Showing posts with label Analytics-Statistics. Show all posts
Showing posts with label Analytics-Statistics. Show all posts

Friday, January 17, 2014

Joint Operating Committee User Budget Category Part IX

Working on the Performance Evaluation and Analytics & Statistics modules the user communities will have User Budget allocations of $3 - 6 million or 9 to 18 man years of time for each module. These will be stand alone budgets as there is little crossover in terms of the budgets with other user groups. There will however be some resources that are available from the Oracle Fusion Applications and Oracle Fusion Middleware areas that are of substantial value. Oracle and People, Ideas & Objects have similar thoughts on the future of these types of tools and that is why we have allocated what initially appears to be a high budget amount to these modules.

If I had to pick one element of these modules that will provide the greatest level of difficulty. And at the same time creates the greatest value for the end user community. It would be the collaborative nature of these tools that need to be developed into both modules. Having stand alone tools is one thing, having them operate in a collaborative environment brings them to a new level.

A little off topic but pertinent to the user community is the sources of revenue that the user community will have when these application modules have been built. Once the User Budget allocations have been expended, to a large extent they will not be recurring on such a scale. These budgets that we are discussing here are over the course of our initial development and during the multiple years that we are in development before the first commercial release of the software. There will however be additional budgets for further development after that. The continuous improvement of the software at the direction of the user community is a priority of People, Ideas & Objects. It is reasonable to assume that the scope and scale of the involvement of the user community will not be as large as what is described in these budgets, however it will be significant.

There is also the fact that the user community will be comprised of other groups. With the largest being the Service Providers that will be forming as a result of the decentralized production model that is used in the Preliminary Specification. It is important to recall that the revenues of the Service Providers are not as a result of the budgets that we are discussing here but are the current G&A costs of the producer firms. As the resources that are focused on the administrative and accounting tasks of the producer are moved from the producers themselves to the Service Providers, the G&A that is currently paid to these people will become the revenues of the Service Providers. Making the Service Providers as a sub-industry substantial in its size with revenues in the tens of billions of dollars.

It is these initial User Budget allocations that will lead to how the development of the Service Provider sub-industry is developed, structured and operated. It will be these members of the user community who may move on to become Service Providers that define what it is that they need in the People, Ideas & Objects software to make the producers the most innovative and profitable.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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. And don’t forget to join our network on Twitter @piobiz

Wednesday, December 04, 2013

Conclusion to Performance Evaluation and Analytics & Statistics

Work in the 21st Century will be different. The tools that people will use will need to be different as well. The Performance Evaluation and Analytics & Statistics modules are the beginning of these new era tools for the way in which people need to work. We frequently speak of specialization and the division of labor in the Preliminary Specification. There is also a specialization and division of labor between what the people and computers will be doing and that is reflected here in these two modules. Computers will be responsible for the storage and processing, and people will be responsible for the thinking, the ideas, the decisions, the creating, the collaborating, the innovation and the many other things we do well. Much of these things being generated based on the facts that are determined through the Performance Evaluation and Analytics & Statistics modules.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Focused on Changing Capabilities

We are focusing the producer firm and Joint Operating Committee on its key competitive advantages. Those are its land and asset base, and their earth science and engineering capabilities it holds. These are the things that differentiate them from other producers and how they produce value for their shareholders. Everything else is secondary. We have adopted what Professor Richard Langlois calls the “capabilities approach” in his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.”

When users are in the Performance Evaluation and Analytics & Statistics modules they will be able to look at a new type of cost that we have recorded in the accounts of the firm and Joint Operating Committee. That is the costs associated with “Dynamic Transaction Costs” which are the unique costs that are incurred during times of change. Professor Richard Langlois described these costs in his paper “Transaction Cost Economics in Real Time.”

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

The types of these costs will be varied and not necessarily the same in all instances. Within the Partnership Accounting and Accounting Voucher modules is the ability to tag a transaction. This tagging is irrespective of the account classification and has no accounting significance. It is for the user to aggregate types of costs for further analysis. In these instances these costs of change, the Dynamic Transaction Costs, will be tagged as such and therefore will be able to be aggregated for subsequent review. Having the ability to further analyse these costs when the time comes, from the Performance Evaluation and Analytics & Statistics modules could lead to further insight and learning into the organizational changes that might, or should, be occurring.

Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at firm and market as alternative and sometimes overlapping institutions of learning. p. 99

and

Economic progress, then, is for Marshall a matter of improvements in knowledge and organization as much as a matter of scale economies in the neoclassical sense. We can see this clearly in his 'law of increasing return,' which is distinctly not a law of increasing returns to scale: 'An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital' (Marshall, 1961, IV. xiii,2 p. 318) p. 101

We will need to have a page or screen in each of these two modules dedicated to breaking down these costs. Then a producer or Joint Operating Committee will have some point of reference to determine the state of change and its impact in terms of the costs, and types of costs, to the organization. How the transition in the firm or Joint Operating Committees capabilities is being managed.

F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Tuesday, December 03, 2013

Dynamic Data and Information

How the innovative producer attains a higher factor of innovation is through a constant search for more production, higher prices, lower costs and more effective management of their oil and gas assets. This search in many instances will begin with a query in either the Performance Evaluation module for the Joint Operating Committee or the Analytics & Statistics module for the producer firm itself. Having access to the data and information of the respective domain provides the user with the ability to formulate queries on the basis of different scenarios, what if’s, and other mathematical calculations. Big deal, something that most people can do with a day of training on a spreadsheet. And that would be part of the situation, however there is more.

If we go back to earlier parts of this module we find that performance is a key motivating principle behind the use of the module. People are using these modules to find the next increment in value. To determine where that value resides requires these specialized tools to find it. Recall that these are subject to the Security & Access Control module, therefore the data and information that they can access will be limited to the domain of the users authority. And the application modules will be collaborative, therefore they are able to interact with others.

Running a query is a fairly basic operation that is static in its output. The result just sits in the spreadsheet for the user to act upon. Within the Performance Evaluation and Analytics & Statistics modules we can invoke the messaging services which include the following processes: person to person, person to process, process to person and process to process, on any of the system processes. Therefore if you had a process that was running, and at any time that process attained a point in time of which you wanted to know, then you could have the system text you. Or if the same process attained its completion, then you could have it invoke another process to initiate some other action, or you could have the option of texting the system to invoke a number of different scenarios. Adding these messaging processes brings the power of the ERP system into play from the point of view of using these calculations to carry out some action.

Professor Giovanni Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. The incentive to find the innovation, and the opportunity to find it are both contained within the Performance Evaluation and Analytics & Statistics modules.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Collaborations Risks and Rewards

Working in isolation we can achieve a lot of what we set out to do. When we collaborate with others then the possibilities grow exponentially. Setting about to review a mountain of data seems like a fun task, for a few people I’m sure that might ring true. However, for most people the possibility that they will find joy in the task is somewhat limited. As a team however, the task becomes something of an adventure with the findings being a multiple of what one individual might discover. A collaborative capability needs to be a necessary part of the Performance Evaluation and Analytics & Statistics modules.

Professor Giovanni Dosi noted that a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects asserts that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

Collaborating and sharing knowledge in the Performance Evaluation and Analytics & Statistics modules, as well as the other modules of the Preliminary Specification, will fuel innovation. Whether that collaboration is within a producer firm, a Joint Operating Committee or a working group that has recently been established through a Work Order. Access to these two modules should enable the participants to evaluate the data with the toolset provided in the modules. The only limitation that I would hope to impose on the use of these tools is a reasonable amount of free computer time.

Making these two modules collaborative will turn them into well used applications that will be used by many. Not the obscure applications used by the data obsessed. Remember Professor Dosi says that “In very general terms, technological innovation involves or is the solution to problems.” Discovery of those problems can be collaboratively done here in the Performance Evaluation and Analytics & Statistics modules.

What we do know is that “things” happen fast. Except in organizations. Providing the people with the appropriate knowledge and information for them to act in a fast changing environment is difficult. Some of the difficulty in getting the knowledge and information to the right people was to ensure the integrity of the information was not breached by those that were not part of the organization. And don’t get me wrong I’m not recommending an open information policy. The Security & Access Control module imposes high levels of integrity on all the communications and storage of data and information. The collaborations however between firms being open is where there may be some perceived leakage of proprietary losses of knowledge. And it is here in these open communications that I am asking if any information losses impose any risk to the innovative oil and gas producers competitive advantages of their land and asset base, or earth science and engineering capabilities, or innovativeness. No they don’t. As we have learned in fact the collaborations enhance the innovativeness and the capabilities of the firm.

The question therefore becomes how is this proprietary information and capability deployed on an as needed basis? Professor Giovanni Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the company's own unique and specific competitive sources and directions?

Collaborations in the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification will provide greater value in getting new and innovative ideas and information to the right people in the right place at the right time. These are the attributes the firm should be pursuing rather than any concern for any risks of losing any proprietary data or information. We noted that innovation involved the discovery of problems. It also includes change which Professor Dosi notes in the following.

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

It would therefore seem prudent for an innovative producer to enable the collaborations in all of the modules of the Preliminary Specification as a key to their innovation strategy. And to focus on dealing with the change in the routines as a result of the discovery and solutions to problems and the changes in their capabilities. These are the areas where the innovative oil and gas producer is going to need to deal with the outcomes of the innovation, and the overall capability to continue to innovate.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Monday, December 02, 2013

A World of Data

Turning once again to Professor Giovanni Dosi for the determination of the three key factors of innovation. He notes that they are the result of the “search, development and adoption of new processes and products in market economies and are the outcomes of the interaction between:”

  • Capabilities and stimuli generated with each firm and within the industry of which they compete.
  • Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.
  • Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

While in the Performance Evaluation and Analytics & Statistics modules the user would be searching for information or some insight into the data. This is the beginning of the innovation process and the tools provided in these modules would be part of the capabilities necessary for innovation to be developed within the innovative oil and gas producer. This is clearly evident by Professor Dosi’s three key factors. With the growth in data expected to continue. Users of these tools would find a rich resource to develop a perspective of looking at the data from an innovative point of view.

Lately we have heard about a new field of data that is growing in importance. Unstructured data. Data that isn't managed by a database and has no implied meaning to its structure. The marketplace modules of the Preliminary Specification, the Resource, Petroleum Lease and Financial Marketplace modules and to a lesser extent the Research & Capabilities module all have “marketplaces” within them. These marketplaces would have substantial unstructured data that would be of use to those potential users of the Performance Evaluation and Analytics & Statistics modules.

Taking a step out further, these two modules should not be constrained to the internal systems of the producers. They should have the ability to access other sources of data and information, structured and unstructured, so that the user can use all three of Professor Dosi’s key factors of innovation to develop new and innovative ideas. It might be worthwhile to have a “Help” section within the People, Ideas & Objects modules. A section that includes the research of Professor Giovanni Dosi’s work on innovation. Then people would have a quick reference as to items like the three key factors so that they could use them in their day to day tasks to help develop a more innovative mindset.

For example, Professor Giovanni Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? These are the questions that the Preliminary Specification is determined to answer. From the perspective of the Performance Evaluation and Analytics & Statistics modules I think we can provide the user with a variety of tools that helps them to drill down into the data and ask the questions that haven't been asked. People, Ideas & Objects is an ERP system, however, as we have shown with the modules in the Preliminary Specification there is a lot of data and information that is generated through collaborations and the documenting of items. It won't be just accountants that will want to use these two modules, but anyone that is employed by a producer firm or Joint Operating Committee.

Here is a quick summary of some of the functionality and process management the Performance Evaluation and Analytics & Statistics modules provide the user.

  • The ability to rise above the transactional work that is being managed by the other modules. We are moving from recording of transactions to designing transactions in many of the modules. Leaving the recording of transactions to the computers and the analysis to the users of these modules. 
  • Use of the “R” statistical language as an embedded program within both of the modules. 
  • Configured user tools that enable the user to demo, or build small applications that fit small niche needs. If these needs grew to where more people wanted similar programs they could be used as a prototype for the People, Ideas & Objects developers to build. 
  • Querying and determining where the performance and direction of the firms or Joint Operating Committees value is found. Allowing people to focus on that value generation and avoid the potential destruction of value. 


The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

User Focused Development Tools

When it comes to what we are currently given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing,” our lives would be so much easier. It seems simple, however, the inertia necessary to overcome just “this” requires the fortitude and political skills of a saint. So we continue on in what can only be described as someone's bureaucratic vision. People, Ideas & Objects seeks to resolve some of the issues users are faced with in confronting the “this, that and the other thing” in systems by basing our development in the user community. Inherent in that offering is that People, Ideas & Objects are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on changes to the software code, we are therefore agents of change, not seeking to obstruct change.

The point is that when it comes to having the user enhance the system. People, Ideas & Objects business is motivated from a business perspective to do so. That’s how we earn our revenue. Our point of view is that the software is in a state of constant improvement, driven by its users imagination and needs.

So when the time comes for a user to think that if they had “this, that and the other thing.” They will have a means to effect that change and have it fulfilled through the user community. But this isn't about that process of change specifically. Its about the stop gap measure that they may want to implement in the short term while they wait for the user community to implement their idea.

For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules will have the ability, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won't be ready for prime time, however for the purposes of the user they can fit the need in the short term.

The user generated reporting tool will be part of both the Performance Evaluation and Analytics & Statistics modules. And provide the user with a sophisticated graphical user interface to manipulate the data and develop queries. We've all seen these tools before and I’m not really suggesting anything new here. What I think is different however is the access to the data will be different. First that the volumes of data will be greater and secondly the Security & Access Control module will be providing the access to that data and information based on the users privileges.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Friday, November 29, 2013

The Downside of Analytics

I have seen this happen many times in oil and gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the performance mindset takes over all rational thought and the highest performance wins over every other consideration. This is the danger of these analytical tools and as we move into a period of a sharper more accurate tool set, that danger becomes more prevalent.

There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they'll sell some of their “midstream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. These assets, when looked at from a financial performance point of view, don’t come close to even being on the right street where the ballpark is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold, those products are lost and that production is gone to the new owners of the plant.

The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.

If we go back to something we reviewed a while ago about the decision rights we find this quotation from Professor Richard Langlois.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights regarding ownership and divestiture are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision of that type in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside to the short term. That is to say any negative decision would be reversed as soon as it is realized.

I think nonetheless it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the modules. If this qualitative analysis could be embedded into the modules for documentation purposes that would build value in these modules specifications.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Introduction to Performance Evaluation and Analytics & Statistics

The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC.

The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.

In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.

Tools for the 21st Century

This discussion deals with the motivations of people to use the Analytics & Statistics and Performance Evaluation modules of the People, Ideas & Objects applications. It's one thing to have statistical analysis tools available for those who are inclined to use them. It's another to have these tools being used by people who are actively looking for the next measure of performance or metric that will reflect how their performance can be improved. This latter use is the reason for these tools to be in the eleven module Preliminary Specification.

We pick up on our discussion from the McKinsey article “The 21st Century Organization.” We now discuss the fourth element of that paper “Measuring Performance.”

The final set of ideas rounding out this new organizational model involves relinquishing some level of supervisory control and letting people direct themselves, guided by performances metrics, protocols, standards, values, and consequence management systems. 

And as noted in the “The 21st Century Organization” people are not measured and told explicitly what to do in their jobs. There is too much activity going on for someone to be doling out task lists to mindless automatons. What the responsible and productive person needs to do in this world of massive information and activity is to focus on what is important. To deal with the critical value generating areas of their jobs that can add, and avoid destroying, value. That is where the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification come into play. Providing the user with the ability to focus on building value for their clients and employers, the oil and gas producers.

Whether they are earth scientists or engineers, business related or in any field that the oil and gas industry employs, access to the data and information through these modules will be critical to building value. Using the “dashboard” metaphor where algorithms are constantly monitoring various processes. The user would be running statistical and analytical programs that will look at data in new and innovative ways. It could be conceivable that some people may dedicate large percentages of their time of the day to thinking of new ways to analyze the data and information that is available to them.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Thursday, August 02, 2012

Final - Preliminary Specification - A&S


Introduction

The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC. 

The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.
Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.

In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.

Tools for the 21st Century

This discussion deals with the motivations of people to use the Analytics & Statistics and Performance Evaluation modules of the People, Ideas & Objects applications. It's one thing to have statistical analysis tools available for those who are inclined to use them. It's another to have these tools being used by people who are actively looking for the next measure of performance or metric that will reflect how their performance can be improved. This latter use is the reason for these tools to be in the eleven module Preliminary Specification.

We pick up on our discussion from the McKinsey article “The 21st Century Organization.” We now discuss the fourth element of that paper “Measuring Performance.”

The final set of ideas rounding out this new organizational model involves relinquishing some level of supervisory control and letting people direct themselves, guided by performances metrics, protocols, standards, values, and consequence management systems. 

And as noted in the “The 21st Century Organization” people are not measured and told explicitly what to do in their jobs. There is too much activity going on for someone to be doling out task lists to mindless automatons. What the responsible and productive person needs to do in this world of massive information and activity is to focus on what is important. To deal with the critical value generating areas of their jobs that can add, and avoid destroying, value. That is where the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification come into play. Providing the user with the ability to focus on building value for their clients and employers, the oil and gas producers.

Whether they are earth scientists or engineers, business related or in any field that the oil and gas industry employs, access to the data and information through these modules will be critical to building value. Using the “dashboard” metaphor where algorithms are constantly monitoring various processes. The user would be running statistical and analytical programs that will look at data in new and innovative ways. It could be conceivable that some people may dedicate large percentages of their time of the day to thinking of new ways to analyze the data and information that is available to them.
The Downside of Analytics

I have seen this happen many times in oil and gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the performance mindset takes over all rational thought and the highest performance wins over every other consideration. This is the danger of these analytical tools and as we move into a period of a sharper more accurate tool set, that danger becomes more prevalent.

There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they’ll sell some of their “midstream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. These assets, when looked at from a financial performance point of view, don’t come close to even being on the right street where the ballpark is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold, those products are lost and that production is gone to the new owners of the plant.

The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.

If we go back to something we reviewed a while ago about the decision rights we find this quotation from Professor Richard Langlois.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside to the short term. That is to say any negative decision would be reversed as soon as it is realized.

I think nonetheless it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the modules. If this qualitative analysis could be embedded into the modules for documentation purposes that would build value in these modules specifications.

User Focused Development Tools

When it comes to what we are currently given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing,” our lives would be so much easier. It seems simple, however, the inertia necessary to overcome just “this” requires the fortitude and political skills of a saint. So we continue on in what can only be described as someone's bureaucratic vision. People, Ideas & Objects seeks to resolve some of the issues users are faced with in confronting the “this, that and the other thing” in systems by basing our development in the user community. Inherent in that offering is that People, Ideas & Objects are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on changes to the software code, we are therefore agents of change, not seeking to obstruct change.

The point that I am trying to make is that when it comes to having the user enhance the developments of the system. People, Ideas & Objects business is motivated from a business perspective to do so. That’s how we earn our revenue. Our point of view is that the software is in a state of constant improvement, driven by its users imagination and needs.

So when the time comes for a user to think that if they had “this, that and the other thing.” They will have a means to effect that change and have it fulfilled through the user community. But this isn’t about that process of change specifically. Its about the stop gap measure that they may want to implement in the short term while they wait for the user community to implement their idea.

For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules should have the ability, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won’t be ready for prime time, however for the purposes of the user they can fit the need in the short term.

The user generated reporting tool should be part of both the Performance Evaluation and Analytics & Statistics modules. And provide the user with a sophisticated graphical user interface to manipulate the data and develop queries. We’ve all seen these tools before and I’m not really suggesting anything new here. What I think is different however is the access to the data will be different. First that the volumes of data will be greater as detailed in our Technical Vision. And secondly that the Security & Access Control module will be providing the access to the data and information to the user based on their privileges.

A World of Data

Turning once again to Professor Giovanni Dosi for the determination of the three key factors of innovation. He notes that they are the result of the “search, development and adoption of new processes and products in market economies and are the outcomes of the interaction between:”

  • Capabilities and stimuli generated with each firm and within the industry of which they compete.
  • Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.
  • Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

While in the Performance Evaluation and Analytics & Statistics modules the user would be searching for information or some insight into the data. This is the beginning of the innovation process and the tools provided in these modules would be part of the capabilities necessary for innovation to be developed within the innovative oil and gas producer. This is clearly evident by Professor Dosi’s three key factors. With the growth in data expected to continue. Users of these tools would find a rich resource to develop a perspective of looking at the data from an innovative point of view.

Lately we have heard about a new field of data that is growing in importance. Unstructured data. Data that isn't managed by a database and has no implied meaning to its structure. The marketplace modules of the Preliminary Specification, the Resource, Petroleum Lease and Financial Marketplace modules and to a lesser extent the Research & Capabilities module all have “marketplaces” within them. These marketplaces would have substantial unstructured data that would be of use to those potential users of the Performance Evaluation and Analytics & Statistics modules.

Taking a step out further, these two modules should not be constrained to the internal systems of the producers. They should have the ability to access other sources of data and information, structured and unstructured, so that the user can use all three of Professor Dosi’s key factors of innovation to develop new and innovative ideas. It might be worthwhile to have within a “Help” section of the People, Ideas & Objects modules. A section that includes the research of Professor Giovanni Dosi’s work on innovation. Then people would have a quick reference as to items like the three key factors so that they could use them in their day to day tasks to help develop a more innovative mindset.

For example, Professor Giovanni Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? These are the questions that the Preliminary Specification is determined to answer. From the perspective of the Performance Evaluation and Analytics & Statistics modules I think we can provide the user with a variety of tools that helps them to drill down into the data and ask the questions that haven’t been asked. People, Ideas & Objects is an ERP system, however, as we have shown with the modules in the Preliminary Specification there is a lot of data and information that is generated through collaborations and the documenting of items. It won’t be just accountants that will want to use these two modules, but anyone that is employed by a producer firm or Joint Operating Committee.

Here is a quick summary of some of the functionality and process management the Performance Evaluation and Analytics & Statistics modules provide the user.

  • The ability to rise above the transactional work that is being managed by the other modules. We are moving from recording of transactions to designing transactions in many of the modules. Leaving the recording of transactions to the computers and the analysis to the users of these modules. 
  • Use of the “R” statistical language as an embedded program within both of the modules. 
  • Configured user tools that enable the user to demo, or build small applications that fit small niche needs. If these needs grew to where more people wanted similar programs they could be used as a prototype for the People, Ideas & Objects developers to build. 
  • Querying and determining where the performance and direction of the firms or Joint Operating Committees value is found. Allowing people to focus on that value generation and avoid the potential destruction of value. 

Collaborations Risks and Rewards

Working in isolation we can achieve a lot of what we set out to do. When we collaborate with others then the possibilities grow exponentially. Setting about to review a mountain of data seems like a fun task, for a few people I’m sure that might ring true. However, for most people the possibility that they will find joy in the task is somewhat limited. As a team however, the task becomes something of an adventure with the findings being a multiple of what one individual could discover. A collaborative capability needs to be a necessary part of these two modules.

Professor Giovanni Dosi noted that a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects asserts that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

Collaborating and sharing knowledge in the Performance Evaluation and Analytics & Statistics modules, as well as the other modules of the Preliminary Specification, will fuel innovation. Whether that collaboration is within a producer firm, a Joint Operating Committee or a working group that has recently been established through a work order. Access to these two modules should enable the participants to evaluate the data with the toolset provided in the modules. The only limitation that I would hope to impose on the use of these tools is a reasonable amount of free computer time.

Making these two modules collaborative will turn them into well used and handy applications that will be used by many. Not the obscure applications used by the data obsessed. Remember Professor Dosi says that “In very general terms, technological innovation involves or is the solution to problems.” Discovery of those problems can be collaboratively done here in the Performance Evaluation and Analytics & Statistics modules.

What we do know is that “things” happen fast. That is except in organizations. Providing the people with the appropriate knowledge and information for them to act in a fast changing environment is difficult. Some of the difficulty in getting the knowledge and information to the right people was to ensure the integrity of the information was not breached by those that were not part of the organization. Don’t get me wrong I’m not recommending an open information policy. The Security & Access Control module imposes high levels of integrity on all the communications and storage of data and information. The collaborations however between firms being open is where there may be some perceived leakage of proprietary losses of knowledge. And it is here that I am asking if those losses impose any risk to the innovative oil and gas producers competitive advantages of their land and asset base, or earth science and engineering capabilities. No they don’t. In fact the collaborations enhance the innovativeness and the capabilities of the firm.

The question therefore becomes how is this proprietary information and capability deployed on an as needed basis? Professor Giovanni Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the company's own unique and specific competitive sources and directions?

Collaborations in the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification will provide greater value in getting new and innovative ideas and information to the right place at the right time. These are the attributes the firm should be pursuing rather than any concern for any risks of losing any proprietary knowledge or information. We noted that innovation involved the discovery of problems. It also includes change which Professor Dosi notes in the following.

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

It would therefore seem prudent for an innovative producer to enable the collaborations in all of the modules of the Preliminary Specification as a key to their innovation strategy. And to focus on dealing with the change in the routines as a result of the discovery of solutions to problems and the changes in their capabilities. These are the areas where the innovative oil and gas producer is going to need to deal with the outcomes of the innovation, and the overall capability to continue to innovate.

Dynamic Data and Information

How the innovative producer attains a higher factor of revenue per employee is through a constant search for more production, higher prices, lower costs and more effective management of their oil and gas assets. This search in many instances will begin with a query in either the Performance Evaluation module for the Joint Operating Committee or the Analytics & Statistics module for the producer firm itself. Having access to the data and information of the respective domain provides the user with the ability to formulate queries on the basis of different scenarios, what if’s, and other mathematical calculations. Big deal, something that most people can do with a day of training on a spreadsheet. And that would be part of the situation, however there is more.

If we go back to earlier parts of this module we find that performance is a key motivating principle behind the use of the module. People are using these modules to find the next increment in value. To determine where that value resides requires these specialized tools to find it. Recall that these are subject to the Security & Access Control module, therefore the data and information that they can access will be limited to the domain of the users authority. And the application modules will be collaborative, therefore they are able to interact with others.

Running a query is a fairly basic operation that is static in its output. The result just sits in the spreadsheet for the user to act upon. Within the Performance Evaluation and Analytics & Statistics modules we can invoke the messaging services which include the following processes: person to person, person to process, process to person and process to process, on any query output. Therefore if you had a query that was running, and at any time that query attained a value of 1 of which you wanted to know, then you could have the system text you, then that could be done in these modules. Or if the same query attained the value of 1, then you could have it invoke another process to initiate some other action. Adding these messaging processes brings the power of the ERP system into play from the point of view of using these calculations to carry out some action.

Professor Giovanni Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. The incentive to find the innovation, and the opportunity to find it are both contained within the Performance Evaluation and Analytics & Statistics modules.

Focused on Changing Capabilities

We are focusing the producer firm and Joint Operating Committee on its key competitive advantages. Those are its land and asset base, and their earth science and engineering capabilities it holds. These are the things that differentiate them from other producers and how they produce value for their shareholders. Everything else is secondary. We have adopted what Professor Richard Langlois calls the “capabilities approach” in his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.”

When users are in the Performance Evaluation and Analytics & Statistics modules they will be able to look at a new type of cost that we have recorded in the accounts of the firm and Joint Operating Committee. That is the costs associated with “Dynamic Transaction Costs” which are the unique costs that are incurred during times of change. Professor Richard Langlois described these costs in his article “Transaction Cost Economics in Real Time.”

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

The types of these costs will be varied and not necessarily be the same in all instances. To break these down into their types may be overkill from an accounting point of view when just putting them into an account called “Dynamic Transaction Costs” will do. And we have done that in all of the other modules of the Preliminary Specification. However, having the ability to further analyse these costs when the time comes, from the Performance Evaluation and Analytics & Statistics modules could lead to further insight and learning into the organizational changes that might, or should, be occurring.

Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at firm and market as alternative and sometimes overlapping institutions of learning. p. 99

and

Economic progress, then, is for Marshall a matter of improvements in knowledge and organization as much as a matter of scale economies in the neoclassical sense. We can see this clearly in his 'law of increasing return,' which is distinctly not a law of increasing returns to scale: 'An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital' (Marshall, 1961, IV. xiii,2 p. 318) p. 101

And maybe we need to have a page or screen in each of these two modules dedicated to breaking down these costs. Then a producer or Joint Operating Committee will have some point of reference to determine the state of change and its impact in terms of the costs, and types of costs, to the organization. How the transition in the firm or Joint Operating Committees capabilities is being managed.

F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104

Conclusion

Work in the 21st Century will be different. The tools that people will use will need to be different as well. The Performance Evaluation and Analytics & Statistics modules are the beginning of these new era tools for the way in which people need to work. We frequently speak of specialization and the division of labor in the Preliminary Specification. There is also a specialization and division of labor between what the people and computers will be doing and that is reflected here in these two modules. Computers will be responsible for the storage and processing, and people will be responsible for the thinking, the ideas, the decisions, the creating, the collaborating, the innovation and the many other things we do well. Much of these things being generated based on the facts that are determined through the Performance Evaluation and Analytics & Statistics modules.

Tuesday, July 17, 2012

The Preliminary Specification Part CCCXXV (A&S Part XVI)


For the third straight module we are going to pass over any real discussion of the Oracle products in the Performance Evaluation and Analytics & Statistics modules. It would require us to discuss too much about the overall technologies and that is inconsistent with the objectives of the Preliminary Specification. We are attempting to focus on the modules, functionality and process management that the Oracle product suites provide us, not the detailed technological attributes of their products. Starting tomorrow there will be an extensive list of things to discuss as Oracle has an entire suite of modules called Oracle Fusion Application, Governance, Risk and Compliance which will be adopted in the Compliance & Governance module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.

Monday, May 21, 2012

The Preliminary Specification Part CCLXVIII (A&S Part XV)


When users are in the Performance Evaluation and Analytics & Statistics modules they will be able to look at a new type of cost that we have recorded in the accounts of the firm and Joint Operating Committee. That is the costs associated with “Dynamic Transaction Costs” which are the unique costs that are incurred during times of change. Professor Richard Langlois described these costs in his article “Transaction Cost Economics in Real Time”.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

The types of these costs will be varied and not necessarily be the same in all instances. To break these down into their types may be overkill from an accounting point of view when just putting them into an account called “Dynamic Transaction Costs” will do. And we have done that in all of the other modules of the Preliminary Specification. However, having the ability to further analyse these costs when the time comes, from the Performance Evaluation and Analytics & Statistics modules could lead to further insight and learning into the organizational changes that might, or should, be occurring.

Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at firm and market as alternative and sometimes overlapping institutions of learning. p. 99
and
Economic progress, then, is for Marshall a matter of improvements in knowledge and organization as much as a matter of scale economies in the neoclassical sense. We can see this clearly in his 'law of increasing return,' which is distinctly not a law of increasing returns to scale: 'An increase of labour and capital leads generally to improved organization, which increases the efficiency of the work of labour and capital' (Marshall, 1961, IV. xiii,2 p. 318) p. 101

And maybe we need to have a page or screen in each of these two modules dedicated to breaking down these costs. Then a producer or Joint Operating Committee will have some point of reference to determine the state of change and its impact in terms of the costs, and types of costs, to the organization.

F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104

Tomorrow we will begin our fourth or capabilities pass through the Compliance & Governance module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

Sunday, May 20, 2012

The Preliminary Specification Part CCLXVII (A&S Part XIV)


We should also mention, with yesterday’s discussion of the accounting and administrative costs being charged to the Joint Operating Committees. That these accounting and administrative service providers would need to have extensive software built as part of the People, Ideas & Objects Preliminary Specification. They too are a critical part of the efficiencies and effectiveness of the producers and Joint Operating Committees and therefore need to be included in the definition of this software. Today we are going to discuss the overall nature of the Preliminary Specification and how the Performance Evaluation and Analytics & Statistics users will need to look upon the data that is stored within the applications. The method that users will access this data is through ad-hoc queries and general inquiries that they will formulate over time. There will of course be opportunities for users to save and deploy those queries in a more structured approach within the module.

We are focusing the producer firm and Joint Operating Committee on its key competitive advantages. Those are its land and asset base and the earth science and engineering capabilities it holds. These are the things that differentiate them from other producers and how they produce value for their shareholders. Everything else is secondary. We have adopted what Professor Richard Langlois calls the “capabilities approach” in his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization”.

However, a new approach to economic organization, here called "the capabilities approach," that places production centre stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. p. 1

And we feel this can bring about a new level of competitiveness, one based on innovation, within the industry. As Professor Langlois notes in “Competition through institutional form: the Case of the Cluster Tools Standards”.

Industrial economists tend to think of competition as occurring between atomic units called "firms." Theorists of organization tend to think about the choice among various kinds of organization structures - what Langlois and Robertson (1995) call "business institutions.” But few have thought about the choice of business institution as a competitive weapon. p. 1

And it must be in the hands of the user. Whether that is the CEO of the producer, the Chief Engineer of the Joint Operating Committee or the accountant preparing the financial statements for the property. A decentralized and empowered workforce is the only manner in which to approach the future demands of the energy consumer. From Professor Langlois “Organizing the Electronic Century”.

… “if we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," he wrote, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its order. We must solve it by some form of decentralization" (Hayek 1945, p. 524). p. 15

Lastly we have used modularity to deconstruct and simplify both the Information Technology and the organization. This provides us with an efficiency of data between the modules and encapsulation of the roles and responsibilities within one module. For example all of the “land” is within the Petroleum Lease Marketplace module.

What makes decentralization economically effective is the possibility of a standard interface that allows the modules to coordinate with one another without communicating large volumes of information. This interface is the price system. The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned (Hayek 1945, pp. 526 - 527) pp. 15 - 16

We have come a long way for a relatively precise point. In the Preliminary Research Report which was entitled “Plurality Should Not Be Assumed Without Necessity” or Occam’s Razor. I also went on to describe it as Knoop & Valor [1997] did as “It’s not what you know that you do not know that hurts you. It’s what you do not know, that you do not know that will. It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to bring about a new order of things.” I should have heeded my own warning. But the point is that the unknown unknowns are what need to be discovered and the tools for doing that are the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

Saturday, May 19, 2012

The Preliminary Specification Part CCLXVI (A&S Part XIII)


We have combined the Performance Evaluation and Analytics & Statistics modules into one discussion stream for purposes of the Preliminary Specification. The difference between the two modules is that the Performance Evaluation is a Joint Operating Committee facing module and the Analytics & Statistics module is a producer firm facing module. Both are inherently the same in terms of functionality and process management, however, the data and collaboration elements are fundamentally different. It will also be in these two modules that the move away from the “high throughput production” model to the “decentralized production” model that the Preliminary Specification is conducting will have an effect. In Professor Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy” he defines the differences between the two models.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p.58

In previous modules we have discussed how the overhead costs of production and royalty accountants, and for that matter any accounting to do with operations, land administration, production administration and exploration administration would become variable costs that would only be incurred if there was production. How the further specialization and division of labor of these traditional departments provided a means for the oil & gas industry to have their accounting and administration prepared by service providers. This was an example of how the industry could have all of their production and overhead costs allocated to the revenues from production. When the wells were shut-in then these administrative and accounting costs would not be incurred and the decentralized production model would therefore be in place.

Both in the Analytics & Statistics and Performance Evaluation modules each Joint Operating Committee becomes a stand alone reporting entity. Each property should have financial accounting reports that are prepared monthly. These could be generated here in these modules. Having a balance sheet, income statement, and statement of changes prepared for the Joint Operating Committee and for the producers interest would provide real value for those trained in reading financial statements.

With the fine granularity of the data. That is to say the charges for the accounting and administrative services will be very precise, as will all the variable charges that will be charged under the “decentralized production” model. The assurance that all the accounting and administrative service providers have billed, and billed correctly for a month, will need to be automated to a certain level and that too can be done in these modules.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.