is not. Contrast the abilities and productivity of a worker in the networked world with one of 10 years ago, where no public network, applications or communications occurred, compared to the ubiquity of today. No one would deny the impact that the Internet has had on an individual’s productivity. The easy access to abundant and inexpensive data and information, communication and new applications has provided a base of infrastructure that has facilitated innovation in all forms. This analogy is strengthened giving the significant impact that Dr. Dosi’s work on innovation will have in the future.

The analogy of the worker over the past ten years is directly applicable in this instance. The difference being the individual is replaced for the purpose of the analogy, and represented by the organization. As opposed to having independent and unconnected islands of information and capability, there is a collective and co-operative interconnection between trading partners where more of everything is shared and learned through the enhanced collaboration of internal and external, self-organizing teams.

Today many individuals have sought refuge in the collapse of the dot-com bubble to justify their refusal and incapability to fully exploit the technology resources that they have been provided. An inherent inability to learn the technology is a phenomenon associated with older generations that have a complacency or satisfaction with the status quo. This is leading them to be functionally illiterate in the working world of today, with only a vested pension, years of service or rapidly depreciating tacit knowledge that enables them to maintain their illusion of technology. Ultimately this will be at significant cost to those individuals.

This scenario is not an alternative for the organization. Failure will occur swiftly to those organizations that cannot compete against the swiftness and productivity of self-organizing teams.
Revisiting the earlier comments about SourceForge.net reflects few organizations could be organized with 850,000 developers working on 80,000 projects. The key is not so much the volume, but the associated quality of the products. Linux is unquestionably the champion in comparison to the Microsoft Windows alternative as are many of the open source products. To now transform the organization into a method for developers to earn their living may be the most productive and effective means of deploying those resources. The benefits derived from this organization can be distributed over larger populations of users and in collaboration with like-minded individuals or organizations.

Like many of the individuals that refuse to understand, learn and exploit the technologies of today, some corporations may decide to ignore the opportunity and focus on the threats that are introduced through these technologies or reflect that it is not particularly relevant. However, unlike the individuals described as rejecting technology, through the competitive marketplace corporations will be rendered ineffective and inefficient far quicker than their human counterparts.

Application of this point regarding oil and gas is particularly revealing. Through the process of this research it is apparent that the susceptibility of the industry to this risk is high. The saying that to be forewarned is to be forearmed might be pertinent and should be heeded by industry.

One point that this research has noted, is that this issue has created a polarizing effect between members of the companies. The scope of change crosses all boundaries within an organization.
The senior IT managers are almost unanimously concerned about the possibility of the toolset rendering the technical infrastructure ineffective. Their efforts to have an ERP system function effectively as required in these large organizations has been tremendously difficult and is not something that should be experimented with. Some of the comments regarding the research are:

  • We have that all operating in our company now.
  • This is too significant a change to be contemplated by anyone other then the CEO, CFO and CIO.
  • Unwilling to support or sponsor the research. Emphatically unwillingly.
In many ways they have worked to fulfill their obligations to the company and now are subjected to serious threats that are beyond what they have the authority to consider. They are the managers, not the change agents.

The following is a direct response to the issue of management push back just described, and was cut from a .pdf document and is quoted verbatim.

“Web services are programs that allow systems to interact with each other over a network. They leverage open standards and the power of the Internet to allow businesses to interact with each other more easily than ever before. Because businesses have a rapidly growing need to work more closely together, the ability of Web services to support that activity in a standard, well-defined manner, have generated an enormous amount of interest and activity in the Web services arena.”

“Of course, along with all the excitement comes a great deal of buzz, which can easily make you think that Web services are just another over-hyped technology. Although there is hype surrounding some aspects of Web services, Web services and the underlying XML technologies really do have tremendous value for today's enterprise.”

“In this tutorial series we will show that Web services, while not a silver bullet, may change forever the way you integrate business processes. This applies to integrating with other companies' processes or with your own internal processes. They are the next logical step in the evolution of the Web. With Web services, we are moving to a new stage of e-business where businesses can exchange services and integrate business processes with one another.”

“This brings the issue of Enterprise Application Integration (EAI) to another level, where you can incorporate multiple companies into a single business process, as well as more easily incorporate multiple business processes from one company into a single process.”

“Driven by these important business needs, the Web services world is evolving rapidly and there is a great deal of innovation, clarification, and specification occurring. Among the important developments are the following:”

These direct quotations are from an IBM document, the italics were added to highlight the parallel comments to the warning contained within this research report. It concludes the introduction by stating

“In short, IBM’s “WSDK” provides an entry-level platform and supporting toolset that make it simple and straightforward to create Web service-based systems. It will let you explore this emerging world of Web services and see what all the excitement is about.”

Source is page 2 of “ws-intwsdk51ltr.pdf from IBM.

This comment is written by IBM and reflects a similar message to the one being presented. The message is that IBM is providing this infrastructure; along with their Eclipse development environment to developers for free, which reflects two further points that I impute from this and other observations. The customers in many industries are resisting the changes that these toolset and technologies introduce, and IBM is moving the product into the hands of the developer in order to ensure that IBM earns a substantial position in the marketplace of web services and get the ball rolling in a difficult technology politically and conceptually, but not technically.

In reviewing both Giddens and Orlikowski’s theories of structuration (and understanding the time frame of the late 1980’s and early 1990’s in which they were written) one recognizes the absolute brilliance and value of these individuals’ work. A comprehensive review of their models is highly recommended. However their brilliance may be overshadowed by the efforts of IBM to deal with specific issues regarding the technology inherent in Domino and Notes over the past two years. In retrospect I believe there is a tacit understanding of Orlikowski’s theories represented by IBM “middleware” product strategies. IBM’s inability to penetrate the marketplace with Lotus Notes as envisioned has been a frustration to its advanced users and developers as well as, we assume, IBM.

Overcoming these problems and applying Orlikowski’s model is clearly the strategy that is being employed very effectively by IBM. It is also not surprising that much of Orlikowski’s consulting work has been in the area of the deficiencies that organizations experienced in integrating Lotus Notes.
IBM has as much to lose from Web Services as they do to gain, as they operate in a very competitive marketplace. IBM poorly handled Microsoft and the changes due to the introduction of the PC in the 1980’s. This lead to a significant decline in their organization and in the early 1990’s, recall they were barely able to register mention to the “might” of Microsoft and Intel. This paper would assert that IBM came too close to meeting its demise and has learned substantially from that lesson. Applying the velvet glove and reacting to market changes is no longer their modus operandi. They are aggressively changing the market landscape in their favor to ensure their competition remains behind.

It is critical to understand that Giddens structuration suggests that power be asserted to create new capabilities for the changes in organizations to occur. Through IBM this power has been exercised and the capability exists. The only requirement remaining at this point is for the organizational change to occur. On the basis of this theory these changes will occur with or without management support.
During her consulting Dr. Orlikowski frequently referred to the work of Thomas H. Davenport. This work documents that collaborative computing does not lead to collaborative work environments. Policies and procedures need to be set by management to facilitate collaboration. Key to the policies is the need for alignment of collaborative incentives, training and organizational culture is consistent with the toolset.

Organizations may believe their ability to control technology introduction is through the restriction of financial resources necessary for users to acquire the license to Workplace. This also has been considered and dealt with at IBM in the following manner. One form of the license that is available to developers is an "Extranet Server License" that provides the ability to license it to as many “outside users” as possible. This, of course, is at no cost which immediately waives the token $93 charge for the license. Therefore if I as the president of Genesys® deem someone a consultant of Genesys®, and provide them with a fully paid user license, this provides them with further unlimited use of the server and software and allows them to distribute the Workplace software to anyone, anywhere and for whatever reason. Or alternatively, this author could send certain staff an URL to Genesys®, server that permits them to use the product as they see fit, and this could in turn, in a very short period of time, enable Genesys® to have each and every staff member in your organization working off this product at the total cost to Genesys® of $93 and your organization $0.00. Astute technical readers will learn that this entire process can be conducted initially through port 80 (Web Browsing). This is, in my opinion, a reflection on the importance and value that IBM has placed on Web Services as their future and a very well executed and implemented product strategy.

To further exacerbate these issues, Workplace provided upwards of 80% reductions in phone calls, phone messages and conventional internal emails. This is mentioned on IBM’s website demos. This is certainly a significant advantage and provides a capability to concentrate the overuse of those channels of communication. However, it should be evident that Workplace provides a far more efficient mode of communications then the other channels. This creates an even greater issue with respect to the impact that Workplace could have on an unsuspecting producer. Understanding the user’s propensity to seek the path of least resistance, Workplace has the potential to revolutionize the organization’s communications as well. This is one of the key aspects of the ability of the “other” participants on the joint operating committee to be able to use another producer’s capability if introduced to this facility. The ease of extending the collaborations between committee participants will enable the acceptance and use of the toolset.

Of particular interest will be the management discussions that are carried out during their various meetings. To now conduct these meetings asynchronously codifies the understanding and reflects the ability to have individuals that would otherwise not be able to participate learn and contribute to the discussions. A further capability is the ability to reduce managements time to the salient points that need to be addressed, and eliminate the management time required for physical attendance, the logistics of attendance and the unnecessary time lost in scheduling.

This tool’s power is unmatched in this author’s opinion. With this power comes significant gains in competitive advantages to those that are able to implement the technologies effectively, and disaster to those companies that are unable to pro-actively deal with this threat.

Resistance is futile. The cause of current resistance is clearly understood. Companies have struggled for several years, and maybe for a decade to have the promise of ERP systems operational and functioning within their organization. From what I have seen in a few instances the results have been very successful. Web Services now challenges the entire infrastructure of the installed base of applications, communications and systems infrastructure that are otherwise in excellent condition and in many instances at the beginning of their useful life.

The challenge that Web Services presents is two fold. The managers are not interested in tearing down what is operationally efficient. Why would they? Secondly, the infrastructure is under attack by an insidious technology that is impossible to ignore, yet has the potential, if not managed pro-actively, to create serious issues for the current software infrastructure and organizational structure. What purpose will there be for a structured hierarchy with its associated bureaucracy when self-organizing teams are able to perform more efficiently and effectively? An ERP system designed for facilitating the hierarchy is just as redundant.

The moment in time that an organization realizes this technology was introduced somewhere in their organization, and as a result of the manner of its use, the questioning of the integrity of the organization’s data begins, or not. It should be asked as well, how many developers have downloaded these technologies from IBM and conducted the Web Services training that is being offered for free?
This scenario may occur in a short period of time, or not. It should be asked where within the organization will this first appear? Will it be in the scientific areas, or the financial? The purpose of this research is to plan a proactive change management and knowledge management procedure to install the Workplace and IBM infrastructure toolset within the organization. Ensure that it meets the criteria of the management’s policies, that those policies in turn are designed to support the exploitation of the technology. These planning components are contained within Genesys® Software Corporation’s February 2003 ERP proposal’s recommendation of the “study period”.

In Dr. Noel Tichy’s book, he references Kaplan (1964), which states. “I have found that if you give a little boy a hammer, he will find that everything needs pounding.” (p. 291) However, this comment also adds significant credence to the issues discussed in this document namely that IBM’s workplace tool may be picked up by individuals seeking the alleged path of least resistance. And just as the little boy hammered everything, individuals will find the tool effective in many applications affecting their work, further exacerbating the issues regarding the ability of organizations to deal with these problems without the appropriate planning and strategy formulation.

It is this author’s opinion that much of the change management initiatives that are driven by SAP integration are to facilitate the tools use. I believe this to be symptomatic of the Theory X method of management in that people need to be monitored and controlled in order to be productive. The Theory Y implementation would assume that people want to work and only need to be supported to do that work. Theory Y is consistent with what Dr. Dosi has asserted as required for innovation.

In the previous analogy of the boy with the hammer, if the staff where to find the “hammer” or in this instance, the Workplace tool, would they soon learn that that a square peg will never fit into a round hole? (The SAP application?) I frequently refer to the behavior of groups as that which is consistent with how the Buffalo were almost rendered extinct. That the analogy of the abuse of the Buffalo is not dissimilar from the current expectations of consumers regarding energy. When the individual sees the Buffalo analogy they begin to appreciate the industry clearer, at which time I point out why the analogy is not valid. The analogy is rendered invalid when it is explained that the Buffalo were a renewable resource, had abundant alternatives readily available, and the economy did not live or die with or without its existence. These two analogies combined reflect another odd behavior. The behavior was the North American Natives effectiveness in killing Buffalo by running them off a cliff. It somehow draws the conclusion that SAP’s behavior appears consistent with the Native Americans. My point is this, it begs the question, what would have happened to the Buffalo if they just stopped running? Today companies have to stop the SAP styled Buffalo jump and consider other alternatives.

Overall there is some good news. There is actually very good news in that Web Services are able to interface with legacy ERP systems in a very progressive manner. This technology can be managed in an effective manner to initially build off the legacy ERP and provide a direct transition over a reasonable period of time to accommodate the organizational and incremental technical change. This requires proactive management in the form of the appropriate change management initiatives that facilitate the innovations that provide the future sustained competitive advantages of the firm. These change management initiatives need to be orchestrated by management through the appropriate “change agents” (Genesys®) providing the counter management thinking to achieve the drive to change, and technology development.

Being the “Change agent” is where Genesys Software Corporation has positioned itself in order to offer these software development and research services as a web services integrator to oil and gas producers. Please review the Genesys Software Corporation strategy summary provided in the February 2003 ERP proposal. It is also explicitly stated in Genesys®, February 2003 that these technologies need to be studied and adopted. The value proposition and overall strategy remain as they were documented in February last year, only the urgency in which firms should act is being revised. Genesys® has developed a full service solution to this issue, and is prepared to provide those potential clients that express an interest through the distribution of this research report.

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Plurality Business Attributes of Web Services

Note to Reader. I am publishing the "Plurality" document I frequently refer to in this blog. This will enable searching based on the text within the entire document. The word count is approximately 35,000 words and is provided as background for the discussions.

A number of technology changes have occured since it was originally published in 2004. IBM has chosen not to support this effort, and as a result I am replacing the components of the technology architecture as the opportunities and needs require. We are moving to the Sun strictly for their support of Java, and the synergies of the visions. As I recently noted, Ingress would be the database that we will use. Other then that, I have chosen to host the entire development and operating environment on Sun's Grid and as funds become available we will secure those resources.

References are to the literature noted in the bibliography. So here it is, warts and all. I hope you enjoy it, any and all comments are welcomed and appreciated.

Thank you

Paul Cox

The past number of years has seen Dr John Seely Brown and John Hagel III as the primary proponents of the web services paradigm for business. Much of their writing and consulting is done in this area and the effect of web services on management and business in general. Their efforts have recently focused on Web services almost exclusively and they have prepared a number of comprehensive writings on the subject.

A good summary of their opinions about the scope and magnitude of the changes are as follows. This quotation is from the article Orchestrating business processes – harnessing the value of web services technology. This article can be downloaded from their website

Hagel & Brown (2002) “The buzz is spreading. There’s a new set of technologies on the horizon. Web Services offer the potential of low cost, flexible connections across applications operating on diverse technology platforms. The pay-off: substantial, near-term reduction in operating costs and improvement in asset leverage for businesses.” (p. 1)
Hagel & Brown (2002) “Not so fast. True, businesses do have the potential for substantial savings in an increasingly demanding economic environment. But put the emphasis on “potential”. Realizing these savings is not simply a question of injecting a new set of technologies. To fully realize the economic potential of web services technology, senior mangers will need to adopt very different approaches to managing business processes. This article describes why different management approaches are required.” (p. 1)
Hagel & Brown (2002) draw an excellent analogy in describing web services. An international meeting with 5 participants, each speaking a different language, would require up to 10 interpreters in order for any communications to occur. Web services are described as a parallel to the English language in this situation. The ability to conduct business is far simpler when everyone speaks the same language and can communicate with a shared meaning, glossary of terms, data structures, process management and other ERP style standards across multiple trading partners.

Hagel & Brown (2002) “Of course, exploiting these growth opportunities will require much more than a new technology architecture. Very different organizational capabilities must be developed, including new skills, performance measurement and reward systems and organizational learning approaches. Even more fundamentally, business managers will need to adopt a new mindset – embracing shaping opportunities by helping to define and deploy standards, rather than simply hoping to adapt to a rapidly changing environment.” (p. 19)
Hagel & Brown (2002) also state “However, none of this will be possible within the confines of existing enterprise architectures. To capture the largest business value creation opportunities on the horizon, management will need to “break on through to the other side” by embracing new technology architectures – and associated organizational forms – in a sequenced manner, driven by a clear understanding of, and demand for, real business value at each stage. (p. 20)
This provides unequivocal support for the reorganization of an oil and gas operation on the basis of the joint operating committee. The need to reorganize is based on the effect that web services will have on an enterprise, and as both Hagel & Brown, and this paper have stated the alternative is hope for the ability to adapt to the changes associated with what this research calls the “integrated networked cluster”. In taking both their analogy of communications where no one speaks the same language, and the one articulated in this paper in which the networked effect over the last 10 years on individuals will be paralleled in the corporate environment, the impact of web services regarding the ERP systems can no longer remain an island of information.

In addition, and of particular support for the reorganization to the joint operating committee, is the fact that Giddens and Orlikowski’s theories and models of Structuration reflect that the organizational structure is defined by legal agreements, industry norms, ownership, operational and other fundamental criteria that make it, literally the only viable organizational alternative. Alignment is currently the buzzword in the technology arena. Any initiative attempting to achieve alignment therefore requires the SJOC as its organizational basis. In addition to the aforementioned comments, a reference is provided from

Dr. Rebecca Henderson (2002), who is the Eastman Kodak Professor of Management at the MIT Sloan School of management. She asks: “How can you manage these technologies and their inherent issues strategically? Will you be aware of the changes as they happen? Have you thought through how your organization will respond while simultaneously maintaining a “conventional” business? I venture to predict that the ability to answer these sorts of questions is likely to be the critical factor that will determine the business winners of tomorrow.”
Her comment is made in reference to technology in general, however, it is a rather salient point and reflects the nature of the times we live in and the diligence that managers must pay to technology and is a further extension of this paper’s title “Plurality should not be assumed with necessity”. (p. 6).

In Brown & Duguid (1998) they make the following observations: “The leakiness of knowledge out of and into organizations, however, presents an interesting contrast to internal stickiness. Knowledge often travels more easily between organizations than it does within them. For while the division of labor erects boundaries within firms, it also produces extended communities that lie across the external boundaries of the firms. Moving knowledge among groups with similar practices and overlapping membership can thus sometimes be relatively easy compared to the difficulty in moving it among heterogeneous groups within the firm. Similar practice in a common field can allow ideas to flow. Indeed, it’s often harder to stop ideas spreading then to spread them.” (p. 102) This certainly reflects the significance of the risk of having the IBM Workplace toolset introduced without the explicit support of management.

In their document Compendium Overview Hagel & Brown (2002) state the following:
“Changes in management practices, Control vs. Trust – mastering a different management approach discusses the fundamental shift in management practices required to realize the potential of Web services technology. Managers have perfected control-based techniques to ensure performance of business processes within the enterprise. When these techniques are extended across enterprises, however, they tend to limit the potential for collaboration, rather than enhance it. Control-based techniques may work if there is a clearly dominant business partner dealing with much smaller companies. Even here, though, the smaller companies will over time tend to migrate to work with business partners who have adopted a different management approach. A trust-based management approach focuses on the role of economic incentives in shaping and deepening collaboration. Rather than relying on market power to impose practices on business partners, this approach creates appropriate incentives to ensure coordination of activities in the most flexible and least expensive way possible.” (p. 4)
This is where the Genesys® proposal addresses a key point. The need to have a third party negotiate and solve many of the inter-company issues regarding systems integrations needs to be handled effectively, and is part of the study period as proposed in Genesys®, February 2003 proposal. Another aspect of concern is the level of collaborations that are introduced and the level of collaboration that currently exists within the industry. Collaboration is not necessarily easy and I would suggest to fully explore and understand the concepts, opportunities and responsibilities requires much thought and training on the part of each individual.
These comments are further defined in Hagel & Brown (2002) Control vs. Trust - Mastering a Different Approach.
“By focusing on end products, rather than the detailed activities required to deliver the end products, the trust-based approach creates the basis for a very different management model. Rather than supporting tightly coupled business activities, trust based approaches encourage much more loosely coupled business activities. Participants can be added and removed much more easily. More specialization can occur because loosely coupled relationships can accommodate more participants. Rapid innovation can occur in all areas of business activity because the loose coupling allows participants to change the way they operate without disrupting the operations of others.”
In this article Hagel & Brown (2002) define many of the components of trust that need to be developed. That trust is not something that, once established is not required again, it is something that must be maintained as well. The four components of trust that need to be developed are as follows:
“Expectations must be shared by all parties”.
This is why the components of the joint operating committee best facilitate the collaborations and developments. Developing a shared vocabulary, shared understanding and / or shared meaning will facilitate the means to innovate based on that shared understanding. This is difficult, if not impossible to achieve in the control-based environment. (p. 3)

“All parties must be sufficiently motivated to deliver against expectations.”
Like-minded producers are interested in the same outcomes. Sharing of that objective between the companies represented in the joint operating committee is consistent with the trust fundamentals of Brown and Hagel. Brown and Hagel go on to suggest that individuals can be motivated in a collaborative forum through knowledge incentives. This is a particularly effective motivation as the learning of one can enhance the learning of others in the collaborative process. The indirect benefits to the capacity to innovate, or the appropriability as Dosi defines the term, would be long lasting and sustainable as a competitive strategy through this knowledge based incentive structure. The use of monetary incentives appears contrary to the collaborative process and would not be recommended as an individual motivation. (p. 1122)
“All parties must have the requisite capabilities to deliver against expectations.”
As in the above item, the knowledge-based incentives would help to further the natural capability of the individuals participating in the collaborations. (p. 1122)
“Notification mechanisms must be in place to provide early warning of any potential shortfalls in performance or abuse of privileged access.”
In Genesys Software Corporation February 2003 the Internal Audit role was highlighted as the area in which much of this solution may fall under. I would assume that a greater role for the internal controls would be the result, and an understanding of those controls be better implemented to facilitate a higher component of trust. Hagel and Brown assert that through collaboration “more is better”. The tendency to want to limit the resources deployed to a project in the control model can have the effect of limiting the capability. This is contrary in the collaborative environment, and this comment is based on this author’s experience in earning his MBA from Athabasca through Lotus Notes, namely that the broader and more diversified the level of participation is, the greater the collaboration which leads to significantly greater results. This also indirectly demands that the knowledge within the collaboration must be higher, with a greater specialization of each individual participant. As an aside, the Workplace tool has developed and offers the person to person, person to process, process to person and process to process notification systems enabling a very diverse and “automated” method of establishing communications and notifications. (p. 1122)

The trust method and its associated changes naturally take long lead times in order to implement effectively. This fact coincides with the long development times of Genesys Software Corporation’s February 2003 proposal, the time required to learn to collaborate, the management changes necessary etc. Hence the importance that is placed on the timely and dedicated move to effect these changes that is required. How can companies undertake this level of orchestrated change if they permit the Workplace tool to enter their organizations uninvited?

Asynchronous communications.

This paper cannot stress enough the value of asynchronous communications. Occasionally this research has noted and reflected on the areas where asynchronous has been effective. I feel a better description and application of why this method is of such value lies in the proposed SJOC.
Asynchronous communication denotes that there is not the requirement of an immediate response. A telephone call is synchronous, and a letter or document is asynchronous. There is time to reflect and consider other points of view and accurately research and discuss the answer provided. This elevates the quality of communication above the chat room and provides real value in today’s business. It is also self-documenting and available to all the immediate team members of the joint operating committee to see how their discussion unfolded, and is available for search and reference in the years to come.

Of note and interest, with 1,200 students and 1,200 graduates of their MBA program, Athabasca University has a database of all the asynchronous discussions of its students. (7,200 man years). This provides significant codified knowledge that was formerly only tacitly available. The ability to search and garner further information is valuable in determining research projects and program development for their soon to be announced Doctorate in Business Administration (DBA) program. This capability is also what Google is attempting to achieve through their new Gmail system. Privacy experts are concerned about the resale of unsuspecting users data, codified into valuable information regarding consumer trends and then sold to advertisers. The potential users response to Gmail is very interesting, in that their complacency reflects the extension of the ubiquity of the network in their lives.

Asynchronous communications are critical to the facilitation of problem solving, innovation and overall communications. It is a concept that the IBM Workplace and WebSphere tool sets have ingrained in their structure as well. At this time particular mention of the WebSphere tool and its application of asynchronous functionality and process management is required. As stated elsewhere WebSphere is a collection, package or framework of IBM written Enterprise Java Beans. By implementing WebSphere with the ability to provide asynchronous functionality and process management, the same concepts that have been so effective in communications can also be brought to process management. Where the software manages the process, and collects a variety of input from different users, (and in the future users from other organizations.) whether it is in the processes optimal sequence or not. It is this author’s opinion that the asynchronous model’s process management is the key attribute and real value of web services.

A possible scenario.

You are the chairman of the SJOC and in this instance, as a member of the committee, you have always shared de facto operational control. In addition there was the financial accountability but that was more tacit then explicit prior to this revised Genesys® organizational structure. You therefore now have the tools and resources to effectively be accountable for the financial performance and specific attributes that are agreed to by the committee members.

You have a particular difficulty in discussing and maintaining lease access to your facility due to the surface rights leaseholder. Incidents with him are few and far between but he has clearly made it evident that he will not tolerate any interpretation of the lease agreement beyond what is understood at this time. His lawyer issued notice of this to you last year. You were also recently granted a reduced spacing and expect to fulfill the gas gathering and processing facilities to 100%. Surplus compression is available immediately due to some changes made by the committee in the operations de-bottlenecking. This opportunity combined with the revision in gas pricing reflects the opportunity to maximize the long-term investment made in the facility over the past few years.

The application for reduced spacing was made due to the decline in production owing to a belief that the level of competitive drainage that is occurring from the adjoining leases. These leases are excluded from the area of mutual interest (AMI) of the committee, and are owned by a member of this committee. This type of problem could now be openly discussed in the joint operating committee, and with the variety of participants, the Chairman in this instance would collaborate in order to begin dealing promptly with the surface rights holder. The structured hierarchy would not have time to respond to the decline in deliverability attributable to the adjoining properties as quickly as the Chairman can by opening discussion of the issue both internally and externally.

In this instance the engineer is faced with a technical, political and legal issue that is possibly affected through the collaborations at the joint operating committee. The direct participation of the other committee participants is augmented by the legal, accounting and other technical and professional discussions that are able to join the discussion from each of the companies. Instead of having only the Chairman of the joint operating committee dealing alone with another issue that will cost time and money in a busy schedule, the entire resources of the firms represented in the joint operating committee can be brought to bear on the problem in a virtual and rapid fashion, as required. What could not have been discussed and considered, let alone implemented and resolved in a timely manner, can now effectively be resolved in as little as weeks or months upon identification of the problems. This scenario reflects only the collaborative tool at work. Eventually the entire accounting, production, land, and legal forms processes and procedures, including electronic forms such as mail ballots and daily-drilling reports could be populated to the databases contained within the collaborative environment. This scenario accurately reflects the difficulties in dealing in the prairies, in the frontier areas of oil and gas, this scenario may best be represented by replacing the surface rights holder with either Greenpeace or The Sierra Club. Other software applications such as Accumap and 3D seismic interpretations could be presented and invoked by the toolset. With the potential of the entire ERP systems functionality, as described in the Genesys® ERP Proposal.pdf being invoked to support and align the SJOC, society and human resources.

The need to clarify that holding the SJOC accountable is not, and should not be, construed as a capitulation of the innovation process and its inherent benefits to the four winds. A study was undertaken at Chrysler to determine why the changes to “teams” were successful in product development, as reflected in their cab forward design, yet the overall engineering and technical capability of the company declined. The Chrysler study reflects that the accountability of the committee (team) needs to be augmented by an internal management system that provides an overall focus and direction to the innovations. Management needs to create and guide the internal innovative science and engineering capability that is unique and a key competitive advantage.
Review of Dr. Brown and John Hagel III’s writings has direct and pertinent value to this research and its associated proposals. The opportunity to better understand the Web Services paradigm can best be attained through a comprehensive review of their offerings and the IBM WebSphere website's. A distributable copy of their article “Does IT Matter, an HBR debate” is provided as part of this report. Particular attention should be paid to Dr. Brown and Hagel’s comments regarding Webservices.

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Plurality Dr. Giovanni Dosi

Note to Reader. I am publishing the "Plurality" document I frequently refer to in this blog. This will enable searching based on the text within the entire document. The word count is approximately 35,000 words and is provided as background for the discussions.

A number of technology changes have occured since it was originally published in 2004. IBM has chosen not to support this effort, and as a result I am replacing the components of the technology architecture as the opportunities and needs require. We are moving to the Sun strictly for their support of Java, and the synergies of the visions. As I recently noted, Ingress would be the database that we will use. Other then that, I have chosen to host the entire development and operating environment on Sun's Grid and as funds become available we will secure those resources.

References are to the literature noted in the bibliography. So here it is, warts and all. I hope you enjoy it, any and all comments are welcomed and appreciated.

Thank you

Paul Cox

Summary and application to oil and gas firms of Dr. Giovanni Dosi’s article. “Sources, Procedures and Microeconomic Effects of Innovation.” September 1988, Journal of Economic Literature Volume XXVI pp. 1120 - 1171


Dr. Giovanni Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Dr. Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firm’s search, and production of, hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition.

With the substantial upward revision in pricing of oil and gas commodities, new microeconomic models are developing based on these pricing realities. It is this research’s assumption that the search, discovery and production of hydrocarbons and the underlying earth sciences and engineering will develop faster than in the past, and at the same time, become more of a differentiation between the producer’s capability. Consistent with the revisions in the underlying sciences is the need for the development of alternative organizational structures and processes designed to support the acceleration of scientific and technical innovations. It is the understanding and application of the sciences that would be enhanced through collaboration through the joint operating committee, ultimately leading to an enhanced overall innovativeness for the producer. Mr. Matthew R. Simmons (http://www.simmonsco-intl.com/) states the science and technology of oil and gas is second only to the the space industry.

Petroleum companies’ business models have begun to undertake significant transformations in the form of higher risk profiles and different assumptions regarding the allocation of capital risks. These are accurately reflected in Encana’s Greater Sierra and Cutbank Ridge properties in Northern British Columbia, and the commercial development of the oil sands in Alberta.

Dr. Dosi’s paper discusses and asks what are “the sources of innovations opportunities, what are the roles of markets in allocating resources to the exploration of these opportunities”? (p. 1121).

This research in oil and gas attempts to focus the points of:

  • The main characteristics of the innovation process.
  • The factors that are conducive to or hinder the development of new processes of production and new products.
  • The processes that determine the selection of particular innovations and their effects on industrial structures.
  • There are two major issues identified by Dr. Dosi:
  • The first issue is the characterization in general of the innovative process.
  • And second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms, and over time.
Dr. Dosi then makes the statements that,

“The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:” (p. 1121)

  • “Capabilities and stimuli generated with each firm and within the industry of which they compete.”
For the purposes of this research in oil and gas the focus will fall primarily on the organizational capability of the firm. It should also be emphasized that innovations are based on both the firm and the industry. Co-ordination of the capabilities and stimuli of both the firm and the industry would therefore need to be advanced through changes in the organizational structure. (p. 1121)

  • “Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.”
“Additional issues include the conditions controlling occupational and geo - graphical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulations, tax codes, patent and trademark laws and public procurement.)” (p. 1121)

Based on the capabilities and stimuli of innovation present in the oil and gas sector, particularly the microeconomic effect of the commodity prices, it is reasonable to conclude that independent producers of oil and gas would be an area where significant innovation can and needs to occur. The primary reasons for the future enhanced innovation is due to the following analysis of the industry.

The capacity to enhance reserves is significantly more challenging than as little as five years ago. Exploitation is generally expected to continue, however, an enhanced role for various degrees and types of exploration is expected to commence. The energy frontier brings many new risks and complexity in the area of technical, political and the environment. These account for much of the changes in stimuli and capability that Dr. Dosi states are required to facilitate further innovation.

Secondly, the microeconomic trends associated with changes in the relative prices of outputs. Oil and gas prices are beginning to reflect the scarcity, importance and value of these commodities to society.
Although Dr. Dosi states that the majority of his paper is based on a products improvement and development. It is just as appropriate for internal and external business processes, and the organizational structure of an oil and gas firm to be redefined to enable, and facilitate innovation. This innovation would further the development of the scientific infrastructure of oil and gas exploration and production. That is the hypothesis and purpose of this research paper and Dr. Giovanni Dosi’s theory will be described in the following sections with its specific application to oil and gas.

Searching for innovation - The General Patterns

In his analysis Dr. Dosi asserts that the amounts of capital expended in the pursuit of research and development is augmented by a large indirect expenditure of “learning by doing” (p. 1124) and “learning by using” (p. 1125). These costs are tacitly incurred and difficult to identify and quantify, and that countries, industries, companies and individuals can and do innovate at different rates.

These costs are further quantified by classifying these into the following four categories:

  • “Formalized costs and processes of search whose costs are measured.” (p. 1125).
  • “Informal processes of diffusion of information and of technical capabilities.” (p. 1125)
  • Those particular processes of internalizing what is learned from externalized processes of learning by doing and learning by using.
  • The adoption of innovation, which is embodied in the capital equipment employed and intermediate inputs sourced from other industries.
Each of these four categories of the costs of innovation can be directly or indirectly applied to the organizational structure. And this research would restate a salient point of Giddens (1984) structuration theory; and ask how much of an oil and gas company’s innovativeness is attributable to the capabilities defined by the organizational structure?

Dosi then sets the stage with his research questions:

First the nature of the process of a firm in taking a promising technology, or economic opportunity and seeing it to its actual development. “That is, what do people actually do? How do they search? Why do sectors differ in their search procedures and effectiveness?”

“Second, one needs to determine the direction that technological change is taking society? Are there other factors in the patterns of technological change?” (p. 1125)

Thirdly, Dosi asserts there is a “propensity to innovate” that needs to be identified and asserted as to what a company is “capable of” which is not easily replicated, and different based on unique and mutually supporting internal (the organizational structure) and external components. Stating that these are the result of two identified phenomenon, which will be discussed in the next section. (p. 1125)

In oil and gas varying rates of capability can best be compared by analyzing revenues per employee as an indicator of innovation. For example, Canadian Natural Resources Ltd.’s (CNRL) 2002 annual report reports it has achieved almost $3 million in production revenue per employee whereas during 2001, a time of higher oil and gas prices, Vintage Petroleum Ltd attained approximately $950,000 in revenue per employee. These differences in performance are imputed to be the overall net result of the cumulative investments, in both organizational and science based capabilities, and innovativeness of the firms. In 1980 this factor was calculated for Aquitaine Company of Canada Ltd, which was one of the first to attain the level of slightly over $1 million revenue dollars per employee. This therefore does not reflect well on the performance of Vintage and reflects, that all things considered, CNRL has achieved three fold productivity increases in comparison to Vintage and of comparatively high performing firms in the industry during the early 1980’s.

These disparities in revenues are assumed by this research paper to be a result of the cumulative direct and indirect investments by these firms in innovative capability, again all things being equal. Questioning of this factor will be conducted to dispute the conclusions contained within this report, however, this paper asserts that production revenue per employee is an effective means of determining a company’s capability regarding the application and use of the appropriate sciences and innovativeness. With respect to Dr. Dosi’s work, what is it that CNRL does and Vintage doesn’t do that creates such disparity?

Innovation: The characteristics of the search process.

Much analysis has been undertaken to determine the actual outputs from innovation and compare those to the input costs and attempt, as one does in today’s technology environment, to determine a return on investment on technology, innovation, research and development.

Dosi reviews a number of studies that focus on quantifying the output part of the equation. These are comprehensive in their number, heterogeneous in their conclusions, yet, Dosi feels he has been able to find a number of threads that determine which factors or characteristics are influential and of crucial importance in the economics of technological change.

Problem solving of technical paradigms, the purpose of innovation.

Dosi states (1988) “In very general terms, technological innovation involves or is the solution to problems.” Dr. Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Dr. Dosi (1988) describes “on the part of the inventors who discover the creative solution.” (p. 1125). This statement accurately describes this authors opinion regarding the collaborations that should be undertaken by the SJOC.

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process then others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

Genesys® has documented and identified the issue regarding the IBM Workplace / WebSphere toolset, and its effect on corporate ERP systems and has proposed a solution to industry based on a fundamental value proposition. These solutions are documented in this research and the February 2003 ERP proposal contained in this reports appendix. Oil and gas firms should seek to undertake these solutions as the beginning of their move towards a more innovatively capable organizational structure.

Dr. Dosi asserts a crucial point in that technology and sector specific variety of knowledge, based on innovative search, implies different degrees of tacit-ness of the underlying knowledge of the innovative success. This helps to explain the differences across sectors of the typical organization’s capabilities to conduct research and innovative activities. Whatever the knowledge base on which innovation draws, each problem solving activity implies the development and refinement of “models” and specific procedures.

Dr. Dosi believes there is an underlying strong tie-in between the natural sciences and the development of technologies. Using the Aristolian and Platonic “paradigms” of understanding of science, when these scientific paradigms are proven to be more complex or different, the underlying technology change can replicate that seen in the natural sciences.

This researcher asks, if the knowledge of the underlying oil and gas sciences increases in its understanding, what organizational structure can best facilitate innovation? Would “any” organizational structure have a requirement to parallel the changes and developments in the sciences? How are the scientific problems, the refinement of models, the discovery and success of innovative thinking communicated throughout a bureaucracy? Self-organizing teams, as represented by the joint operating committee, provide the most effective and efficient means of organizational structure.
Technological Paradigms and Patterns of Innovation: Technological trajectories.

The definition of a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” This research assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. (p. 1128)

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, this paper asserts that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

An excellent example of this would be the discovery of the north-south orientation of horizontal under-balanced drilling in the Jean Marie formation of British Columbia, where knowledge and collaboration lead to a fundamental low cost solution to a technical problem. This simple change, reflecting the effect of the thrust of the Rocky Mountains, has lead to significant findings and deliverability of gas.

Technology: Freely available information or specific knowledge.

Dr. Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from another company is not as easy, and may indeed not be worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why bother, and why not just focus on the need to increase the company’s own unique and specific competitive sources and directions. (p. 1132)

This also imputes that the free flow of information between producers through collaborations in the joint operating committee would increase the knowledge, yet not expose anyone of the specific organizations to any specific losses of key knowledge or proprietary information or capability.
Information’s shelf life expires faster each day. Knowledge and information need to be employed and deployed where and when they are required. This research’s collaborative method of employing the intellectual property might facilitate a greater value, to the participating producer, and would provide the groundwork for future innovations and expansion of the underlying engineering and earth sciences. And although no specific proof of this can be sourced at this time, today’s hierarchical organizational structure is the impediment to the speed of innovation developments, its adoption and application, and it is asserted through this paper that this is tacitly understood.

Dr. Dosi (1988) cites the dichotomy of Adam Smith in that organizations are comprised of those that “system learning effects on economic efficiency by way of the division of labor, and the degrading brutality of repetitive and mindless task simply for some workers. These support the “how to do things” and “how to improve them” (p.1133).

This dichotomy reflects the challenge of improving the processes and products through trial and error, with heavy emphasis on the error. The ability to accurately predict the success or failure of a new idea contains inherent high risks and hence high rewards. This is one of the constraining factors in implementing innovative thinking, in that no one wants to be proven wrong. Whereas, even if the idea fails the ability to test the theory, the failure may ultimately lead to and may be the key to discovery.
Society dictates certain norms employed by staff is, to do as they are told and in some cases not to think. Even if they do think of other ways, cultural influences may silence otherwise worthwhile suggestions and innovations. This is the area that needs to be fully comprehended and why Dr. Wanda Orlikowski’s model of technology structuration needs to be considered. It states that technology is a component of society and organizations, and therefore society and human resources have to move forward in concert, and that power needs to be asserted to affect change. An imbalance in the three components leads to failure. If all staff became innovative overnight, it would probably precipitate the rapid decline of a firm.

Dr. Dosi asserts that the structure of financing innovation is constrained by the budget process, rules and meta rules that companies will spend x% of sales on research and development, and that this style of thinking curtails these factors when interest rates are high or profits are low. These facts help to precipitate the need for a longer-term approach to innovation. Dr. Dosi asserts organizations need to move beyond the next quarter’s performance criteria and build sustainable competitive advantages for the future. With the current low interest rate environment, and the essentially free access to information are two key drivers for a major trend in innovation. Companies unprepared for the outcomes of their competitor’s innovative investments may discover problems earlier then they expected. Nonetheless the purpose in budget rules and regulations are how managers seek to control the future and reduce the uncertainty inherent in innovative search without eliminating it.

A strong balance needs to be achieved in dealing with the difficulties of managing an enterprise in the future. As described above, the day-to-day management must be handled properly, yet the future is highly dependent on innovations in the sciences of oil and gas. Can the hierarchical structure of today’s organization continue to serve these two disparate objectives? Does the firm need to employ alternate styles of organizational structure that serves both ends of this phenomenon?

Opportunities, incentives, and the inter-sectoral patterns of innovation.

Discussing the nature of the opportunities and knowledge on which innovations are drawn. And the manner that incentives lead profit motivated actors to innovate and or imitate. It is Dosi’s argument that the innovation process helped to explain why sectors differ in their modes and rates of innovation. Moreover, firms within each industry differ in their propensity to innovate. This research in oil and gas is extending this thinking to further define the industry as a “cluster” as Dr. Michael E. Porter has documented in his work on competition, and his definition of a cluster being a local area that has developed significant competitive abilities that competes on a global scale. Silicon Valley is an example of a cluster in high technology.

To facilitate the effective and efficient means of competition within a cluster requires collaboration amongst its participants. This is the key to extending the reach and understanding of the science within the cluster for the benefits of each organization. It is the cluster vs. cluster that is the basis of the competitive force in the near future, especially as many of the independent producers that this research is directed at are in pursuit of international opportunities.

It should also be questioned that in the search for oil and gas, how much of the scientific capability of a producer is dependent on a standard or historical basis of competitive understanding and capability, and how much is based on a future understanding of cooperation within a cluster and / or competition against unknown and unseen global participants?

Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Dr. Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovative inputs. Using the factor of revenue per employee helps to define and clarify the value in assessing the observed inter-sectoral differences of an oil and gas company in investment outcome. This also reflects that “different incentive structures” and “different opportunities” are also the product of the organizational structure. This is made explicit in this research paper by invoking Giddens structuration theory. This paper is stating the ERP system that tacitly and explicitly supports the bureaucratic hierarchy is also a component of Dosi’s (1988) “different incentive structures” and “different opportunities” as they indirectly affect the capacity to innovate.

Technological opportunities: Exogenous Science and Specific Learning.

Technological paradigms have been directly linked with major scientific breakthroughs, from the discovery of the transistor to the development of modern computer technologies. Dr. Dosi is stating that these links between science and technology have been very evident since the days of Leonardo da Vinci and Galileo. What was unique to the 20th century was that the need to generate and utilize scientific knowledge, was internal to, and often a necessary condition of the development of new technology paradigms. Up until the end of the 19th century, most technological innovations were the developments of imaginative craftsmen. Many of the 20th century developments were the result of multiple disciplines, such as physics and microelectronics, whose scientists were awarded the Nobel Prize in 1962 for the semi-conductor.

Dr. Dosi then concludes that scientific input into the innovation process is evidence of the importance of factors exogenous to competitive forces among private economically motivated actors. This is subject to two important qualifications.

  • Science and technology are self-fulfilling in their developments.
  • Scientific advances play a major direct role, especially at an early phase of development of new technological paradigms.
These points support Dosi’s (1988) assertion that “general scientific knowledge yields a widening pool of potential technological paradigms,” where the greatest value is attained in the earlier stages. Dr. Dosi analyzes the specific mechanisms through which a few of these potential paradigms are actually developed economically, subsequently applied, and that often have become dominate in their industry.

The process of selection depends on the following factors (p. 1136):
  • “The nature and interests of the bridging institutions between pure research and economic applications.” (p. 1136)
  • “Institutional factors that drive the technology or science, such as (the military)”. (p. 1137)
  • The selection criteria of markets and or techno-economic requirements of early users. (p. 1137) (NASA, Pentagon the FDA and Nuclear Reactors for the Navy)
  • Trial and error associated with the Schumpeterian entrepreneurship.
Dr. Dosi (1988) continues on to assert that much of the innovativeness of a firm is dependent on technology more than science, and is based on several implications. The first implication being the net benefactor of the cumulativeness, tacit-ness and technological knowledge implies that “innovation and the capabilities for pursuing them are to an extent local and firm specific”. Secondly, the “opportunity for technological advances in any one economic activity can also be expected to, and constrained, by the characteristics of each technological paradigm and its degree of maturity”. This is further defined by the technological and scientific capabilities, and the advances made by suppliers and customers. (p. 1137)

How can the oil and gas sector sponsor or drive this capability, is this happenstance, or is there an invisible hand at work. If there were a more direct approach in innovation, what would the effect be?
Dr. Dosi (1988) references Scherer who states that this “inter-industry component must be attributed to upwards of a 42.5% variance in industry.” This research paper is imputing that innovation should now be considered an operating strategy that provides a significant means of competitive differentiation. The idea of technological paradigm bound industry and innovation is consistent with the findings of Simon Kuznets (1930) and Arthur Burns (1934) about a “secular retardation in the growth of output and productivity from the gradual exhaustion of technological opportunities along particular trajectories.” (p. 1138)

“New technology paradigms stimulate and reshape the patterns of opportunities of technical progress in terms of both the scope of potential innovations and ease with which they are achieved.” This is stated as the possible reason why we have not seen an approach to a “stationary state”. (p. 1138). Or has the theory of constraints now invoked the “Limits to Growth.”

Two separate phenomenon are observed as a result of this:

“First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases.” (p. 1138)

Secondly “A rather uniform, characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries”. This paper extends this phenomenon to include the organizational structure and the method of parsing out tasks and roles based on the processes requirements. (Accountants, engineers, geologists etc.) (p. 1138)

How much of the current domestic capability of the oil and gas industry in Canada can be further exploited as the base of science and innovation? And can this “cluster” provide an international producer with greater competitive capabilities in the global marketplace? What is the plan to house this capability, and will the bureaucracy as represented in the structured hierarchy survive and prosper with global competitors? Is there an understanding and/or expectation that the constraints that bind the organization, such as the ERP system, will inhibit the transformation to a new global competitiveness?

Ronald Reagan said about implementing Reaganomics, “if not us, then whom, and if not know, then when.” This paper asks the same question regarding the proposed organizational structure and technical ERP developments of Genesys® in oil and gas.

Appropriability of technological innovations.

In light of the previous statements, what are the incentives to invest in the discovery of innovations and there development? Will these depend on the incentives that interested and motivated agents perceive in terms of expected economic returns? Dr. Dosi calls “appropriability” these properties of technological knowledge and technical artifacts, of markets and the legal environment that permit innovations as rent yielding assets against competitor’s imitation.

Dr. Dosi (1988) notes a study conducted by Levin et al 1984, in which they studied the varying empirical significance of appropriability devices of patents, secrecy, lead time, costs and time required for duplication, learning curve effects, superior sales and service efforts. Levin found that the “lead times, learning curve advantages combined with marketing efforts appear to be the principle mechanisms of appropriating returns from product innovations. The most appropriate for process innovations were learning curves, secrecy, and lead times”. Dosi (1988) also observed, “that lead times and learning curves are relatively more effective ways of protecting process innovations, and patents a more effective way to protect product innovations.” Levin concludes that there appears “to be quite significant inter-industrial variance in the importance of the various ways of protecting innovations and in the overall degrees of appropriability”. (p. 1139)

Levin states that the control of complementary technologies becomes a rent-earning firm-specific asset. Dr. Dosi (1988) states “in general, it must be noticed that the partly tacit nature of innovative knowledge and its characteristics of partial private appropriability makes imitation a creative process, which involves search, which is not wholly distinct from the search for new development, and which is economically expensive - sometimes even more expensive then the original innovation, and applies to both patented and non-patented innovations.“ (p. 1140)

The driving forces of technical change.

Dr. Dosi summarizes that businesses commit to innovation stemming from exogenous scientific factors and endogenously accumulated capabilities developed by their respective firms.
Dr. Dosi’s (1988) general point is that “the observed sectoral patterns of technical change are the result of the interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other”. (p. 1141)

What opportunities are and will be constrained by not adopting a more innovative organizational structure? If the geological and engineering sciences progress in a substantial manner in the next 5 years, (and there is no evidence to support that it will or will not) how will oil and gas companies adopt, employ, test and prove these science’s development without an enhanced capacity to innovate.

How much of the drive towards innovation is the beginning of the understanding necessary to expand the science? How much of an inducement are the current commodity prices providing the global competition to innovate? Based on the proposed technical and organizational changes of this research, the ability to establish a forum where the science and technology is collaborated between the organization and sponsored research institutions would facilitate greater internal innovative capability based on its scientific and technological capability.

Dr. Dosi discusses the relative merits of these “appropriabilities” and defines them further by classifying them as either as “market pull” or “technology push”. The justification for this research to continue is based on the market pull categorization of appropriability of innovation in today’s oil and gas market. And it is reasonable to assume that innovation in oil and gas will occur on both the producers’ behalf as well as the energy consumer.

This paper is not asserting that efforts in the past were not innovative or moved the science substantially. The issue this paper is raising is that the pace and speed of the science’s development in the near to mid-term will accelerate based on the fact that, globally and in Canada, reserve replacement has become progressively more challenging, and the prices realized for the commodities has begun to reflect these challenges. Dr. Dosi (1988) concludes this section with “Finally, the evolution of the economic environment in the longer term, is instrumental in the selection of new technological paradigms, and, thus in the long term selection of the fundamental directions and procedures of innovative search.“ (p. 1142)

Inducement factors, patterns of technical change, and irreversibility.
Technology paradigms are almost immediately more effective than the previous technology. The only reason the paradigm may have been changed or created is due to a fundamental input price change. Dosi (1988) states that a fundamental implication of this view is “technical progress generally exhibits strong irreversibility features.” (p. 1144)

This paper has no other evidence than the previous statement that the proposed joint operating committee’s reorganization to include financial performance accountability would or would not provide a higher level of organizational performance, and as stated before, failure of this research’s hypothesis would ultimately lead to the appropriate solution. And that irreversibility of that performance would be evident if this research were funded further.

This research proposal and report has not been funded by industry, nor was there any information forthcoming that funding would occur. However, this paper asserts that the level of individual understanding and support within the industry that the initial research proposal attracted, is evidence of its viability and the probability of eventually proving its hypothesis valid. As stated before, failure to prove the science or innovation is at times the first step in determining success, and that the tacit-ness that the concepts put forward are sound and worthy of further study. And this initial funding failure reflects more the political structure of organizations, and not the failure of this research to prove its hypothesis. And it is stated unequivocally, that the manifestation of the political issues were as a result of the breadth and scope of organizational dynamics that is, are, or will be affected by the concepts put forward.

Genesys Software Corporation is grateful to IBM Corporation for their support in providing the toolset and licenses necessary to further pursue this research hypothesis.

The externalities of the innovation process.

There is and always has been certain elements of innovation that are developed outside of the current application of technology. Dr. Dosi cites the bicycle’s benefit from the manufacture of shotguns and the understanding of constant chemical processing that have allowed innovation to occur in food processing. Dr. Dosi refers to these as un-traded interdependencies and states they represent an important link between innovation studies and the regional economics of technical change.
Based on scientific data prepared and provided during 1945 to 1976 Pavitt, (1984) and Pave (1984) identified four major groups of manufacturing industries, namely:

  • Supplier Dominated Sectors.
Most innovations are process innovation embodied, as Dosi (1988) states “in capital equipment and intermediate inputs and originated by firms whose principle activity is outside the sectors proper.” Industries such as wood products, basic metal products, agriculture, textiles, clothing, leather, printing and publishing “where endogenously generated opportunities are rather limited and so are R and D expenditures.” These industries are innovative on the process mostly and heavily focused on best practices. (p. 1148)

  • Specialized suppliers.
Innovation is primarily product innovations that enter most other sectors as capital inputs. Opportunities for innovation are generally abundant but are often exploited through informal activities of design improvement. Idiosyncratic and cumulative skills make for a relatively high appropriability of innovation, such as German machine tool makers.

  • Scale intensive sectors.
Innovation occurs in both process and product where production involves mastering complex systems and the manufacture of complex products. Economies of scale are evident and abundant, firms are usually large, devote a large proportion of resources to innovation and tend to integrate vertically into manufacturing their own equipment. Industries include transport equipment, electric consumer durable, metal manufacturing, food products, glass and cement.

  • Science based sectors.
Innovation is directly linked to new technological paradigms made possible by scientific advances: technological opportunity is very high, innovative activities are formalized as R and D labs, investment in innovation is high, with a high proportion of the product innovation entering a wide number of sectors as capital or intermediate inputs. Firms tend to be big and include electronic industries, most of the organic chemical industries, drugs and bioengineering. Aerospace and military related activities share with science based sectors.

If science based sectors are not where the oil and gas industry currently resides it is certainly the classification that it belongs to. It is also questionable as to which category of industry oil and gas may have been considered belonging to previously, in fact many may have considered oil and gas to be a participant in supplier-dominated sectors. This research would assert that the analogy of a “bank”, where investment provides a proportional return has been the mindset for too long in the oil and gas industry. This researcher asserts that the market pull factors of appropriability have moved oil and gas definitively within the fourth category as a science based sector, and therefore oil and gas should base their organizations on the requirements of a firm within that category.

Inter-sectoral differences in innovativeness and economic performance.

Dr. Dosi discusses the phenomenon introduced in Part IV and considers the relationship between innovative activities and the dynamics of industrial structures and performances. Why do some companies attain greater value from innovations? It is this paper’s assumption that the cumulative investments made in oil and gas lead to variances between organizations as reflected in the cumulative production revenue per employee. Are there additional attributes beyond the investments that assist in making innovation in oil and gas more valuable?

Dr. Dosi’s (1988) reference to the Schumpeterian hypothesis, “that bigness is relatively more conducive to innovation, that concentration and market power affect the propensity to innovate” It is obvious that Dosi does not subscribe to this theory, and this research paper asserts that the bureaucracy of the large hierarchical structures have and may be one of the impediments for this, and if it is not an impediment to innovation, it must certainly be an impediment to the speed at which a firm can innovate.

First, although there are log linear volume of R & D expenditures and patents when compared with the size of the firm, upon closer investigation, estimates show roughly non-decreasing returns of innovative process to firm size. This is possibly attributable to the fact that very large and very small firms conduct most R&D.

Second, although the expenditures in R & D incurred by large firms are impressive from a total expenditure perspective, the aggregate expenditures of small firms on a global basis becomes far greater in aggregate than the large businesses. This is where the implementation of collaborative tools to the innovation process of large firms may be able to leverage the firm’s investment better for the producers’ own purposes.

Third, money is not necessarily a good indicator of innovativeness. Large variances within industries can clearly be identified irrespective of firm size.

Dosi (1988) provides three caveats to the three differences noted.
  • “Statistical proxies cannot capture aspects of technical change based on informal learning.” (p. 1152)
Collaboration is a fundamental component of informal learning, development, documentation and exploitation of knowledge. Apple Computer spends roughly $400 million per year in R & D. Hewlett Packard spends approximately $4 billion on R & D and is beginning to earn less returns on there investments. The scope of Apples innovation span operating systems and software, manufacturing and processors. This scope compares favorably, from an innovative standpoint to the efforts of Intel, Microsoft and Dell collectively.

  • Secondly, differences in businesses and business lines (and business or product life cycles) may provide discrepancies in comparison of “like” firms.
  • Thirdly, many firms are expending significant research dollars in keeping up with other firm’s innovations.
These other firms do not necessarily have an internally generated capability, and hence need to find out what other companies are doing and how to implement those capabilities internally.

Another aspect that this paper submits for consideration is the amount of success that the integrated international firms (the seven sisters) have earned as a result of their previous innovations vs. their discovery of the large and prolific fields many decades ago, and how much of the international independent’s success is attributable to past innovativeness? Will a third generation of producer arise to challenge these two prior generations?

Flexibility and economies of scale.

Most of the innovation occurring during the industrial revolution has been via the technical trajectories of increasing mechanization of production and increasing exploitation of economies of scale. However, these innovations have been on the basis of the trade-off between volume of production and flexibility of the production lines.

Robotics has had a tremendous impact on the makeup and mix of production runs and flexibility, the efficiency of small production runs, and the likely increase in the importance of plant related economies of scale.

Therefore it is concluded by Dosi that the increased flexibility afforded by robotics and automation, motivated primarily through the more speculative nature of demand prediction, has had the effect of decreasing the productivity effect of additional innovations. Ultimately, however, the expectation of the innovations effect is that it will move the costs lower over the smaller production volumes. We are now clearly seeing this in the innovation and diversity of offerings in the vehicle industry.

In oil and gas we see what might be considered a parallel situation. The business cycle is more dependent on the reserve life of new reserves. With rapid three-year declines, specifically in gas, the question becomes: is this a product of the cumulative innovativeness in exploiting the technologies that have developed? Or is the use and application of oil and gas technology yet to be tested against a more exploration style mindset consistent with the risk - reward of the current market pricing of the commodities.

Either way it appears that the exploration and exploitation of oil and gas reserves has and always will be a function of the technology based on the underlying sciences. This is undeniable, and may also be the cause of the shorter-term life cycle and diminished size of new reserves, which is agreed by most to be a trend that will continue. This reserve size and deliverability is paralleled in Dosi’s discussion of how innovations in industrial companies have been diluted by demand prediction and lower production volumes.

This researcher asks again how the structured hierarchy will facilitate the innovation necessary to exploit these smaller reserves? Are the predominately larger international independents now capable of meeting the demands of deploying their capital in progressively smaller reserve pools in an efficient and effective manner to maintain their production profiles?

Innovation, Variety, and Asymmetries among firms.

As technical paradigms are introduced companies accept and use these innovative capabilities at different rates. This rate of acceptance can be classified as early innovators, imitators and fence sitters. Thus a satisfactory understanding of the relationship between innovation and distribution of firms structural and performance characteristics also implies an analysis of the learning and competitive process through which an industry changes.

We have also seen over the past fifteen years an interesting trend that has created significant differences in the stratification of the oil and gas industry in terms of the size of the producer and their associated innovativeness. The small organization was able to purchase reserves and facilities from the open market, or their previous owners, only to substantially increase the inherent value through increased production and / or performance. We can conclude that the bureaucracy inherent in the hierarchy had stifled the innovativeness in the larger organizations and most disturbing is the lack of concern or identification of this as an issue over the past 15 years. This may also reflect most accurately Exxon’s current difficulties, and a similar trend that might occur in the large independents.

This lack of innovativeness is not a long-term sustainable situation for either the integrated international producer or the current large international independent producer. It was the smaller innovative companies over the past 15 years that have increased their size and capacity, and through mergers and other various modifications, affected the landscape of the oil and gas cluster.

The trend of smaller producers purchasing properties appears to have come closer to its ultimate end, and I would think with the blessings of the management of the larger international producers such as Exxon. The end being that the market for properties does not provide the upside in terms of applying innovative thinking to the overall situation. However the two major problems that were unaddressed by the bureaucracies of the “Exxon’s” are now the impediments to any forward movements by the targeted audience of this report. These two impediments remain unidentified and unresolved by these larger organizations, and reflect the following two characteristics:

Firstly, the large class producers have generated little or no innovations in the past 15 years.
Secondly, the business cycle continues to shorten, with only a three-year life cycle on reserves from drilling in the western sedimentary basin.

These 2 issues make for interesting challenges in the years to come. The question will then become, how will much larger independent oil and gas companies learn to innovate in a bureaucracy? It also provides an understanding of how an organization that is able to innovate could compete more substantially, or are these capabilities and inherent positions static?

It should also be noted that few industries have the luxury of a three-year product life cycle. Companies such as Intel have been able to compete in industries with 18-month product life cycles that reflect product pricing and technical exploitation that at least parallels the scientific difficulties in oil and gas. Therefore the ability to compete on the world stage will only become exceedingly more difficult as the business cycle continues to shorten. The performance of the bureaucracy will undoubtedly be challenged soon.

Innovation and industrial change: Learning and Selection.

The Innovative Process and industrial structures

Dr. Dosi (1988) asserts that the makeup of industries and companies is attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry, or in the case of this research, the local cluster. “Market structure and technological performance are endogenously generated by three underlying sets of determinants.”
Each of these components is evident in the marketplace of an oil and gas concern today as reflected in:
  • “The structure of demand,”
The insatiable demand of the American marketplace for energy is critical to the advancement of that society. American society faces real challenges in the form of the developing third world economies, which have new and sustainable competitive advantages.
  • “The nature and strength of opportunities for technological advancement.”
The nature and opportunities for technological advancement lead one to believe mankind has never faced the level of opportunity and acceleration possible today The mechanization of the past 100 years combined with the mechanization of intellectual pursuits combine to markedly appreciate the value of human life.
  • “The ability of firms to appropriate the returns from private investment in research and development.” (p. 1158)
This third item leaves much to be desired. Will investments in research and development become more commercial in nature? Will innovation be a critical component of the methods a company uses to compete in the very near future?

Characteristics of Innovation and Patterns of Industrial Change.

Dr. Dosi states that the rate of change and observed dynamics of industrial performance can be attributed to the following components:
  • Innovative learning by single firms augmented by universities and government agencies.
This research asks: what would be the effect of increasing the exposure from a single firm, to collaborating between several firms through the joint operating committee? Would this not facilitate a marked increase in “cluster” knowledge? And would this knowledge therefore facilitate an increased rate of collaborations leading to an increased level of understanding and pace of innovativeness and scientific knowledge?
  • The diffusion of innovation, the knowledge of innovative products and processes.
Extending the knowledge from one firm to a “cluster” of similar producers.
  • Selection amongst firms.
This point is critical, because a firm may call themselves innovative and participate within an innovative cluster, but that does not make the firm innovative. The internal capability leads to an advanced selection among firms, with laggard firms selecting other laggard's.

Dr. Dosi (1988) states that his general interpretative conjectures are: (And these are important considerations in determining the capability and capacity to innovate.)

Firstly “The empirical variety in the patterns of industrial change is explained by different combinations of selection, learning, and diffusion and different learning mechanisms.” (p. 1159)

Secondly “The nature of each technological paradigm, with its innovative opportunities, appropriability conditions and so on help to explain the observed inter-sectoral differences in the importance of the above three processes.” (p. 1159)

Each successful innovation creates an asymmetry effect, or an overall increase in competitive position of the entire industry. However, that does not necessarily increase the competitiveness of all the participants of the entire industry. (Here Dosi invokes the structuration theory that society is a benefactor of the organization’s efforts.) The ability of laggard companies to improve their competitive position helps to form new positions within their industries. These laggard companies generally are able to move further and quicker through their imitation of leading companies. However, the primary differentiating component of competition based on innovation in process and product is attributable to the innovative capability of the firm.

Dr. Dosi finds these points difficult to quantify and prove, but may be tacitly understood. This research asserts that that was the case in 1988 at the time this article was written, however, the laggard’s ability to “keep up” or even “catch up” progressively diminished through the application of information technology during the 1990’s. This may best be reflected in the expectation that a “laggard” such as Vintage might challenge CNRL in production revenue per employee performance.

There is a determining paradox for the ability to innovate based on imitation or strict Research and Development. Companies can copy other’s innovations in industries with minimal asymmetry, (where they are all the same). Whereas industries that are asymmetric or have large variances in their capabilities are best served by differentiating themselves by pursuit of Research and Development. As reflected in the earlier analysis, Vintage and CNRL are demonstrating large variances in the capabilities as participants in the industry. This reflecting that investments in the capability to innovate would be valuable and critical for the industries’ competitive performance.

Some Conclusions

The conclusion from this is clear; innovation is a competitive strategy, particularly to the local cluster of large independent producers. If this innovation is valid and employed in any industry, it will seek to further the values attained by the adopting company by increasing that company’s competitive capacities. This point forms much of the management recommendations contained within this paper.

A “best practice” provides little in terms of sustainable competitive advantage, whereas innovation places management’s focus on the organization. The best practices focus on process does not affect the issue, or invoke any change. Organizational structure mapped carefully to the most efficient process should be the objective, and the attainment of such should be the goal and realization of an increased organizational trajectory. What do organizational best practices have to do with the capability of a company or its products?

Dr. Dosi also asserts another interesting point in the application to oil and gas. The performance of innovation within an industry and its appropriability is dependent on
  • The pace of innovation in the supplier sectors
  • The variant conditions governing adoption.
The capability of the supporting sectors in innovating and developing new technologies, procedures, and methods to extract oil and gas have been remarkable. This is probably attributable to two things, the entrepreneurial nature of the province of Alberta, and the huge volumes of capital expenditures employed by the oil and gas sector. Yet, this has occurred in somewhat of an ad-hoc fashion, similar to what had happened during the 1800’s in developing North America. And as Dosi noted, this ad-hoc method ceased to be a means of further innovation in the 1800’s. We can then ask will the adhoc method cease to be a means of innovation for oil and gas? Companies must begin to directly fund the development of further innovations in the service sector. This can no longer be done in a non-Schumpeterian fashion, e.g. if a small supplier has an innovative idea it should be exploited by that company (such as Genesys® research). This will also have the tendency to limit the exposure of the innovation to the local cluster as opposed to the global industry. Expectations that the small service provider will be able to prove the theory and application are foolhardy in the context of the earlier discussion of success and failure. If the success or failure of the innovation by the small service provider is proven at their own costs, generally their ability to commercialize and monetize their investment is limited. This has lead to the eventual withdrawal of capital from the service sector for the purposes of further innovation, research and development.

If the innovativeness as displayed by the capabilities of the oil and gas sector in western Canada are a basis of comparison, the opportunity to leverage this technical capability and move the technical paradigm from Western Canada to a dominant global position exists. The alternative is a further extension of the current trend of the Houston based independents to the 1970’s era “branch plant management” style of operation.

An interesting outcome occurs from this. Dr. Dosi states that not all efforts are successful, many fail, and from the failure sometimes the most important lessons are learned, and all inherently understand this. The ability of an industry to learn through their collective efforts will mitigate the subsequent similar failures and their costs, and enhance the success over a larger population of companies. This “cluster” of western Canadian based international independents as Porter would call it, competes against other clusters of oil and gas producers based in Houston, Aberdeen, Moscow, Beijing, and Riyadh. This is collaboration’s benefit well described.

Returning to the comparison of Vintage and CNRL, and in reviewing the material that Dr. Dosi has established in this literature review, the acceptance of the production revenue per employee as a factor of comparison should be established. Production revenue per employee will begin to help establish, both the measure of innovativeness of a producer, and a means of direct comparison between producers. The value of this measurement tool has validity currently through;
  • Application between producers.
  • As a means of measuring future objectives.
  • In determining competitiveness over time.
One of the more controversial aspects of this research may be the suggestion to establish the production revenue per employee factor as a means of comparison, and particularly, the manner of comparison to determine the financial viability of the producer and a pre-curser to future earnings capability.

Conclusions on the review of Dr. Giovanni Dosi.

The innovativeness of an oil and gas producer will be based on its capacity to find and produce the resources around the world more effectively than its competitors. Further expansion of earth sciences and applied engineering are required in order to maximize the producers’ opportunities and returns.

Based on Dr. Dosi’s theories as described above, innovativeness and technology will expand the use and capability of a producer by expanding their understanding of the underlying sciences.
The stimuli and microeconomic conditions necessary to facilitate innovation, being the commodity pricing and the potential as a result of the reconfiguration of the organization around the SJOC, are prevalent.

Further expansion of the sciences would be carried out in a collaborative environment to leverage the tacit knowledge of the firm’s workers in collaboration with its partners and suppliers. This needs to be carried out in a commercial context within the structure of an organization capable of facilitating the collaborations and innovativeness. This is why it is this paper’s assertion that collaborations, through the SJOC, provides the greatest hope for the company to realize the future potential increase in value from the advance in science.

Self-organizing groups have proven to be effective when common interests motivate them. The joint operating committee participants have the financial interest in the property and hence consistent motivations. Enhanced collaborations through the IBM Lotus Workplace facilities described in this research, backed up by an enterprise resource planning capable software development team, such as that proposed by Genesys Software Corporation is expected to affect the performance trajectory of the producer subscribing to this research.

If this is not the situation, what organizational structure in oil and gas could facilitate the greatest innovations? At this point no other alternative has been suggested that would be able to potentially match the structure discussed above. To suggest that the hierarchical bureaucracy could lead to substantial differentiation in the appropriability of a firm’s capacity to innovate is not valid on the surface. As described in the Orlikowski section of this literature review, it is proffered that the organizational structure is the impediment to the advancement of society and people, and if we invoke Dosi’s theory, the hierarchy’s bureaucracy is the impediment limiting the further advancement of the associated sciences of oil and gas and producers innovativeness.

Recall at the beginning of this paper it was noted that Dosi asks “what are the sources of innovation’s opportunities, what are the roles of markets in allocating resources to the exploration of these opportunities?” It should be made explicit that the revised commodity pricing of the past few years provides a significant reallocation of resources towards the further development and exploration of the underlying oil and gas sciences. This is the opportunity that exists and to a large extent is an entire new way of operating oil and gas companies in an integrated network clustered environment. These commodity-pricing effects also point out the scope and magnitude of the changes facing an oil and gas organization. The strategy and operations will be affected in ways that cannot be predicted. This is also the reason that the CEO needs to be approached, as only s/he can champion this level of change within the organization.

Therefore this research’s recommendation is that key to the endogenous capability that is a cornerstone of the innovative process, a reorganization of the hierarchical bureaucracy to self-organizing teams be undertaken. This recommendation is with the express purpose of combining the operational control of the joint operating committee, with direct accountability for the decisions the committee makes.

Quality of Dr. Giovanni Dosi’s work.

Dr. Dosi was 35 at the time this documents writing, and to have produced such a significant work at such a young age is a substantial accomplishment. Review of his Curriculum Vitae reflects that since the writing of this paper he has been recognized as possibly one of the premier thinkers in the area of innovation. In terms of the quality of this work, few papers are produced of this quality and it was a great pleasure to learn and apply this thinking to the oil and gas industry.

Dr. Dosi’s subsequent works have been more specific and detailed in certain areas that may have direct application today. The opportunity to review these documents will be one of the first tasks to complete should this research and software development be funded and continued.

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