One of the areas that we conducted significant research for the Preliminary Specification was in the area of capabilities. Capabilities in the sense that the earth science and engineering capabilities of the innovative oil and gas firm were one of its key competitive advantages. And capabilities in terms of how the producer firm acquired field operations capabilities from the marketplace, or service industry. Today’s topic is about the acquisition of capabilities from the marketplace and specifically the boundaries between the producer firm and the marketplace. Now when we discuss the producer firm we of course include the Joint Operating Committee as it is the source of all operations in the oil and gas industry. And it is natural that the Preliminary Specification places special reliance on the marketplace to provide for the Joint Operating Committees field operations.
To conduct these field operations internally has never been a choice, so for the Preliminary Specification to choose the boundary of the firm and market in this manner is not contrary to the culture of the industry. What we are attempting to do is to apply Professor Langlois’ theories to the culture of the oil and gas industry and determine the appropriate way forward. I think however, that the conceptual model of transaction cost economics considers that there will be “thicker” markets and a greater volume of transactions contemplated between the producer firms or Joint Operating Committees, and the marketplace. Thicker markets then what is represented in the current industry configuration. The Preliminary Specifications Resource Marketplace module considers these “thicker” markets would develop as a result of the changes in producers actions from using People, Ideas & Objects software.
The conflict that currently exists between the producers and the service industry is at a very high level. We have documented how the producers have been dissatisfied with the costs of field operations, how they have not sponsored new and innovative ideas and firms, and as a result, been left with a somewhat static service industry offering. These issues have been addressed in the Preliminary Specification and the point that I want to make today is that it is for the innovative Joint Operating Committee to rely more heavily on the marketplace for their field operations in the future and to remedy these issues through participation in the Preliminary Specification. Remedies such as purchasing and operating drilling rigs and other field level operations will not help the oil and gas industry to mitigate the issues that we are discussing here. Participation in the marketplace is the only solution. Focusing on the core competitive advantages of the innovative oil and gas producer; of their land and asset base, and earth science and engineering capabilities are where the value is earned. Not in replicating the marketplace offerings. From Professor Richard Langlois.
Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of co-operating individuals. p. 17
Of note and interest, having access to the same thick marketplaces as other Joint Operating Committees does not provide for the same costs or the same results. To achieve the same results one must replicate the competitive advantages in the earth sciences and engineering disciplines that others used. Coordination of markets is another area where there are distinct advantages that can be gained by the Joint Operating Committee. For further information on how the Preliminary Specification aids in the coordination of markets, please see the Accounting Voucher and Resource Marketplace modules ability to “design transactions.”
In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints [or software] as one's competitors is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. p. 18
The end result of these thick marketplaces is what the innovative oil and gas producer must attain. To extend their capabilities in a manner far greater than what is possible through the current management's capabilities.
Moreover, by taking advantage of a range of capabilities far wider than the boundaries of what even the largest firm can encompass, a network of specialist suppliers and competitors is better able to exploit the value of a complex and potentially modular product architecture.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.