Monday, October 29, 2007

It's the user, stupid.

Not to call anyone stupid, but I am sure the majority of the SAP and Oracle users will join me in commented on their interface. Professor Nicholas Carr of "Does IT Matter?" fame? blogged about the state of the user interface on enterprise software systems.

Recall that my primary focus is to build an environment where the users are involved in every aspect of this systems design. I don't want to re-create the SAP methodology under a new name; I want to build useful systems. I have commented before how I am certain that SAP does not understand the pipeline, drilling, completion, equipping, gas cost allowance, royalty or capital markets involved in the oil and gas producer. I therefore expect nothing useful to come out of SAP, other then of course their claim to fame the bureaucracy.

Now Carr notes that Khoi Vinh of the New York Times wrote on his blog some interesting analysis as to why enterprise class application interfaces are so bad.

This is partly because enterprise software rarely gets critiqued the way even a US$30 piece of shareware will. It doesn’t benefit from the rigor of a wide and varied base of users, many of whom will freely offer merciless feedback, goading and demanding it to be better with each new release.
Shielded away from the bright scrutiny of the consumer marketplace and beholden only to a relatively small coterie of information technology managers who are concerned primarily with stability, security and the continual justification of their jobs and staffs, enterprise software answers to few actual users. Given that hothouse environment, it’s only natural that the result is often very strange.
To me the reason for the poor response of the user community towards SAP and Oracle is due to the fact that they have put the cart before the horse. Building the application and then expecting the users is as backwards as I can imagine. The user has to come first in both time committed and priority. I think the term is commonly referred to as "eating our own dog food".

Outside of the security specification, no code will be developed unless their is a user community demanding the solution be built based on their specification, design, analysis etc. Software has been built the wrong way too many times and it's too important to be left in the hands of a "small coterie of information technology managers".

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Wednesday, October 24, 2007

Innovative Management: A conversation with Gary Hamel and Lowell Bryan.

The McKinsey Quarterly has issued a new article of interest to this blog and its community of users. Subtitled "Forward-looking executives must respond to the growing need for a new managerial model." Words that tweak my attention, and when I read the first paragraph, I know fundamentally that we are on the right track in terms of where the oil and gas industry needs to move.

"Sometime over the next decade" warns renowned strategy guru Gary Hamel in his new book, "The Future of Management," your company will be challenged to change in a way for which it has no precedent." What's even more worrisome, he argues, is that decades of orthodox management decision-making practices, organizational designs, and approaches to employee relations provide no real hope that companies will be able to avoid faltering and suffering painful restructurings.
McKinsey partners Lowell Bryan and Claudia Joyce, in their recently published book, "Mobilizing Minds", arrive at a similar conclusion from a slightly different perspective. They find that the 20th century model of designing and managing companies, which emphasized hierarchy and the importance of labor and capital inputs, not only lags behind the need for companies today to emphasize collaboration and wealth creation by talented employees but also actually generates unnecessary complexity that works at cross-purposes the those critical goals.
To argue their points one would be required to articulate the advantages of the hierarchy and its alter ego, the bureaucracy. Since I have been critical of this form of organizational structure, I won't be capable of arguing the point. It is clear to the majority of the world that the hierarchy was established in the 20th century and did indeed die towards the end of that century. Its existence today is an impediment to society moving forward in this new era of technology, peak oil, globalization and a wide assortment of other changes. I would challenge anyone who would argue the need for the hierarchy for the next 20 or even 5 years. The sooner we realize this, the more quickly we can adapt to the challenges that face us.

In oil and gas I have discovered fierce resistance to the ideas that I write about here. The majority of this resistance originates from the official hierarchy. Yet it is a point of contradiction that I can also appeal to the individual within the hierarchy, and its most vocal supporter, and have them willingly participate in this project. I am not asking anyone to fall on their sword and sacrifice their careers and pensions. Only to participate freely in these developments so as to ensure that their individual transition between the two organizational constructs is as profitable and as smooth for the people involved. This point does not need to be marketed or sold the people are willing. As we become more organized we will be able to continue with the construction of the software as the user moves closer and closer to their gold watch. The people that I need to appeal to are the oil and gas investor. They need to be identified so that they can see these developments are the best area and means in which they should operate their oil and gas assets. Here the McKinsey article begins the associated thought process starting with the executive.
Forward-looking executives will respond to this looming challenge, these authors conclude, by bringing the same energy to innovative management that they now bring to innovative products and services.
Why? Because they will be told to by their Board of Directors, or directly from their shareholders. When is the question that I would ask? The associated costs of this application are in the range of a few hundred million dollars. The producers today will need to see the writing on the wall before they are able to fund this development. And that is why I spend none of my time attempting to win these executives over. Its a fools game and I have a willing and able critical resource, the users, who are not confused as to where their future lies. The group that I must appeal to is the disgruntled shareholder. How much of the asset securitization debacle currently brewing in the hosing market is symptomatic of the disconnect between ownership and management. How much of this issue is associated with the shareholder being the fundamental key to the hierarchy's success? And where does the investor turn in order to mitigate these risks?
The opportunity is substantial. Against the backdrop of the digital age's dramatic technological change, ongoing globalization, and the declining predictability of strategic-planning models, only new approaches to managing employees and organizing talent to maximize wealth creation will provide companies with a durable competitive advantage. It won't be easy. As companies discard decades of management orthodoxy, they will have to balance revolutionary thinking with practical experimentation to feel their way to new, innovative management models.
In response to the first interview question "What is the opportunity both of you have identified and how did you spot it?" Gary Hamel responds;
For almost 20 years I've tried to help large companies innovate. And despite a lot of successes along the way, I've often felt as if I were trying to teach a dog to walk on his hind legs. Sure, if you get the right people in the room, create the right incentives, and eliminate the distractions, you can spur a lot of innovation. But the moment you turn your back, the dog is on all fours again because it has quadrupled DNA, not biped DNA.
So over the years, it's become increasingly clear to me that organizations do not have innovation DNA. They don't have adaptability DNA. This realization inevitably led me back to a fundamental question: what problems was management invented to solve, anyway?
When you read the history of management and of early pioneers like Frederick Taylor, you realize that management was designed to solve a very specific problem -- how to do things with perfect replicability, at ever-increasing scale and steadily increasing efficiency.
Now there's a new set of challenges on the horizon. How do you build organizations that are as nimble as change itself? How do you mobilize and monetize the imagination of every employee every day? How do you create organizations that are highly engaging places to work in? And these challenges simply can't be met without reinventing our 100-year-old management model.
Bingo, Lowell Bryan responds to the same question;
I arrived at the same point from a slightly different perspective. McKinsey asked me about 12 years ago to try to understand the impact of technology and globalization on our clients. We concluded that these forces were creating a fundamental discontinuity. Or to put it differently, that technology and globalization were creating a set of opportunities that didn't exist before.
We observed that companies were struggling to take advantage of the opportunities created by digitization and globalization because their organizations were not designed for this new world.
Responding to the question "Are the thinking-intensive industries driving what Gary is talking about?" Lowell Bryan responds;
New organizational models are needed in all industries because all companies engage in thinking-intensive work. The traditional, hierarchically based 20th century model is not effective at organizing the thinking-intensive work of self-directed people who need to make subjective judgements based upon their own special knowledge. ... That's where the value is today. The winners will be those that enable their thinking-intensive employees to create more profits by putting their collective mind power to better use.
The remainder of the interview focuses on the people and the collective brain power of an organization to solve problems. This is the objective in building this software, and I will leave it to the interested readers to download the McKinsey article by clicking on the title of this entry. (Registration required) It is important to remember this software will be built to explicitly to support the Joint Operating Committee, the natural form of organization in the industry. With the information technologies that are available today, the ability to achieve what is discussed in this McKinsey interview is possible for the energy industry. I think we should get started today.

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Thursday, October 18, 2007

Prophet of Innovation: Joseph Schumpeter and Creative Destruction.

Click on the title of this entry to be taken to the Google Book Search page for this book. I was introduced to the writings of Professor Richard N. Langlois, our key research author, through his being awarded the Schumpeter Prize in 2004, for his paper The Dynamics of Industrial Capitalism. I'll admit I have not read the Prophet of Innovation, yet, and even if I had read it, that would not have been the point of the blog entry. Harvard Professor Thomas McCraw has participated in two PodCasts in the past few months. His promotion of his book brings up a number of very interesting points about the times that we live in today. It will be worthwhile for the readers of this blog to put this book on their reading list, Professor McCraw is a Pulitzer Prize Winner and therefore, easy to recommend.

The August 9, 2007 PodCast is on "Bloomberg on the Economy" with Tom Keene. He opens the PodCast with the comment that the Prophet of Innovation is the "Publishing event of 2007, the definitive one volume of Schumpeter." The opening discussion reviews Schumpeter's life and some of the key term's of which he became famous for. Like Creative Destruction is what entrepreneurs do. Will and the "emotion of our will" in making change. How the charismatic leader is someone who is bound and determined to change things.

"Successful innovation is more a matter of will then of intellect." The shear effort necessary to carry out the tasks that face our energy industry are possibly the largest issues we have faced to date. Our way of life will be challenged by the reduction in energy production. I also think this is the point in time where mankind will stand up and prove that we can, through force of the will that Schumpeter comments on, make the necessary changes and prosper in a future that few can imagine today. This new world is right around the corner and promises to bring democratic freedoms to their highest levels attainable.
Professor McCraw's book shows how barriers that confront entrepreneurs have to be overcome, and hence this obsession or will has to be maintained throughout the adventure. Many new entrepreneur's, on the scale of Henry Ford will be needed to solve these problems. The entrepreneur's character and disposition are some of the things that Schumpeter identified and valued and McCraw has documented in his book.

The second podcast of Professor McCraw's is on October 8, 2007 on EconTalk with Professor Russ Roberts. Schumpeter was believed to be the one who first noted the role and value of vision in business. To see the future in a vision of what, where and how the changes could improve the efficiency and effectiveness of the business is a key attribute of the entrepreneur. But there is something more. Professor's Roberts and McCraw discuss the important difference between innovation and invention. Leonardo DaVinci never built an airplane. He invented it, or was at least the first to think about it. He never took the next step that is critical of the entrepreneur. "Doing the thing" is what McCraw describes that Schumpeter focused on as the key difference between innovation and inventions definitions.

The other key attribute noted by Schumpeter was the concept of the business cycle's influence in the innovative marketplace. Business fail and that is the natural way of economic progress. There was a time when people thought that businesses would never fail, however today we know that not to be the case. The difference is the founding entrepreneur is consumed by a feverish perseverance that drives the business further then the competitors. Succession of the business, whether through the family or size, can not capture this fever and therefore makes the business susceptible to failure.

Who will be the leaders and entrepreneur's in this new era in energy. We do not know. I am certainly doing all that I can to ensure the most efficient organizational structure is supported by a highly capable software development team so that those entrepreneur's can operate as efficiently as possible.

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MIT Energy Council on MIT Video

I am extremely disappointed with the direction of MIT's Energy Council. MIT President Susan Hockfield made a video update; you can view the video here. I originally wrote about what I thought about their focus and direction here. It now appears they have lost that focus and hence are lost on the real issues. Talking more about the concern for CO2 and alternative energies are blind, dark bunny trails for those that don't understand the real point. Coal, oil and gas make up the majority of the sources of energy and will continue to do so. The ability to meet market demand for energy is not sustainable and a world class leadership from the likes of MIT would have made the journey a little easier. It is now clear, in this almost incoherent one and a half hour presentation, nothing of material value is being done on energy issues at MIT.

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Wednesday, October 17, 2007

The Nobel Prize in Economics

This past Monday the Nobel Prize in Economics was awarded to;

Professor Leonid Hurwicz

Professor Eric S. Maskin

Professor Roger B. Myerson

The title of this entry will take you to the two minute summary of "Mechanism Design" on, clicking on the Professor's name will take you to a brief telephone interview where the Laureate describes their area of research. The prize was awarded for their work in "Mechanism Design", an area of research that is related to game theory and one that assumes the Nash Equilibrium. (Professor John Nash, 1994 Nobel Laureate.) Mechanism Design involves the researching, building and testing of rules and frameworks to ensure an equitable or fair distribution of economic externalities.

The best example of the theory is described in Alex Tabarrok's Reason Online article about two kids and a pie. The problem is how do you distribute the pie fairly so that both of the kids are satisfied with the outcome. A simple example of Mechanism Design implements the rule that the first kid cuts the pie and the second kid chooses his piece first. This process ensures that the cut is as equitable as possible. Mechanism Design is involved in establishing the ways and means of distributing resources.

The best source of information on the Nobel Prize laureates has been "Bloomburg's On the Economy podcast with Tom Keene". You can subscribe to the podcast on iTunes here, I highly recommend it. The next best is an article by Pete Boettke in yesterday's Wall Street Journal and is well summarized on his blog The Austrian Economists.

Here are Boettke opening paragraphs:

Yesterday Leonid Hurwicz, Eric Maskin and Roger Myerson won the Nobel Prize in Economic Science for their pioneering work in the field of "mechanism design." Strangely, some have used this occasion to disparage free-market economics. But the truth is the deserving recipients owe a direct debt to free-market thinkers who came before them.

Mechanism design is an area of economic research that focuses on how institutional structures can be manipulated by changing the rules of the game in order to produce socially optimal results. The best intentions for the public good will go astray if the institutional arrangements are not consistent with the self-interest of decision makers.

Finally I want to highlight two podcasts on Bloomberg. Professor Paul Samuelson's comments on the new Nobel Prize Laureates. Samuelson won the Nobel in 1970 and is 92 years old, the efficiency of his comments reflect his wisdom and skill in discussing economics in easy to understand terms. The second podcast of very high interest is of Professor Thomas Schelling who won the Nobel in 2005 for "enhancing our understanding of conflict and cooperation through game-theory analysis". Author of one of my favorite books "The Strategy of Conflict" Schelling's lectures are the most profound and stimulating that I am aware of.

So in terms of this research that we are doing here, using the Joint Operating Committee as the key organizational construct of the industry, we will need to open a new vein of research in "Mechanism Design" for the development of this software.

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Tuesday, October 16, 2007

ASPO USA Conference

This week Houston is hosting the Association for the Study of Peak Oil & Gas - USA's (ASPO - USA) conference. Appropriately the conference is sub-titled "Energy, the First Challenge of the 21st Century". This conference may be the key turning point in the discussion of peak oil. Where talk turns to the actions needed to mitigate Peak Oil. Unfortunately I will not be there, but if I were, I would hope I could assert that one of the necessary actions would be to design and begin building the software for the industry operations.

The hierarchy is not an organizational structure that has been designed or built for the 21st Century. My question would be, what type of organization is necessary to address these problems? If we expect to approach this issue with any type of constructive speed or innovativeness we must first design that organization and build the software that supports it. The reality today is that software needs to be built first, or alternatively, choose manual systems. This organizational paradox is resolved when the software exists to support the transactions and processes of the innovative oil and gas producer.

Are we fully aware of the extent and level of dependence our actions are dictated by the IT we use? If I were to approach the "First Challenge of the 21 Century", I would start by designing the software. The organizational structure I recommend the industry use is the industry standard Joint Operating Committee (JOC). It is the legal, financial, cultural and operational decision making framework of the industry. All of the tacit knowledge of the industries operations is codified in that organizational construct. If we augment the Joint Operating Committee with today's Information Technologies, collaborative systems and a dedicated software development team, the JOC can align its frameworks with the Compliance & Governance frameworks of the environments we do business in. A system built to facilitate innovation and enable speed, everywhere and always in the earth sciences and engineering disciplines. Join me here and lets take action on our First Challenge of the 21st Century.

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