Sunday, February 24, 2008

"Democratizing Innovation"

Professor Eric Von Hippel of MIT

There are two free books that help provide an understanding of how People, Ideas & Objects software development project will proceed. And most importantly the role of the Users and Developers involved. The first book is the above titled and can be downloaded from here. The second book "The Future of Ideas" is also down-loadable, and written by Professor Lawrence Lessig of Stanford University.

Professor von Hippel's book documents the means to attain the innovation that we seek. In Chapter 1 he provides a summary of the entire book. This summary provides coverage of the points that I want to make, so lets begin.

Chapter 1

Professor von Hippel starts off with framing the context in which he sees innovation occurring. Defining both User centred innovation vs manufacturer centric innovation. For the purposes of this blog entry, von Hippel's focus on the use of "manufacturers" is consistent with our understanding of oil and gas user based innovation.
Users that innovate can develop exactly what they want, rather than relying on manufacturers to act as their (often very imperfect) agents. Moreover, individual users do not have to develop everything they need on their own: they can benefit from innovations developed and freely shared by others. p. 1
This software development project is global in scope, use of the Joint Operating Committee is the cultural norm throughout the industry. The People, Ideas & Objects project is conceived in the open source model and will provide the Users, developers, and producers with innovations developed elsewhere. I believe this is possible and Professor von Hippel indicates how this is happening.
At the same time, the ongoing shift of product-development activities from manufacturers to users is painful and difficult for many manufacturers. Open, distributed innovation is "attacking" a major structure of the social division of labor. Many firms and industries must make fundamental changes to long-held business models in order to adapt. p. 2
This very point was addressed in my original thesis. Anthony Giddens is currently more famous as an adviser to British Prime Minister Tony Blair, however, in 1984 he published "The Constitution of Society" which introduces his structuration theory. Structuration suggests that people, organizations and society progress at the same rate, any imbalance in one would lead to failure in the others. I had suggested that the energy industries use of the hierarchical organizational model had exceeded its useful life, and indeed was inhibiting both people and society. I think that we are beginning to see and understand the failures that the energy bureaucracies are having on society. Moving to the industry standard Joint Operating Committee is the fundamental change that is necessary to avoid these failures. How these changes are implemented is through a clean break from the old business model.
Innovation user and innovation manufacturer are the two general "functional" relationships between innovator and innovation. p. 3
We need these two types of innovations. One is the systems, developed by its users, that support the innovative energy industry, and in turn support the innovations that need to take place in the earth sciences and engineering disciplines. Professor Giovanni Dosi shows that science is influenced by innovations which in turn leads to new sciences and new innovations. Consumers and producers of innovations may be more a reflection about a point in time rather then an individuals role in the long term. Software systems need to adapt to changes like these. This is what I am setting out to provide to this user community.
In figure 1.1, the increased concentration of innovations towards the right indicates that the likelihood of innovating is higher for users having higher lead user index values. The rise in average innovation attractiveness as one moves from left to right indicates that innovations developed by lead users tend to be more commercially attractive. (Innovation attractiveness is the sum of the novelty of the innovation and the expected future generality of market demand.) p. 4
Who these innovation leaders are is unknown at this time. But as this project continues to achieve mind-share in the energy sector, I think we will begin to soon find out.
Mass manufacturers tend to follow a strategy of developing products that are designed to meet the needs of a large market segment well enough to induce purchase from and capture significant profits from a large number of customer. When users' needs are heterogeneous, this strategy of "a few sizes fit all" will leave many users somewhat dissatisfied with the commercial products on offer and probably will leave some users seriously dissatisfied. p. 5
A drive that I am attempting to lead away from the generic industry software solutions of IBM, SAP and Oracle. The energy industry is too unique to share any similarities to other industries.
The social efficiency of a system in which individual innovations are developed by individual users is increased if users somehow diffuse what they have developed to others. p. 9
Encapsulating the value of today's collaborative Information Technologies.
When we say that an innovator freely reveals information about a product or service it has developed, we mean that all intellectual property rights to that information are voluntarily given up by the innovator, and all interested parties are given access to it - the information becomes a public good. p. 9
This is how the second book "The Future of Ideas" written by Professor Lessig's comes into play. If everyone is only concerned about the access rights to their own ideas this entire community will be eventually reduced to a place where only Lawyers will be happy. The licensing model for this project simply enables the free and unencumbered access to the ideas and intellectual property contained within this project. This is derived through myself granting Users and Developers free access to all of the intellectual property. In turn each User and Developer assigns the rights in their ideas and innovations back to the copyright holder enabling immediate re-distribution of the idea. This is necessary to maintain the free access for all concerned, and, that I have a strong position to assess the energy producers for the appropriate financial resources necessary to pay the Developers and Users to do this work.
Innovation by users tends to be widely distributed rather than concentrated among just a very few very innovative users. As a result, it is important for user-innovators to find ways to combine and leverage their efforts. Users achieve this by engaging in many forms of cooperation. Direct, informal user to user cooperation (assisting others to innovate, answering questions, and so on) is common. Organized cooperation is also common, with users joining together in networks and communities that provide useful structure and tools for their interactions and for the distribution of innovations. Innovation communities can increase the speed and effectiveness with which users and also manufacturers can develop and test and diffuse their innovation. They also can greatly increase the ease with which innovators can build larger systems from inter-linkable modules created by community participants. pp. 10 - 11
I think that this is by far the best method in which this community should be built and achieve what is possible in this time and place. I would challenge anyone to suggest a more effective means of this communities innovations, and avoid the following.
Intellectual property law was intended to increase the amount of innovation investment. Instead, it now appears that there are economies of scope in both patenting and copyright that allow firms to use these forms of intellectual property law in ways that are directly opposed to the intent of policy makers and to the public welfare. p. 12
This discussion is the method that Open Source projects have used in the technology environment. Not all open source projects fall within this category, only what I perceive as the commercially successful ones.
User's ability to innovate is improving radically and rapidly as a result of the steadily improving quality of computer software and hardware, improved access to easy to use tools and components for innovation, and access to a steadily richer innovation commons. Today, user firms and even individual hobbyists have access to sophisticated programming tools for software and sophisticated CAD design tools for hardware and electronic. These information based tools can be run on a personal computer, and they are rapidly coming down in price. As a consequence, innovation by users will continue to grow even if the degree of heterogeneity of need and willingness to invest in obtaining a precisely right product remains constant. p.13
I conclude this introductory chapter by reemphasizing that user innovation, free revealing and user innovation communities will flourish under many but not all conditions. What we know about manufacturer - centered innovation is still valid; however, lead user centered innovation patterns are increasingly important, and they present major new opportunities and challenges for us all. p. 17
Thank you Professor von Hippel for noting these key points and the free access to these important concepts in your book. If we miss this opportunity it will not be as a result of a lack of access to the intellectual property.

Professor Lessig has a unique understanding of some of the legal implications of the Internet. I recommend reading his book as a companion to Professor von Hippel's book. Lessig's book provides an understanding of many of the issues and opportunities around intellectual property. I think that the most effective way in which these ideas can be populated and built upon are addressed in Professor Lessig's book, and implemented in People, Ideas & Objects.

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Sunday, February 17, 2008

Why Sun Microsystems is our vendor.

This may be possibly one of the most important technology announcements ever made. (Click on the title of this entry for the article.) If it's not the biggest, I can assure you that it is the largest that I've seen and probably ever will. This announcement tells the current bunch running IT the party is over. Pack your bags your out the guard is changing.

Information Week reports Sun's CEO Jonathon Schwartz states Sun's vision and strategy are now focused on providing support to the start up software firm. In doing so Schwartz expressly calls his current key partner Oracle, the competition.

Schwartz said Sun is repositioning itself as a disruptive software supplier, using freely downloadable open source code to initiate relationships with developers in young Internet companies. With MySQL in its arsenal, Sun has become "an arms dealer" for the next generation of those companies, said Rich Green, the vendor's executive VP for software.

But Sun may find itself offending some communities even as it builds new ones. Oracle is an old partner that has sponsored Solaris sales to customers that want to run the Oracle database. By offering free or low-cost MySQL subscriptions, Sun is now a threat to Oracle's database cash cow. "MySQL will work fine alongside Oracle," Schwartz said in response to an InformationWeek question, "but I prefer to focus on acquiring new customers, not on the competition."

This hurts Oracle. Oracle could see the Open Source writing on the wall and launched a massive takeover of established software vendors. Sun has driven database sales for Oracle for many years. Oracle is now forced to hang its hat on the old generation technologies as the key to their sales growth.

I have documented the two constraints of a software vendor in this blog before. The constraints of code and customers motivate the "established" software vendor to sell the status quo. Change becomes unspeakable in terms of innovation or progress. Old generation software companies had to die in order for change to occur. This has been reflected in IBM's jettison of Qbyte a few years ago. So how does a software vendor compete in this new generation?

As you can imagine the business model has to change, or should I say has changed. Open Source software shows the way. The code base is never settled. It is in a constant state of development. Go to any open source project and you can select any version of the software that you like. The bleeding edge, the alpha, the beta and a few versions of the supported code base in "stable" condition. Innovation doesn't stop, how could the code? The customers demand that the software be reliable and operate as promised in their firm. Any variation needs to be addressed with very specific processes. And no two companies are ever the same. This is where the constant development model meets the reality of the installation and the software User becomes the key in the Open Source community.

To many people in the oil and gas industry, dealing with a start-up on such a large-scale project is not something they thought they would have to do. But how else can you approach such a difficult task as is faced by the energy industry as a whole. Can you continue to live with software that was conceived in Germany for manufacturers? If you believe you can then you know who to call.

Sun's Schwartz has legitimized People, Ideas & Objects as the key to the future generation of IT enabled oil and gas producers. And completely de-legitimized the non Open Source vendor. And in the process has told the Emperor he has no clothes. In my books that is a big announcement.

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Thursday, February 14, 2008

Yesterday's thinking.

Cambridge Energy Research Associates (CERA) are having their annual conference in Texas this week. The CERA / IHS line that a tidal wave of petroleum is about to hit the consumer continues without much basis in fact or reality. Its been too many years of this monotonic claim of theirs to consider the message as valid.

Irrespective of CERA's message, there are those that suggest more spending is needed. I think more spending has been tried by Chevron and others, and also proven invalid. Doing more and more is rarely the right choice. Change is certainly in the air, it is important to note this point in time is an opportunity for new thinking and actions to take place.

As Einstein stated, today's problems are not solved by today's thinking. I think it is reasonable to assume that the earth sciences and engineering disciplines have increased in complexity. As the bar is raised substantially for successful oil and gas exploration and production. Eventually the structured hierarchy, which is inefficiently efficient, will prove to be inadequate to meet the needs of the science and the industry. What is needed is new forms of organization where the science can develop within the organizations, and be used effectively to produce more oil and gas. This challenge has been the key issue that has driven the writings in this blog. The research to determine if the Joint Operating Committee can fulfill this role is proven, at least academically.

The management, and most importantly the system's like SAP and Oracle, have been developed in the old "banking" type thinking of the energy industry. Invest a dollar today, and you'll receive a 10% return on almost a guaranteed basis. This thinking is a product of the excessively low oil and gas prices of the 1980's and 1990's. The business today is more science oriented then the banking orientation can comprehend. The systems that were developed in the past are designed to accommodate the governance and compliance of the SEC, Tax and Royalty regimes. Neither SAP or Oracle recognize the existence of the Joint Operating Committee. Yet the JOC is the legal, financial, organizational decision making and cultural way of the business on a global basis. If we moved the compliance and governance of the bureaucracy to the the four frameworks of the JOC this science and innovation mindset of the industry will be accommodated.

But there are more benefits to be had. With the systems that are available in today's marketplace. And the current population of oil and gas workers. We can organize in ways that have been proven time and again to increase productivity. Adam Smith's Division of Labor is based on his re-organization of a pin making shop. Smith's reorganization of the pin factory rendered 240 times the volume of pin production. Division of labor is also known as the primary method of how economies grow. Further division of labor holds the greatest opportunity for the industry to deal with the age and retirement of the workforce.

The times that we now live in are too complex to move to a new organization without the proper preparations being made. Key to those preparations are the software developments that are built to accommodate these changes. Change must first be implemented in the software, or any unprepared change will be relegated to manual systems. I am in the process of publishing the eleven draft module specifications of the People, Ideas & Objects application. This application is under development here to incorporate these ideas and opportunities.

Ludwig von Mises noted the industrial revolution was the solution to the problem of over-population. We are faced with these same problems today, and I would suggest the Information Technology Revolution will only begin when it is deemed to be the solution to the problem of over-population. For oil and gas, please join me here.

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Tuesday, February 12, 2008

New Module's in People, Ideas & Objects Specification

I have been working on the draft specification of the Petroleum Lease Marketplace Module, which may be finished in as little as one month. A number of ideas were generated by the specification process, and two new modules have been added to the specification. Also, by designating the Accounting Voucher as a module in itself, the specification now includes eleven unique modules.

Recall that all these modules recognize the Joint Operating Committee (JOC) as the cornerstone of the business of oil and gas. These modules adopt the culture that exists today in oil and gas. And reflect what is in the legal, financial, cultural and operational decision making frameworks. These eleven module specifications embrace and extend these four frameworks of the Joint Operating Committee.

The original eight modules were specified and detailed in these blog entries here.

The two new modules that have not been mentioned before are named appropriately "Analytics & Statistics Module" and "Performance Evaluation Module". Just as many may think "what's the difference?" I would answer that the two modules reside in the differing domains of the Firm and JOC. Just as the Research & Capabilities Module and Knowledge & Learning Module are designated to the Firm and JOC. Since my next blog entry will be "A quick summary of where we are at" I will only introduce these three new modules here and follow up with the next posting.

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Thursday, February 07, 2008

Chevron's Reserves

CNN reports that Chevron Texaco's 2007 reserve replacement ratio was only 15% of production. This in spite of $12.2 billion in capital expenditures. Profits of $18.7 billion were attributed to higher prices.

I published my thesis in May 2004. It was based on the hypothesis that "The corporate hierarchical organizational structure is an impediment to progress and most particularly, innovation." and to "Determine if the Industry Standard Joint Operating Committee, modified with today’s information technologies, provides an oil and gas concern with the opportunity for advanced innovative-ness.” Based on the Chevron, BP, Shell and Exxon 2007 annual reports, I believe this hypothesis has now been proven correct. And the industry business model is fundamentally flawed and terminal.

For the past two years I have been writing about these theories and asking "what if" the industry did move toward using the Joint Operating Committee as the key organizational construct? And "how" would these changes affect the industry. From this analysis I have been able to publish the modular breakdown of the People's, Ideas & Objects application, and what is necessary to make this application function for the oil and gas industry.

Amongst the most important needs is the financial resources of the industry to support the users and developers of this application. If now is not the time, when? I would like to think that the work that I did over the past 4 years provides some value for the industry. Particularly from the point of view of giving them a head start on solving their reserve replacement ratios.

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Tuesday, February 05, 2008

I'm not getting this...

BP reports a decline in earnings, and the result is a 5% reduction of their workforce? We saw Shell announce smaller layoffs, but is this how the remnants of the seven sisters will deal with the current energy problems? What will happen next year?

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