Where is IT heading

Apple announced its forth quarter earnings yesterday. I think these earnings show that the demand for IT systems is very strong. Strong growth in all product lines provides a confidence in the recovery of the economy. The global recession has certainly abated for Apple, but is there more to these financial results? Is there more that can be imputed about the general economic recovery?

We can thank Professor Carlota Perez for pointing us to the fact that the old economy was becoming progressively more inefficient. And that this inefficiency would lead to a decline in the engines that drive the economy. This fact is generally agreed to by most, and that change is in the air from an economic point of view. But more importantly is her highlighting the role of Information and Communication Technologies (ICT), in providing the real value generation of the near future.

Perez stated simply the Information & Communication Technologies are the engine that will bring the world economy to an entire new level of performance. A level where the problems of today will pale in comparison to our opportunities. That we will experience an increase in general quality and standards of living. I like to think we are at a point in time that parallels the industrial revolution, which we are. But instead of mechanical leverage we are leveraging intellectual thought and ideas. An opportunity that will take us many decades of increasing productivity and quality of life.

The New York Times ran an article that speaks to these opportunities.

Much depends on how the nascent revival in the technology sector plays out. Computer hardware and software are building blocks of the modern economy, as basic as iron ore and coal were to the industrial era. Together, technology products represent about half of all business spending on equipment.

John T. Chambers, chief executive of Cisco, was even more bullish recently, predicting a substantial increase in productivity at American companies driven by investments in Internet software and hardware. “I think we are entering a period very similar to 1997 to 2004, where you’ll see a decade run of productivity increases,” he said in an interview.

And for the oil and gas industry that is what People, Ideas & Objects is about. The Users, Producers and Developers that are involved in this applications development. We'll be able to incorporate the never ending productivity initiatives into the software. Making the producer firms benefit by being the most profitable operations through the use of this software and Community of Independent Service Providers. Please join me here.

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Nobel to Oliver Williamson

The Nobel Prize was awarded to Elinor Ostrom and Oliver Williamson this morning. I can't think of anything that puts the People, Ideas & Objects community inline with the current thinking of the economic community. I am elated. I am not aware of the work of Elinor Ostrom and I will look into her work to see if it applies as directly as Professor Williamson's does. I have two blog posts on Oliver Williamson's work and the one paper I reviewed "Introduction to Transaction Cost Economics" which provided strong grounding for the Draft Specification. I also have 7 other papers of his sitting in the hopper waiting to be reviewed. I'll certainly bump these up in terms of priority as to when I will approach them.

Noteworthy among today's accolades are the following.

From CATO

Both Ostrom’s work on governance institutions and common-pool resources and Williamson’s work on governance institutions and the transactional boundary of the firm contribute meaningfully to our understanding of how individuals coordinate their plans and actions in decentralized, complex systems.

From The Wall Street Journal

“According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. When corporations fail to deliver efficiency gains, their existence will be called in question,” according to information on the research released by the Royal Swedish Academy of Sciences. “Large corporations may of course abuse their power. They may for instance participate in undesirable political lobbying and exhibit anti-competitive behavior. However, according to Williamson’s analysis, it is advisable to regulate such behavior directly rather than through policies that limit the size of corporations.”

and

Ostrom’s work also has something to say about regulation: “The main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders — both politicians and social scientists — have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.”

From the Calgary Herald

"Since we have found that bureaucrats sometimes do not have the correct information while citizens and users of resources do, we hope it helps encourage a sense of capacity and power," the professor told a news conference via telephone.

and this quote that takes People, Ideas & Objects to the mainstream and away from the "fringe".

"Over the last three decades, these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention," it said in a statement.

and

"Are there relationships between the Fed and the banking sector, on which it has such a significant influence, that haven't been thought through as fully as they might in organizational terms?" he asked.

Much of their theories were used to prove the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. Specifically noting that the natural "boundary of firm and market" is best represented in the JOC being the market. I'm dissapointed that I was only able to review one of Williamson's papers. My favorie quote from his paper is as follows.

Ronald Coase's 1937 paper on "The Nature of the Firm"expressly confronted an embarrassing lapse: whereas the distributing of activity between firm and market had been taken as given by economists, the boundary of the firm should be derived from the application of economic reasoning to the make-or-buy decision. pp. 15 - 16

Please join me here in this worthwhile, and now "mainstream" project.

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Industry Management of Intellectual P...

I want to stress or highlight a key point of the Draft Specifications assumption about the producers competitive advantage. The physical assets, reserves, leases and the capabilities in exploiting those assets are the sustainable competitive advantage that producers are interested in. A producer organization focused on building value, using the Joint Operating Committee (JOC) as the key organizational construct, can employ the right strategy for that JOC. There is no need to have a corporate strategic compromise now practiced in most firms. The strategies of the various producers within the JOC do not have to be, and probably never will be the same. Many producers have different asset mixes, costs and dynamics within each JOC. They are each free to pursue their strategy without creating conflict within the JOC.

In addition the energy producers need not own can not own the intellectual property of how the industry conducts its operations. The service industry is best able to work with the producers to innovate and develop the tools and methods necessary to optimize the discovery and production of oil and gas. Does it provide Duverney or BlackPearl with any value to have developed and patented the most innovative drill bits? Of course not, if they had developed their own drill bits they would probably be in bankruptcy instead of sold for many billions of dollars.

Is the CFO of a producer firm going to come up with the next great innovation in drilling technology. How about the CEO, will he finally prove his theory about the physics of oil and gas accumulation? No. If they were they're not doing their jobs. And as Duverney and BlackPearl have shown. Their job is in applying their understanding of the science to the assets they own, and building their production and reserves.

Who is going to "break their pick" on the next drilling technology. Who is going to discover the next organizational structure that supports the innovative producer. These innovations can only be discovered and built based on the scale that has the entire energy industry benefiting from them. To have them within one producer does not provide the motivation for the individuals to break their pick doing so. This is why the Draft Specification has developed the Research & Capabilities Module and the Knowledge & Learning Modules.

I see Canadian producers involving themselves in the business of their suppliers and service operations. When Encana purchases its own rigs when there is a rig shortage, that only stops anyone taking the risk of building new rigs. The message is the oil and gas company will involve itself in direct management when the service industry is unable to provide the needed services. This too is a direct symptom of the attitude that the Intellectual Property of the oil and gas industry is not developed or owned by any group or individual. This is the wrong type of thinking and it needs to stop. Please join me here.

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MGI on Global Financial Markets

The McKinsey Global Institute is the research and development arm of McKinsey Consulting. (Registration Required) They have published "Global Capital Markets: Entering a New Era".

MGI’s mission is to help leaders in the commercial, public, and social sectors develop a deeper understanding of the evolution of the global economy and to provide a fact base that contributes to decision making on critical management and policy issues.

To suggest that I am overwhelmed by the scope of the economic problems that we face. Is something that I would never have believed possible. I'll leave it to those that want to review the paper to do so, however, it is stark. My "job" here at People, Ideas & Objects is to make the ideas compelling for like minded individuals to organize and act. I call on the shareholders of the existing oil and gas firms to build the software discussed in this blog. To act in financing the building of the application modules in the Draft Specification. As Paul Romer recently said in terms of his Charter Cities initiative, "All that holds us back is a failure of imagination."

After 12 months of the global credit crisis, it is easy to see the difficulties that continue in the marketplace. In reviewing this MGI document it is clear that serious problems remain. My own opinions are not of importance, but it really seems that we have been using debt to fuel the western lifestyle for the past 20 years. To find the value that should have been generated during this past 20 years, is a lonely and difficult task. I see the bureaucracy as being the main culprit here. Accusing the bureaucracy is somewhat self serving for me to say, but I don't see any value being generated through this archaic form or organization. Continuing on in the fashion that we are, shows me that we will be challenged in keeping the global economy moving forward. 

I leave you with a few select and sobering quotes.

Going forward, our research suggests that global capital markets are entering a new era in which the forces fueling growth have changed. For the past 30 years, most of the overall increase in financial depth—the ratio of assets to GDP—was driven by the rapid growth of equities and private debt in mature markets. Looking ahead, these asset classes in mature markets are likely to grow more slowly, more in line with GDP, while government debt will rise sharply. An increasing share of global asset growth will occur in emerging markets, where GDP is rising faster and all asset classes have abundant room to expand.

Given the decline in asset values and growth in debt, we see that leverage in the global economy has increased during the financial crisis rather than declined. This is true for many households, governments, banks, and some segments of the corporate sector. In aggregate, the global debt-to-equity ratio nearly doubled, jumping from 124 percent in 2007 to 244 percent by the end of 2008. This raises the vulnerability of the global economy to further shocks. It also indicates that the long process of deleveraging in the private sector has at best only just begun, and in the public sector has yet to begin.

One of the most striking consequences of the financial crisis was a steep drop-off in cross-border capital flows, which include foreign direct investment (FDI), purchases and sales of foreign equities and debt securities, and cross-border lending and deposits. These capital flows fell 82 percent in 2008, to just $1.9 trillion from $10.5 trillion in 2007 (Exhibit 7). Relative to GDP, the 2008 level of cross-border capital flows was the lowest since 1991. This created turmoil in the global banking system, causing severe liquidity crises and hurting borrowers dependent on foreign loans. It is unclear at this writing how quickly these flows will recover.

Although the crisis started in the United States, it followed multi-year borrowing expansions in many other countries as well. Total global borrowing—comprising all loans, forms of credit, and debt securities—rose by 70 percent from 2000 through 2008, to $131 trillion. Not only has the recent credit market turmoil nearly stopped this growth, but it has set the stage for a long process of debt reduction going forward.

Many parts of the economy will need to be rebuilt. Oil and gas is rebuilding around the Joint Operating Committee and the vision of the Draft Specification. Please join me here.

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Revisiting Professor Carlota Perez

I've had the fortune to once again stumble upon the document that introduced me to Professor Carlota Perez work. Strategy + Business published "The Thought Leader Interview" back in November 2005. This article sticks in my mind constantly. Her analysis and conclusions resonated with me then and have only become more valid as a result of the credit crisis. I have to say she was able to clearly identify the risks to our economy, and accurately lay out the implications that we were to face.

Early on in the interview Perez is able to effectively communicate her long wave economic theories in a short and precise manner. The far reaching consequences of the transition from one era to the next, in which she calls for the Information and Communication Technologies to drive the growth of our economy.

S+B: On the airplane here, I read two articles about the future. One predicted economic clear sailing and the other foresaw crisis and collapse.

Perez: They’re probably both right. We may well have a jolt or two in the near future, and then a great boom probably lies ahead. But the Nasdaq collapse of 2000 was not big enough to force the changes necessary to get there.

S+B: For people who lost their retirement savings, that’s a difficult statement to hear.

Perez:
I couldn’t agree more, but that’s the price we’ve historically paid for our ability to reach great booms. The collapse has to be disastrous enough to make it clear to everyone that the time when the stock market drives the growth of the economy is finished. Finance capital has done its job; it’s brought forth the resources to pave the way for the next wave of technology. Along the way, it’s created an environment in which companies like Microsoft, Intel, and Google could emerge and flourish. Now we need to spread out the new paradigm of our era through all the economies of the world, just as in the past.

The comment that she made about the "collapse has to be disastrous enough to make it clear to everyone" leaves the reader with the need to determine if the credit crisis was it. I don't think so, governments have propped the economy up with over $12 trillion in stimulus. As a result many on Wall Street, and particularly the bankers, have assumed its 2007 all over again. I see substantial change in the consumer and small business areas. Where cash is king and they are planning on rough seas for many years to come. Governments and big business seem to think that moral hazard is the new era on which to base their economic future. This folly will soon reveal its true value.

It's been four years since Perez was interviewed. It is also the amount of time that I have spent researching and communicating the vision of using the Joint Operating Committee in the oil and gas industry. Four years of rather obscure and difficult work that in most economic environments would not see the light of day. Perez' analysis was able to provide me with the confidence that these events would happen and therefore the need for the change to the JOC would materialize. As a result I believe that with the Preliminary Research Report and over 300 papers I have reviewed through this blog. The oil and gas industry can benefit from well over five years of difficult research and development of a vision that is technically and economically sound. Or as Perez states, a new common sense.

S+B: And organizations are different as well?

Perez:
Yes, each surge brings with it a new organizational paradigm, new best practices, a new “common sense.” No one today would propose a centralized, rigid, top-down organizational structure, where you cannot communicate across functions except through your bosses, but that was precisely what Alfred Sloan set up at General Motors, to great advantage at his time. With today’s communications and flexible technologies, agile creative networks make more sense and lead to much more productivity.

One of the key attributes of any change is going to involve the movement of financial resources. There is a large community of potential users that will be involved in building the People, Ideas & Objects application modules. And there is going to be a very large Community of Independent Service Providers (CISP) that earn their living from either People, Ideas & Objects application or in their own service based offering to the oil and gas producer. People, Ideas & Objects will use the Intellectual Property developed through this blog and represented in the Draft Specification to secure the finacial resources from the oil and gas producers. These funds will then be distributed to both the User and the CISP communities. Perez notes the need for these "business innovations" in her 2005 interview.

Fourth, there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here’s one small example: Millions of self-employed entrepreneurs work from home with uneven sources of income. Where are the financial instruments to smooth out their money flow so they can work and live without anxiety? For them, that innovation could be the equivalent to installment credit in the 1950s, which made possible the consumer base needed for mass production.

Lastly, we need to act.

S+B: Then why not simply wait for it to emerge?

Perez:
Because left to itself, it might not happen. Historical regularities are not a blueprint; they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost.

Please join us here. And for more information on the soaring reputation and work of Professor Perez and her ideas, here are two resources that provide good summaries. (Reason Magazine and Business Week.)

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A call to action.

John Hagel and John Seely Brown are two authors who's work I reviewed in the Preliminary Research Report. They have consistently shown the direction that business should be moving towards. Their message has been somewhat controversial due to the focus on technologies impact. With the luxury of time we can see they are in tune with the needs of business and have added value to those that listen.

Finding those that will listen may be the difficult part. I see their message being broadcast over the heads of management to the people who are in the know, that things are not working quite right anymore. In a blog post, John Hagel has itemized a call to action for those people to deal with the situation they are in. I think they are on message and add some value to those that will listen.

It's important to remember that this situation is unique in terms of it's point in history. We have reviewed Professor Carlota Perez work that says the economy today is the result of a long term trend that has shown a consistency in each of the five previous events over the past 300 years. The old is being replaced by the new. The new is being facilitated by the Information and Communication Technologies (ICT) which enable new ways of organizing.

Professor Perez has documented the changes that have happened in the prior 300 years. In addition to the industrial revolution we saw affordable and abundant steel impacting the strength and capacity of ships. How the canal system in Europe provided an increase in trade. All disrupting technologies that brought prosperity to the world.

This blog post of Hagel & Brown intimates the future is ready, waiting and looking for the people who are needed to take it too the next level. I recommend you review this post closely, and if your involved in the oil and gas industry, please join us here.

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Fate is in our own hands.

That is the conclusion from the National Journal. They conducted a poll of American attitudes towards the future state of the economy. As the Wall Street Journal states;

Seven in ten Americans say that “when the U.S. economy recovers, the way the economy looks and works will be very different from what it was before the recession,” according to a new poll. Baby-boomers, in particular, see it that way, pollster Ed Reilly said.

We also need to understand the budget and control of the oil and gas industry is in the hands of the bureaucracy. The bureaucracy has effectively removed me from pursuing this software development project in an effective way. I have had no support for these ideas over the past six years. Working from outside the industry, while the bureaucracy lined their pockets, I have been able to complete this work and began the process of making the changes in "the way the economy looks and works" for the energy industry.

It is critical to remember the bureaucracy will not give up there control of the industry without a fight. At times I find it frustrating that I wrote the Preliminary Research Report in May 2004. over five years ago and they have denied me at every inch. Those that participate in this development need to know that their identity will not be visible to the public. Based on the past behavior it is reasonable to assume that the bureaucracy will treat any and all participants in the same manner that they have for the past six years. The Wall Street Journal notes;

The poll also found significant skepticism towards government and business, a reflection, perhaps, of the anti-establishment attitude spurred by the recession and financial crisis.

and 

The pollsters asked Americans what they think is the best way to increase their own opportunity — their efforts, the government’s efforts, or companies’ efforts. Some 40% said their own efforts were the most important.

and

The poll, the second in a series, found American see “More promise. But also more peril,” Ron Brownstein, political director of Atlantic Media, a sponsor of the poll said. “Americans believe they are living in an economy of greater volatility that generally offers them more opportunity — but also leaves them exposed to greater risk, with few dependable allies from government or business to help them cope with it. On a turbulent sea, many Americans see themselves swimming alone.”

Fate is in our own hands. The opportunity is substantial. The risks to everyone are serious. Pleases join us here.

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China's energy consumption

Rebecca Wilder has one of the most interesting blogs on the Internet. Her passion for economics, writing and prolific chart production provide unique insight and perspectives on the economy. She recently published this graph that I think identifies one of the most difficult issues we will face in the next few years.

The problem of course is the future demand for energy. China's consumption is already amongst the highest in the world. This is evidence demand will continue on a rather aggressive trajectory for the next few decades.

The energy industry is ill prepared to meet this challenge. That is what this software development project is about. Preparing, by first organizing, the producers to address this challenge. Organizing around the Joint Operating Committee, the legal, financial, cultural, communicative, and operational decision making framework of the global oil and gas industry. Building the software to define, align and support the People, Ideas & Objects of an innovative energy industry.  

If we leave the problem in the hands of the bureaucracy we will continue to fail. Please join us here. 

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McKinsey, Bryan and Rumelt Part lll

This is the third and final installment of the McKinsey Quarterlies podcasts from Lowell Bryan and Richard Rumelt. I have taken the two previous podcasts and applied them to the work that is being done in People, Ideas & Objects. In Part l the authors noted the current tendency to think that clear sailing is the normal or optimal operating environment. As they were able to clearly communicate, clear sailing avoids the risks and dangers that need to be addressed in the economy. In Part ll they relate to the "markets" magic healing powers that preclude anyone or company from taking any action or responsibility. Noting the tendency for people to suggest that the bigger problems are not their responsibility, and the market will take care of it.

Part lll takes the conversation to the operating strategies that people can use to optimize their future. Change is happening at a remarkable rate. Much of the change is being forced upon us as a result of the failures brought on by too much clear sailing. Information Technology plays a big part of how I see we rebuild our economy.

It is also interesting to note the level of discussion that is taking place regarding the role of government in the economy. Some interesting points of view are here, here and here. I would also turn your attention to Professor Carlota Perez' earlier work this decade. She was instrumental in predicting the scope and scale of our economic collapse. And how this period of economic renewal is a constant in our economy for over the past 300 years. One of her very pertinent points was the role of government would need to be "redefined" in an innovative and creative manner. 

I have thought about her point of a new role for government for the past number of years. Particularly from the point of view of this software development project. Software defines and supports the organization. We currently see social networks coming into play with the power of connecting like minded people. Software defines and supports not just organizations, but society as well. Just as roads, bridges, communications and infrastructure fall in the jurisdiction of the government. Software as infrastructure provides value to all that live within the society by reducing the shared costs of living in that society, and enabling access for personal and commercial purposes. I think governments need to realize this enhanced role in the new economy.

With that preamble in mind I turn to the document at hand. Bryan and Rumelt note;

If we look ahead a bit, you can see the health care system we have, if we extend it to a larger group of the population, or everybody lets say, its going to bankrupt us, so something is going to give. The strategist is someone who has an idea about what is going to give or about reshaping it. That's how your going to create value. 

This project is about a strategy of how to rebuild the oil and gas industry. An industry which is beginning to show the failures of clear sailing. The current motivation and ability to approach the new science and engineering basis of the innovative oil and gas producer is in question. I am not predicting the future, only suggesting that research shows the Joint Operating Committee provides the appropriate posture for an innovative organization. We must move to the JOC as our opportunity for the future. 

The future lies in the collective hands of the user group that defines, uses and controls this software development. User driven software development is the only method that can assure what the authors say should be the proper posture.

How to prepare to be resilient and flexible no matter how this environment turns out. 

and

Fortune favors the prepared mind.

Soon the economy will force the hands of the people who are now working in the oil and gas industry. People, Ideas & Objects will be here for those people who know the bureaucracies days are over. It doesn't require a lot of vision to see the bureaucracy can't and won't make the transition to the future.

You have to find a wave of change that you can exploit and ride it with skill. Its not about having lockstep plans, its about figuring out which forces we can harness or ride to our benefit. 

Please join us here.

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McKinsey Bryan and Rumelt Part ll

In the second audio installment of this series. Bryan and Rumelt discuss the U.S. government's approach to the economic crisis. Their discussion provides a sound basis of looking at the situation we are in, and provides an understanding of the problems and solutions. The final three paragraph of this discussion captures the issue better then I have seen anywhere else.

Milton Friedman, when he studied the Great Depression, had a very interesting take. Everyone thinks of Milton Friedman as this big free-markets guy. But his explanation of the Great Depression was that the Federal Reserve didn’t do its job.

And his explanation of why the Federal Reserve didn’t do its job is interesting. What he says is, the New York banks used to self-regulate themselves when there were credit crunches and runs on the banks. They would get together, and they would more or less agree, “Here are the rules. Here’s how we’re going to handle this crisis.” He said once the Federal Reserve came into being, they stopped doing that. They sort of expected that the Federal Reserve would do it.

And so the institutions and the habits, the whole structure of that self-regulation went into disrepair. Then when the crisis hit in 1929, 1930, that institutional framework didn’t exist, and then the Federal Reserve sat on its hands. And I think something like that is also a way of looking at what’s happened recently. Wall Street could have self-regulated, but it chose not to. And Washington chose not to. And so no sober adult was in charge of these things.

Coming at this problem at a slightly different angle, so much is expected of the "market" to solve these bigger problems. When regulators think that it is their role to avoid the problems. It eliminates the need for the companies to involve themselves of the larger issues. Ask an oil and gas company today what responsibility they have in meeting the market demands for energy? Or, should they allow the service industry to deal with the complete cut-off of funds and force them to cannibalize their operations again? The answer you'll get back is that these are not my problems, the market will figure it out. And as a result we go through another period where we will have to rebuild the service industries to meet the needs of the producers. 

In the Resource Marketplace, and Research & Capabilities Modules of the Draft Specification. I attempt to resolve this situation. By providing the producers, represented in the JOC, with a window on the service industries. Giving the producers a means in which to have the innovations and developments of the earth science and engineering disciplines be extended through to the service industries. Extending the producers organization in a manner that could eliminate the feast or famine cycle they induce in the service industry. Just because the producer receives 100% of the proceeds from oil and gas sales. Does not entitle them to expect the service industry will source all of their capital and ideas from elsewhere. They form too critical a part of the industry to hold them ransom each time their is problem at the producer level. 

In a recent article in the Financial Post that reflects the final resolution of ignoring the larger issues. Henry Sykes, President of MGM Energy Corp in Calgary talking about the delays in the Mackenzie Valley Pipeline says;

"This is an embarrassment to the country -- this project, the regulatory system … and yet nothing is happening," Mr. Sykes said in an interview."While I remain optimistic that there will eventually be a pipeline, I have given up predicting timing. Between the regulatory process and the fiscal negotiations, I think this has taken far too long.

If you agree the industry needs to begin to deal with these types of issues. That there are larger unaddressed issues to be resolved, please join us here.

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McKinsey: Bryan and Rumelt, Part l

It is astonishing to me the pace and depth of research and articles that McKinsey are producing in this current economic crisis. And in suggesting that the scope is limited to the current crisis would be short selling the leadership that McKinsey have provided since at least 2005. I began writing this blog at the end of that year and have published 54 other McKinsey article reviews since. All of these being of the highest quality of input that I have been able to find.  

UCLA Professor Lowell Bryan and McKinsey Director Richard Rumelt talk about the strategies needed to address these financial difficulties. And in the introduction it is noted as to how we found ourselves in this financial crisis. 

Factors that lead executives to take huge unsecured risks. Including the separation of risk and rewards and too much managing by the numbers. 

Definitely on topic, and when an article starts off with the comment;

Dramatic failure of management and governance. 

I'm sold. The commentators introduce a metaphor for what they see today by drawing on experiences in the development and operation of the Hindenburg. One of the authors had the opportunity to discuss with an individual who rode across the Atlantic on the Hindenburg. Noting the individual marvelled at the smooth nature of the ride. Which of course it did until it crashed. The point being that the viewing of irrelevant statistics, such as the Hindenburg's smooth ride, miss the level and type of risks of that mode of transportation being inherently dangerous. Management at the manufacturer of the Hindenburg noted that the crash would be someone else's problem. 

In oil and gas I have written about the disjointed nature of the industry in this blog. Running the Pig series which highlights 4 local producers who have declining reserves and production, yet at the height of their folly they had assigned themselves $3.6 billion "in the money" stock options. 

Yet there is a larger issue at play in the industry, and this article is directly on point when it mentions the Hindenburg's management suggesting the crash was someone else's problem. Oil and gas production in the world is not growing. We've known that since 2005, and may indeed be in the early years of an advanced decline. Energy is the oxygen used to power our economies, without it we are all dead. Yet my daily interaction with oil and gas managers reflects that this is not deemed as their fault. That is someone else's problem. 

Asking difficult question like "what are we doing" vs reflecting on irrelevant results are some of the points made in the McKinsey article. They also point out the disconnect between management and ownership and reference Adam Smith's agency theory. These points are exactly why I believe the two sources of revenues for this software development project are the oil and gas investors themselves and the governments that have royalties as part of their income. 

The last point I want to make in this first edition of the McKinsey article is around the 8:10 point in the audio. A comment is made that people don't know where they are going

... and they haven't got a business model and strategy for where they are going, they have a strategy and business model for smooth sailing. 

I believe the future successful producer will have to move from the banking mentality of predictable returns to an innovative stance based on the underlying science and engineering of the industry. My research shows that using the Joint Operating Committee provides the appropriate stance for the innovation and science to iterate within the commercial environment of an oil and gas producer. These are some of the attributes that are captured in the Draft Specification. 

Finally, the 1700's in England saw 6 million people living in poverty and sickness. In 1850 England had 24 million people living in prosperity. This contrast is the effect that the industrial revolution had on the quality of life. Recall that Professor Ludwig von Mises says the industrial revolution was the solution to the problems of society. I think it is reasonable to assume that today's problems, and particularly the problems that McKinsey notes in this article, will be the problems that are solved through the Information Technology revolution. Please join us here. 

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Jeroen van der Veer

We stand at the early dawn of a new energy future.

Comments such as this coming from the retiring CEO of Royal Dutch Shell are welcome and refreshing news to this community. We have a job to do and as van der Veer mentions a difficult one. Approaching these types of problems based on the way we do business today is going to leave us disappointed. Energy is reputed to be the second most complex industry to the space industry. As we increase the level of complexity and risk it is reasonable to assume the organizational methods should change. Particularly when we have Information Technologies as advanced and as mature as they are today. 

Indeed, fossil fuels, coal, oil and natural gas, will continue to provide more than half the world’s energy in 2050. 

This fact alone will require a tremendous volume of capital to discover, develop and produce these oil and gas resources. I don't think capital of this magnitude can be sourced from the traditional capital or debt markets. The resources necessary to fuel the industry will have to come from the prices these resources command in the marketplace. Price will therefore be the mechanism for rewarding innovative oil and gas producers.

Therefore we are challenged in transforming the oil and gas infrastructure and operations to a new competitive footing. One in which innovation is the key method of developing value. From the bureaucracies that have served us well in the past century, I can not foresee this challenge being met. I would argue that today's prices are reflecting that we are falling behind as a result of the organizational performance of the bureaucracy.

To help make this transition, interested people are invited to join this community. People who are working within the industry that know there is a better way in which to do their jobs. Taking the Draft Specification and adding to it the detail that is necessary for the global oil and gas industry to operate on the People, Ideas & Objects system. The community that forms here will be the beginnings of how the software gets built. And more importantly the Community of Independent Service Providers will provide the innovative oil and gas producer with the most profitable means to manage their operations.

Nonetheless, whatever the reality of our industry will look like. More energy will be needed to fuel the future. Energy is critical to our economic survival. And van der Veer reflects on the challenge ahead.

A growing population and higher standards of living for billions of people in the developing world will mean that we need all available sources of energy to keep the world’s economies humming. So, while the world races to build up alternative fuels, it must also find new sources of fossil fuels, including unconventional ones, such as oil sands.

Please join us here.

Technorati Tags: People's Economic Change Organization Energy

May you live in interesting times.

Based on those charts of the Council of Foreign Relations the economy is in very bad shape, but if the economy can't source its energy needs, it will be far worse. A key aspect of this project has always included a strong element of industry renewal. The bureaucracy expired in its effectiveness and was the basis of my research into alternative organizational methods. In May 2004 I wrote the Preliminary Research Report which suggested the bureaucracy be replaced with the industry standard Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. 

We see a number of producers cutting back on their production, particularly a number of North American gas producers. Cutting back on production is a serious action that I have not seen before in my lifetime, but a welcome development. Pricing of energy has become a critical part of a producers tactical approach to the business. As the referenced article suggests, the oversupply of natural gas is leading to a collapse of natural gas pricing. Having a system such as People, Ideas & Objects considers this scenario in the Draft Specification. 

Reducing production is an operational decision that has to meet the majority voting requirements of the Joint Operating Committee. What I have suggested is that there be a predetermined point where prices would invoke a percentage decline in production. This being done in an automated fashion based on the Technical Vision of this software development project. A reduction in production that is pre-approved by the JOC to ensure that the costs do not exceed the revenues of the property. A strategy that optimizes the reserves of the property for maximum return over the life of the field. Yes, game theory being incorporated in these decisions. 

  

Today we also have the alternative sources of energy that were to have replaced "dirty" oil and gas, fading into their appropriate and irrelevant posture. Time is of the essence and we have little slack time in which to deal with the decline in reserves, production and development of our long term sources of oil and gas. Action is necessary or we jeopardize our quality of life by leaving it in the hands of these bureaucracies. Please join us here. 

Technorati Tags: People's Energy Economics Change Development

Council on Foreign Relations on the e...

The Council on Foreign Relations publishes a Quarterly update on the Economy. Their June 5, 2009 update is entitled "The Recession in Historical Context." If anyone was thinking our economic situation was just another recession, they should read this report. It consists of nine pages and 22 graphs comparing the average post-WWII recession, the average pre-WWII recession, the Great Depression and the current economic climate. These variables are framed by the 4 preceding years before the recessions, and continue through for the 4 years after the recessions started. Data includes the mean and the out lying range of values and is consistent throughout the graphs, rich in information and quite frightening. Have a look.

Technorati Tags: People's Economics Change Leadership

Vicente Fox on leadership.

Former Mexican President Vicente Fox was in Calgary to make a speech about the demands of the energy industry. In the process of identifying the issue, he make the perfect recommendation for the formation of this community. 

Former Mexican president Vicente Fox called for an energy "super-body" that goes beyond politics, ideologies and business interests to help create a unified global approach to the industry.

This can't involve just one person. It has to be a broad and diverse group of people that are able to take the necessary actions and make the necessary decisions. A community of people who are concerned about the future of our global economy. An economy that is dependent on a stable and secure supply of energy. Fox notes;

"(There are) too many interests, too many diverse positions, too many sources of information, What I would love to see is a leader . . . somebody should bring in some order into the conducting of the issue of energy in the future," he said in an interview before his speech. "I don't see that happening in energy."

According to Fox, assembling the talent of leaders, researchers, think-tanks and universities would help create a common purpose: "Getting energy to its optimum in the future so that energy fuels economies of the world, and so that economies of the world, being successful, fuel jobs and fuel opportunities for people."

Please join us here.

Technorati Tags: People's Leadership Economics Energy Community

A Roubini warning.

Click on the title of this entry to be taken to the Bloomberg "Editor's Pick" video page for a recent video of Nouriel Roubini. Bloomberg has changed their links in which to launch the default video player on your machine. I therefore don't know if the above link will work, if not please try to source the video from this web page. Additional information has been provided from this Wall Street Journal article picked up on Project Syndicate.

Professor Roubini has become famous over the past two years for correctly calling our current economic difficulties. His concern for the over-leverage of the shadow banking system pin points the root of the current difficulties. His remedies have to some extent been adopted globally and have caused the system to appear to recover. It is clear today that the perception that this nasty recession is over and the good times are just around the next corner. 

I have to agree with Professor Roubini that the complacency about our economy is dangerous. None of the remedies being prescribed in this Bloomberg video are in place today. None of the problems that lead to these difficulties have been solved. Roubini chases the issue back to the demise of Long Term Capital Management in the 1990's. This alone shows the extent of our problems. Too much money chasing too few opportunities are causing the bubbles and busts. So much of the world has been focused on housing, the most ineffective investment spending known to man-kind. As a result of this the complacency which Roubini speaks of, we have removed these difficult topics off the agenda. Leading us to fall into the same pit we appear to have just climbed out of.

The problem for us is that there are none of the tools that we used to get out of the pit the first time. We see the effectiveness of those tools in last weeks speech by Treasury Secretary Timothy Geithner; being laughed at when he says to the Chinese their foreign currency holdings are "very safe". The credibility of the U.S. as a reserve currency is in jeopardy and the Obama Nation has no understanding of the issue, its scope or what integrity means. As I write this I am learning that the Supreme Court has refused to hear the case of the bondholders in the Chrysler bankruptcy. I'd be interested in seeing how this plays out in the market tomorrow.  

I have reviewed the works of Professor Carlota Perez on this blog before. Selecting the Perez label from this blog will aggregate the 26 posts where I apply her long term economic research to this software development project. She predicted the demise of the old economy based on her research. Stating that the long term cycle was a constant in the world economy. Where the old ceases to provide the necessary value attribution and therefore systemically fails, to be replaced by the new based on newer technologies.  

People ask me why am I so pessimistic. And I have to answer that I am overly optimistic. The bureaucracy that runs our industries is incapable and unable to provide value for society. Today there is not much disagreement. If we take the point of view that the bureaucracy may be the main form of organization in 25 years, people definitely agree with me that it's days are numbered. So how do we make the change from the bureaucracy to the Joint Operating Committee, augmented with today's information technologies? The short answer is we can't.

We see the calling for radical change as a result of the bankruptcy of the auto industry and banks already fading from the urgent crisis driven thinking of just a few months ago. Organizations are about as static of a body as one could imagine. Without the crisis situation lasting the entire time to make the transition, no change management program will work. 

Unless Schumpeter's concept of Creative Destruction is allowed to eliminate the old from the marketplace, and the new is built up brick by brick and stick by stick, no wholesale organizational change can occur. The need for the people to make the decisions that GM, Chrysler, and the Banks are finished, and they don't appear to be able to make these tough decisions. The competitive marketplace remains depressed while the new fills the void. And for oil and gas that new is People, Ideas & Objects. 

Back to the issue of my optimism. It comes about as a result of the new organizations effectiveness. Firms born of the new organizational structures will provide real value to society. The current bureaucracies have been destroying value for over ten years, in my opinion. New organizations will provide a new and prosperous economy and quality of life for everyone. If only we could get rid of these dinosaur organizations.

For those that may want to dive deeper into the research I have conducted on this point. The Preliminary Research Report introduced the Cognitive and Motivational Paradox', and the Duality of Technologies. These define the theories that change is constrained by forces that are hard to resist. On one hand the Motivational Paradox precludes the adequate resources are committed to the change when production from the current system is necessary. The Cognitive Paradox involves the way people see new situations. Placing a filter of the old ways over what is new.

In order to eliminate these paradoxes from this software development project. We need to walk a fine line. Ensuring that there is a break between the old and the new in order to maintain the appropriate focus on the tasks at hand. 

Not to go into too much detail but one of the key tools for eliminating the paradox is the vision of the system as detailed in the Draft Specification. The natural form of organization in the oil and gas industry is the JOC. In the past people had to interpret the transaction from the JOC to the bureaucracy and systems they operated within. With People, Ideas & Object the system interprets the business in the way that people understand the business, through the Joint Operating Committee. Therefore what the user will be able to do with People, Ideas & Objects is think more naturally then they do in their day to day activities today. 

The use of the economic changes and the move to a more natural way of working within the oil and gas industry are the two ways that I have chosen to fight these two well understood paradox'. Please, join us here.

Technorati Tags: People's Perez Economics Change

What's holding the project back?

Well there is that budget. We currently stand with no commitments to proceed with the development of these applications. I have established December 31, 2009 as the start date for the Preliminary Specification, however, this will be delayed if the funds are not secured by September 30, 2009. Delayed for approximately one year, or the end of 2010. I see the producers, and particularly ExxonMobil, Shell, BP and Chevron having a role and responsibility to ensure this project does not get delayed any further. I will continue to impress upon them, and other producers, that they have the most to lose and the most to win in the new energy era.

 

The budget has been set for the Preliminary Specification at $30 million. This represents 30% of the study or definition phase of the project and 3% of the proposed preliminary budget of $1 billion. Companies may argue that these costs are too prohibitive. I would point them to the People, Ideas & Objects business modeland value proposition to show them how these costs are actually the least expensive IT expenses they've faced in many years. I would then ask them how efficient are their organizations today. Give them a copy of Adam Smiths "The Wealth of Nations" and highlight the division of labor and specialization theories. And lastly ask them how, in the near future, are the most efficient organizations going to spontaneously appear in a global economy?

 

Tying together the role and responsibilities with the budget needs is the plain hard facts. If we want to skip portions of the Preliminary Specification, then we can increase the overall developments time, accuracy and costs to accommodate that. The point being the most effective time and energy to get it right is at the beginning. Skimping on the costs here is the wrong direction to take. And what are we talking about, if we were to source funds from only the four companies mentioned this would be a one time cost of $7.5 million each.

 

And for that there is no guarantee. If we subsequently choose to travel further down the development road. The value for these producers will exist in the applications ability to meet their unique organizations needs and asset requirements. What I am saying is, the onus falls on the producer firms that commit to this project; to not limit their contribution just to capital. The effort and understanding of their operations must be represented and operational within the finished software. I see this responsibility being the subscribing producers as much as it is the user groups. Success will be a matter of the collective will of many people. Please join us here.

 

Technorati Tags: People's Community Development Economics Funding Value-Proposition
 

A Failure of Capitalism.

A fascinating debate is taking place over on Professor / Judge Richard A. Posners second blog . I mention his "second" blog as his first is a weekly debate between himself and Nobel Prize winner Gary Becker. Each week they debate a finer point of economic interest on the well read Becker-Posner blog. Posner's second blog is an extension of his recent book "A Failure of Capitalism: The Crisis of 08 and the Descent into Depression."

In this blog he has solicited some interesting commentary and dialogue. Recently he received a comprehensive reply from former Federal Reserve Chairman Alan Greenspan. Greenspan's points are here, here and here. Posner responds to Greenspan here . 

I highly recommend that you subscribe to both of Posner's blogs and read the debate that is taking place around this fascinating time of economic renewal. 

Technorati Tags: People's Economics Community Leadership Change

Exclusively oil and gas.

I've been spending some time thinking about the competition and their offerings. Specifically SAP and Oracle who are the predominate software systems used in oil and gas. There is also a large number of boutique software developers that have provided small numbers of producers with niche offerings. I don't normally spend time evaluating the competition, however, these are my thoughts regarding the impact our current economy is having on the software development business.

Capital expenditures are being reeled in at most if not all the oil and gas producers. This therefore applies to the software development groups that provide products and services to the oil and gas industry. Many are small vendors and will be unable to sustain any decline in revenues operations for long without continued support from the producers. That support is / will be waning as the lay-offs and losses continue to pile up in the industry. 

Generally unlike the large international software companies, the small software vendors are unable to rely on other industries, not that other industries are any better off in this economy. Suggesting that whether a vendor chose to focus exclusively on oil and gas or not, the effect in this current market is the same irrespective. 

SAP and Oracle have pursued the one solution fits all industries. This strategy leaves many in the oil and gas industry wishing they would build some functionality for energy. I doubt they will be able to address the unique needs of the industry as it exists today. Oracle is having difficulty in offering the many solutions they have purchased to customers. Oracle is not offering an integrated solution. Its integrating previous acquisitions. 

So much of these current economic difficulties are as a result of the "old" ways to sustain and provide for societies needs. Currently a bear market rally has everyone believing the good old days will soon be back. Nothing could further from the truth. This next downswing will be quick and decisive in communicating the scope of the economic damage that has occurred. It will also be dramatic enough for people to permanently change their expectations of the future. One in which they will begin to look for the things that will sustain them in the future. New projects and businesses like People, Ideas & Objects . 

Spending any more time on the competition is a futile exercise. I prefer to highlight the advantages the producers will attain by joining the community here. 

• A dedicated software developer working exclusively with oil and gas.
  
• Focused on the Joint Operating Committee to facilitate speed and innovativeness.
  
• Unconstrained by the traditional software paradox of code and customers.
  
• Providing a competitive value proposition and business model .
  
• Offering a compelling vision of how the industry could operate more efficiently. 

Technorati Tags: People's Capabilities Development Economics Strategy Value-Proposition

"From Bubble to Depression?"

Professor Vernon Smith is a Nobel Laureate with an article in today's Wall Street Journal. His analysis rely' on the qualitative, and this article doesn't disappoint. Two comments that stand out, and that show the economic situation we are in is unique and historical. Relating the current experience to the great depression, he writes.

Had the mounting difficulties of the banks and the final collapse of the banking system in the "Bank Holiday" in March 1933 been caused by contraction of the money supply, as Milton Friedman and Anna Schwartz argued, then the massive injections of liquidity over the past 18 months should have averted the collapse of the financial market during this current crisis.

and

The causes of the Great Depression need more study, but the claims that losses on stock-market speculation and a monetary contraction caused the decline of the banking system both seem inadequate. It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt -- especially mortgage debt -- that was transmitted into the financial sector during a sharp downturn.

The cause and remedy of the great depression is a topic that I am not satisfied that we have discovered the answer too. There are too many variables and actions that occurred over a decade of experimentation, trial and error. Professor Carlota Perez is someone that I have written about extensively on this blog. Her long wave economic analysis' and theories resonate with me. Suggesting that the old economy is no longer capable of meeting the demands of society. And that new technologies have matured and are readily available to take the weight of the "old" work horses.

I include the bureaucratic method of organization as one of the innovative technologies of the past century. Alfred Sloan, then CEO of GM used it to great effect in establishing the firm in its hey day. That technology can't provide the speed and innovativeness that is necessary for our current and future societal and individual needs. It is a form of economic organization that does not provide any further value, and I would suggest is the reason that much of the value in today's economy is being incinerated. 

Using the Joint Operating Committee provides a strong understanding of how better to organize the energy industry. Inherent in that understanding is the use of the Information Technologies that are readily available, and Professor Perez suggests are ready and able to begin to provide the value in society. Now is the time that change is being demanded of our economic ways and means. I would suggest that the economy will only commence the building of value again when we build the systems to support the innovative and speed capable oil and gas producer. 

In a related note, Shell was downgraded to neutral by Merrill Lynch due to "the groups [lack of an] ability to grow production". Just as BP and Chevron were downgraded yesterday, Shell could probably use a new method of organization, and capability based software developer, please join me here. 

Technorati Tags: People's Perez Economics Change