Showing posts with label Funding. Show all posts
Showing posts with label Funding. Show all posts

Monday, August 11, 2014

No More Muddling Along

The traditional operational strategy of the oil and gas industry is to muddle along. This is a throwback to the days when there was no opportunity to do anything but to accept the situation as fact and deal with it. Get through the day and survive to tell about it. However is this still appropriate for a $4 trillion industry? An industry with the issues and opportunities that the oil and gas producers have in front of them? An industry where the financial engineering of “cash flows” is the science that dictates operations. Where profits are of no concern, and for those that are focused on profits, they are accused of not truly understanding the nature of the business. It is a fool who tries to argue that profits are not a concern in oil and gas.

The beginning of the end of the muddling along strategy is People, Ideas & Objects. And that starts specifically with our Revenue Model. You can't expect that People, Ideas & Objects will be done on behalf of someone else’s dime, or on someone else’s time. The investment community have tired of the “opportunities” in oil and gas ERP systems. And they certainly have no appetite for our budget. Particularly if it were to be done on a speculative basis. Clearly there are no free lunches when it comes to having the budget for this software development paid for by others on behalf of the producers. If producers want it producers will have to pay for it themselves.

Assuming the producers are putting their hard earned money into something that is potentially valuable to their firm, I would also assume I have the producers attention. That is I think they will be an active and willing participant in our user community. It’s their money, it's their system and it will be their profits when the systems are built. This is the reason that our Revenue Model is not structured to motivate someone else to build it for them. There is really nothing in it for anyone else. All the value is skewed towards the producer. Hence the need to dispatch the muddling along strategy to the scrapheap of history and begin your active involvement in the operational strategy of your business.

It is the user community that holds the power and authority regarding the ways and means of the administration and accounting of the oil and gas industry under the People, Ideas & Objects Preliminary Specification. Producers may resent this fact and chose to fight against it. Or they can accept it and realize that participation in the user community is the appropriate and constructive role that a producer should consider. Either way it will be pleasant to see them get up from their muddling along strategy.

Sitting back and doing nothing about the problems that the industry faces will be the way that things were handled in the past. When natural gas prices decline into unprofitability, producers will have the decentralized production model to reduce production immediately to remediate the price declines. When the engineering and earth science resources of the industry are challenged they will have the ability to use specialization and the division of labor to reorganize them in ways to make them more productive. In essence they will have the tools at their disposal, active participation in the user community and a software development capability in People, Ideas & Objects to deal with the issues and opportunities that face the industry as they occur. No more muddling through no matter the consequences to profitability. But this requires the first act of independence and renouncing of the muddling through strategy. And that is funding this initiative and participation in the user community. No one is motivated by the profits that they'll earn if they make these changes, and no one else is going to do it for them.

The Preliminary Specification and user community provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Sunday, April 01, 2012

2012 Funding Update


The results of our 2012 first quarter funding campaign can now be reported. As was expected, none of the oil and gas firms chose to participate in the funding or support of People, Ideas & Objects. From our perspective, as with 2010 and 2011, we see this as evidence that management are too conflicted to participate in this project. The only way forward through this deadlock will be from the explicit direction of the ownership class of the oil and gas firms. It is therefore anticipated that this project will proceed on a somewhat brick-by-brick and stick-by-stick basis. Stay tuned.

It is now time for producers to act. Review of our Revenue Model will inform producers how they can participate in the development of People, Ideas & Objects Preliminary Specification. Producers can contact me here for further information, or to begin the process of their participation.

Monday, January 02, 2012

2012 Fees Are Now Due


People, Ideas & Objects 2012 software development fees are now due. These fees were set in a November 1, 2011 blog post at $1.00 per barrel of oil equivalent per day production. (Producers with production of 50,000 barrels per day would pay $50,000.00 U.S. for software development fees for the 2012 calendar year.) Penalties of 300% of the 2012 fees will be assessed on any outstanding fees after March 31, 2012. All fees for 2010 onward must be paid in full by the producer before their participation can begin in the user community. 2010 and 2011 fees and penalties were set at $1.00 per barrel of oil equivalent per day production and 300%. All fees for 2010, 2011 and 2012 total $9.00 per barrel of oil equivalent.

Fees are used to support the developments of the Preliminary Specification. Please review our revenue model for more information on our fee structure and policies.

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

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

Tuesday, November 01, 2011

Announcing Our 2012 Fees


Its that time of the year where we announce what our fees for the upcoming year will be. Recall in 2010 and 2011 we set our fees at $1.00 per barrel of oil equivalent. For 2012 we are setting our fees at the same $1.00 per barrel of oil equivalent effective January 1, 2012.

All producers are responsible to pay their fees from 2010 onwards. Those producers that have not paid their fees by March 31 of the assessment year are subject to a 300% late penalty in addition to the regular fees. Therefore a producer who wants to participate in the communities on January 2, 2012 would be responsible for a total of $9.00 in fees on their daily production throughput. ($1.00 for each of the three years 2010, 2011 and 2012 and late penalties of $3.00 for 2010 and $3.00 for 2011.) If that producer was producing 50,000 barrels per day then they would be responsible for a total of $450,000.00 in fees for the 2010, 2011 and 2012 years.

Review of our revenue model will help to explain our funding requirements and fee structure. Any further questions can be directed to me here.

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

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

Wednesday, August 31, 2011

The Preliminary Specification Part XIV (FM Part IV)


This will be our last post on the Financial Marketplace module in terms of our Preliminary Specification output discussion. In this post we will discuss some of the generic reporting requirements of the module. These interfaces are of a financial nature and reflect the types of people (accounting and finance) that will be working within the module. This post looks at the reporting from both the Joint Operating Committee and the producer perspectives.

Our discussion of the costs of administering high levels of banking due to using the Joint Operating Committee as the key organizational construct of the innovative producer is an important consideration in this discussion. We have two choices to deal with these high administrative costs. We can hire a lot of people, or alternatively we can highly engineer the software that the industry will use to deal with the administrative burden. A highly engineered software solution, backed up with a software development capability such as is proposed by People, Ideas & Objects I think would earn the general consensus.

Understanding the marketplace metaphor and the discussion regarding bankers and investors in previous posts, the module would include, but in no way would be limited to, the following.

Joint Operating Committee perspective.

  • Banking deposit and payment processing.
  • Account reconciliation and analysis.
  • Short term asset reconciliation and management.
  • Dynamic working capital determinations.
  • Short term liabilities accounts and management.
  • Long term liabilities accounts and management.

From the producer perspective.

  • Banking deposit and payment processing.
  • Account reconciliation and analysis.
  • Short term asset reconciliation and management.
  • Dynamic working capital determinations and allocations.
  • Short term liabilities accounts and management.
  • Long term liabilities accounts and management.
  • Shareholder equity accounts and management.
  • Consolidated JOC working capital.
  • Uncommitted consolidated JOC working capital.

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

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Tuesday, August 30, 2011

The Preliminary Specification Part XIII (FM Part III)


In our two posts regarding the Financial Marketplace module we have discussed both the relationship with bankers and investors. In the first post we noted that the module provided the choice to either maintain the banking relationship between each partner in the Joint Operating Committee. Or alternatively each Joint Operating Committee might be represented by one bank for all partners. In our second post we noted that the interfaces and tools that could be available to establish a marketing relationship between the producer and the investment community. Where there were possibilities to have the property securitized and other means in which “ownership” might be different then what exists today.

Today I want to briefly discuss the logistical implications of having these types of situations operational in an oil and gas firm. To suggest that this would make the financial aspects of a producer firm simpler would be contrary to the reality of a system that is providing these types of opportunities. Simply the legal and financial reporting and logistical requirements would be an order of magnitude more voluminous. It is fair to assume that the producer firm would need to maintain a banking relationship with most of the banks that had a presence in the oil and gas business. That relationship would include loans, accounts and all of their services. Managing for each loans financial requirement would become unbearable. Causing all kinds of administrative and management burdens that would otherwise not be incurred in today's systems.

Crap. All of these are done today, albeit on a smaller scale, in most companies. Adding a multiple of volume through automated systems such as what is being discussed in the Draft and Preliminary Specification makes the prior discussion a mute point. What is not realized is that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. By enabling the financial constraints of the property to be just the financial constraints of the property and only the financial constraints of the property. The participants in the Joint Operating Committee are free to deal with those that are financially motivated in dealing with the issues of that Joint Operating Committee. There are no more of “them”, who are never in attendance at meetings anyway. When it comes time to make a decision, a decision can be made.

Its not that the decisions are made in the Financial Marketplace module. What this module is doing is aligning the financial interests of the Joint Operating Committee so that the decision rights are in alignment with the operational decision making authority. The financial, legal and operational decision making authority resides in the Joint Operating Committee and the alignment of these interests makes the ability to decide the best course of action possible. Currently, the muddling of these frameworks by general assignments to banks by each producer, and some nameless and faceless investor, limit the flexibility of the decision making authority of the engineers and earth scientists who are responsible for the performance of the property. By focusing the ownership and operating resources on the assets of the Joint Operating Committee, the consensus can be achieved and decisions can be made.

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

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Monday, August 29, 2011

The Preliminary Specification Part XII (FM Part II)


It is the Financial Marketplace module in which I really throw the cat amongst the pigeons when I talk about the redundancy of the bureaucracy. Yet when I reflect on the past three years, I see the investment marketplace holds the oil and gas producers management in not much better esteem. There is a general dissatisfaction within the oil and gas investor community. How much of this dissatisfaction is to do with the overall financial market meltdown, and how much is to do with a general dissatisfaction with the oil and gas industry itself is unknown.

The fact of the matter is that with the run up in the prices there has been an even greater run up in the costs of production and operations. Management have provided no upside from the price increases. A management that have provided no upside on 400% price increases will not provide any upside on any further price increases. And it is quite probable that significant financial losses will arise as a result of any price declines. So there is much to be concerned about when it comes to the current state of affairs in the manner in which the oil and gas industry is managed.

I’m glad that I am on record for being critical of management, and that I am the one that management have been kicking with such vigor. It’s one thing to be right, another for management to have been so wrong for so long. Nonetheless, the industry is going through a fundamental change. One in which the earth science and engineering resources needed to discover and produce the base commodities are under increasing demands. We therefore need to organize ourselves for this new challenge.

The Financial Marketplace module provides a window for the producer to deal with the bankers within the Joint Operating Committee. This is as we discussed in last Friday’s post. Whether a producer chooses to have each participant maintain their own bank representative. Or, each Joint Operating Committee has one banker for all the producers represented in the Joint Operating Committee is a choice provided by the Financial Marketplace module.

Today’s post shows the critical role of the investor in the long term health of the oil and gas industry. I think in order to have them participate in the industry, again, will require they are provided with new tools and opportunities to invest in oil and gas. In the Draft Specification it was suggested that possibly the working interest share might be a securitized investment. I think on the basis of the past three years history, that it should be considered that the investment community might have some enhanced tools and interfaces to the producer through the Financial Marketplace module of the People, Ideas & Objects software application. After all its a marketplace.

The interfaces and tools that I am thinking are not of the statutory type that are required by various regulatory agencies. These are provided through the Compliance & Governance module of the People, Ideas & Objects application. The type of interfaces that I am thinking that may be used in the Financial Marketplace module would be more of the marketing style. Where the producer is out selling their investment to the “financial marketplace” in order to secure future investments. Ways to initiate dialog and for information and discussion to start the relationship between the investor and the producer.

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

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Friday, August 26, 2011

The Preliminary Specification Part XI (FM Part I)


We move now to the third marketplace module in the Preliminary Specification, the Financial Marketplace module. A lot has happened since the late spring / early summer of 2008 when I wrote this module. The financial marketplace has been shaken to its core and the implications of that shaking are still felt today. With many of the worlds financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary point that the Financial Marketplace module was making in 2008 was that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the property. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. If that was the simpler solution. The attempt in the Financial Marketplace module was to offer a solution to the difficulty to funding properties when one or two of the participants were consistently falling behind in terms of their capabilities.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? because the demand for capital will continue to be strong, and the supply will continue to be tight. In a capital intensive industry that’s going through the level of change that the oil and gas industry is going through. Having a system that employs a marketplace metaphor, which provides the participants with better information, may be more of a necessity.

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

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Monday, August 01, 2011

Time-lines, Start and Finish Dates


Time-line's, start and finish dates are things that we can only dream about now, but are still something that should be discussed. None of these things can begin until the money has been secured. And as of today we have received no commitments from industry whatsoever. This software development project will not be funded on a pay as you go basis. Each of the next three phases of the development will need to have the commitments from industry secured before each phase of development begins.

It is at this time that I do not have the resources to even begin the campaigning to raise the money for the Preliminary Specification. So if there is a producer that wants to begin this process, please step up. Any support would be appreciated.

How long will the Preliminary Specification take. There is no time limit set at this time for the community to complete the Preliminary Specification. It is something that will need to take the input of the necessary parties to gather and codify the work of thousands of people. Removing duplications and ensuring complete coverage will require many eyeballs. And that is not something that can be completed based on a deadline that I can specify at this time. Nor will I be the one to specify the deadline.

One thing for certain is that the Preliminary Specification can’t be rushed. It will take the time for people to think what it is that they want and need in their applications. The Draft Specification provides an overall vision or beginning, but there is so much more that is possible when people get together.

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

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Saturday, April 02, 2011

2011 Funding Update


The results of our 2011 first quarter funding campaign can now be reported. As was expected, none of the producer firms chose to participate in the funding or support of People, Ideas & Objects. From our perspective, we see this as evidence that management are too conflicted to participate in this project. The only way forward through this deadlock will be from the explicit direction of the ownership class of the producers. It is therefore anticipated that this project will proceed on a somewhat brick-by-brick and stick-by-stick basis. Stay tuned.

It is now time for producers to act. Review of our Revenue Model will inform producers how they can participate in the development of People, Ideas & Objects Preliminary Specification. Producers can contact me here for further information, or to begin the process of their participation.

Thursday, August 05, 2010

Our Revenue Model Part VI

Throughout the past few months (here, here and here) we have talked about the risks of becoming blind sleep-walking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new approach to funding these software developments. It serves no ones interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers starting January 2010. This eliminates the possibility that some producers will pay disproportionate shares of the development costs. All producers will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleep-walking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers focus on its competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers participation in these communities. Producers, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political environment” in which users are able to define, build and use the software tools they need to do their jobs.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

Tuesday, August 03, 2010

Our Revenue Model Part V

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management perspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliver-ability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Draft Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer. That producers would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

Monday, June 14, 2010

World oil production has declined.

Within this post I discuss the current situation with respect to how global oil production has declined. I assert in this post that management must now act to avoid the perception of conflict, and must act to fund People, Ideas & Objects.

In May 2004's Preliminary Research Report I proposed we research the following hypothesis.
  • The corporate hierarchical organizational structure is an impediment to progress and most particularly, innovation.
  • Determine if the Industry Standard Joint Operating Committee, modified with today’s information technologies, provides an oil and gas concern with the opportunity for advanced innovativeness.
It was through the research of this hypothesis that it was implicitly held that the bureaucracy would cease to provide the market with adequate energy. That day is now closer then we expect, and the time in which to act is upon us. If we do not act in a reasonable period of time, then the economy that we know today, will truly be history. Our first action is to prepare to organize ourselves for the challenge of turning around the productivity in world oil production, and then increasing it substantially to meet the prospective needs of all people.

The Issue.

After five years of static oil production, the U.S. Energy Information Administration (EIA) are reporting that global oil production has declined in 2010. In the chart below, 2010 production can be seen to have declined. This is a significant event in the history of the petroleum industry. As most would predict, I see this decline in production as a direct result of the systemic failure of the bureaucracies in oil and gas, and tacit support for our hypothesis.




It might be argued that the recession is having a detrimental effect on energy demand, however, I think that is an incorrect conclusion. I think it is fair to assume that the prior five years of static oil production was the cause of the run up in the price of oil. Add to this the world economies have resumed a reasonable level of growth, therefore demand would be growing, not in decline. What the chart reflects is an approximate one million barrel drop in production. I believe this is the beginning of the downturn in global oil production. To say that I have a vested interest in selling this system to the oil and gas industry is correct, and that therefore I am biased is also correct. However this fact is perceived, I think action is necessary to begin the developments of People, Ideas & Objects software.

Seizing the Moral High Ground.

I believe the management of oil and gas companies are conflicted. The less they do about the expansion of oil and gas deliverability, the higher the oil and gas prices, and the better they appear as managers. This conflict has been in play for the past five years. With the overall decline in production now upon us. It is time for the management to assume their moral and ethical responsibility to increase global production. This can only be done by expansion of the industry through the proven economic principles of a further division of labor and specialization. Economic principles that we have used in the development of the Draft Specification. Organizing around the Joint Operating Committee, and in a manner for the industry to expand its output.

Management are now being called to do the right thing. Eliminate their conflict and financially support People, Ideas & Objects. During the past five years the bureaucracies that operate the oil and gas companies have stated that the static nature of oil deliverability was not their problem. Their focus was on their own business domain, and that was all that they could consider. Now this situation has changed in a fundamental way. If it is not the oil and gas industries problem, as to how to deliver the market demand for energy, who's is it? The need to move the industry from the perspective of "minding your own business" to the moral and ethical issues associated with a real decline in energy production must begin.

Our recent past has shown that oil and gas companies have chosen not to participate in these software developments. Effective April 1, 2010 our appeal had been re-directed towards those oil and gas shareholders and investors that know there is a better way. Effective today this too has changed. As of today, we are focusing our funding efforts on the bureaucracies management. Invoking their moral and ethical duty that everything be done to ensure the world has adequate energy supplies.

Adam Smith and the Division of Labor.

Funding is required to begin the developments of the software and communities that are part of the People, Ideas & Objects initiative. If we continue to just throw money at the bureaucracies, we will not get anywhere. Our approach to reorganizing the industry must be based on the proven techniques and economic principles of Adam Smith's division of labor and specialization. Just as Adam Smith was able to prove his theories by reorganizing a pin factory, and in the process increase pin production by 250 times. Through use of these same principles, by way of the development of People, Ideas & Objects software, the industry can increase its deliverability of oil and gas.

Build the Software.

Why we need to build software to solve this problem is due to the fact that organizations in our modern economy are defined and supported by software. To state that People, Ideas & Objects is the software that identifies and supports the innovative oil and gas producer, and is counter to the argument that SAP is the bureaucracy. Within the Draft Specification we are moving towards the culture of the industry, the Joint Operating Committee, which is the legal, financial, operational decision making, cultural and communication frameworks of all global oil and gas producers. By recognizing these facts and aligning the hierarchies compliance and governance to the JOC, innovation and speed of operations are the results.

We need to begin the funding of these software developments. Initial development costs have been budgeted in the $700 million to $1 billion range. The method for funding these costs is based on an annual levy of $x / barrel of oil equivalent. That levy has been set at $1.00 for 2010, potentially (conceptually) raising $120 million in one year. Further information on how to participate is located here.

I see these developments as an important turning point in the history of the oil and gas industry. Seeing that our hypothesis has been proven correct. Producers that subscribe to these developments would gain an operational and financial performance benefit from being involved in this software development project. Action to fund these developments is required. 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. 

In Summary

Society is put in peril when world oil production declines. There is evidence that the worlds oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As has been proven, this reorganization could achieve far greater oil and gas production. Management of the industry are conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Thursday, May 27, 2010

Langlois Personal Capitalism Part I

In Chapter 3 of Professor Langlois book "The Dynamics of Industrial Capitalism" we look at "Personal Capitalism". In this, and my next post, I want to highlight the role of the entrepreneur in making the changes in the oil and gas industry. The Community of Independent Service Providers (CISP), Industrial Districts (ID), Business Groups (BG) or Small Knowledge Intensive Enterprises (SKIE) being filled with individual entrepreneurs acting in innovative and value generating ways. What becomes clear in this chapter is that the evolutions an industry goes through are usually brought about by unseen changes. I think that the unseen changes that the oil and gas industry will soon be faced with is the prospective decline in deliverability. This may appear to be an industry problem, but I think it is more of a societal issue in that reducing our energy demand will be problematic.

The bureaucracies that are in power today are unwilling to address the overall deliverability issue as theirs. If a producers production profile declines, they see that as a remote possibility and that would qualify as an isolated single event. If there is a potential decline of overall industry production, producers are unwilling to comment on the probability and don't see that as their problem. If unseen dangers lead to changes in an industries makeup, oil and gas might be in for a shake-up.

Nonetheless a decline, if it should occur, will be difficult to stop and impossible to reverse based on the current performance of the oil and gas firms. Five years of static deliverability is an ominous pre-cursor to a potential decline. The passing of these five years would seem to date how far behind the curve we are. With years of software development before we can exploit the Joint Operating Committee as the key organizational construct of the People, Ideas & Objects software application. We have much work to do. This morning the Obama administration have announced a six month moratorium on all offshore drilling. This may be the straw that breaks the Camel's back in terms of the U.S. energy consumption.

If one was willing to bet which group, the bureaucrats or the entrepreneurs will be the ones that solve this deliverability issue, I put my money with the entrepreneurs. Professor Langlois analyses Schumpeter's definition of the term.
The broad outlines of Schumpeter’s theory of entrepreneurship are of Weberian provenance (Carlin 1956). Indeed, one might say that Schumpeter’s schema is an application of Weber’s social theory to the problem of economic growth. Schumpeter’s innovation is to associate Weber’s category of charismatic leadership with the concept of entrepreneurship. p. 32
Weber is principally concerned with the religious leader or prophet, and to a lesser extent with military and political leadership; Schumpeter borrows heavily from that analysis in his characterization of the entrepreneur. Here we begin to see the outlines of Schumpeterian “personal capitalism,” which in its pure form is the antithesis of bureaucratic organization. Consider Weber’s account of the organization of charisma. p. 32
The corporate group which is subject to charismatic authority is based on an emotional form of communal relationship. The administrative staff of the charismatic leader does not consist of “officials”; at least its members are not technically trained. ... There is no hierarchy; the leader merely intervenes in general or in individual cases when he considers the members of his staff inadequate to a task to which they have been entrusted. There is no such thing as a definite sphere of authority and of competence. ... There are no established administrative organs. ... There is no system of formal rules, of abstract legal principles, and hence no process of judicial decision oriented to them. But equally there is no legal wisdom oriented to judicial precedent. Formally concrete judgments are newly created from case to case and are originally regarded as divine judgments and revelations. ... The genuine prophet, like the genuine military leader and every true leader in this sense, preaches, creates, or demands new obligations. In the pure type of charisma, these are imposed on the authority of revolution [sic] by oracles, or of the leader’s own will, and are recognized by the members of the religious, military, or party group because they come from such a source. (Weber 1947, pp. 360-361.) p. 32
Charismatic authority is thus outside the realm of everyday routine and the profane sphere. In this respect it is sharply opposed both to rational, and particularly bureaucratic, authority, and to traditional authority, whether in its patriarchal, patrimonial, or any other form. Both rational and traditional authority are specifically forms of everyday routine control of action; while the charismatic type is the direct antithesis of this. Bureaucratic authority is specifically rational in the sense of being bound to intellectually analysable rules; while charismatic authority is specifically irrational in the sense of being foreign to all rules. Traditional authority is bound to the precedents handed down from the past and to this extent is also oriented to rules. Within the sphere of its claims, charismatic authority repudiates the past, and is in this sense a specifically revolutionary force. (Weber 1947, pp. 361-362.) pp. 32 - 33
It is the charismatic, and therefore revolutionary, quality of entrepreneurship that makes it a source of economic growth, that allows it to play the role of “industrial mutation — if I may use that biological term — that incessantly revolutionizes the industrial structure from within, incessantly destroying the old one, incessantly creating a new one” (Schumpeter 1950 [1976, p. 83], emphasis original). p. 33
Recast in these explicitly Weberian terms, Schumpeter’s theory of entrepreneurship looks something like this. In its undeveloped state, an economy is based largely on traditional behavior, which bounds the possibilities for conscious economic activity. Under the right institutional setting — bourgeois capitalism — charismatic leadership arises, in the form of the entrepreneur, to break the crust of convention and to create new wealth by “‘lead[ing]’ the means of production into new channels” (Schumpeter 1934, p. 89). Charisma is personal and revolutionary; “in its pure form charismatic authority may be said to exist only in the process of originating. It cannot remain stable, but becomes either traditionalized or rationalized, or a combination of both” (Weber 1947, p. 364). In the economic sphere, of course, the tendency is toward rationalization. Not only do imitators rush in once the entrepreneur has blazed the trail, but also the problem of succession within the entrepreneurial organization leads (if the organization is to continue) to bureaucratization, that is, to the substitution of rules for personal authority; to the creation of abstract offices divorced from their individual holders; and to the increasing preeminence of specialized knowledge and spheres of competence (Weber 1947, pp. 330-334). p. 33
Langlois has captured Schumpeter's creative destruction and the business cycle in these quotations. If we agree on the problem that faces oil and gas, the decline in deliverability, it is reasonable to assume that we agree on the entrepreneur being a key to solving the problem. Langlois notes the change that needs to be brought about are initiated by the entrepreneur. Yesterday we discussed how individuals need to approach People, Ideas & Objects with a different mindset. [The cognitive and motivational paradox', the risk of becoming blind sleep-walking agents in the hands of whoever wants to feed us.] This mindset is accurately captured in Langlois discussion of the entrepreneur.

How I see this project developing is through the entrepreneurial efforts of the Community of Independent Service Providers. Each member of the CISP, SKIE, ID or BG would fulfill the role in making the necessary changes within the industry. Each member maybe supported by 5 - 10 support staff that are able to leverage the entrepreneur's talents. These groups would be part of the larger SKIE community that would work together through the enhanced Information Technologies they build with the People, Ideas & Objects software development capability. I think this is the logical and probable makeup of the service sectors of the greater oil and gas industry. What needs to be done today is that these members need to act.

I approach this environment with a sense of self preservation. There is an abundance of work that needs to be done. I have two choices in approaching this work, I can do it all, or I can do none of it. I choose the sane approach and find a role that I am best suited to filling. Raising the money needed for development and the CISP. To involve myself in the actually software development at this point is counter productive, or more probably destructive. My key role to date has been to ensure that the change as defined by the Draft Specification happens.
But — and this is the heart of Schumpeter’s thesis — once the hard work of crust-breaking has been done, charismatic leadership is no longer necessary, and the entrepreneur must ride into the sunset. p. 34
I can be a strong advocate for this software development. I am the one to encourage the investors and shareholders in oil and gas to fund these developments. I am the one who can direct the producers to involve themselves in the various communities working to build these solutions. That is the role that I feel I should fill on a go forward basis.
As we saw, however, Schumpeter’s claims are much different. He associates “personal” capitalism with charismatic leadership. It is the entrepreneur who makes dramatic, and often creatively destructive, changes. In Schumpeter, those who come along and fill in the details are important, but it is the changes that really matter. The obsolescence thesis is a claim not that large, fully articulated enterprises may be necessary to realize the vision of an individual entrepreneur; rather, it is a claim that those enterprises will be the sources of change. Let us put it succinctly. In Chandler, large organizations are the result of economic change; in Schumpeterian later capitalism, economic change is the result of large organizations. p. 36
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.

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Sunday, May 23, 2010

Langlois Progressive Rationalization Part II

In Part II of our review of Professor Richard Langlois book "The Dynamics of Industrial Capitalism", Chapter I "Progressive Rationalization" we discuss the role of capabilities. In People, Ideas & Objects Draft Specification capabilities reside in both the firm and the market, however, the division of labor between the two is different then what exists today. We will also see in this chapter that the multi-unit vertically integrated firm is of diminishing value. How the hierarchical organizational construct was designed to provide control to the means of production and how today, that means of production is best met through dynamic markets.
As Chandler tells us on the first page of The Visible Hand, two characteristics set the managerial corporation apart from earlier modes: (1) it is overseen by salaried professionals rather than by owners, and (2) it comprises multiple units or stages of production each of which could in principle have stood on its own as a separate organization. The last characteristic is really the essential one. In the large corporation, management supersedes the price system as a method of coordinating stages of production. p. 8
Scratch the surface of any start-up oil and gas firm today and you will find the primary owners are the engineers and earth scientists that are running the firm. Using debt for leverage and to expand their scope, these small teams are actively developing a number of oil and gas fields over a five to ten year time frame. When the fields are fully developed, they will monetize their investments by selling the firm to one of the major independents or International Oil Companies (IOC's). This focus on building value is the future of the industry. Although the scope of the projects may not be as large as the multi-billion dollar programs of the IOC's. They are prototypical of how I see People, Ideas & Objects Draft Specification providing all members of the oil and gas industry with the means of value generation through exploration and development.

The future configuration of a producer firm will have a handful of engineers and earth scientists augmented by similar resources from the partner firms of the Joint Operating Committee. These individuals will be joined by the various resources of the dynamic field and service sectors on as required basis. The JOC will implement a comprehensive governance structure through the applications Military Command & Control Metaphor. The scientists and engineers will be leading these groups through the five to ten year development of the oil and gas reserves. Langlois notes;
The question, then, is clear: why did managerial coordination supersede the price system? Why did “managerial capitalism” supersede “market capitalism” in many important sectors of the American economy beginning in the late nineteenth century? p. 9
In breaking down the way that oil and gas firms operate, People, Ideas & Objects is only providing the ERP software that identifies and supports what is desired by those in the industry. The difficulty today is that each producer firm is conflicted and constrained by their own needs. One of the conflicts is that they are focused on their own compliance needs. Focused on the compliance requirements of their tax, royalty and SEC requirements as opposed to the business of the oil and gas business. Companies are also attempting to secure the global scope of capabilities that their firm may require. As a result they may have a greater in-house capability then required at any point. Replicate this over each producer firm and we see independent and mutually exclusive capabilities silo's being built. The industry as a whole can not afford to maintain capabilities in this fashion.  

As each barrel of oil produced requires progressively more earth science and engineering resources, where will the future technical resources come from? With each producer firm attempting to secure all the capabilities they can, they quickly realize the industry wide demand for these capabilities far exceeds the resource base. The capacity to increase the capability is very limited, and therefore the alternative means of deploying a limited capability over a greater scope of projects is through re-organization. Reorganizing to the JOC as the key organizational construct; permits a pooling of the capabilities from all the producers represented in the JOC and the greater service sectors. Langlois helps to define capabilities with the following definitions.
Coase noticed that there can be costs of transacting because of limitations of knowledge and information; capabilities theory insists that limitations of knowledge and information are the key to understanding everything an organization does (Langlois and Foss 1999). Indeed, transacting is just one of the many activities an organization undertakes – one of many activities requiring capabilities (Winter 1988). p. 11
Richardson (1972, p. 888) describes capabilities as “the knowledge, experience, and skills” of the firm. p. 12
Why is there an assumption that the capacities resident in the earth science and engineering resources fixed? To train and deploy them takes the better part of ten years, and the community that exists today have a predetermined retirement date. In other words its not an assumption but a fact that the population of these technical resources will probably remain constant over the foreseeable future. Based on that fact, would it be reasonable to assume, that the industry will produce no more oil and gas over the foreseeable future? That isn't the case, this therefore becomes an economic problem and not a resource constraint.
Economic growth is fundamentally about the emergence of new economic opportunities. The problem of organization is that of bringing existing capabilities to bear on new opportunities or of creating the necessary new capabilities. Thus, one of the principal determinants of the observed form of organization is the character of the opportunity – the innovation – involved. The second critical factor is the existing structure of relevant capabilities, including both the substantive content of those capabilities and the organizational structure under which they are deployed in the economy. p. 13
Innovation in oil and gas will arise as a result of People, Ideas & Objects use of the Joint Operating Committee in the manner as described in the Draft Specification. No other alternatives, that I am aware of, have been suggested. The bureaucracy can not function in today's environment, and are certainly incapable of transforming itself to the future demands of the marketplace.
In highly developed economies, moreover, a wide variety of capabilities is already available for purchase on ordinary markets, in the form of either contract inputs or finished products. When markets are thick and market-supporting institutions plentiful, even systemic change may proceed in large measure through market coordination. At the same time, it may also come to pass that the existing network of capabilities that must be creatively destroyed (at least in part) by entrepreneurial change is not in the hands of decentralized input suppliers but is in fact concentrated in existing large firms. The unavoidable flip-side of seeing firms as possessed of capabilities, and therefore as accretions of habits and routines, is that such firms are quite as susceptible to institutional inertia as is a system of decentralized economic capabilities. Economic change has in many circumstances come from small innovative firms relying on their own capabilities and those available in the market rather than from existing firms with ill-adapted internal capabilities. Chapter 5 will reconstruct the New Economy of the late 20th and early 21st centuries along exactly these lines, once again adding nuance and historical texture. If the antebellum period reflected the Invisible Hand of market coordination, and if the late 19th and early 20th centuries saw the rise of the Visible Hand of managerial coordination, then the New Economy is the era of the Vanishing Hand. p . 14
Management are being unreasonable in expecting that theirs is the only way in which to proceed. Managerial coordination in today's marketplace is redundant. People, Ideas & Objects have received no support from the bureaucracy. As a result there is no competitive form of organization to challenge managements ways. Control of the financial resources of the industry ensures that we are reduced to blind sleep-walking experts in the hands of whoever wants to feed us. (Habermas)
Schumpeter’s account of progressive rationalization takes the form of a contrast between two modes of economic organization, modes roughly cognate to the difference between the small owner-managed firm and the large multi-unit enterprise. Characteristically, however, the issue in Schumpeter is a dynamic one: he is concerned with the respective merits of these two modes of organization not in the static allocation of existing resources but in generation of economic change and growth. The paradox of Schumpeter is that he famously defended, and has come to be associated with, both of these modes as drivers of economic growth. Schumpeter has returned to prominence today as champion of the role of bold entrepreneurs in creating new combinations and redirecting the means of production into new channels, to such an extent that he is revered as an inspiration to the present-day field of entrepreneurship studies (Shane and Venkataraman, 2000). In this (Schumpeterian) literature, the force behind economic growth comes from individuals or small groups of individuals who work mostly outside the established structure of organization rather than from within it. pp. 17 - 18
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.

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Sunday, May 09, 2010

Langlois, Innovation and Process Part II

Today we discuss the second part of Professor Richard N. Langlois' January 2008 working paper "Innovation Process and Industrial Districts". A summary of the first part of this series would highlight how the service industry, Community of Independent Service Providers (CISP), users and producer firms would re-organize themselves to facilitate innovation. With the producer firms focusing on their core competitive advantages of 1) a unique asset base and 2) application of the scientific and engineering capabilities available to them. Producers would be able to increase their reserves and deliver-ability. The knowledge, tacit and codified, residing in the "Industrial District" (ID), or Small Knowledge Intensive Enterprise (SKIE) of which the CISP would be considered a part of. As Professor Langlois noted, these communities may be organized in local, regional, national and international fashion with communication being encouraged between each.

Today we are discussing the enhanced division of labor and specialization necessary to expand the economic output of the oil and gas industry. With energy demand projected to be insatiable, the focus of the industry is changing. The scientific capability of the oil and gas industry is somewhat fixed and to increase output will therefore require new forms of organization. People, Ideas & Objects proposes to build the software that identifies and supports the industry standard Joint Operating Committee as the key organizational construct of the innovative producer. Within the software it is implicit that the enhanced division of labor and specialization is a key output of the Draft Specification.
2. Specialization and Embeddedness in Industrial Districts
Differentiation, Specialization and Integration
It is an economic fact that growth is achieved through Adam Smith's division of labor and specialization. To take the energy industry to drill a well may currently require over 1,000 specialized individuals when we consider the scope of individuals from the drilling firms billing accountant to the rig hands, to the geologist engineers and staff at the member firms of the Joint Operating Committee. To move to a higher level of performance will require a more defined and broader division of labor and specialization. How this comes about is suggested in Professor Langlois' discussion of ID's. Moving the majority of the science based capability to the market is the logical choice when we consider the real competitive advantages of producers are resident in their asset base.

The Resource Marketplace module of the Draft Specification facilitates Langlois' ID's. The point that I am attempting to focus on is the need to have the necessary systems in place to support the innovation based market. In addition, a software development capability such as contemplated by People, Ideas & Objects, is necessary to continue the iterative developments within the marketplace, based on the ideas of the greater oil and gas community. 
As adaptation usually takes time, a system that is optimized in the sense that there is near-perfect efficiency in the integration of inputs is probably not only stable but static and hence endangered if the surrounding environment is unstable (as is almost always the case). It is important, therefore, that an industrial district actively generate change in its internal relationships and in those with the outside world, and that it is flexible enough to absorb change without serious losses in efficiency. Inability to change either or both of the internal and external relationships contributed to the decline of such industrial districts as the textile and fashion district of Como (Alberti, 2006) and the eyewear manufacturing district of Belluno (Camuffo, 2003). p. 4
Flexibility has its costs and these directly affect performance. That is a given, and a static industry is a dying industry. I think that Professor Langlois clearly shows the risks and shows that a balanced approach may be the best strategy. We run risks and rewards in whichever direction we take. And maybe the optimal strategy is an ability to pre-select the balance of these criteria within the systems we build. Irrespective of the choices made. The key criteria is an enhanced specialization, division of labor and a capability to further enhance the division of labor and specialization.
Embeddedness and Centralization
In our first quarter 2010 budget drive we proved the management within oil and gas will not act to develop the Draft Specification. Alternatively we have turned to the investor / shareholder as the source of our budget funding. Oil and gas investors have the opportunity through People, Ideas & Objects to build the infrastructure necessary to manage their oil and gas assets in the most profitable manner. [The stated objective of the CISP.] Langlois ID's and Perez' SKIEs facilitate this form of organization through the industry standard JOC.
Because of their structure, industrial districts offer important benefits in innovation processes. For one thing, the high levels of differentiation and specialization allow firms, in the Smithian fashion, to focus on aspects of the supply chain in which they are especially competent. p. 5
What was able to be achieved through the hierarchy and "bigger is better" organizational thinking has been lost in the past 25 years. Bureaucracies were known to be inefficiently efficient, and for the past 100 years society has benefited greatly. We now see the multitude of stakeholders of these large corporations disenchanted by the performance of these organizations. Society is concerned about the environment, consumers are demanding more, better and faster service, and shareholders are being treated as poorly as could possibly be conceived of just a few years ago. The only benefactors appear to be the management. Their lack of financial support for the ideas represented in People, Ideas & Objects ensure that their way will remain unchallenged.

I see the future in many ways being an extension of the individual. The scope of an investors domain would be much smaller and be a direct function of his / her own capabilities. A move toward a much more hands on type of operation. Management is redundant, compromised and has lost the motivation to act on its stakeholders best interest. I foresee the management role being codified in the People, Ideas & Objects software that the investor uses to manage their operations. This assumes substantial administrative performance is provided to the investor.

The stakeholders that would benefit from this need to orchestrate this monumental change through active financial support of People, Ideas & Objects. With the Community of Independent Service Providers being a critical element of the embeddedness and a "virtual" Industrial District. 
Strong ties (Granovetter, 1973) among workers, including managers, can increase the amount of information available to firms and the readiness of people to share what they know when relationships gain a dimension of friendship to counterbalance the competitiveness among firms. p. 5
Communities of Practice and Knowledge Diffusion
To suggest that the oil and gas investor / shareholder, organized around the JOC, supported by the CISP and other ID's -- as represented in the Resource Marketplace module of the Draft Specification, is a fundamental and bold redrawing of the ways and means of the oil and gas industry. One that is based on an understanding derived from 30 years of working in oil and gas, utilizing the capabilities of the mature Information Technologies and steeped in the academic research conducted here. One sees a vision of how the industry could operate in a more natural and logical manner. One consistent with the culture of the industry, the JOC, that is summarily ignored by SAP and other systems vendors. A vision that deals with issues and opportunities that are open and available to those in the changed oil and gas industry. However, does this vision provide the enhanced division of labor and specialization that we are seeking?
When embeddedness is strong, the creation of communities of practice (Wenger, 1998; Brown and Duguid, 2000) generates competences that, although possessed by individuals, are collective in that they are based on a set of practices that is common to all members of a community. These competences (both tacit and codified) can transcend firm boundaries and become characteristics of an entire industrial district. As Marshall (1975, 197) wrote of nineteenth century Britain, “To use a mode of speaking which workmen themselves use, the skill required for their work ‘is in the air, and children breathe it as they grow up’”. p. 6
Langlois defines a risk associated with a limited distribution of the Industrial District. The limited division of labor and lack of significant levels of specialization obstruct the opportunity for this type of community to develop to their full potential.
Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The results is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7
Although Langlois talks about networks and IT, not at the level needed for this discussion. Critical to the success of this type of industry re-organization will be a software development capability that is an active and involved member of the communities, ID's, SKIEs, CISP etc. This software development capability is what People, Ideas & Objects is proposing we build for these communities.

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.

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Monday, May 03, 2010

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.

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