Baldwin's "Option Value"

In a presentation entitled "Unmanageable Designs: What Some Designs Need from the Economy and How They Get It". Professor Carliss Baldwin provides more support for those people who are contemplating becoming a member of the Community of Independent Service Providers.

Harvard Professor Carliss Baldwin is someone that we watch closely here at People, Ideas & Objects. Review of her papers have provided clear direction in the areas of "modularity and thin crossing points", "mirroring hypothesis" and "actionable transparency". We have benefited substantially from these concepts. In this presentation Professor Baldwin brings another substantial concept to this project, "Option Value".

There is a definitive reason that the Draft Specification is eleven modules. Particularly from a software development point of view. Having everything operate as one integrated system with the size and scope of the Draft Specification is probably impossible. The ability to break down the size of the system into modules helps the developers deal with the complexity that larger systems provide. Modularity also allows users to be familiar with a smaller set of application functionality, familiarity that is consistent with their training and skills. For example a person that works in the "land" function will probably rarely leave the Petroleum Lease Marketplace Module.

Modularity is something that Professor Baldwin has spent much of her time on during the past decade. What really brings out the value of modularity is what she calls the "option value". This is particularly important as we have recently been discussing the Industrial Districts (ID), Small Knowledge Intensive Enterprises (SKIE), Business Groups (BG) and Community of Independent Service Providers (CISP). Option value is critical to the performance of this community.

In slide number two Professor Baldwin summarizes her three main points. I want to subsequently address each point in detail.

• Designs need to become real.
• They become real by creating the perception of value.
• Designs act as a financial force.
• Perception of value = incentive to invest
• In making the design = "use value"
• In making the design better = "option value"
• Modular designs with option value.
• Create hurricane type forces
• Will change their economic "space"
• Unmanageable and dangerous (unless you understand them)
  

To her first point, the Draft Specification is real because people can see the value that the specification can provide. The purpose of the specification is to provide a vision of how the industry could operate using the Joint Operating Committee (JOC) as the key organizational construct of the innovative producer. Perception is reality.

Baldwin's second point should note that members of the Community of Independent Service Providers (CISP) have a substantial business opportunity. By joining, these people have the opportunity to develop a service based offering that delivers the People, Ideas & Objects software applications to the innovative producer. They have as their overall objective; "to provide the most profitable means of oil and gas operations". To address the "use value", as we have noted before, we are moving towards the systemic culture of the oil and gas industry, the JOC. By recognizing the JOC we are indeed adopting the culture of how the industry works. Contrast this "use value" to the SAP culture of a manufacturing firm.

And lastly to address the "option value". The power of a modular specification, particularly in software that supports an industries culture, that is backed up by a dedicated software development capability, and most importantly, the producers, CISP and People, Ideas & Objects gaining the option value. This type of design becomes a "hurricane" financial force that will change the oil and gas "space". I can assure you that this hurricane is beginning. If you have an interest in becoming a member of the CISP, I would highly recommend that you begin your research phase today.

The critical element of this hurricane force is the Community of Independent Service Providers. Having the Draft Specification without this community does not generate the value. As Baldwin notes on Slide 23 "Modularity in the absence of option potential is at best a breakeven, at worst an expensive waste of time". This is intuitively the case, Professor Baldwin then asks the important questions.

• What is this elusive property that gives rise to option value?
• Where does it arise?
• Can we measure it?

Answering that first question, what is the "elusive property" Baldwin notes on Slide 29:

• Option value lies in seamless, asynchronous upgrading
• Modeled in design rules.

I have been a strong proponent of asynchronous communications. People, Ideas & Objects adopted a technical vision early on in the design of the Draft Specification. Within that technical vision, a cornerstone of it is what we call Asynchronous Process Management (APM). Today I am stating that the methods that the CISP and user communities interact with the developers of People, Ideas & Objects is in this asynchronous manner. Therefore we have captured that "elusive property that gives rise to option value". The creative and iterative development of the applications and communities.

In terms of measuring option potential. I have selected the following five points from slides 29, 30 and 32 as key to the CISP.

• Successive, improving versions are evidence of option potential being realized over time - after the fact.
• Designers see option potential before the fact.
• What do they see?
• Users - new perceptions => new preferences

• Perceptions of desires emerge through use.
• Value of discovery, direct experience play.
• Unexplored potential = option potential.
• Pfister's Observation (In Baldwin's words)
  
• Recombining modules in new ways has more option value than the modules themselves.

Lastly, Professor Baldwin suggests ways in which we can gain from "option value". These past few months we have been reviewing many of the principles that were used in forming People, Ideas & Objects, Community of Independent Service Providers and the Draft Specification. Whether that is through ID's, SKIE's, BG's, or the CISP I think the value is there and this project is moving forward.

• What do option rich modular designs do to the economy?
• Answer: Attract entry with a promise of lots of $$$
  
• How do you manage something inherently unmanageable?
• At first you don't.
• Then, small footprints yield high ROIC.
• Then, lead firm M & A
  
• Will you always get a modular cluster of firms?
• Yes, almost certainly.
  

And what actions does Professor Baldwin's recommend you should do: (Recall this is a 2005 presentation.)

• Plunge in.
• Get lucky
• Watch out for Microsoft
• Get bought by HP.

Professor Baldwin's research strategy - look for;

• Stable patterns of behavior involving several actors operating within a consistent framework of ex ante incentives and ex post rewards.

My personal opinion of what is valuable today, and this ties in with this project, is ownership or access to Intellectual Property (IP). It's the only asset that provides any long term sustainable value generation. Members of the Community of Independent Service Providers have access to all of the IP that is part of People, Ideas & Objects, the ideal framework of "ex ante incentives and ex post rewards". Management of this IP at People, Ideas & Objects is noted here.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Baldwin Community CISP Harvard Option-Value
 

Langlois, Economic Institutions Part IV

This will be our last post on Professor Richard Langlois July 2009 paper "Economic Institutions and the Boundaries of the Firm: The Case of Business Groups." Langlois analysis of Business Groups (BG) follows on our review of his work on Industrial Districts (ID's), Professor Carlota Perez' Small Knowledge Intensive Enterprises (SKIE) and People, Ideas & Objects Community of Independent Service Providers (CISP). What ever we may call these "institutions", they all seek to build the "market-supporting" infrastructure of an industry. Although there is a strong service sector supporting the oil and gas industry, it does not have the market-supporting institutions necessary for it to qualify as a BG, SKIE, ID or CISP. What is needed, critically, is an ERP styled software development capability that supports these communities. A capability that supports the innovation that is occurring in these communities. Langlois helps to further define the decentralized nature of the concept that I am referring to: (For the remainder of this post I will use communities to describe ID, SKIE, BG or CISP.)

So far I have talked generally about vertical integration and disintegration, not specifically about business groups. And I have yet to engage the third level of contingent facts, political institutions. I now propose to argue that business groups and political institutions are closely related; indeed, in some of their forms, they are the same thing.

Scholars generally distinguish business groups from more loosely arranged structures like business networks. “When ownership and control are more centralized and organizational subunits enjoy limited autonomy, the commonly used term is business groups. When subunits enjoy more autonomy with respect to ownership, control, and operations, interfirm network is the correct term. In other words, business groups are more centralized and closely held, while interfirm networks are more decentralized and loosely held” (Fruin 2008). Indeed, in some eyes, the “groupness” of a business group is orthogonal to its structure of corporate governance. Mark Granovetter (1995, p. 95) considers business groups to be “collections of firms bound together in some formal and/or informal ways, characterized by an ‘intermediate’ level of binding.” Purely anonymous market relations don't qualify in Granovetters definition; but neither do American-style conglomerates, whose wholly owned divisions have little connection with one another and are but modular pieces on the financial chessboard. But a variety of governance structures, from hierarchical and structured chaebols on the one hand to Marshallian industrial districts (Marshall 1920, IV.x.3) on the other, would qualify as business groups in Granovetter’s sense. p. 21

Therefore, providing a governance model is a necessity for these communities. The Draft Specification implements the Military Command & Control Metaphor (MCCM) to provide a governance structure. Originally conceived to provide a pooling of the resources of each producer within a Joint Operating Committee, the definition was expanded to include the necessary technical resources that can be sourced from the communities as reflected in the Resource Marketplace Module. This enables a JOC to cobble together the necessary people to implement their plans. Each of these people are able to quickly determine theirs and others qualifications in terms of their experience, training and skills. Once assigned their role in completing the tasks, they can also see how others are able to interact within the process. Gaps will begin to show. And the innovative solutions necessary to fill those gaps will begin. Without a global industry wide governance model as contemplated in the Draft Specification, innovation will remain the domain of the bureaucracy.

Explaining the existence of business groups in Granovetter’s sense is arguably easier than explaining the mantle of ownership and governance those groups take on. “Intermediate” linkages are essential to the process of gap-filling. Links among entrepreneurs, whether formal or informal, permit the sharing of information about gaps and encourage the coordination of necessary complements (Kock and Guillén 2001). p. 22

As a result of implementing this governance structure, there is an increased potential of innovation within the community! I am making the connection that the market-supporting institutions the oil and gas industry needs are the MCCM and the Draft Specification.

There may yet be another explanation. Even in developed open-access societies, pyramidal business groups may exist because they play a gap-filling role. In this case, the issue is not vertical integration but governance. In developed economies – which increasingly means one integrated global economy – markets are relatively thick and market-supporting institutions relatively abundant, making it possible to coordinate complementary activities in a decentralized way. But there are still gaps: new products, new processes, new ways of organizing, new profit opportunities to seize. p. 27

The gap's that need to be filled become more obvious as a result of implementing the MCCM governance structure over the community. As gaps are filled, more gaps become noticeable. The capacity to change is highly dependent on the software that these communities will use. If that software is static, then their will be only one iteration of gap filing. What the industry needs to do is to iterate on the earth sciences and engineering disciplines, and innovations based on those sciences.

But even in “developed” economies, novelty and change creates the sorts of gaps that call for business groups, including less-formal sets of “intermediate” relationships, as, for example, in geographic (or, increasingly, “virtual”) industrial districts. In this sense, the economics of organization generally can learn from the literature on business groups outside the developed world. The problem of gap-filling in highly developed economies differs from that in less-developed economies because the path ahead is cloudier, which suggests that more-decentralized organizational structures may be more successful at the cutting-edge of technology. p. 29

In today's energy marketplace we see many examples of how the industry is failing. I believe the expectation that today's oil and gas company can transform themselves into these communities is unreasonable. An expectation that will lead to disappointment. With the debt crisis about to play out across the global economy, I expect those producers that are carrying even reasonable amounts of debt to be severely constrained in the short to mid-term. This during a time when the industry needs to be as innovative as it can just to keep its costs under control. Whether the industry as it stands today will look the same in ten years isn't the point. The point is that we need to enable these types of capabilities within the industry irrespective of the oil and gas companies actions. The industry will need to be built brick-by-brick and stick-by-stick to enable these types of attributes to become the norm. The bureaucracies have chosen not to participate. It's now up to these communities to begin this process by starting with People, Ideas & Objects.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Langlois Governance Military-Command Innovation Capabilities Community CISP
 

Langlois, Economic Institutions Part I

Next up in our review of Professor Richard N. Langlois work is a paper he wrote in July 2009. "Economic Institutions and the Boundaries of the Firm: The Case of Business Groups". This paper provides another interesting perspective on how businesses within an industry can be organized. In our review of "Innovation Process and Industrial Districts" we learned of the close approximation of Langlois "Industrial Districts" (ID) and Professor Carlota Perez' Small Knowledge Intensive Enterprises (SKIE) to People, Ideas & Objects Community of Independent Service Providers (CISP). How ID's, SKIEs and the CISP were a direction that the industry should move toward building and supporting. In this paper we learn of Business Groups and their application. Business Groups are more common in the developing economies, however, I think that they have some important attributes that we can learn from. These Business Groups are best described in this paper by Koo Cha-Kyung a former chairman of the well known LG Group:

My father and I started a cosmetic cream factory in the late 1940s. At the time, no company could supply us with plastic caps of adequate quality for cream jars, so we had to start a plastics business. Plastic caps alone were not sufficient to run the plastic molding plant, so we added combs, toothbrushes, and soap boxes. This plastics business also led us to manufacture electric fan blades and telephone cases, which in turn led us to manufacture electrical and electronic products and telecommunication equipment. The plastics business also took us into oil refining, which needed a tanker shipping company. The oil refining company alone was paying an insurance premium amounting to more than half the total revenue of the then largest insurance company in Korea. Thus, an insurance company was started. This natural step-by-step evolution through related businesses resulted in the Lucky-Goldstar group as we see it today. (Aguilar and Cho 1985, p. 3.)

Notice that the “natural step-by-step evolution through related businesses” involved both spreading excess resources over similar activities and calling forth dissimilar complementary activities. p. 10

The process being described in the LG example is one of "Gap Filling" as is described below.

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6

In the example that I posted on Friday entitled "Transaction Design" it was noted the need to have the producers work with a group of engineers to bring about an innovation to enhance the industries capabilities. How the oil and gas producers, with 100% of the revenues of all industries associated within oil and gas, need to develop and maintain the industries capabilities within the ID's, SKIEs or CISP. This is "Gap Filling" as described in the paper.

Oil and gas is certainly a sector that is undergoing systemic change. And we are witnessing the oil and gas companies expectation that field level innovations will spontaneously exist, yet expend none of the money necessary to bring those innovations to market. In their opinion that is the responsibility of the investment capital groups. Well let me be the first to explain to the oil and gas companies management, the investment capital groups became tired of the thumbs down they received for any and all efforts that they undertook. They have left the industry, and I would suggest will not be back. Expecting others to fulfill your needs when you need them, without financial support, just isn't going to work.

This same issue is the paramount issue that People, Ideas & Objects is facing. With no support from the industry, how and why would anyone get behind this project on a speculative basis? Management have made their opinion known and are clearly uninterested in sponsoring a competitive means to manage the industry. What is clearly necessary in 2010 is not only the ID's, SKIE's and CISP. But also the market supporting software necessary to identify and support the market. Without People, Ideas & Objects any attempt at organizing the development of further capabilities will be futile. And that is why management have refused to fund these developments.

The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3

In thinking through the points of discussion that have been raised in the past few weeks. I notice that something is missing that is critical to making the ID's et al work. What is the motivation in spending the time and effort necessary to make producers reserves and production more prolific? There has to be something in it for the one that is developing the science or innovation that will sustain them above and beyond the producers desire to have the capabilities. That is the Intellectual Property belongs to the individual or group that developed it. In the example that I provided on Transaction Design, the IP would be the property of the engineers. This is the manner that the Draft Specification in the Knowledge & Learning, Resource Marketplace and Research & Capabilities modules provides.

I have implied this handling of IP in many of the previous posts. I am now stating it explicitly. The only way that the oil and gas industry is going to solve the scientific and engineering problems that it faces is through those with the ideas earning the rights to those ideas. I have consistently argued that the producer firms are focused on their competitive advantages of their oil and gas assets and the necessary earth science and engineering capabilities applied to their assets. This applies to where ever those capabilities are located. How a firm may manufacture drill bits is of absolutely no concern to the producer firm that purchases or rents drill bits. The same can be applied to all aspects of the industry.

This management of Intellectual Property is counter to the attitudes present in the oil and gas industry. Until, and only when, those that do the hard work of solving the problems in oil and gas, earn the rights to their efforts, will we move forward from here. Intellectual Property rights must reside within the firms and individuals who make up the Business Groups, ID's, SKIE's and CISP.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Langlois CISP Community Innovation IP

Langlois, Innovation and Process Part V

This is our final post of Professors Richard Langlois', Paul Robertson and David Jacobson's January 2008 paper "Innovation Process and Industrial Districts". Our review of this paper, in which Langlois et al introduced the concept of Industrial Districts (ID). A term which is similar in many ways to the concept put forward by Professor Carlota Perez of Small Knowledge Intensive Enterprises (SKIE). Both SKIEs and IDs contain many of the same attributes that People, Ideas & Objects user communities and specifically the Community of Independent Service Providers (CISP) are designed to provide. 

One of the benefits in reviewing Langlois et al paper is our ability to reflect upon how the Draft Specification captures the natural or cultural ways and means of the Joint Operating Committee. Monday's discussion of the way a drilling contracts transactions are designed and implemented was introduced. Simply by selecting which firm will provide which services, the producer or drilling contractor. What hasn't been captured is the full extent of the Draft Specifications application in the act of designing, monitoring and managing "transactions". I will post a detailed review of this tomorrow to help better understand the scope of this "transaction design" thinking.

In many ways the CISP would be considered sub-sets of either SKIEs or ID's. They, with the assistance of the Draft Specification, would provide the innovative oil and gas producer with the means to effectively manage and operate their assets . An innovative oil and gas producer would be focused on the core competitive advantages of their unique asset base and the scientific and engineering capabilities that are made available to them. The dynamic nature of the ID's would be enabled through the Draft Specifications Resource Marketplace, Accounting Voucher, Knowledge & Learning, and Research & Capabilities modules and the Military Command & Control Metaphor (MCCM).

Two significant developments in the application of ID's to oil and gas. Are the risks associated with too high of embeddedness are minimal due to the scientific nature of the industry. The logarithmic decline curve and scope of the sciences involved will provide a check and balance against any over confidence. This will be the case particularly in the sense that the demand for energy is insatiable. The second development is the application of the MCCM to the ID. Having a governance model and structure available to the ID will have a direct effect in assisting the search and discovery of ideas and solutions.

5. Conclusion: Innovation and The Future of Industrial Districts. 

Langlois et al note in their conclusion the value of the concept of ID's to innovation in oil and gas.

As we have shown, much of the attractiveness of compact, highly-localized areas of production results from their ability to reduce search costs, but this is accompanied by the risk that the knowledge available in any given district may be substandard. But new information and communications technology (ICT), may make it possible for firms to draw more cheaply and effectively on diverse sources of knowledge and therefore to increase their access to innovative ideas (as well as their ability to market their own innovations if they wish) (Langlois, 2003; Christensen, 2006). This may not undermine all aspects of the operations of IDs because differentiation and specialization retain their importance, and proximity is useful in just-in-time and other lean ways of organizing production. For innovation, however, an ability to tap wider sources of knowledge quickly and cheaply can reasonably be expected to allow firms all along supply chains to consult more broadly than in the past. Improvements in ICT and new search techniques, many of them associated in one way or another with the Internet, not only increase access to knowledge but may force innovation on firms that in the past could shelter in IDs. Because their customers can be better informed, firms in IDs need to keep up to date in order to maintain competitiveness. p. 20

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Langlois Innovation Community CISP
 

Professor Thomas Malone on Organization

Taking a quick break from our review of Professor Langlois' paper "Innovation Process and Industrial Districts" we have a quick article and video series from MIT Professor Thomas W. Malone. We covered another video of Professor Malone's back in February of 2006, in both instances he is promoting the ideas that are part of his book "The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life".

MIT Sloan Management Review are providing this article and video series entitled "A Billion Brains are Better Than One". One of the first points that is made is it's not about the technology.

Well, sure, executives and everybody else knows about the new kinds of technologies that keep popping up. But there’s a key perspective that a lot of people don’t really get yet, which is that these new technologies change the essence of organizations.

Moving to the Joint Operating Committee (JOC) is only possible through the use of the new Information Technologies. But the real value resides in the interactions that can occur between people and organizations. When we structure the Joint Operating Committee with the Draft Specification is when we begin to generate that value.

There is also the scope of these changes. Through our review of Professor Carlota Perez we have been able to map the impact that technologies have on the long term economy. Creative destruction is the term that best describes this process of renewal. The Information & Communication Technology Revolution (ICTR) provides the equivalent impact of the industrial revolution. And people within the oil and gas industry can fully participate in this by joining People, Ideas & Objects here.

To a greater degree than any technologies since those that enabled the Industrial Revolution, we’re now in the midst of a transformation in how businesses are organized. And the changes are not in production technology, but in coordination technology.

This is not a short term one off type of arrangement. This is a permanent change in the way that the oil and gas industry will operate and organize itself. I see a 40 year cycle of innovation and iterative development being generated by these communities. That is the scope of the possibilities. Malone notes;

You don’t think the corporate world understands the distinction you just made?

No, I don’t. Most people still think of technology as something that we use to do the same old things, not as something that changes the things we can do in the first place.

and

The change to more decentralized businesses is well underway. I think there’ll be ups and downs. Some companies will go up, down, backwards and sideways. It’ll be a complex process, something that will take place over decades. But it is one of the most profound changes that we’ll see in the first half of the 21st century.

Being part of that change is what gets me up in the morning. We stand at a point in time in which we can participate in positive change. Where the scope of what can be achieved in the next few decades is unimaginable. This can only happen as a result of the full deployment of Professor Carlota Perez "Small Knowledge Intensive Enterprises" (SKIE) or Professor Richard Langlois' "Industrial Districts" or People, Ideas & Objects Community of Independent Service Providers (CISP). Only then can we optimize what Professor Malone says are the benefits of this type of organization.

I go into a lot of the details about this in my book The Future of Work (Harvard Business School Press, 2004). But the short version is that I think we’re likely to see these changes first in the places where the benefits are most important. The benefits of having lots of people make decentralized decisions are that people are more highly motivated, they work harder, they’re often more creative. They’re willing to be more inventive, to try out more things. They’re able to be more flexible when they can adapt to the specific situation in which they find themselves rather than having to follow rigid rules sent down from on high that may or may not apply in this particular situation. And often, they just plain like it better.

and

But in a knowledge-based and innovation-driven economy, in high tech, R&D-oriented industries, the critical factors of business success are often precisely those benefits of decentralized decision making: freedom, flexibility, motivation, creativity.

The question is how do these changes come about. First by becoming a member of this community. Second we secure the necessary funding to support the communities in the long term. These are the themes of which we are writing about here. The current management of oil and gas will not participate in this revolution in which they are not a part of. They have chosen a form of organizational self-selection. These communities appeal to the investor / shareholder in oil and gas. And collectively the People, Ideas & Objects and associated communities provide these investors with the means in which to organize and manage their oil and gas assets.

I actually think the changes will happen more often from new companies, new organizations that are started on a different basis right from the beginning. They won’t always work. It’s not always a good idea. But in the cases where a decentralized way of working actually works better, those new companies will have an advantage. They’ll grow or be replicated by lots of other similar companies. And eventually, the old companies that haven’t figured out how to change themselves will either be acquired or go out of business or belatedly imitate the new ways of doing things.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's MIT Video Change Innovation Community CISP
 

Langlois, Innovation Process Part I

Continuing on with our review of Professor Richard N. Lanlgois, we begin our review of "Innovation Process and Industrial Districts". This is a working paper that was published in January 2008 that deals with what are called "Industrial Districts" (ID) and is his contribution to the book "Handbook of Industrial Districts by Giacomo Becattini, Marco Bellandi, and Lisa De Propris". For the purposes of People, Ideas & Objects, ID's picks up on Professor Carlota Perez' Small Knowledge Intensive Enterprises (SKIE) which as you may recall, our Community of Independent Service Providers are a subset of. In our last few posts we were able to summarize the application of many of Langlois' theories in the Draft Specification.

Key to the success of the Draft Specification is the understanding of what the innovative oil and gas producers competitive advantages are. These are simply the unique asset base they hold and the direct application of the earth science and engineering capabilities available to them. It is considered that some of the engineering and earth scientists would be directly employed by the producer firms, however, there would be a pooling of these resources by the producers represented in the Joint Operating Committee (JOC). This pooling would be augmented by the service industries and a capability resident in the SKIE or ID in the local, regional, national and international communities.

Within an innovative oil and gas industry things will need to change based on the development and understanding of the sciences. Development, identification and analysis of this dynamic capability is what is being discussed in this paper by Professor's Robertson, Jacobson and Langlois.

Typically the Third Italy is dominated by production occurring in industrial districts. The districts are geographically defined productive systems, characterized by a large number of firms that are involved at various stages, and in various ways, in the production of a homogeneous product. A significant feature of industrial districts is that a very high proportion of firms within them are small. A characteristic of the industrial district is that it should be conceived as a social and economic whole. In industrial districts, social institutions are as important as economic. From Dansen and Whittam glossary of terms.

I am familiar with the Italian sun-glass manufacturers "Industrial District". It is in a region of Italy where the population of small towns are organized in a manner described in the definition. Most of the manufacturers and parts suppliers are working out of modified garages in their homes. The article that I read reflected that this enabled the Italians to focus on design and why they are regarded as the top designers. 

I find this paper challenges us in identifying many of the deficiencies and issues that remain unresolved in this proposed community / software development project. Many of the questions that should be asked are being openly discussed in this paper and provides us with the beginning of a discussion that addresses the question of "what's next". How will this community sustain itself and what are its risks and opportunities. Difficult questions and decisions that are needed to be resolved before they are discovered or happened upon. 

1. Introduction.

Innovation is based on the generation, diffusion, and use of new knowledge. p. 1

An appropriate comment and one that brings to mind the difficulties in achieving this within the oil and gas industry. Geography, the different professions involved, the complexity of the business of oil and gas, and the capability of the systems that support the business have to be built to accommodate innovation. What I see is these local, regional, national and international ID's all learning and applying the knowledge that is developed and made available. These ID's are a critical resource that are available to the JOC's and are the means in which knowledge is generated and diffused as innovation.

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

What more could be necessary then the generation and diffusion of new knowledge in the oil and gas industry. This is why the Joint Operating Committee takes on an enhanced role in this systems development, and why the innovative oil and gas producer needs these systems. You can't get there, to an innovative footing, from where the industry stands today. The primary focus of this software development is to enable the innovation that is necessary for the industry to meet the needs of the energy consumer. And that is simply through enhancing the knowledge, understanding, and use of ideas, a community of people focused on solving the difficult issues associated with the oil and gas business.

When accompanied by close social relationships, tight geographical proximity may affect innovation in ways that are less common in more highly dispersed environments. For example, an awareness of common problems can encourage several firms, or their suppliers and customers, to seek solutions, leading to multiple results that can be tested competitively in the market. These outcomes can then be relatively easily diffused among firms in the Industrial Districts (ID) because of embeddedness in a common environment. The obverse of this commonality of inspiration and ease of transmission of knowledge, however, may be an inordinately inward focus that results in an ignorance of or disdain for innovation processes in other regions or in industries not represented in the ID. Furthermore, there may be a relationship between the degree of embeddedness in the industrial district and innovation. It has been suggested that innovation increases as embeddedness increase up to a point, and that beyond that point further embeddedness results in reduced innovation performance at the firm level (Uzzi, 1997; Boschma, 2005). Thus, depending on circumstances, participation in an industrial district can either encourage or impeded innovation. pp. 1- 2

Leaving the question of the appropriateness of the concept of "industrial districts" use in oil and gas. We see the difficulty, or balance and risk associated with too much "embeddedness" and its consequences. In today's fast pace of change, the energy producer needs to be able to move with the developments in the underlying science, engineering and capabilities of the industry. Application and optimization of these to the producers asset base is the activity that generates the greatest value, the enhancement of reserves and productive capacity. Is it critical that a producer has the optimized means of drill bit manufacturing? Application of Industrial Districts or SKIEs is only a further extension of this logic or more defined division of labor.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Langlois Community CISP User Capabilities Development
 

Langlois on Chandler Part I

We move on to a review of Professor Richard N. Langlois and his research's application to People, Ideas & Objects. Langlois' research has been in the areas of the boundaries of firms and markets, modularity, transaction cost economics, the division of labor, capabilities and his "vanishing hand" theories. These are areas that were important in developing the Draft Specification, and as I recently noted both Professor's Carlota Perez and Richard Langlois' research have been critical in the development of People, Ideas & Objects. This review will highlight some of the key areas of Professor Langlois' research, we'll also look at a number of his recent papers that we have not discussed before, and review in detail his slide presentation.

We recently completed a review of Professor Alfred D. Chandler, and what better document to start our review of Professor Langlois then a look at his 2004 essay "Chandler in a Larger Frame: Markets, Transaction Costs and Organizational Form in History". Langlois begins;

In 1977, when Alfred D. Chandler's pathbreaking book The Visible Hand appeared, the large, vertically integrated, "Chandlerian" corporation had dominated the organizational landscape for nearly a century. In some interpretations, possibly including Chandler's own, The Visible Hand and subsequent works constitute a triumphalist account of the rise of that organizational form: the large, vertically integrated firm arose and prospered because of its inherent superiority, in all times and places, to more decentralized, market-oriented production arrangement. A quarter century later, however, the Chandlerian firm no longer dominates the landscape. It is under siege from a panoply of decentralized and market-like forms that often resemble some of the "inferior" nineteenth-century structures that the managerial enterprise had replaced. p. 355

The decline of the bureaucracy is of course the other major economic initiative that People, Ideas & Objects builds off of. Yesterday in our final review of Professor Carlota Perez' paper we defined the scope of the problem facing People, Ideas & Objects and its associated communities as being within our grasp or remaining rather distant. It is these large economic changes, the decline of the Chandlerian corporation, the great surge expected from the deployment phase of the financial crisis, that make the seemingly impossible tasks that we face, possible. Add to these economic times the impact of the Information & Communications Technology Revolution (ICTR) and we see the scope of our ambition may not be that far-reaching after all.

Moving to the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. Is a necessity to deal with the expanding earth science and engineering effort represented in each barrel of oil equivalent. Using the JOC we take the common-sense approach of aligning the bureaucracies compliance and governance frameworks with the legal, financial, operational decision making, cultural and communication frameworks of the JOC. In a world dominated by the network model of organization, why would you not integrate these frameworks in this fashion.

Critical to the success of People, Ideas & Objects is the tacit knowledge held in the user communities and Community of Independent Service Providers. To enable this knowledge requires that it be accessible in more efficient means. Tacit knowledge can not be codified and is resident only within the people who work within the oil and gas industry. Networks and tacit knowledge need to be combined through a software development capability such as that considered by People, Ideas & Objects.

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying our a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. p. 359

In People, Ideas & Objects version of an innovative oil and gas producer. Acquisition of the necessary tacit knowledge is through the marketplace metaphor represented in the Resource Marketplace Module. Langlois also notes the critical nature of tacit knowledge as a competitive advantage.

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints as one 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. Moreover, the costs that can make transacting difficult, and may lead to internalization, can go beyond those that arise in the course of safeguarding against opportunism or damping moral hazard through monitoring or incentive contracts. In such a world, economic activity may be afflicted with "dynamic transaction costs," the costs that arise in real time in the process of acquiring and coordinating productive knowledge. Members of one firm may quite literally not understand what another firm wants from them (for example, in supplier contracts) or is offering them (for example, in license contracts). In this setting, the costs of making contacts with potential partners, of educating potential licensees and franchisees, of teaching suppliers what it is one needs from them, and the like become very real factors determining where the boundaries between firms will emerge. pp. 359 - 360

I have extended this situation to include each participant of a JOC may effectively apply their own strategy to the assets. This strategy may not be known by any of its partners, and indeed, only in unique situations would each producer have the same assets in the region. For example, one producer may have surplus capacity in a near-by gas plant that is their key priority to optimize, whereas another may only have an interest in the producing gas wells.

To Langlois point about the tacit knowledge and the development of capabilities. One of the problems in oil and gas is that technical capabilities are developed within each bureaucracy to deal with any and all contingencies. With BP's current environmental PR efforts, we see that this containment within the bureaucracy is a failed application of capabilities. We need to also consider that the increase in scientific demands per barrel of oil requires more tacit knowledge from a constrained resource. The Draft Specification considers that these capabilities be dynamically generated through the service industry and the human resources of the working interest partners of the JOC. Only then will the future demand on these finite engineering and science based resources approach reasonable levels.

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Langlois Capabilities Chandler Community CISP
 

Perez, Crisis and Innovation Part VII

Today we complete our review of Professor Carlota Perez' February 2010 paper "The financial crisis and the future of innovation: A view of technical change with the aid of history." We continue to discuss the concept of the Small Knowledge Intensive Enterprises (SKIEs) and the implications that will be faced in implementing them in oil and gas. People, Ideas & Objects as a software developer is a member of the SKIEs and we are dealing with exactly these issues here today. That is money and where it will come from. I continue to look to the $3.5 trillion in annual oil and gas revenues as the primary source of funding of all the software development costs and financial resources for the Community of Independent Service Providers.

My experience in having funding sourced from investment capital or banking has been very negative. Talking to bankers and investment houses in the Calgary area; the topic turns very quickly to the revenues that will ultimately be sourced from the oil and gas firms. If we are working to secure the revenues from the oil and gas firms as the first task in getting funding from investment houses, then why would I need the investment house? Without the oil and gas management buy-in to the overall concept, these groups generally don't bite. Therefore, little time has been wasted in trying to generate any investment capital.

Banks understand two attributes of a start-up. One is the revenues that the firm generates. The other, in the case of People, Ideas & Objects, is the intangible nature of the assets in the firm. Intellectual Property without revenues doesn't get you in the door.

I would expect the same type of responses would be provided to any of the members of the CISP, or in Professor Perez' SKIEs. The key point to remember for this project, is that nothing will happen until such time as these communities are supported financially by the oil and gas investors / shareholders themselves. Therefore, that is what I spend my time writing about. This blog has substantial leverage in terms of the number of people who visit it daily. Our growth has averaged a remarkable 25% per quarter in the past year. This is the most effective way in which to appeal to those interested parties that may be capable of support.

Recognising intangible value

Professor Perez notes the difficulty in trying to raise capital for intangible assets. I disagree that this would bear any fruit. However, that has been my experience, yours as a member of the CISP might be different.

Naturally, the most vulnerable of all SKIEs and innovative companies are the start-ups. In the absence of venture capital, they are also the least likely to be able to obtain loans from banks, given the intangible nature of what they can usually offer as collateral. That is one of the reasons why individual “angels” and venture capital funds are the most appropriate providers of funds in those circumstances. They are often as knowledgeable as the innovators in the field of endeavour and can evaluate the likelihood of technological success and the capabilities of the project leaders. They can also complement the entrepreneurial capabilities and judge the market risk and the likely returns. p. 32

The fact of the matter is that without direct revenues being invested by the oil and gas producers themselves, no software and no supporting communities will develop. It is incumbent on these producers to make the investments and develop the capabilities that they will need. Otherwise we will continue to see management in complete control, sort of.

But policy innovations may be needed for stimulating venture capital and/or providing some other forms of direct or indirect support for innovators. p. 32

and

Whichever solutions prove to be practical, as knowledge capital becomes more prevalent, society will have to find a way of evaluating and recognising it. p. 33

Until such time as the oil and gas producers actively support this project and its communities no work will be done. Asking these communities to "put some skin in the game" is a ridiculous request. If the producers can't see any value now, then adding some volunteered time from the community will do nothing to help their focus. Let me repeat, the oil and gas industry is a $3.5 trillion / year industry. That is our initial source for funding, and as far as I'm concerned, the only viable source of funding.

Providing continuity of support along the life-cycle

It is important to keep our eye on the main point of this, up until now, exercise. It is about innovation in the oil and gas industry. An industry that is constrained by its bureaucracies. An industry who's product is the life-blood of the global economy and who's scientific demands per barrel of oil are escalating in a non-linear fashion. Having a handful of people contribute some volunteer time will not solve this problem. The scope of the problem can't be solved by some investment house or gracious banker. This needs the full and willing support of the oil and gas industry in order to be successful.

It is true that innovation requires patient capital; it is equally true that it needs continuity of support. Although it has been shown that the linear model of innovation is not valid, that the continuous flow from science to technology to engineering to innovation only holds in a few cases, there is indeed a sort of “linear model” from innovation to stable success. p. 33

And here is where I disagree with Professor Perez. Only the oil and gas industry will benefit from these direct investments in software, software development capabilities and supporting communities. Only the oil and gas industry with their $3.5 trillion annual revenue streams have the resources necessary to approach solving their problems.

However, since many research directions are uncertain and there can be serendipitous discoveries, it would be unwise to insist on a direct industry interest in all possible research projects. pp. 35 - 36

and

In finance, in particular, both the private and the public sector will need to modify or create new instruments in order to tailor them to the nature of the changing needs of innovators. Viewing networks as valid interlocutors, recognising and learning to assess intangible value, providing adequate and continuous life-cycle support and strengthening local R&D for present and future needs is in the national interest of each country and in that of the business community located on that territory. p. 37

So here we stand once again. Within grasp of solving this paradox, or another 100,000 miles to travel. Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Perez Funding Community CISP Management
 

Perez, Crisis and Innovation Part VI

In a number of previous posts we briefly discussed Professor Carlota Perez concept of the Small Knowledge Intensive Enterprises (SKIEs). How this concept captures the Community of Independent Service Providers that are critical to the success of the oil and gas producer and People, Ideas & Objects software developments. This post deals exclusively with the topic of SKIEs and therefore accurately details the problems that our communities face. Through out her writings Professor Perez has consistently argued the need for a different point of view. A point of view of how things need to be structured in order for the deployment phase to be realized. Whether that is realized through enhanced government or business involvement is unknown at this time. What is clear is that these problems are what we face in building this software and are unaddressed by the current bureaucracy.

My argument that the management in the industry has been overly critical of the service sector is also a part of this discussion. During the 2007 - 2008 period we heard management complain that service industry costs were escalating excessively. Some companies went as far as to state that the service providers were gouging their clients. This in an environment where the oil price was $147.00, whom was really getting greedy. In retrospect, I think that the majority of these cost increases are attributable to management's inability to see the increased effort per barrel of oil.

The other area that I would raise that is directly on point with Professor Perez' discussion. Is the fact that the energy producers collect 100% of the funds for the primary and secondary industries involved in oil and gas. This does not entitle them to hold these resources from the service industries when the times get difficult. Cutting back on field operations has consistently been damaging to the ability of the service industry to fulfill its supporting role. People have been unwilling to see the oil and gas industry as a steady employer. They also see it as a boom-bust cycle where the hours demanded are excessive and the boom cycles introduce inexperienced field personnel to dangerous situations. The oil and gas producer should analyse the damage that occurs as a result of their turning on and off the financial support for the service industry providers.

Another behavior of the oil and gas companies is the ostracizing of those with alternative ideas. I have proposed a common sense approach to resolving the issues I see in oil and gas. An approach that strikes directly at the heart of the bureaucracy and renders them redundant. I am surprised at the scope of the efforts that have aligned against me. As we move into a world of ideas it is important to remember that ideas have consequences. And those consequences are not necessarily positive for all concerned.

SKIEs, SMEs and networks

Today's discussion extends these well known behaviors of the oil and gas companies. And applies them on a pro-active basis based on the future demands of a dynamic and innovative oil and gas industry. I think much can be learned by Professor Perez research and her development of the SKIEs as a critical resource. I think this is an area where industry should take detailed notes.

In this first quotation it is important to note that People, Ideas & Objects assumes that the innovative oil and gas producer is concerned with their earth science and engineering capabilities. And these capabilities as they are directly applied to the producers asset base. The remainder of the functions that are currently handled by the firm and marketplace are moved substantially to the marketplace in the Draft Specification.

There are at least two major consequences of the fact that the global corporations and the large firms increasingly achieve flexibility and higher competitiveness by outsourcing a significant part of the peripheral and of the highly specialised (non-core) activities. This practice is bound to result in much greater proportions of (1) the working population receiving irregular incomes and (2) the part of the economy without a cushion to withstand downturns. These problems directly affect general economic policy and the social security model while they indirectly condition innovation policy. pp. 30 - 31

The bureaucracy might argue then that they will provide for the field operations themselves. That all aspects of the field operations can be conducted by their company. In 2007 this strategy was also employed by some of the larger companies by buying drilling rigs of their own. It should be clear to anyone outside of the bureaucracies that these types of operations are destined to fail. Eventually the company would need to conduct their own research in drill bit manufacturing as a result of the entire secondary support industries leaving the energy industry. What Professor Perez brings to the table is a discussion based on the reality that the future will involve many smaller companies, not more bigger companies.

A much higher proportion of small units in the economy, taking care of a greater share of employment as well as of profits and national product, will require similar stabilising instruments to those discussed above and possibly new insurance schemes tailored to those special needs. p. 31

When we discuss the dynamic capabilities of the oil and gas industry as a whole. We are talking about the intangible nature of the services that are provided. The oil and gas industry fully understands the intangible nature of the industry. Most if not all costs of drilling a well are intangible services or unrecoverable costs. The category of costs that this project is concerned about, the CISP and People, Ideas & Objects software development costs, are going to be added to the dynamic capabilities of the oil and gas industry. These costs, like those in the secondary industries, can not be turned on and off without serious degradation and long term damage to that capability.

With the exception of companies specialising in biotech or nanotech or special materials, which may need high precision equipment, the other high cost is usually also intangible. It is the specialised software and the information services that they need to acquire to perform their job. Not meeting any of those payments can mean losing irreplaceable personnel or cutting-off the lifeline services. p. 31

The use of People, Ideas & Objects software application are free to the user communities and particularly the CISP. This however does not eliminate the argument that the producer firm will need to support the software development and cloud computing infrastructure on a go forward basis. With annual costs ranging in the $600 million to $1 billion for development and infrastructure, and several billion for the CISP, these costs are beyond what the industry has otherwise been willing to expend. However, it should be noted that the oil and gas producers are collecting over $3.5 trillion in annual revenues on oil and gas sales.

Innovative firms suffer from that problem in various ways. Specialised suppliers of Global Corporations (GCs) are expected to constantly do minor improvements and sometimes more significant ones. It can be that the user company is a partner in the innovation and jointly funds it with the supplier (it can also be a group of users) or that the supplier takes the initiative and seeks the funds. There are also suppliers whose speciality is to do development work i.e. they are innovators under contract. All those cases and many other situations can involve periods of no receipts at all (depending on the funding or contract arrangements) and also the risk of unpredictable delays. Of course, SKIEs are high profit companies and under normal circumstances would have reserves for these situations. But new forms of insurance and running lines of credit will need to appear as the number of companies with these characteristics grows. pp. 31 - 32

Much of these costs may currently be hidden in the services that are provided by employees in oil and gas companies. Employees that in this very near future will be deemed not core to the producers capabilities and asset base. And therefore become active members of the CISP.

It might be interesting to look at the network as the possible route to solving many of these new (or intensified) needs of small companies. There is already a tendency of similar companies to flock together to gain advantages of scale for certain activities that can be funded jointly such as training courses, international marketing, specialised software development, etc. The idea of collective insurance of groups of companies –in a sector or in a region– or even networks of networks, in order to increase the volume and reduce the risk premium could be an adequate direction to explore. p. 32

Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Perez CISP Communities Capabilities
 

Perez, Crisis and Innovation Part V

In this next installment of our review of Professor Carlota Perez' paper "The financial crisis and the future of innovation: A view of technical change with the aid of history". She paints a clear picture of where we're headed in terms of economic performance. And the financial situation as it stands at People, Ideas & Objects and associated communities. I recall that Milton Friedman once stated; "Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."

People, Ideas & Objects have taken a good idea in using the Joint Operating Committee, developed it fully through application of academic research, and published a vision, the Draft Specification, of how the oil and gas industry could operate. When I look around for new ideas that might compete with People, Ideas & Objects I am unable to discover any. Since these are the only ideas that are being contemplated for the oil and gas industry I fully expect they will be taken-up by the industry. Otherwise, based on the financial crisis, our current debt crisis and the looming "capabilities crisis" in oil and gas, the industry will have to come up with its own ideas. The problem with doing so will be the time necessary to fully develop them and impart a vision in which people can rally around. This process took People, Ideas & Objects seven years to complete. We are at the point where the Draft Specification is almost two years old and the communities development has been undertaken since then. I don't believe the industry has the time to come up with its own ideas. They should therefore begin financially supporting People, Ideas & Objects and the Community of Independent Service Providers (CISP).

THE POLICY CHALLENGES: Taking the paradigm and the period transition into account

Professor Friedman's message is the same message that Professor Perez echos in this section of her paper. The presence of the beginning of the deployment phase is an opportunity that is available to anyone in oil and gas who wants to participate. Now is the time and People, Ideas & Objects is the opportunity.

Institutional restructuring is what would really unleash a healthy period of prosperity, fundamentally different from that of bubble times. Whether and how such a redesign is done on the national and supranational levels, the likelihood of a successful outcome is much greater if the debate is on the table from early on and if enough concrete and viable proposals and innovative solutions are there when the decision makers are ready to act. p. 25

The Joint Operating Committee is the industry standard means of operating in the global oil and gas industry. The geographical scope of the People, Ideas & Objects application modules will be determined by the CISP in their initial analysis. Producer firms representing specific geographical areas of interest should insure their participation in the CISP and People, Ideas & Objects is substantial enough to influence the scope decisions are made with those regions included. Waiting is unproductive.

Waiting is also unproductive for those people who want to participate in the CISP. Generating a service based offering at this time in many people's life is counter to the dreams of many. Retiring and living off of one's investments is clearly not going to happen to the majority of those working in the oil and gas industry today. It's here that Professor Perez picks up an interesting and valid point of what needs to happen in the deployment phase.

The motto of ‘don’t work for money, let money work for you’, so popular in recent time, needs to sound completely unrealistic in a world where economic policies, be they regulatory, fiscal, monetary or whatever, resolutely favour working for money –and making abundant profits– through innovation, investment and job creation in the real economy. p. 25

Things have changed, and that is represented in the volumes of debt that countries, companies and individuals are carrying. This debt was accumulated because the old ways were no longer working and carrying the weight of the economy. To keep the illusion rolling along therefore required that money needed to be borrowed. These are all symptoms of how these changes require us to look at the future differently.

The safest way to approach the financing of innovation in the deployment period is to assume that the instruments that worked in the installation period [1970 - 2000] may now be inadequate. p. 29

This discussion maps out a rather robust future. But we are not there yet. As our 2010 budget drive proved, the management in oil and gas will not fund these communities and software developments. These service based offerings are not going to form until there are the necessary resources to make these alternatives real. The investor / shareholder in oil and gas is being asked to fund the development of these communities and software developments. So that they, the investor / shareholder will have the infrastructure necessary to replace the current management and operate their assets in the most profitable manner.

The opportunities for innovation are manifold, both in existing companies and for new ones, if the potential installed in the territory (and in the minds) by ICTs and their organisational paradigm finds a favourable financial and regulatory atmosphere in which to flourish. p. 29

Of the things that we do know is that oil and gas is unique unto itself. No other industry is configured in the same fashion. To proceed with building the industries infrastructure requires that software be built to identify and support the Joint Operating Committee. This is a given in the advanced economies that we find ourselves in.

But innovating within a paradigm is much easier and less risky than doing so using the paradigm in another sector. This was learned by the venture capitalists in the 1990s when they tried to apply the same criteria and expectations to innovators in biotech as to those in ICT; both sides ended up frustrated and disappointed. pp. 29 - 30

Professor Perez introduced her SKIEs in our previous post. These accurately reflect the CISP in this discussion, and it is the CISP, as a subset of the SKIEs, that require the funding necessary to develop. If it is not the oil and gas investor or shareholder that supports these communities development, then whom. The bureaucracies have had the opportunity for the past seven years and have chosen to do nothing. Now these bureaucracies are beginning to fail, leaving the oil and gas shareholder / investor being the one who loses.

A large set of innovative opportunities is in the area of small knowledge intensive enterprises (SKIEs), where the intangible nature of the products and of the human capital involved presents complex issues for the traditional methods of the financial system. p. 30

The remainder of our review of this paper will focus on the development issues of the CISP and SKIEs. Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Perez Innovation Management Funding Community CISP Economics Ownership-Community