This last part of our review of Professor Pisano's paper "The Evolution of Science-Based Business: Innovating How We Innovate" concludes with some powerful application of the lessons from Professor Alfred D. Chandler.
VI. Applying the Lessons of Chandler
Why are we concerned about the performance of the oil and gas industry? And why does that concern center on the organizational structure of the oil and gas firm and it's associated markets? Professor Pisano answers these questions in a way that everyone could generally agree.
The fundamental lesson from Chandler is that while technological progress creates potential for economic growth, that potential can only be realized with complementary innovation in organizations, institutions, and management. This lesson has clear implications for science‐based sectors of the economy. Progress in the science bases of medicine, agriculture, advanced materials, and energy has enormous potential in coming decades. Yet, this potential will go unrealized without the design of appropriate organizational, institutional, and managerial models. One purpose of this essay was to show that, using the case of biotech as a reference point, we have not yet found an appropriate model for science‐based business. pp. 27 - 28I agree with Professor Pisano, "we have not yet found an appropriate model for science-based business". Is the Joint Operating Committee the ideal organizational construct for the energy industry? We don't know, that is we won't know until such time as this research has been put to the test. In our research we found the science and innovation need to have certain characteristics that are inherent in the JOC. This is a direct result of the JOC being the cultural norm for global oil and gas operations. The problem is the JOC is not the ways and means of the industry from a compliance and governance point of view. Those frameworks, for whatever historical reason, have been handled by the hierarchy.
What this software development project does is move the compliance and governance of the hierarchy into alignment with the five frameworks of the JOC. To align all of these frameworks within the firm and market definitions of the Draft Specification will provide tangible benefits. And help the energy industry to better meet the markets demand for energy. But will it be the ideal organizational construct for this science based business? We don't know, and we won't know until such time that we can learn from the task at hand. I can assure you the bureaucracy is not keeping up to the demands of today, and that it is not going to in the future. But is the JOC the ideal science based business organizational construct for energy? This may be the better question we should ask ourselves in the long run. And ensure that the means to discover the ideal construct, if it isn't the JOC, will be discovered through the process of People, Ideas & Objects and the Community of Independent Service Providers.
Historical experience both before and after the emergence of biotech shows the limits of both ends of the organizational continuum: the visible hand of hierarchies and the invisible hand of markets. Hybrid organizational forms that mix elements of markets and hierarchies would therefore seem to be an attractive avenue for innovation. p. 28The hybrid model is inherent in the People, Ideas & Objects Draft Specification. In September 24, 2007's blog post I detailed the optimal / logical boundaries of firms and markets. This was based on the review of Professor Carliss Baldwin's paper "Modularity, Transactions, and the Boundaries of Firms: A Synthesis" That table is reconstructed here.
|Joint Operating Committee||P||s|
|Military Styled Command and Control (Governance)||s||P|
|Routine, compliance and accountability||s||P|
|Development (the D in R&D)||P||s|
|Operational Decision Making Framework||P||s|
P = Primary
s = secondary
The inclusion of the invisible hand and the visible hand are also present in the Draft Specification. I included Professor Richard N. Langlois work in the Vanishing Hand in a June 24, 2007 blog post. Professor Langlois' vanishing hand hypothesis is directly pertinent to the discussion of finding the optimal organizational construct for the science based business of oil and gas.
"The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates." p. 3Clearly the research to determine if the JOC is the appropriate organizational construct takes into consideration the research that has been conducted to date. This research is incomplete from the point of view of determining if there could be more attributes, definitions or characteristics in which to add to the software. However, my homework has been done, and it is necessary that the industry fund these software developments before we conclude if the JOC is the right organization, and if we need to conduct any additional research. Back to Professor Pisano who discusses "Organizational Networks" a term that resonates with me.
Organizational networks offer another avenue for innovation. Chandler argued that the firm, not the transaction, was the most important unit of analysis (Chandler 1992) for understanding the boundaries of organizations and structure. Alternatively, it could be argued that in contexts that mix markets and hierarchies, the network of organizations becomes the most interesting unit of analysis (see e.g. Miles and Snow, 1986, Stuart 1998). p. 29and
Once we move to organizations that are connected in durable networks, this notion becomes much more complicated. The value of the network and the value of individual “firms” in that network become harder to disentangle. p. 29Call it what you will, what this post clearly reflects is this is the direction that industries must travel. To suggest that the hierarchy will survive the next 10 years is difficult to conceive. Here Pisano asks a pointed question at management itself.
In an essay in honor of Alfred Chandler, an author would be remiss not to mention “management technology” as a critical component of innovation. Chandler documented the emergence of the professional manager and the innovations in managerial techniques needed to run the organizations he studied. This raises the question of whether current “management technology’ is suited to the needs of science‐based businesses. Indeed, the very notion of “professional manager”, while seemingly quaint, indeed characterizes much of the division of labor between scientists and manager today. Consider that today, scientists receive no formal training in management and MBAs receive no training in science. This is a striking gap. The professions of management and the professions of science are still largely separate. p. 30For what its worth, I agree that the science based business is poorly served by the current "management technology". This is an area that requires as much research as determining if the JOC is the optimal organizational construct for the science based business of oil and gas. Professor Pisano puts the value of these avenues of research in context with this closing comment.
Like railroads and large scale manufacturing enterprises 100 years ago, science based businesses will be a potent source of economic growth in the 21st century. And now, as then, these new businesses demand new organizational forms and new institutional arrangements. In short, we are once again confronted by a serious need to invent new organizational forms and new institutional arrangements to deal with a new set of economic problems. When it comes to the topic of innovation in business organization, there is no better teacher than Alfred Chandler. p. 30March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.
If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.
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