Thursday, August 30, 2007

Institution, Inertia, and Changing Industrial Leadership

Paul L. Robertson
Department of Economics and Management, University College, University of New South Wales, Australia

Richard N. Langlois
Department of Economics, The University of Connecticut, USA

March 1994,
Back into our working paper review, this next document is one that was co-written by Langlois in 1994. We have been able to learn many positive things from his works, and this article predates most of the review we have done so far. Application of his theories to the energy industry has helped in defining the boundaries of the firm, and given us a clear separation of the optimal market and firm definitions. We have also been able to specify the software modules that will best provide the oil and gas producer with the ability to be fast, innovative and profitable. Another key finding from Langlois involves the analysis of transaction costs and how the information technologies have reduced the overall costs of transactions. Enabling them to reside within their optimal area of either the firm or market definition.
I am extremely pleased with the progress made through our review of Professor Langlois. Framing the perspectives of the industries history, it's current environment and future makeup. The clarity of his thinking resonates with its application to energy and the time frame we find ourselves. We have also briefly discussed the economic cycle and how it may affect the energy industry. This has included the discussion of Professor Carlotta Perez' works in defining the transitional point in time we currently find ourselves. It would be a difficult argument to assert that the energy industry is in a static state. Many of the changes being faced by the industry are fundamental in their origins and contain threats and opportunities to each and every producer, individual and society.
Langlois and Robertson start this paper by framing the effect of economics over time; and ask if the pace of change in economics is incremental or revolutionary.
One of the most persistent debates surrounding economic change is whether it is incremental or revolutionary in nature; whether, for instance, a period of change that lasted anywhere from seventy to one hundred years may be properly termed an Industrial Revolution. (Landes, 1991; Cameron, 1985). Unless we abandon standard models of causality and are willing to invoke an occasional deux ex machina to explain change, the incrementalists are of course correct in insisting that, in the end, any event represents a change in the existing framework in the sense that it flows from (can be explained by) antecedent events and conditions. This however begs the question of the rate of change since it is still entirely conceivable that there are periods when change accelerates or slows relative to other periods. Moreover, even a moderate rate of change may be consistent with significant discontinuities in that some economic agents (individuals, firms, or other institutions such as the regulatory system) may drop out altogether and be replaced by others. In this case, seeming stability on a macro level may mask compositional effects that have a great impact on the various components of the economy. p. 2
Recall that the time frame in which this paper is written. I remember 1994 as a time that existed in an era of relative calm in comparison to today. Thirteen years has brought us Cell phones, the Internet, Globalization and many others. What will the next thirteen years bring? The Chinese proverb of "may you live in interesting times" comes to mind when we foresee the changes we have traversed, and will be challenged with in the very near future. I believe peak oil is possibly the largest challenge ever faced by mankind. Our current situation therefore has a definitive point in which change will be forced upon us. We need to be pro-active and deal with these challenges in a more constructive manner then denying that they exist. Our first priority should be to re-organize the energy industry so that it can face these difficulties. Inherent in that priority is the need to define and support the new organization with the software that will enable the organizational performance.
Several features of punctuated equilibrium stand out. Firstly, it is a lengthy process. Even the revolutionary or transitionary phase, in which two or more alternatives vie for success, may be prolonged for decades, or eons in the case of speciation. Secondly, the process, like Schumpeter's: creative destruction," is one of replacement. When there is punctuated equilibrium, the extinction of a species or discrediting of a scientific theory are not enough; there must be a new species available to take over the territory or a new theory to account for the phenomena that the old theory was once thought to explain. Thirdly, each period of punctuated change requires a behavioral shift to ensure alignment between the requirements of the new order and the actions of its agents. This shift might be accomplished internally, if the old agents adapt their behavior to meet the new conditions, or externally if they are supplanted by a new group of agents. Finally, inertia plays a central role in punctuated equilibrium by ensuring that change proceeds by fits and starts rather than smoothly and evenly. pp. 2 - 3
So there we have a definition of why change seems to be slow. There needs to be a competition in essence for which systems should prevail. This force is the inertia that the bureaucracy maintains and the ideas that I have written about here. I assume, or indeed hope, that the time where these two opposing ideas are competing considers the necessary time for these technologies to be assembled. I believe we have many years ahead of us before this true comparison of the two alternatives can be adequately evaluated. In theory the Joint Operating Committee has been assembled by the oil and gas industry to deal with the partnerships that are its founding. The tacit understanding that this blogs theories are sound are exactly that. Theories, vapor ware, unknowns and unproven. Yet hold elements of promise that should be evaluated by this greater competition between the bureaucracy and the ideas articulated here.
Inertia is the focus of this paper. As is explained in more detail below, inertia has two major functions in the cycle of punctuated equilibrium. Inertia result from, and in a sense embodies, the best feature of the stable phase of the cycle because it is based on the learning process in which producers determine which procedures are most efficient and effective. Once people are satisfied that the know how to do things well, they have very little incentive to look for or adopt new methods. In the words of Tushman and Romanelli (1985, pp. 197, 205), "those same social and structural factors which are associated with effective performance are also the foundations of organizational inertia..., success sows the seeds of extraordinary resistance to fundamental change." Inertia also provides the tension, however, that leads to the (relatively) short, sharp shock of the revolutionary period (Gould, 1983, p. 153) because the pressure required to displace a successful but inert system is considerable and takes time to accumulate. When there is little inertia, change can be assimilated in a gradual and orderly fashion, but an entrenched system may need to be vigorously displaced. p. 3
I may seem melodramatic in how I perceive the problem and hence the need to begin this project. The bureaucracies are currently enjoying success while the energy reserves of which society depends are depleted. It is not the corporation's problem. It is the society as a whole that should be standing behind these ideas and moving them forward. The corporations are profitable and their production profile and reserves continue to climb. Theirs is a commercial pursuit that is working just fine.
Here we concentrate on explaining the part played by inertia in causing economic displacement. We argue that inertia is often a rational response for firms or governments even after an important innovation becomes available, and that changes in economic leadership, whether on the level of the firm or the nation, may be inevitable when there is significant innovation. p. 4
Institutions and Inertia.
The corporations that I speak of will probably be replaced to a large extent by the oil and gas investor actively involved in exploration and production. Relying on the collective market resources contained within the Joint Operating Committees they participate in. This is a rather far-reaching statement that can't be supported at this time. However, the replacement of the corporation may involve the investor being more involved in the day to day of the operation. The strong separation between ownership and management is the area where much needs to be addressed. It is my read of the management mindset in oil and gas that they are not going to approach any large and difficult problems before their individual retirements. They have spent twenty plus years in working to build what exists today and have no vision, motivation or capability to deal with the future. And this is the reason for the early prevalence of Peak Oil. In this scenario the management are the odd men out and the investors may have to be the ones that make the change towards the systems I write about here. In the past few months we have heard many groups resonate the concern for Peak Oil. The prescriptions are all remarkably alike, yet the bureaucracies are deaf, dumb and blind, cheered along by Dr. Daniel Yergin's promises of an unprecedented 16 million barrel per day capacity increases.
There is a range of explanations of inertia. One set is the "real" or, in the narrow sense, "economic" explanations that look to abstract variables like demand levels, factor endowments, and relative prices to justify the failure of some organizations to change. A second reason for inertia is simple incompetence, when managers are either too stupid or too idle to adopt desirable new methods. p. 4
Here, we concentrate on the influence of institutional variables on inertia. Institutions may either retard or encourage innovation. If the institutional structure is unsuited to a new technology and inert, change will be difficult to implement. When existing institutions are flexible or well adapted to the requirements of an innovation, however, change will be accomplished relatively easily. p. 5
And institutional change, we argue, can often take place through the more or less slow dying out of obsolete institutions in a population and their replacement by better-adapted institutions - rather than by the conscious adaptation of existing institutions in the face of change. p. 6
In this paper, we restrict ourselves to pointing out that no single form of organization is appropriate for all, or even a majority of, cases in which innovation is desirable. p. 7
On routines and capabilities.
From what I can discern in conversations with people within the industry. It appears that the companies have become encased in concrete. Nothing is happening in Calgary other then a slow and steady march that replicates itself each day. It would be all right if this march was able to generate some movement in the long run, but I cannot determine that is the case. The proliferation and prevalence of the executive assistant and phone mail have provided safe havens for those that have no desire to fight the inertia that remains within the business. Feeding the printers with paper seems to be a most productive effort in the overall scheme of things. People are thinking that their retirements are soon to arrive, and then this will all end.
Maybe it is the individuals that see the peak oil situation that are the ones that need to adjust their expectations. What do they expect from a firm that has survived the 1980's and 1990's, through the long and difficult times of the cheap oil era. These individuals and companies are the survivors, for it is the survivor skill set that was necessary in order to exist. Expecting anything greater then survival would have been difficult to ask, or implement or change to meet the challenges of today. Professor Langlois writes that a similar situation to this scenario is the effective long term advantage of the firm.
Overall, then, inertia exerts two principal influences on the ability of firms to cope with innovation. Inertia is often a product of successful adaptation to earlier innovation, as a firm develops ways of operating that appear to be so well suited to its internal and external environment that it sees no reason to change. In many instances, this adaptation may prove so effective that the firm can retain a total cost advantage for a prolonged period despite using an outdated technology because it can still capitalize on its master of compatible support and ancillary operations, while firms adopting a new, and technically more efficient technology, are still wrestling with the expensive process of acquiring the endogenous and exogenous institutional backup necessary to gain full value from the innovation (Hannan and Freeman, 1989). p. 7
This last comment being particularly valid as they control the budget and therefore no new ideas will be sponsored that would challenge their existence. Leaving society with the legacy and challenge of peak oil to itself.
When inertia retards the learning process necessary to deal with a subsequent important innovation, however, firms that are otherwise in a position to make the eventual transition to a new technology may be so slow in coming to grips with change that dominance shifts to new entrants who are unencumbered by prior developments, learn new adaptive procedures more quickly, and are able, therefore, largely to appropriate the market by the time the established firms have learned to cope with the innovation. The obstacle in this case is may be termed "lockout", as leaders using the old technology find that they cannot successfully make the transition when there is a significant innovation (Cohen and Levinthal, 1990, p. 137). pp. 7 - 8
And hence, the wonderful sound of the term creative destruction. I have long given up on expecting the corporations will do anything to move these ideas forward. I think in this article Langlois and Robertson are being prescient in their thinking that organizations would not survive.

I continue to think back to Langlois' slides of his presentation at the ESNIE conference. The first slide documenting the market activities of the gun makers in the 1800's. It is the market that will be the form of organization that will rise to the challenge of peak oil. The market in oil and gas is in many ways runs parallel to the Joint Operating Committee. And what I think one of the most important attributes of a market is that it is made up of individuals operating in their own best interests. And this may be the key in having this software development project be successful. The culture of the Joint Operating Committee is a key foundation of the global energy business. What activities that I am recommending that we pursue here are 100% in alignment with the culture of the oil and gas industry. The corporations have regressed to a self serving model of compliance and summarily ignore the JOC. And as time passes, they will be less and less able to influence their inevitable demise.
Another aspect of capabilities that has recently received a great deal of attention is organizational culture. In practice, not all organizations may be equally able to cope with change, as existing patterns of behavior involving both executives and subordinates may be resistant to change. Organizations develop collective habits or ways of thinking that can be altered only gradually. To the extent that a given culture is either flexible or consistent with a proposed change in product or process technology, the transition to the new regime will be relatively easy. If, however, the culture is incompatible with the needs posed by the change and is inflexible, the viability of the change will be threatened (Robertson, 1990; Langlois 1991; Camerer and Vepsalainen, 1988). p. 9
From my point of view SAP provides the bureaucratic system that identifies and supports the inflexible organization. An oil and gas company should never have purchased SAP. I have seen in many instances that the system is unable to deal with the associated gross and net distributions of working interest partners. Developers have prepared a derivative work-around that uses the budget and actual costs to account for the partners shares. These types of activities that are ingrained in the organization are inconsistent with the culture of the industry. The JOC is the natural form of organization and have never seen any recognition of it by SAP or Oracle. I am not so much fighting the ingrained culture of the industry as it is a bureaucracy supported by heavily reworked systems. I would assume that if this software would be developed, its explicit recognition of the legal, financial, operational decision making and cultural frameworks of the industry would flow naturally through the cultural manner of the industry. Therefore I am not proposing any wild rework of systems thinking upon the industry. I am bringing the technologies under the control of the user to accurately match the culture.
Nelson and Winter have formulated an economic analogue of capabilities, including organizational culture. "Routines," as they put it, "are the skills of an organization." In the course of its development, a firm acquires a repertoire of routines that derives from its activities over the years. To the extent that these routines are efficient and difficult to come by, they are a most important asset, but they also induce inertia because they are difficult for the firm to change once in place. p. 10
What I am suggesting here is that the fight between the current installed base of systems and their associated culture will pale in performance to the organization that is optimized and supported around the JOC. This is how the industry was conceived to operate, and therefore will win over the bureaucracies current installed inertia. What we recently learned from Professor Paul Romer is that ideas are the life blood of economic growth. How many ideas are wasted as a result of the inability of anyone to assert the "better way." Where the systems and inertia stop all manner of thinking and eliminate the desire for change.
Teece... fails to note that the inflexibility, or inertia, induced by routines and the capabilities that they generate can raise to prohibitive levels the cost of adopting a new technology or entering new fields. Such inertia can develop to the extent that existing rules are both hard to discard and inconsistent with types of change that might otherwise be profitable. p. 10
So where is this analysis of Langlois and Robertson taking us. If we add the element of time that peak oil brings to the current conversation, the sense of urgency to deal with these issues demands immediate action. And if there were ever a clarion call to action that encapsulated my opinion as to the validity of these concepts, it would be the following.
Whereas major competence enhancing innovations may, in time, be assimilated, the creation of entirely new organizations may be needed to deal with innovations that undermine the capabilities or competences of existing firms. p. 11
Expecting someone else to fix this is not working. It is now time for each individual to stand up and take hold of these opportunities and make them real.
Learning and Inertia.
Langlois and Robertson have some additional key points that appear to me to be self-evident. I would also assert that the discussion about learning has affected the energy industry. The effect being that it has enabled the firms to remain blind to the issues associated with peak oil.
Firms that do not make the correct decisions (that do not know how to learn what they specifically need to learn) may lose irrevocably. In the words of Cohen and Levinthal (1990, p. 138):
A firm without a prior technological base in a particular field may not be able to acquire one readily if absorptive capacity is cumulative. In addition a firm may be blind to new development in fields in which it is not investing if its updating capability is low. Accordingly ... firms may not realize that they should be developing their absorptive capacity due to an irony associated with its valuation: the firm needs to have some absorptive capacity to value it appropriately.
If the innovation is competence destroying, the inertia generated by mastery of an older technology may preclude the rapid acquisition of knowledge that will permit the transition. Competence enhancing innovation, on the other hand, can benefit either existing firms or new entrants depending on whether the competences that are strengthened are related to or distinct from those associated with the old technology. p. 13
I find the conclusion the authors provide in this document to be good advice for those that work in the energy industry, and therefore will leave with their policy recommendations.
Institutional factors, especially those embodied in capabilities and routines, can both improve the ability of a firm to exploit an existing technology and make it more difficult to innovate by generating an inertia that is hard to overcome. p. 25
When this is true, a change in industrial leadership is probable, with the hitherto dominant firms becoming either followers or leave the industry altogether because they are no longer competitive. p.25
A number of policy implications flow from this analysis: p. 25
1) It may be highly rational for a firm to cling to an old technology, even if it has a limited life span. The return to harvesting may be greater than that to innovating for a firm that has strong routines and capabilities relevant to the old technology but has fewer capabilities suited to the innovation than other firms. p. 25

2) Governments should be wary, however, of propping up firms that do not have the necessary capabilities to cope with change. Too little attention is sometimes given to the "destruction" aspect of creative destruction. It can be very expensive to help firms to cling indefinitely to outdated technologies or to pay them to acquire capabilities that other firms have gained more cheaply. to the extent that some firms are encouraged to persist with obsolete technologies longer than they otherwise would, the adoption of an innovation by other firms with better capabilities may be retarded, causing a long term cost to society. p. 25

3) If it is nevertheless felt, either by private firms or governments, that they need to obtain a foothold in the innovative technology despite a high degree of rational inertia, it is best to begin adjusting as soon as possible. Otherwise, competitors may have acquired so much experience with the innovation that late adopters will be hard pressed to catch up in the acquisition of tacit and proprietary knowledge. p. 25

4) One way of handling innovation when a firm has good reasons to remain inert is through "tapered adoption." In this way, through pilot projects it will be possible to acquire knowledge and avoid falling too far behind despite the probable losses that the innovation will bring in the early stages. The experiments can then be gradually expanded to replace the old technology as the cost advantage shifts towards the innovation. If an industry is believed to be of great strategic or economic importance, governments may wish to encourage firms to embrace tapered adoption. pp. 25 - 26

5) The analysis also offers evidence that in fact industry arguments can make sense if a nation whose firms have been followers under an old technology believes that there are sufficient capabilities available to support an innovation. In such cases, there could be a substantial long run payoff to providing tariff protection for domestic innovators so that they can develop capabilities while inertia technology encourages overseas competitors to continue to use the old technology. p. 26

I believe the solution is to join me here in developing these software applications to identify and support the Joint Operating Committee as the organizational construct of the oil and gas industry.

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Wednesday, August 29, 2007

Professor Carlota Perez on Cisco Thought Leadership.

The title of this entry will take you to Cisco's "Thought Leadership" page. There you will find a variety of information and podcasts from a number of speakers. Specifically I wanted to point out Professor Carlotta Perez has a podcast about her long wave economic theories. Professor Perez is able to lay out where we are in the "transition" from "installation" to the current "deployment" periods. Providing the listener with some insight as to how the Information and Communication Technologies will affect them in the very near future.

Professor Perez did an interview (approximately 2005) with Strategy and Business entitled "Carlota Perez: The Thought Leader Interview" available here. (Subscription required). There she is able to draw on the "5 great surges" and apply this history to our current situation. Surprisingly, much of what is occurring in 2007 fits the previous surges progress and profile. A few key excerpts from the document show the strength of her analysis.

  • When a new set of technologies is ready to emerge into widespread use, it needs the force of freewheeling investment capital to give it momentum. This period which Professor Perez calls Installation, might take 20 to 30 years to develop; then, there is another 20 to 30 year period called Deployment, when the potential of those technologies for improving quality of life comes to fruition.
  • According to Perez, the industrialized world is still in the middle of its painful transition from Installation to Deployment.
  • We may have a jolt or two in the near future, and then a great boom probably lies ahead. But the NASDAQ collapse of 2000 was not big enough to force the changes necessary to get there.
  • The collapse has to be disastrous enough to make it clear to everyone that the time when the stock market drives the growth of the economy is finished.
  • You and I both have seen the changes wrought by information technology, and we think it is uniquely momentous. Yet previous technological revolutions made equally momentous changes.
  • Our present, fifth, surge, the age of information technology and telecommunications, began in 1971 with Intel's microprocessor. If the historical pattern holds, this surge still has 20 to 30 years left to realize its potential.
  • S+B: And organizations are different as well?
    • Perez: Yes, each surge brings with it a new organizational paradigm, new best practices, a new common sense.
  • S+B: What happens next?
    • Perez: Well, in an ideal world, we would smoothly enter a golden age of expansion and growth in the global economy - a time when the amazing, wealth-creating information technology paradigm lifts all boats and produces global welfare. Instead, as in every previous surge, there is a difficult interim period: a time of uncertainty, instability and economic recessions or even depression. In my book, I called this interim period the turning point.
  • S+B: How does that come about?
    • First, every time some forward-looking CEO tries to implement a three year plan, he is ousted in three quarters.
    • Second, prices have to come into line. During Installation, there is always strong asset inflation (both in equity and in real estate) while incomes and consumption products do not keep pace. This creates a growing imbalance in which the asset-rich get richer and the asset poor get poorer. When salaries can by houses again, we will be closer to the golden age.
    • Third, as Deployment gets closer, you will see increasingly stable industry structures. Look at the mad price wars of the airline industry; it has a lot of restructuring to do to segment its markets and develop a sustainable set of practices.
    • Fourth, there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here's one example: Millions of self-employed entrepreneurs work from home with uneven sources of income.
    • Finally, I'm not sure we've understood the causes of fraudulence at companies like Enron, nor how to avoid them by means other than excessive bureaucratic controls. The key decision makers, in government and business, do not seem ready to make the changes that could get a golden age under way.
  • S+B: Then why not simply wait for it to emerge?
    • Perez: Because left to itself, it might not happen. Historically regularities are not a blueprint: they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost.
Reviewing the podcast and reading the document are highly recommended. Professor Perez also has a book entitled "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages." ISBN:1843763311. I would reassert the time and place to be conducting these types of software developments is now.

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Tuesday, August 28, 2007

Professor Paul Romer on Growth

Click on the title of this entry to be taken to a podcast from Once there you will be able to download Professor Paul Romer's paper and listen to the podcast.

Stanford Professor Paul Romer is also a Senior Fellow at the Hoover Institute and one of the many academics that I follow. He is the author of the theory and ideas contained within the "People, Ideas and Things" as the three key attributes of economic growth. Recall that this was the initial idea that I used in calling this software development "People, Ideas and Objects."

At approximately 16:10 into the podcast there is a discussion that is very pertinent to the energy industry. And that is ideas need to be discovered to maintain growth. As we learn more, knowledge becomes more important in the enabling of growth in economies. And as economies increase in size, more ideas are required more frequently. In turn economic progress has enabled more people to be engaged in the discovery process. Knowledge building on prior knowledge, and more and more people engaged in the discovery process. Professor Romer notes over time, these two factors are why we are able to attain higher rates of growth.

The oil and gas industry is of course built on ideas. The industry has achieved its current levels on the basis of the ideas that have been generated over its 140 year history. To move forward will require more ideas, and at a faster pace. So not only is it an application and development of the earth sciences and engineering disciplines, it is a never ending escalation of knowledge. Tell me how, and explain to me why we expect the current bureaucratic corporations will ever attain this acceleration in idea generation and application? These concepts also imply that if we do not re-organize the industry, we will never attain anything greater then what exists today. We are organizationally constrained.

Professor Romer is asked during the podcast about securing intellectual property. As we have learned through the writings of Professor Langlois markets are made up of individuals. I believe that the tie-in of ideas and markets is a key attribute of the energy industries future. The motivation to pursue our own ideas is monetary. Once you have secured your rights by publishing them, then and only then are they used for the greater benefit of all. This is the dual role of copyrights, that they are earned through publication and the source of value generation in the future economy.

Meta ideas or idea discovery systems are an inherent part of this systems module definition. A definition that includes both Research and Capabilities, and Knowledge and Learning modules. Only when the organizational key players (the JOC) are recognized in the legal, financial, operational decision making and cultural frameworks will the ability to generate and use ideas come about. Elements of these two system modules will include the functionality of tracking and valuing the intellectual property. Professor Romer states that ideas lead to change which leads to growth. Bureaucracies can't change fast enough for the markets growth needs.

These comments of Romer's provide a clear understanding of how the energy industry will increase or maintain its productive capacity. Ideas, and their discovery process are the life blood of the earth scientists and engineers, and more importantly the future of this industry. Oil does indeed exist in the minds of oilmen.

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Monday, August 27, 2007

All the Canaries have stopped singing. (Click here)

I have followed Matthew Simmons for over 10 years and his message has been constant throughout. The need for the industry to move forward to meet the demands for energy in the future is a necessity for our way of life. Simmons has weathered the storm of criticism by focusing his message and double-checking the facts. I would suggest that he might have the most accurate read of the pulse of the peak oil situation. Defining in many practical ways what the effect will be to the energy industry and society as a whole. I have always considered Simmons the anti-Yergin, honest, factual and with no apparent agenda other then sustaining our way of life. Apparently in his spare time, Simmons has also closed over $50 billion in industry investments.

I ran across this recent podcast that captures and summarizes his ideas in a concise manner. Simmons' suggests three important points;

  1. Producing countries will soon learn it is in their interests to choke back production, increasing prices and extending the life of their reserves.
  2. Consuming countries need to take some sort of coordinated effort.
  3. This is an energy industry related leadership failure.

A few select quotes from the podcast.
@ 21:45 - The urgency of this could not be any higher, and yet the complacency among our energy leaders is just astonishing.
@ 30:45 - (Peakoil) is a religious debate.
@ 38:45 - (Talking about solutions to peakoil) Throwing billions of dollars at a problem is the easiest way in the world to waste money.
The time to organize ourselves and deal with these challenges is now. Going in with the classic bureaucratic command and control is the most illogical choice. To a large extent, it is the inability of the bureaucracy to keep up, and understand the energy business that has brought us to this point. The Joint Operating Committee (JOC) is the natural form of organization of the industry, first and foremost we need to build the software to identify and support the JOC. Unleashing the brain trust of the industry to mitigate peak oil impacts and realize the full potential of the globalized economy. Contact me here if you also believe we need to start these developments, and lets get started.

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Sunday, August 26, 2007

A call to action for those in the energy industry.

I'm sensing that the time in which we start software developments is near. I took the better part of the past month to evaluate many of the technologies that we propose to use, and upgrade my skills to the current technology offerings. This started off with Sun Microsystems offerings of Java 5.0, GlassFish and NetBeans 5.5.1 Integrated Development Environment (IDE). The new "Open Source" development models and associated products are maturing, and they will have remarkably positive effects on the quality of the software built from this point forward. Many small changes that will have a revolutionary impact in the next 10 years.

I also am sensing that these tools have changed to now include an inherent addition of "the user" in many of the underlying concepts. The ability to communicate with the user is enhanced, bringing an expectation that the users will be more technically savvy then they may have been in the past. Not that the users will be the ones to write the commercial code, but are the key to software quality and effective designs. Excluding them is responsible, in my opinion, for the failure of most of the past software development projects. Open Source access can enable the user to better understand what is being done and this will demand a very strong understanding of the Java programming language.

And this is the opportunity for those with the business, engineering, and geological understanding of the energy industry. To apply their current skills to the development of their software. The developers are involved in their own science and need to focus on that, the more that we as users can understand of their information technologies, methods, processes, terminology, syntax and computer science, the better off we all will be. I would predict that in ten years the average user will be as intimately familiar with the JDK and other tools as they are today with email and Office applications. It is a software development revolution that is being facilitated through the technologies that I've mentioned and the users as its core. The next 10 years will come to be known as the golden era of software development. If I needed 1,000 developers I could easily attain those resources from the large pool of enterprise capable Java developers. And this will be easily done with the resources of the energy industry, a $2.5 trillion industry. What I will not have and will desperately need is the 8 to 1 volume of users-to-developers ratio for research, definition and overall direction of the developers.

There is a much faster pace of progress in the development of these technologies then in the very near past. I think it is that we are no longer constrained by the pace of "Windows Innovations." (An oxymoron as far as I am concerned.) Anyone with a good idea can have them easily implemented with in the technology stack for the benefit of everyone. And the ideas are coming from everywhere. The changes that I see in NetBeans over the past 18 months are truly shocking. Java as well and Glassfish was barely a concept then. There is one technology that adds a new element to all these technologies and that is Sun Microsystems Dtrace. Dtrace is a tool that can evaluate and analyse the interactions of the application's code. Taking the idea of a debugger to a level that previously would have been barely able to comprehend. Errors, bugs and other nasty side effects of the development are exposed immediately. Many of the bugs identified by Dtrace were not even known to exist 18 months ago! Dtrace brings the level of application code quality to the level of a pure science.

I have always been a fan of the three leaders in the industry today. Sun, Apple and Google are very much alike in their approach to business. They are also the ones that are primarily responsible for this golden era that I speak of. Buying their stock has always been a given to me. I am also very impressed with the fit and finish of the "Google Apps for your domain" services that I have decided to begin to use for Having the users, developers and any others who need to access this future software service will soon begin to learn and appreciate the far-reaching vision of Google. I cannot imagine what these three companies offerings will be like in ten years from now. The capability of implementing the vision that I have articulated for this project is a given, for that I am now very certain. There is no technical risk associated with the large objectives that I have set out here in this blog.

Lastly Web Services seems to be passing as the last great technical fad. I can assure you otherwise. Web services will be the way that almost all industries, business and people interact commercially in the next ten years. Although I have no evidence of this, the technical infrastructure is in place and there is nothing to stop it from becoming "real" in the very short term. One company that I did find that holds out much of the promise of web services is David Duffield's offering. Mr. Duffield's previous company, PeopleSoft, provides him with a level of very high credibility. Our use of his web-services for General Ledger, Accounts Payable, Accounts Receivable, Payroll and Human Resources provides us with an api and a small fee for each transaction we process using their technology. Enabling this community to focus on the truly unique needs of the energy industry. The promise of web-services will materialize in the next 18 months. For that I am certain.

It is also interesting to me that have implemented "Ram Resident Databases". This method of running a database of course is not new, but provides a performance kick to the tune of 100,000 fold over disk-based databases. With the relatively low cost of a TeraByte of Ram, this is an innovation whose performance is very cost effective.

We need to get moving on these ideas and concepts today. Time is wasting and the technical revolution has begun. Peak oil is not a flawed theory. If you are someone in the oil and gas industry who knows that this is a better way for Information Technologies to interact within the industry, please write to me here, and lets get started.

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