Barbara Franklin on Nightly Business ...

Last nights Nightly Business Report has some interesting closing comments from Barbara Franklin. Ms. Franklin is a Director of Dow Chemical and Aetna Inc., and since 1980 has served on twelve other boards. She was also Commerce Secretary in the George H. W. Bush administration. Her comments were provocative and if correct show that shareholders, directors and investors are better able to deal with the governance of their firms.

Around 22:00 minutes into the show Mr. Franklin is introduced to discuss the "increasing role of shareholders in corporate governance" and "the rise of the shareholder is a blow to old school CEO's". Suggesting that our appeal to the shareholders and investors in oil and gas may not end in vain. In reviewing these comments it becomes obvious that I should include the Directors of the producer firms as I feel they too are interested in better corporate governance. A small oversight on my behalf.

The comments that resonate with the work that we are doing at People, Ideas & Objects are as follows:

The demise of the imperial CEO is at hand. They are more participatory and actively work with their boards.

After Enron and WorldCom scandals, the passage of Sarbane's Oxely act, a board room power shift emerged. Today boards are much more engaged with CEO's in a variety of ways.

• CEO Succession
• Strategy
• Ethics
• Executive Compensation
• Risk Oversight

And now a new board room power shift is in the wings. Some shareholders want to add their own candidates to a companies slate for election. Eliminating the need for proxy fights. The result could be a more collaborative governance structure in publicly traded companies. We'll see.

These are all positive initiatives. Since Ms. Franklin was speaking as if the first power shift, the boards being more engaged with CEO's, has occurred. The topics of Strategy, Ethics and Risk Oversight are areas where People, Ideas & Objects can add value to the producer firm. If as Ms Franklin suggests the second "power shift is in the wings" where shareholders are able to "add their own candidates to a companies slate" then corporate America could have the tools necessary to deal with many of the problems in today's business.

How could participation in People, Ideas & Objects budget funding help to make these "power shifts" more effective? For the shareholders, directors and investors having a direct say in the development of the software that their firm operates under, they will have the tools to deal with the firms issues and opportunities.

I have suggested many times in this blog that SAP is the bureaucracy. That management have used the SAP application to entrench their positions. As much as the management affect the change in the ERP software is the amount of change that can be exercised. Since SAP is static, the organizations do not change and management have SAP as their straw man excuse at hand.

If the ownership class had the ability to influence the software design, then they have the ability to influence much of the make up of their firm. People, Ideas & Objects is user based developments. The user community is comprised of all stakeholders. Since it is requested that the budget be funded by the shareholders, directors and investors of the firm, then they would have direct influence.

One of the breakthroughs of the Preliminary Research Report was the finding that software defines and supports the organization. To change the organization requires that the software be changed first. Therefore the investor, shareholders and directors need to acquire influence in a defined software development capability. In oil and gas that is People, Ideas & Objects.

If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

Technorati Tags: People's Governance Capability User Budget Funding
 

More constructive changes.

In my last post I showed how the Information Technologies needed to be monitored more closely by oil and gas companies. Noting that SAP's Gravity application was too powerful to be put in the hands of users without a method to ensure the technologies did not violate the compliance and governance models. This is a type of risk that I have identified many times in the past few years. A risk that grows larger each day.

It's one thing to criticize and another to provide solutions. That is what the Draft Specification is about, providing the innovative oil and gas producer with the vision, community, tools and methods needed to ensure they are compliant and working within their compliance and governance requirements. Management have chosen to stick with their bureaucracies and SAP, which defines and supports the management, for their own purposes. This blog has targeted the shareholders and investors that own the oil and gas companies, are dissatisfied with their managements, and see the Draft Specification as an alternative.

I mentioned the Military Command & Control Metaphor (MCCM) in my last post. That's for the members of the Joint Operating Committee to establish a chain of command and governance of the assets managed by the JOC. That an engineer from company A, a geologist from company B and an administrator from company C can see that the authority and responsibility are held by certain individuals and are capable, authorized and responsible for making the decisions for that JOC. This would be expanded to include the designated staff from each producer who are part of the JOC, the field operations people and those that may be consultants and / or suppliers to the property.

Not to get too off track here, I want to make a point that has not been stated before. The source of the People in the CISP are globally sourced. This provides the producer with the best possible means of having the most competitive offerings available to them.

The MCCM and the Compliance & Governance Module of the Draft Specification are designed to instill a JOC with the requisite authority, command and control based on the compliance and governance requirements. In a world where the number of people that work for a JOC may total thousands, having anything but a highly dynamic and flexible work force can only be managed by the ultra slow bureaucracy or the MCCM of the Draft Specification. If we are to expand the economic performance of the oil and gas industry we will need a more defined division of labor. A global marketplace of the talents necessary to expand the performance of the oil and gas industry. To suggest anything else is irresponsible, and SAP should know better.

How is it that the software development being undertaken by People, Ideas & Objects is able to employ the MCCM? The methods of how the development is undertaken is User involved. The User base, or as they are referred to here as the Community of Independent Service Providers or CISP is composed of the entire population of the industry. This entire population of the industry is also part of the Resource Marketplace Module. A module that provides People from suppliers, producers and vendors to market, engage and build business relationships. Where their qualifications and capabilities are able to designate their offerings as their potential role in the JOC based on the MCCM. It is then the producers of the JOC to engage in the resource and establish the transactions between the producer and its suppliers / vendors / CIPS. And designate the individuals with the requisite authority, responsibility, task, calendar etc. of the JOC. People, Ideas & Objects being part of the CISP can be included in the JOC's MCCM and therefore undertake the appropriate software developments and have the JOC with the requisite authority to make the changes to the software.

Our competitive advantage, of both People, Ideas & Objects and the CISP is to provide the most profitable means of oil and gas operations. Dare I ask what SAP or Oracle provides the oil and gas producer. Please join me here.

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Framework Alignment

One of the attributes of an SAP system is the ability to maintain the corporate entities compliance and governance. When a firm needs reporting to the SEC or the various tax authorities, SAP provides a solid foundation or framework for that requirement.

In oil and gas the Joint Operating Committee is the legal, financial, cultural, communication and operational decision making framework. It is the business of the business of the oil and gas industry and SAP knows nothing of its existence.

What People, Ideas & Objects is developing is a replacement for the SAP ERP system. One that is purpose built and designed by its users for the oil and gas producer. A system that aligns the compliance and governance frameworks with the five frameworks of the Joint Operating Committee. An alignment that eliminates the conflict between operational authority and accountability. An alignment that identifies and supports the key attributes of an innovative oil and gas producer.

In my opinion SAP provides the compliance and governance that is necessary for the public oil and gas producer. But these are not the drivers of the business. The Compliance & Governance Module of the People, Ideas & Objects Draft Specification provide the same compliance and governance that SAP provides, however, with several differences. Instead of being the driving reason of the administration of the firm, the compliance and governance are processes that fall out of the actions and processes conducted within the Joint Operating Committee.

One of the major issues that is presented by using the Draft Specification is the governance model. With the Joint Operating Committee taking a larger and more prominent roll in the day to day management of the asset. Influence and contributions come from many different corporate entities. What is needed is a governance method that can appropriately manage the asset and meet the compliance and governance needs of the producers who make up the JOC. These are the reasons that the Draft Specification has developed and introduced the Military Command & Control Metaphor governance model.

Although moving to identifying and supporting the JOC brings issues like the compliance and governance model into question. Methods to overcome these issues are sound and are enabled for one reason, in my opinion. And that is the natural way that the JOC operates within the industry. The Draft Specification is simply aligning itself with not only the five frameworks of the JOC, but the natural way in which the industry operates. This is also the reason why SAP fails in oil and gas, please join me here in building this worthwhile system.

Technorati Tags: People's Governance Military-Command Tradition Accountability

Changes at Shell.

A number of articles are appearing about the announced changes at Shell. A new CEO Peter Voser takes over July 1, 2009 and has announced a major overhaul of the firms operations. Fox notes:

Oil giant Royal Dutch Shell on Wednesday announced a series of changes to senior management roles and responsibilities, which it said were aimed at creating a sharper focus on operating performance and technology.

I interpret these changes as an admission that the engineering and earth sciences necessary for each barrel of oil produced are increasing. The Calgary Herald reported that Voser said:

"Organisationally, we are too complex, and our culture is still too consensus-oriented. Our costs are simply too high," Voser said in an email to staff, excerpts of which were seen by Reuters.

Details of the changes include the consolidation of divisions into operating units around geographical locations. North America being one in which I would assume Houston will take the lead role in. It is also reported that many lay offs will occur throughout the company. 

The Calgary Herald notes many of the differences between Shell, Exxon and BP's announced reorganizations. These are all ongoing and reflect different characteristics and management styles. 

Exxon is renowned within the industry for its strict management practices and insisting employees do not deviate from standard operating procedures. BP, on the other hand, had a risk-taking culture that allowed considerable freedom to managers of units or fields, and Shell had a culture of making decisions by consensus.

What does People, Ideas & Objects offer firms such as Shell, Exxon and BP.

• The Preliminary Research Report provides:
  
• A focus on the expanding earth science and engineering demands of each barrel of oil.
• A focus on innovation and its iterative impact on science. 
• How a firm can adopt an innovative footing.
• A greater focus on the business of the business through the five frameworks of the Joint Operating Committee.
• Providing the innovative footing and science based strategy.
• The legal, financial, operational decision making, communication and cultural frameworks of the industry. 
• A global dedicated oil and gas software development capability.
  
• Unconstrained by the paradox of code and customers. 
• Draft Specification.
• Eleven modules based on the research contained in the Preliminary and Final Research Reports.
• Firm focused application modules.
• Compliance & Governance 
• Research & Capabilities 
• Analytics & Statistics 
• Marketplace focused application modules.
• Petroleum Lease Marketplace 
• Resource Marketplace 
• Financial Marketplace 
• Joint Operating Committee application modules.
• Knowledge & Learning 
• Performance Evaluation 
• Accounting application modules.
• Accounting Voucher 
• Partnership Accounting 
• Generic
• Security & Access Control 

It's interesting the three methods that are used by Exxon (Strict Management Practices), Shell (Consensus) and BP (Risk Oriented.) Neither of these management practices or strategies are precluded in the People, Ideas & Objects. It is very clear that a unique strategic identity is enabled in each producer through this system. This also does not preclude a strong governance structure. With the reduction of the hierarchy an alternate form is required and one has been developed. That is the Military Command & Control Metaphor used within the Joint Operating Committee affording the pooling of resources and reducing the redundant capabilities built within each silo'd oil and gas firm. 

Lastly I would point to how this project is a commercially viable one by pointing out the business model of People, Ideas & Objects and the Community of Independent Service Providers. And the Technical Vision  of where the Information Technologies promise the greatest value and how this product is supported technically. 

These firms are a part of the global oil and gas industry and therefore part of the focus of this development. I encourage you to forward this post to the people you know at Shell, Exxon or BP and have them read for themselves what is possible. I would also encourage you to get involved in moving this vision forward by joining in this process. 

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Auditor comments on royalties.

An article appeared in last weeks Calgary Herald that shows that all is not well with Alberta Royalties. The Auditor General will be reviewing the systems that collect oil and gas royalties.

Alberta's auditor general is examining the province's new royalty structure to ensure it's delivering desired results, after the old regime didn't collect a fair share of revenue and failed for six consecutive years to reach the bottom end of government's targets.

Fred Dunn told the legislature's public accounts committee Wednesday his office is hoping to report in October the results of a systems audit on the new royalty framework that will identify whether the structures are in place to en-able Albertans to collect the royalties they're due.

I can tell you that the report in October 2009 will reveal one gaping whole that the Alberta Government should close to ensure royalty compliance is achieved. It is this gaping whole that leaves an industry to scream blue bloody murder when changes are introduced. A situation where the opaqueness of the industry only frustrates dealings with the government.

I have first hand experience with this situation. In 1992 I started Genesys Software Corp to address the governments Royalty Simplification initiative. A new and comprehensive system that would ease the royalty calculations and simplify the administration for both government and industry. The problem with this system is the same as the Auditor General will be talking about in October. And that problem is the industries refusal to spend any money on developing in-house systems to meet the royalty obligation.

This situation is also the reason that I am turning to the various governments to fund the development costs associated with meeting their royalty compliance frameworks. I as a software developer was expected in 1992 to raise sufficient capital to implement the regulations on behalf of government for industries compliance. In retrospect I do some very dumb things. I can look back on this in hindsight and say that industry expected someone to build it and they will come. What I have learned is this scenario meets the industry needs for royalty compliance. Knowing that no one will be able to meet the industry expectations; companies can rest assured they will never have to implement any system of royalty compliance.

I may have periods where my intelligence is questionable, however, I do not tend to make the same mistakes more then once. My current thinking is that in the virtualized Joint Operating Committee, the royalty holder(s) will have a seat at the table. This transparency will show the extent of the efforts producers take to explore and produce oil and gas, and provide a better means of discussion between royalty holder and producer. Discussions that are based on the facts involved in each JOC. Discussions that involve the innovative oil and gas producer and the royalty holder who wishes to better understand the business they are in, and the specific nature of the JOC.

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Where are the major producers

I want to clarify that everyone involved in the oil and gas industry is affected by the changes in moving to the Joint Operating Committee. It is important that everyone has some representation in which to have their concerns and needs aired and met. What I mean by this is that the individual who conducts the billing of NGL's for a major producer, has the say in how and what their job involves. How it can be improved and integrated with the many new and innovative ways that are incorporated into this system. 

The Joint Operating Committee (JOC) is systemic and culturally ingrained, therefore it applies to global oil and gas industry. It affects producers, suppliers, governments and most of all People. Everyone needs to be represented. The objective of this systems development is to ensure it and the Community of Independent Service Providers provide the oil and gas producer with the most profitable means of oil and gas operations. 

One of the deliverables in the Preliminary Specification is the geographical reach of the application. The minimum has been set in the Draft Specification as to handle North American needs. What about the other regions. Most of the intermediate and larger producers have a global reach. These producers have to be involved in making these decisions. As the Preliminary Specification is the current task at hand, now is the time to get involved. 

So where are the major producers?

Lets look at their choices. Currently SAP and Oracle are in the marketplace as providers of ERP systems to the producers. Are these producers happy with these limited options? Are they pleased with the costs and never ending difficulty in making even the slightest changes? What are SAP and Oracle's business models? Will these be affected by the economic changes that all organizations should be contemplating? I think it is reasonable to suggest these software developers business models are fine and they know they have the upper hand in ensuring their future profitability. Is this "plan" of continuing to use these applications adequate to meet the escalating needs; in terms of the earth science and engineering that is necessary for each future barrel of oil?

What will the year 2020 look like? What will the demands for energy be? How will firms operate in a world that may be fundamentally different from what we experience today? Have producers the necessary systems in place to support the innovation and change dynamics for this time period? Without People, Ideas & Objects I believe they don't. Energy is the life blood of any advanced economy. With out an abundance of energy, we will not fulfill our potential. It is these points that I would suggest are possible as a result of having all parties come together and build the People, Ideas & Objects application modules . 

In light of the oil price run up, the major producers are flush with cash. As a result of the current down turn, I see little downside in reviewing their operations during the development. Therefore what is the risk of putting resources toward People, Ideas & Objects? What would they get for their investment?

• A system based on the vision of the Draft Specification.
  
• Coverage of their geographical areas of operation through input in the Preliminary Specification.
  
• Producer can be in the front row in terms of working with users to develop innovative ways and means of defining profitable operations.

So whats the hold up? The economy is changing. Moving away from the focus on this quarters performance and more towards a longer term perspective. I hope so, that is to say we need the producers to be involved but not just for the next quarter. How is it that we can progress over the long term with a sustained effort without producers resources? How do we ensure that producers are committed to this project for the long term? This is the big question that I have no solution for at this time. 

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Our Governance & Compliance Framework

One area that I have not touched on recently is the Compliance & Governance Modules attributes. I think the key attribute that makes People, Ideas & Objects more functional and higher in performance is the Military Command & Control Metaphor that is incorporated in the Draft Specification.

Lets face it, the hierarchy is in control and has been extremely effective and efficient for over 100 years. It has been the great innovation of the Twentieth Century and deserves more respect than what I frequently belittle it as in this blog.

It also needs to know that it's time to go. Retirement is the right thing to do for the global economy to proceed in new organizational directions and methods. This is also what I think this current economic depression is. The old dying off for the new to take over.

What is the "new" and what can it do to replace the inefficiently efficient hierarchy. If we consider the "installed base" of how things operate around the world. Our Governance Model will have to be a method of organizational structure that competes with a very well established culture. And that is what the Military Command & Control Metaphor (MCCM) is capable of doing. And why it is selected as the alternate Governance structure of the People, Ideas & Objects software application modules.

The advantages we gain in adopting the MCCM are significant. The Joint Operating Committee is the organizational representative of the oil and gas partnership. A partnership that operates systemically and culturally throughout the industry. Occasionally some oil and gas assets are owned exclusively by one producer, but those situations are rare. When it comes to risk mitigation and extending the aerial extent of the operations, partnerships are a necessity.

The cultural equivalent to the hierarchy is the MCCM. People understand the rank and file of the Military far sooner then they are exposed to a hierarchy. For at least half the population, the MCCM is well ingrained by the age of five.

One advantage we see in representing a property with an MCCM. Traditionally the ability for the one producer that is designated operator is required to undertake all the necessary capabilities to manage the property. This has lead to the building of redundant and mutually exclusive capabilities in each and every producer firm. This creates the false expectation that the industry needs more talent. Whereas I think there is concurrence in the industry that it needs to more effectively deploy the resources they have, more so then acquiring new talent.

If there were a pooling of the resources of the partnerships. Then the MCCM will enable the pooled resources to operate in much the same fashion as NATO's member countries assign resources. What country is willing and capable of helping out and then the planning and assignments can be parsed out. What is necessary for these to happen is the elimination of the designated operator classification, and an ability to cost the pooled contributions to each producer in their correct or equalized ownership share. These are done in the Partnership Accounting Module of the People, Ideas & Objects Draft Specification.

A critical part of the success of the MCCM is the Community of Independent Service Providers (CIPS). They are the authors of the People, Ideas & Objects application and the people that will be providing the resources to be pooled in the JOC. They, operating their own independent services business', with the People, Ideas & Objects software in which they designed, are constantly enhancing, are the people that the producers of the JOC will be looking to fill the various and necessary roles.

I think the concept of using the Military Command & Control Metaphor is ready, and should be used in the Governance Framework of the oil and gas industry. These are the ideas that are included in the vision as detailed in the Draft Specification of the People, Ideas & Objects software application. Two related concepts that should be discussed soon are the enhanced division of labor and the natural separation of markets and firms. With the JOC being the market, and the producer of course being the firm. Please join me here in this worthwhile cause and I'll certainly do my best to make sure this content finds the people that will make this happen.

Technorati Tags: People's Military-Command Governance Organization Innovation

Professor Carlota Perez Respecialisation Part II

As promised here is the second and final installment of Professor Carlota Perez Respecialisation document.

GLOBALISATION, MARKET SEGMENTATION AND THE NATURE OF THE ICT PARADIGM

In this section Professor Perez makes a comment that I don't think I have heard before. It is also one in which we have to admit is an important aspect of how we do move to the economic prosperity that is promised in the "turning". She also draws a parallel to the "third surge" that occurred during the 1870's and continuing onto WWI.

One of the basic features of this paradigm is the trend towards globalisation, which is a consequence of the characteristics and the potential of information and telecommunications technologies.

Concluding with somewhat of a warning about investing too far abroad and neglecting advanced production systems at home.

Historical parallels do not lead to predictions; every paradigm and every set of circumstances is unique. They merely provide a useful frame of reference which points to aspects that may merit attention when analysing the corresponding period in another surge. The experience of the third surge shows that a powerful set of technological and infrastructural conditions facilitating worldwide expansion can function as an irresistible driver for global investment and trade. It gives a precedent showing that some well-endowed countries with appropriate policies can experience intense processes of catching up or forging ahead in connection with globalisation and the new technologies. It may also serve to warn that building finance-based empires abroad while neglecting advanced production investment in the home economy could later bring very unfavourable consequences.

Professor Perez goes onto to state that the British lost their dominant economic position to Germany and the United States as a result of not maintaining their infrastructure at home. I have heard many people say that the U.S. is a consumer based economy, and that is true. This does not mean that they have not invested internally to the detriment of their competitiveness. The characteristic I see the Americans having in this market meltdown is the capacity to accept change. To admit their downfall was their own fault, pick themselves up and get moving again. This remains undiminished in my opinion, and a key in their future competitiveness.

The ICT paradigm and globalization

How fast can a firm react. Today with Information Technology it is much faster then at any other point in time. Perez notes the costs of using the network are relatively small. The real costs are in the areas of research and development. That is what I have focused on in this blog for the past five years. We need to now build the application modules from the Preliminary Specification to the final Release Candidate (RC).

Knowledge capital and intangible value added facilitate heterogeneity, diversity and adaptability. these in turn lead to -and interact with- the segmentation of markets and the proliferation of niches. Globalisation leads to the interaction of the global and the local, both in terms of comparative advantages for production and innovation decisions and in terms of adaptability of global products to local markets. Production is then conceived in a complex range that may go from “mass customisation” achieving economies of scope and scale to multiple niches geared to attaining economies of specialisation. p. 21

Globalization, due to its speed and innovation of decision making, is here to stay. Despite the consequences of the current market meltdown, we need to keep this fact clearly in our minds that the inevitability of globalization is what we should aspire to.

ICT and the hyper-segmentation of markets: Outsourcing and off-shoring

Professor Perez is a a long wave Shumpeterian economic theorist. Creative destruction is what the markets have traditionally used to make the necessary changes on a permanent basis. That is what we are seeing in today's marketplace, the destruction of the old ways of doing things. We need the new globalized, IT enabled organizational structures that are able to increase the productivity of their workers and meet the markets demands for more. How this comes about is a part of what Professor Perez is suggesting.

As the processes of disaggregation and diversification become more and more complex and as the various competition factors in each segment become defined, so the relative advantages of the various regions, countries and companies become clearer for outsourcing and off-shoring. Thus, a feedback loop is generated intensifying the advantages of those initially successful in certain activities or segments, so that the assessment processes undertaken by various global companies favor them even further. This concentration eventually overshoots the mark and is, in turn, likely to generate new disadvantages that open opportunities for those discarded in the early rounds. p. 24

What is clearly being stated in this article is that the majority of the ways of doing things are going to be iterative over the life of the process. As new opportunities are discovered and implemented the firm will be able to increase the level of specialization and enhance its productivity. This is all enabled and facilitated by the Information & Communication Technologies. But how will this come about, and how will it be implemented? That is the question that I am attempting to suggest is a key criteria for proceeding with this software development project.

If we are to expect a dynamic and iterative marketplace for service and oil and gas production we are going to need an iterative and comprehensive oil and gas system that can adopt the changes. An Information Technology development capability for the future of the oil and gas industry. That is what People, Ideas & Objects is about, providing that change enabled IT capability using the Joint Operating Committee as the key organizational construct of the industry.

POLICY ACTION TOWARDS A SUSTAINABLE AND COHESIVE GLOBALIZATION

Professor Perez says something interesting that I don't think I completely subscribe to. And that is that markets may, as a result of unregulated financial markets, produce bubbles and collapses that affect the real economy and can lead to social unrest. It is certainly easy to see who has created the economic problems that we have today, (financial capital) and the risks of social unrest is very high.

As discussed in section three, the collapse of the bubble leaves three tensions acting in the economy: that between paper and real values, that between potential supply and effective demand (or premature market saturation), and that within society between the richer rich and the
poorer poor.

Since these three tensions define the conditions under which markets operate, free markets will only aggravate them. In the absence of conscious regulation and policies that will create conditions for redirecting investment towards a truly positive sum-game and a virtuous feedback cycle of global growth, the instabilities underlying the present performance of the various economies may produce collapses that could bring the world economy into recession or intensify the social tensions to the point of generating serious social unrest. p. 32

and

In the present Turning Point it could be said that excess free markets are as obsolete and represent as much of an obstacle to maximize growth in Deployment, as excess State intervention was seen to be during early Installation. p. 35

Where this discussion heads is uncertain at this time. I am surprised at the number of people who would normally shriek at the action of governments in the last few months, just accept them as necessary. Regulation of free markets may be the net result of this collective understanding that Professor Perez is suggesting is necessary.

The ‘other’ globalization, fully compatible with the paradigm and capable of unleashing a worldwide steady expansion of production, markets and well being, is waiting to be formulated. It would be production-centered and -led; pro-growth and pro-development; with dynamic, locally differentiated markets, enhancing national and other identities. But it will not be the creation of any invisible hand; it will work with the market but will require plenty of human imagination, ample participation, intense negotiations, much determination and collective political will. p. 35

I have asked a related question on this blog before. How will a globalized industry organize itself. Markets used to be created between face to face interaction. Now the ICT and globalized marketplace are able to achieve significant value add through the development of markets. This can not be and will not be through the standard face to face interactions that we are used to. I would also add the further adoption of enhanced regulations would best be handled in software.

Software defines and supports the organization. This was researched and determined in the Preliminary Research Report. We have to set out to build the software first and establish the infrastructure and market connections before they will happen. If globalization, as Professor Perez suggests in this paper, is enabled as a result of the Information & Communication Technologies, we need to focus on ICT as the key to instituting the change, ensuring that we become as innovative as possible for today and tomorrow. Please join me here.

Technorati Tags: People's Perez Software Market Governance

Carl Icahn 's United Shareholders.

I have argued here that the management in oil and gas has failed in their duties. (Running an ongoing series that I have termed the piggies.) Irrespective of the fact that management's grab bag of cash has dwindled to nothing, they have betrayed the shareholders of the companies that employ them. These people have damaged much of our lives, and we will pay dearly for their greed and myopic focus on themselves.

But we are not alone. While we are legitimately concerned about what the oil and gas industry will be able to do in the future, the extent of the damages to the capability of the industry is unknown. We are also seeing a similar wholesale management failure throughout the developed world. Currently the banking and financial communities, whose antics have been despicable, are the ones that have started us down this road of forced renewal. I am so pleased to see that people like Carl Icahn , an activist shareholder with a long history. Has established a "United Shareholders" organization to begin dealing with this systemic virus of managements lack of accountability. Icahn could be the spark plug that is needed to address this issue. (Click on the title of this entry to be taken to his blog.)

Management's use of regulations like Sarbane's Oxeley have been used to entrench their activities. In my opinion the regular frameworks adopting compliance and governance are required but are not the solution, nor are they the tools or organizational bodies that need to be employed. I see this as a civil framework that the shareholders can implement themselves. This also implies the separation of management and ownership will narrow decisively. And for oil and gas I have suggested that it is the shareholders or their representatives that are the people that participate at the Joint Operating Committee level in the People, Ideas & Objects application. 

Many of the excellent comments of Carl Icahn 's recent blog post include these points that in retrospect, are almost laughable that they were ever deemed acceptable behavior. Talking about the U.S. $700 billion bailout of the banks.

One reason that Paulson may have gotten the banks to agree to the restrictions is that they do very little to actually restrict compensation. It only covers the CEO, the CFO and the next three most highly compensated executive officers. This means that other highly paid executives aren't covered, such as Joseph Cassano, the head of AIG’s Financial Products unit who made $280 million in the last eight years writing credit default swaps that caused AIG's collapse, according to Congressional testimony this month.

This next quotation shows the possibility of a broad base of support for Ichan's initiative.

In my view, it was the boards of directors at institutions like Citigroup, Morgan Stanley and Merrill Lynch, Lehman Brothers, Bear Stearns, AIG and others that failed to stop management from pursuing risky strategies that crippled their firms. In his latest book "Where Have All the Leaders Gone?," retired auto executive Lee Iacocca writes, "Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder!"

and

"Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing," wrote Iacocca, adding, "The most famous business leaders are not the innovators but the guys in handcuffs." I’m not saying I totally agree with Iacocca, because we do have some great business leaders in this country. But there is definitely too little shareholder outrage over self-serving executives who get massive paychecks for deeply flawed performances.

Sarbanes-Oxley was aimed at making corporate board oversight stronger in the wake of the collapse of Enron, WorldCom and others. But when we see the kind of debacles that occurred over the last year, obviously that legislation is only part of the solution. What we need is millions of shareholders to rise up and demand more accountability on the parts of boards and managements of the companies they hold.

Subscribing to Ichan's blog can be done here, and if your a resident of the U.S. please sign up for his United Shareholders of America campaign. And lets start dealing with this problem from a constructive point of view. Join me here.

Technorati Tags: People's Management Failure Pig Governance

Coase, the Nature of the Firm, 1937

Professor Ronald H. Coase, a Nobel Laureate in Economics has been referenced in many of the papers that Professor Richard Langlois has written. Since Professor Langlois' work has provided the bulk of the thinking that went into the Draft Specification, I thought it would be worthwhile to go back and look at some of the papers that Professor Langlois has cited as influences in his papers.

The paper that we are reviewing is the Nature of the Firm which Coase wrote in 1937 and captures much of the thinking that won him the Nobel Prize. There is a follow on article to this entitled New Institution Economics written in 1998. I acquired both papers through JSTOR and they are available there to those with access.

Langlois' key attributes in the Draft Specification were the defining of the boundaries of the firm and market, and transaction cost economics, particularly "dynamic transaction costs" which he defines as;

The need to bring otherwise decentralized knowledge together & co-ordinate it especially in circumstances involving learning and the generation of new productive knowledge. Langlois

A Joint Operating Committee (JOC) is represented by many different producers. If we are to eliminate the excess demand for human resources that exists in the marketplace today, and is projected to become much worse with the pending retirement of the brain trust. Then we need to eliminate the redundant duplication that exists from each producer aspiring to conduct all the operations that are necessary within their organization themselves. Specifically what resources are available if we pool the resources of the working interest partners in the JOC.

Implementing the Military Command & Control metaphor that assigns the roles and responsibilities across the organizations in much the same manner that NATO does; the JOC adopts a governance structure that is workable. This is particularly important as the expected volume of engineering and earth science applied to each barrel of oil is increasing each year and is the reason the bureaucracies costs are escalating and their reserves are declining. Based on Langlois dynamic transaction costs, there will be additional costs associated with these activities.

This post being a follow on post of our review of Professor Sidney Winters. In which the definitions of what is necessary for a firm to approach both the short and long term horizons of the business environment. A clear separation of the types of work being conducted on either side of that dividing line or boundary between the firm and market. Coase notes the following with regard to the topic at hand;

Our task is to attempt to discover why a firm emerges at all in a specialized exchange economy. p. 390

I wish to highlight an area of conflict that currently exists in the industry. That is the capital and operating cost escalation in oil and gas is attributable to the "greed" of field suppliers and contractors that want to earn their due when the sun is shining. This may be the case, however, I would suggest that the companies inability to work with the suppliers and treat them as extensions of their organization is the root cause of this cost escalation. The people in the field should be extensions of the producers organizations, they are how the firms can acquire the necessary "local knowledge", by using the market.

The main reason why it is probable to establish a firm would seem to be that there is a cost with using the price mechanism. The most obvious cost of "organizing" production through the price mechanism is that of discovering what the relevant prices are. The costs of negotiating and concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account. pp. 390 - 391

Lets take a look at the business of the metaphorical widget factory. Most of the widgets are manufactured or assembled in-house with staff that are applied efficiently on the basis of their specialization. Their domain of operation is essentially contained within their four walls and they are able to see and realize the obvious and not so obvious. This is somewhat of a static situation throughout the term of the life of the firm. Oil and gas operations are scattered. They are short term operations based on some form of geological theory that is being applied, tested, and some of the time, rehabilitated. The daily production of oil or gas is a 24 hour operation that provides strong cash flow and earnings with little if any human supervision during the production period.

The oil and gas business would seem based on this description to employ the resources of the market on a contract basis using the full extent and value of the price system. To do otherwise is beyond the scope and scale of the producer company. These costs are inherent in the business and as such we should optimize the energy firm in the use and processing of transaction costs. These elements of the Draft Specification are detailed in the Accounting Voucher module.

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

All economic growth is achieved through greater levels of specialization. That is a known fact. For oil and gas producers their enhanced productivity will arise as a result of the effectiveness of implementing this higher level specialization. A tall order when the activity levels and scope of the sciences being applied to producing properties are so high. This is the point that I am trying to make. If an enhanced level of productivity is to be achieved in the industry, the field operations will need to implement and host a greater division of labor. That also applies to the JOC, where the pooling of resources from the participant firms will increase the division of labor at that level.

I now want to focus on the group of individuals that make up the long term view of the operations group contained within an oil and gas firm. These people are actively looking for better ways in which to conduct their operation. Focused on the sciences, they innovate and develop the means and methods for enhanced oil and gas exploration and production. Using the market to implement these, the firm needs to be actively involved in the business development of that market. Such that a speed and innovativeness is attained based on the understanding of the underlying sciences.

How the Draft Specification deals with this particular issue is through the publication of generic data of the producers planned capital expenditures. This interface of the Petroleum Lease Marketplace provides the market with an understanding of what and where the industry will need to be doing in order to achieve their goals. Suppliers are then able to better read what it is that they are expected on a long term basis. Producers on the other hand are able to see through the Research & Capabilities module those ideas of interest. And then engage the marketplace to develop and build those capabilities.

The alternative is to continue along in the muddling sort of way that has brought us to this point. The companies today telling the market place that it is greedy is only making the situation worse. The companies expect the market to read their mind and build the capabilities for the future. To continue to have this being done on speculation is going to further retard the growth of the industry. Holding 100% of the industries revenues and doling them out as dog bones provides a lot of power to the industry. With that power comes the responsibility to effectively ensure that the markets they use are operating correctly. It is my opinion they are not.

It is commonly said, and it may be true, that the new institutional economics started with my article, "The Nature of the Firm" (1937) with its explicit introduction of transaction costs into economic analysis. p. 72

How this of course is implemented is through detailed software applications built specifically for this purpose. This is one of the many opportunities available to the industry from this software development project. Some may say that I am reaching here in terms of the ambition of this module, I believe Coase supports these with the following comments.

In effect it is the institutions that govern the performance of an economy, and it is this that gives the "new institutional economics" its importance for economists. p. 73

and

Economists often take pride in the fact that Charles Darwin came to his theory of evolution as a result of reading Thomas Malthus and Adam Smith. But contrast the developments in biology since Darwin with what has happened in economics since Adam Smith. Biology has been transformed. Biologists now have a detailed understanding of the complicated structures that govern the functioning of living organisms. I believe that one day we will have similar triumphs in economics. But it will not be easy. Even if we start with the relatively simple analysis of "The Nature of the Firm," discovering the factors that determine the relative costs of coordination by management within the firm or by transactions on the market is no simple task. p. 73

Information & Communication Technologies (ICT) are not the solution as much as the means in which new organizational structures are able to resolve and provide these features.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): "The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics." p. 73

The alternative is to continue doing the same things with the same organizations with the same results.

This change will not come about, in my view, as a result of a frontal assault on mainstream economics. It will come as a result of economists in branches of economics adopting a different approach, as indeed is already happening. When the majority of economists have changed, mainstream economists will acknowledge the importance of examining the economic systems in this way and will claim that they knew it all along. pp. 73 - 74

Please join me here for this difficult but worthwhile task.

Technorati Tags: People's Langlois Governance Voucher Innovation

Apple, my favorite tech company.

Apple is a company that has risen from the ashes in 1997 to a stellar performer and one of the top four technology companies. Only Google, IBM and Microsoft are larger in terms of market capitalization. Apple had a market cap of approximately $700 million in 1997. Today it is $153.3 billion.

Here is a firm that has taken the world by storm in one of the highest profile industries, and in ten years turned itself into a juggernaut. I'll bet their stock based compensation must be stratospheric. Not really Apple recognized $242 million in stock based compensation for 2007 and $631 million in unrecognized compensation for a total of $873 million.

So here we have what has to be the greatest story of a company rising from the ashes and building 219 times their 1997 values. Apple is 2.4 times the size of Encana (the largest oil and gas company that I have highlighted in this stock option review). Only Apple is capable of approaching the values of the stock option feeding frenzy of these producers. We know that Apple's management generated $152 billion in shareholder value to earn their stock options, what have these oil and gas companies done to deserve theirs?

Technorati Tags: People's Energy Governance Failure

The IEA gets it.

The IEA has as their guiding principle "Energy Security, Growth and Sustainability through cooperation and outreach." This is the appropriate position for every energy consumer or producer. As consumers we should not limit ourselves in any manner. Acceptance of a lower standard of living, or a future that is constrained by energy, is a defeatist attitude and capitulation of the benefits of globalization.

As a producer the efforts to fulfill that promise to the consumer now comes with extremely attractive financial incentives. Isn't it too bad that the industry, which is at record levels of capital expenditures, is moving backwards in their production volumes. As is painfully obvious to most, the organizational methods of the industry do not enable them to participate in this market for much longer. This is not a job for the bureaucracy.

You can however mark me as surprised when I read the following in the Australian Business;

The IEA's outlook resonated with the views of oil company executives at an industry conference in Madrid, who said the red-hot oil market reflected deep-seated pessimism about the industry's ability to open the spigot to satisfy rising demand.

The industry actually kind of admitted they understand the problem. I have certainly made it clear that the producers management lack the motivation to do anything about it. And it will be the investor class that needs to fund these software developments in order to provide them with an alternative form of organization for their oil and gas assets. This quotation from a number of faceless executives at a conference is the first tangible recognition that a problem exists. We however, do not have the time to wait for these companies to do something about it. Our first act should be to axe the management of these failing firms.

Perhaps one of the most disappointing figures to emerge from the IEA report was its assessment of oil production by nations outside the OPEC cartel. Non-OPEC supply was "paltry to say the least", said Mr Eagles, the IEA's head of market analysis, and had been revised down since last year's market report. He said crude supply from non-OPEC countries would remain at or below 39 million barrels per day over the next five years, though it would rise after 2013.

The Wall Street Journal noted the following in their blog;

Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated [IEA Executive Director Nabuo] Tanaka.

And Yale comes in with the following;

Global leaders fret about climate change and economic growth, throwing out blame in many directions. But finding fault or inequities does little to solve the problem of rising demand for energy and a declining supply, argues Chandran Nair, founder and CEO of the Global Institute for Tomorrow. The bottom line is that the world economy has become too dependent on fossil fuels.

It is tiresome to be reading these quotes about the problem. If you read the 2007 annual reports the companies could not be happier with the situation. They had the opportunity to do something about this almost five years ago. When I proposed this software development solution in September 2003, an idea that they clearly understood, and an idea they stole from me and handed over to Daniel Yergin's company, Cambridge Energy Research Associates to research. Isn't it also ironic that Daniel Yergin's "unprecedented 16 million barrels" of new production never showed up? Good thing CERA's 220 PhD's were'nt as quick as I was in publishing.

If the producers management thought it was such a good idea to spend money on the idea of using the Joint Operating Committee as the key organizational construct in September 2003 with CERA, doesn't this prove they are guilty of allowing this situation to occur? I repeat the management are not realizing this situation in a conference today. Matthew Simmons has been warning about it for almost a decade. These companies are not acting in anyones interest but the self-absorbed managements. Take any companies stock options and calculate the amount they "are in the money" and you'll see how effectively the scam has worked.

For example taking our favorite company in Canada, Petro-Canada, has options that "are in the money" for $410 million. And total 2007 option based compensation (Using $53.62, their end of year price) was $82 million. Just to make sure they don't seem too greedy, they did issue $255 million in dividends. (Note this was a topic of discussion on this blog in 2006, so it is fair to say the management did know about this.).

Technorati Tags: People's, Organization, Failure, Governance, Yergin,

Succeeding at open-source innovation.

An interview with Mozilla Chairman Mitchell Baker.

McKinsey remains very topical with the work that is being done here. In this interview, Mitchell Baker reflects on the successful innovation she has experienced at Mozilla. A Lawyer by training she has been involved with Netscape / AOL / Mozilla for over 10 years.

The interview begins with the focus on Mozilla's participation model. With a staff of 120 and an army of volunteers, each group contributes to the code base, Ms. Baker credits both elements as critical and key to Mozilla's success.

McKinsey asks, "How do you motivate people to contribute to Mozilla, especially after ten years?" Ms. Baker notes the evolution of the browser, its dark side of pop-ups, spam and spyware and the greater conflict that Microsoft brought to the browser arena. And the elimination of gate-keepers in accessing the Internet. If not for Mozilla, Microsoft may have intimidated browser vendors to the point of extinction. These are the reasons that many have joined the Mozilla community and contributed. And;

Second, our product makes a giant difference in the lives of our volunteers, and they take ownership of it. I don't know if you could build this degree of motivation for something that really didn't change people's lives, something that they weren't emotionally committed to. But the number of people who feel that Firefox is partly theirs is very high.

I know this emotional commitment exists within the oil and gas User community.

I want to highlight these comments of Ms. Baker's and draw a parallel to the community that is being built here. No one individual knows all there is about oil and gas. To build a comprehensive system as I have described here needs the diverse and robust community to define it and build the software. I can't think how that can be done without the Users of the software emotionally involved in the manner that Ms. Baker speaks about her volunteers. And as I have stated before, this community has to be financially supported by the oil and gas industry. Both developers and Users need to be, and will be, compensated for their time and efforts.

In answering the McKinsey question "What has been the biggest surprise in the time you've been working at Mozilla? "Ms. Baker states;

That we had exactly what was needed at exactly the right moment. You often see this in start-ups that burst onto the scene and grow dramatically. There's a lot of hard work and smarts, but also some piece of timing is right. Those things, you can't control; you need to be ready.

I hope that I would not be considered presumptuous in stating that I think we are ready. Join me here.

Technorati Tags: People's, McKinsey, Open-Source, Governance

Google and CapGemini in agreement.

As I have indicated here before, "Google Apps for your Domain" is the collaborative environment chosen for www.people-ideas-objects.com. Today Google and CapGemini, Ernst and Young's technology division, announced that CapGemini would be supporting users for the use and integration of Google Apps.

CapGemini will be a resource that will be available to help the users of People Ideas and Objects collaborative environment. I look forward to using CapGemini's services in this area.

The warning that CapGemini notes in the announcement, about these collaborative environments being used within a company in an unauthorized manner, is similar to the warning I issued 42 months ago. That port 80 was able to allow these types of applications through the firewall was as big a danger then, as it is now. I can also assure you that when a major accounting firm is announcing the risk, it's too late to do anything about it. And I can certainly provide you with a domain name that is already being used in this manner for oil and gas. ;-)

Technorati Tags: Genesys, Alternative, Governance, Software

The Firm in a Knowledge Perspective.

Professor Sidney G. Winter, The Wharton School, May 15, 2006, European School of new Institutional Economics presentation slides.

Professor Sidney Winter presented at last Years European School on New Institutional Economics (Esnie). Click on the title of this entry to be taken to Esnie. It appears that Professors Winter, Dosi and Langlois have submitted working papers and participated in this organization. Also, I have included Esnie in both the oil and gas and academic "Google custom search engines" you can find in the first column of this weblog. Although Professor Winter did not submit any working paper, and his presentation is only 23 slides long, there is much to learn from this resource, so lets begin.

Recall that many of the papers that have been reviewed on this blog were authored by Professor Winter and the "Winter" label will pull together the individual blog posts. With only 7 posts to date, Professor Winter's contribution is of very high quality. The firm in a knowledge perspective is something that I recently wrote about in the Life and Times of Humpty Dumpty. I suggested that Chrysler's loss of engineering capability in the move to design teams is something the energy producers needs to consider may also apply to them. In the redefining the boundaries of the firm I have also suggested here that the scientific and engineering research capability reside with the firm. This is so that the losses realized by Chrysler are not symptomatic of the move to "Design Teams", or similarly, the Joint Operating Committees in the energy industry case. And operational performance metrics override the knowledge capability within firms. I have also suggested elsewhere that the competitive advantages of an oil and gas producer depend on their land base and the capability to find and produce oil and gas are the critical competitive strategies and value creators. This article will therefore focus on the role of the firm and particularly the Research Module of our proposed application.

Winter suggests the key competitive advantage of a firm is the "Knowledge Based View" a subset of the "Resource Based View." Clearly arguing that the knowledge of the firm is the key competitive advantage. This may seem contradictory to what I just stated about the land base and engineering and science based capabilities as the competitive advantage of oil and gas producers. I think we are saying the exact same thing. What does a company know and how is it known? What key resources are required to deploy that capability? (Land, Scientific and Engineering Capabilities). These are more direct questions that seek to reconcile the two different "views" of what has been stated. It is the knowledge of the firm and the ability to deploy it that makes the firm more competitive. And Winter concurs with this assertion with the following quotation;

"Some speak of a competence view or a capabilities view or even a dynamic capabilities view -- all to roughly the same, fairly vague, effect." Slide # 2.

As we have discussed before, in determining the boundaries of the firm and the market. I believe the market is ready to take on a greater role in deploying and developing the innovative approaches to how, what, where, when, who, and why of the industry. To have the contracts between firms free the hand of the market to conduct the operations in dare I say a "just in time" basis. These contracts are able to handle the transaction costs better then the bureaucracy is able to micromanage at this time, primarily through enhanced Information Technologies. And it is this thinking that Winter states

"In that view, firms are where productive knowledge lives, the only place it lives, and knowledge does not travel among them. When firms are a "nexus of contracts" or have boundaries determined only by transaction costs, this traditional perspective tends to fade form view." Slide # 3.

Here I think Winter, is also making the assumption that the move to Design Teams at Chrysler is responsible for the slackening in the intensity of global engineering capabilities. And therefore the risk of a degradation in firm knowledge and capability is a potential outcome of organizational change focused on moving to a market perspective only. The firm exists, and it is the firms sole responsibility for knowledge.

On the next slide Professor Winter comes in with a few solid home runs.

"On this view, firms are central to the social arrangements for storing productive knowledge for extending its application, and for advancing it - three very closely related economic functions."

and

"Of course, there are also other players - other types of institutions, organizations and individual roles complement the firm role." Slide # 4.

This last point firmly pointing to the production related transactions, and other activities of the Joint Operating Committee as proposed in this table.

Winter then makes the point of this discussion with a handful of objectives. Slide # 5.

• "Explain what has been added to the traditional understanding of knowledge and the firm."
  
• "Point out some specifically "institutional" aspects of the current view."
• "Take note of recent and potential research topics in this area."
  

It is also at this time Winter takes the entire scope of operations and opens it up for consideration and discussion. Slide # 6

• "Organizational learning."
  
• "Creativity and innovation, and diffusion." (Innovation has been primarily assigned to the market or JOC.)
  
• "Knowledge transfer -- transfer of practices, replication (broad scope), imitation (from afar)"
• "Industrial and technological evolution."
• "Knowledge Management."
• "Communities of practice, networks."
• "Routines, capabilities, dynamic capabilities."

Outside of innovation these items should be conducted primarily by the firm. With the caveat that items like "creativity" are not the sole domain of the firm or the market but the global oil and gas industry.

Next Winter asks for and attempts to define what knowledge is. Noting that "it is to achieve some understanding of how society's work gets done." Let a definition emerge! (If needed.)" And Winter provides an excellent definition of "productive knowledge that guides work" with a few global parameters. Slide #'s 8 & 9.

• "Situated, context dependent."
• "Embedded - in physical, temporal and social contexts at various levels."
  
• "Partly Tacit - skills, pattern recognition, not facts."

If we look at these three parameters and the scope of operation of the upstream oil and gas producer. We see the constraints and opportunities based on this definition of knowledge. I hesitate to discuss the impact of these three categories of knowledge for fear that I may limit the scope of the knowledge base. I will state however that the importance of this definition needs to be codified in this applications Research Module. "How" may have to wait until I complete more of this research into this critical area. That I believe the energy industry needs to move in this direction obviously resonates with the academic community overall. Today there is more research being put into these areas. It is overwhelming in volume and quality of the work being done. I can also assure my readers that the scope of this problem, what I am asserting as the "Chrysler Issue", for purposes of this blog, will not be raised as a reason for any failure associated with this software application. The scope of the "firms" responsibilities has not diminished in my opinion. The firm needs to be as strong, and as involved in their operations then they ever have been. The boundaries of the firm, and the allocation of some responsibilities to the market does not provide any opportunity for the "Firm" to rest. The transition will bring an enhanced focus to the competitive differentiators of its land base and this knowledge stuff. And Winter agrees. With Slide # 10 recreated here.

"Therefore,"

• "We must put aside, probably forever, any ambition of drawing a sharp conceptual line between productive knowledge and the context in which such knowledge is operative."
• "All three of the named considerations point to the infeasibility of that; it is a futile exercise."
  
• "The good news: dropping the idea may be the main key to understanding knowledge."

It is at this point that Winter provides an excellent discussion on the issues around personnel turnover and firm knowledge. Citing a combination lock with three numbers from 0 to 9 on each dial. If each dial were represented as an individual, it is fairly easy to replace only one, in fact it would only take 10 tries to have the key replaced. If all three need to be determined it may require a 1,000 searches and 500 expected in order to restore the combination. A strong analogy to the human resource issues that are being faced in the oil and gas industry as we transition to new leadership and management. The retirement of the baby boomers in the next 5 to 10 years, based on this analogy, may be devastating to the operations of the firm and market. If the knowledge that is contained within the boomer generation isn't captured in the short time available, we could experience serious difficulty.

It is at this time that I want to add this information to our table and module breakdowns. And this is how I see the situation evolving;

Construct	Market	Firm
Joint Operating Committee	P	s
Military Styled Command and Control	s	P
Transaction Costs	s	P
Production Costs	P	s
Innovation	P	P
Routine, compliance and accountability	s	P
Research	s	P
Development	P	s
Financial Framework	P	s
Legal Framework	P	s
Cultural Framework	P	s
Operational Decision Making Framework	P	s

P = Primary
s = secondary

Application Modular Breakdown

So if we take a moment and define some of the modular architecture of this system.

• Partnership Accounting Module,
  

• Petroleum Lease Marketplace,
  

• Human & Supplier Resource Marketplace,

• Financial Resource Marketplace,

• Governance & Compliance Module, (a.k.a. Military Command & Control Structure)

• Research Module (Primary is the Firm)
  
• Firm Knowledge Objectives
• Storing Productive Knowledge
• Extending Knowledge Application
• Advancing Knowledge
  
• Organizational Learning
  
• Knowledge Capture
• Situated, context dependent.
• Embedded - at various levels
  
• physical,
  
• temporal
  
• social contexts
• Partly tacit
• Skills
• Pattern Recognition
• Not facts
• Replication
• Imitation
• Knowledge Management
  
• Industrial and Technological Evolution
• Communities of Practice, Networks
• Creativity, Innovation and Diffusion
  
• Other
• Routines
• Capabilities
• Dynamic Capabilities

I think the primary thing we have learned through Professor Winter's slides is that the firms role is not diminished in this proposed organizational change. And with some concurrence on the issues regarding Chrysler. Some of the aspects and attributes are ceded to the market, however, the firm is as vitally needed in these new capacities as it has in the past 100 years. As we look to the challenging future of the energy industry, the needs to address these points will become more prescient as the knowledge contained within the firm begins to retire, and hopefully left in the hands of those that will able to continue on.

I noted in the entry about Matthew Simmons that May 2005 was possibly the point of peak oil. Which may or may not be the case. It is important to realize an interesting aspect of all declarations of peak oil in terms of a single field or a single country. (Such as the U.S. onshore peak occurring in 1972) Each time that the Peak has been attained it is also the point where half of the recoverable oil or natural gas remains in the ground. So even though the total throughput will continue to decline. At least we know the reserves that remain are what fueled the world economy for the past 140 years.

Technorati Tags: Genesys, Winter, Organization, Governance, Innovation