Another McKinsey survey.

This survey is reported by Dr. Nicholas Carr on his Rough Type web log. (Click on the title of this entry to go there.) Noting that large percentages (61%) of companies in North America are on the verge of adopting SaaS (Software as a Service). Their motivation being, and it is a subtle point, that companies are moving closer to Dr. John Hagel lll's idea that industry will need to restructure as either;

• Infrastructure Management (Firms like Genesys providing SaaS solutions.)
• Innovation Management (The key role of the producer (Based on capabilities and oil and gas leases.))
• Customer Management (The down stream business of refining and marketing.)

As I move to secure some of the residual budget allocation for 2006, I will be highlighting these points to the industry, I only hope they are listing to the volume of people that are speaking to these issues.

Technorati Tags: Genesys, NicholasCarr, McKinsey, Research, Survey, SaaS, Call-to-Action

A different approach.

It could be argued that the focus of this research is a software product that falls within the classification of vaporware. And it does. However I would put some spin on the classic definition of vaporware and call this a clean slate approach to oil and gas systems. The category that this "product" is in is difficult to define and therefore difficult to build without the express support of the oil and gas industry. This final research report is an attempt at communicating these concepts far and wide within the oil and gas industry in an attempt to find an audience. The strength of the concept of using the Joint Operating Committee requires that every data element, every relationship, and every process be revisited and rewritten. New modules and marketplaces will be built to eliminate the old software classifications.

I am attempting to articulate a vision of what a new approach could do in the systems area. It certainly is vaporware as no group or company has ever approached the joint operating committee as the central organizational focus. How can I, as one individual, do all this work in order to make a viable system exclusively for the producers? The clean slate approach has to be communicated in a way that the system could and should be built in order to accurately describe its features.

I have identified several points that present future difficulties in oil and gas systems. Partnership Accounting, Human Resource Marketplace module, Petroleum Lease Marketplace module and the Genesys Technical Vision are the foundation of this final research report and are unaddressed by the competition. All these aspects of future software systems have to be addressed and neither SAP, Oracle or IBM have a solution or vision that is as compelling as shown in this research report.

To be more specific, the perspective of using the joint operating committee brings new and better ways of managing an oil and gas enterprise. From a systems point of view oil and gas has ignored and avoided the joint operating committee as it conflicts with the underlying purpose of the bureaucracy. Significant contradictions and conflict have crept into the oil and gas producers’ operations that results in the Joint Operating Committee being precluded from the systems used.

This project was originally proposed to the industry in 2004 as an $85 million software development project. The producer must ask itself,: isn't it more appropriate to keep your options open ? What if SAP and Oracle continue with their current offerings; will those be adequate in the future? A future with IPv6 capability? A further question that needs to be asked, and based on the work of John Hagle III and John Seely Brown, is : Are the proposed industry stratifications changing to be reflected as either innovation management, infrastructure management or customer management?
Is there an expectation or belief that the bureaucracy and its use of last century’s technologies can hold a candle to this vision? These technologies and the forces of change in all areas of the economy have to be addressed. Oil prices are up almost 300% will result in the reallocation of financial resources to support innovation. Organizations are constrained in their speed and innovativeness due to the bureaucracy and its refusal to accept the joint operating committee as the explicit form of organization. Constraints in human resources, field capacities and speed to market are real issues that jeopardize the industry.

We have consistently seen successful companies that were able to integrate technology into their strategy and form strong competitive advantages. A company such as HSBC. Homogenization on SAP is not a competitive strategy. I have now counted 12 calls to action from Harvard, Oxford Analytica, MIT, McKinsey, John Hagel III and John Seely Brown, Secretary Bodman, SEC Chairman Christopher Cox and a variety of others. Add to these calls the demands of the consumers. The time to act and put these software developments into play is now.

Ray Lane is a partner at Kleiner, Perkins, Caufield & Byers and a former president of Oracle Corporation. He knows what he is talking about. This entry will take you to a Business Week article that documents many important points. Two of these points I want to discuss in this entry, they are:

"The traditional method of selling big corporate software applications as multi million-dollar packages that take years to implement is broken."

"The 70% of startups out there that are trying to do what the big companies do, only better, faster and cheaper - it's a fools errand. The customers would like to buy that from a large company, so they’re going to lose out." Ray Lane

Surprisingly, perhaps, I think he is right on both counts. The large multi year, multi million dollar packages are the dinosaurs of the software world. Even Petro Canada tried to implement SAP and after $14 million gave up. It’s fallacious to try to retrofit the company to the software.

On the second point of Ray Lane's, stating that the startups will fail, is something that I struggled with at the beginning of this process and something that I think I can also prove is not valid in the oil and gas sector. The two points that I would assert in my defense is that I am the copyright owner of the methods and processes discussed in this research, and in the preliminary report. I published my thesis in May 2004. I have tangible evidence that the state of the art thinking was not as advanced as what I proposed in September 2003, and earned in the publication of the Plurality document.

Back in 2003 I concluded that the software vendors could consume themselves competing with new offerings and no one would have been able to secure a competitive hold in the market. The only manner in which to establish a competitive offering, I felt, was to own the intellectual property as the key competitive advantage. The copyright, and other forms of intellectual property are the only sources of value in this new age.

Secondly, if anyone thinks that a large vendor is going to be able to write the code for the Partnership Accounting, Human Resource Marketplace, Security, Petroleum Lease Marketplace module that I have spoken about in this report I think they would be mistaken in their expectations. What is needed is a clean slate approach and the heavy involvement of potential and future users. The day and age when the software innovations were brought to the industry’s door through the cottage software industry has ceased. The involvement of the industry in its software development needs is mandatory, and become an inherent capability

So on that basis I would agree and disagree with Mr. Lane. Intellectual property is the only method of securing any kind or competitive advantage in this new day and age. Those that attempt to build systems without their differentiation being codified and protected are in my opinion wasting their time. What is required to compete with this software is some fundamentally different basis of organizational structure for the software to define and support just as I have outlined here.

Technorati Tags: Genesys, approach, perspective, proposal, research

Tacit organizations and creation nets.

More from the editor.

McKinsey Consulting, John Hagel III and John Seely Brown have published a series of articles which touch on "Creation Nets" and "Tacit Organizations". This is a summary of the articles as they apply to this research proposal. Much of what is said is a direct call to action and I have selected this article to stand on its own with respect to how the industry could and should be re-organized.

"Tacit interactions are becoming central to economic activity. Making those who undertake them more effective isn't like tweaking a production line."

This article states that tacit interactions, consisting of collaborative and complex problem solving, are the primary means of future economic value. The majority of these interactions are found in western-based economies and are conducted by those that earn higher salaries. The article goes on to say;

"During the next decade, companies that make these activities - and the employees most involved in them - more productive will not only raise the top and bottom lines but also build talent based competitive advantages that rivals will find hard to match."

and

"But building these advantages won't be easy: companies must alter the way they craft strategies, design organizations, manage talent and leverage technology."

Today the technology exists to collaborate at a basic level. In the next ten years the development of collaborative applications will enable those firms that choose to increase these tacit interactions, with "competitive advantages that rivals will find hard to match."

McKinsey goes on to better define what is meant by tacit interactions noting "the searching, coordinating and monitoring activities required to exchange goods, services and information". The developed economies are finding the volume of tacit interactions are growing faster than in any other category or job description. Increasing to the point where they are taking up almost half of the resources in certain industries. The developing world is not far behind and has opportunities that could match the developed worlds pace in a very short period of time.

Automation of the business process, or transactional activities, does not augment the performance of tacit interactions. How a firm may increase those tacit interactions and increase performance is not well known or defined at this point.

"But that must now change. Executives will have to learn to innovate, and manage in era when tacit interactions dominate and drive performance."

Facilitating the opportunity for people within your organization to increase tacit interactions requires the management to provide the tools for people to do their jobs. In oil and gas, I would suggest that direct participation of all members of the joint operating committee, collaborating in a virtual environment is a part of the Genesys application being developed. Each engineer, geologist, administrator and developer are there to represent their companies' interest in the area. Collectively the groups are able to collaborate and have the software support their thinking and decisions with tools that handle the business end of these interactions. For example, if it is determined that a sand frac is to be used on the well the following processes would be invoked:

• the contracting firm is chosen
• a purchase order is created
• a contract is made
• the invoicing and payment for those services are completed

These are all as a result of the decisions made by the joint operating committee (JOC). This frees employees to conduct a greater volume of tacit interactions and innovations that are necessary to meet the market demands for energy.

"Workers engage in a larger number of higher quality tacit interactions when organizational boundaries (such as hierarchies and silos) don't get in the way, when people trust each other and have the confidence to organize themselves, and when they have the tools to make better decisions and communicate quickly and easily."

McKinsey has conducted a survey of 8,000 companies and determined that certain sectors had higher levels of tacit interactions. Within each industry the number of tacit interactions was widely variable and appears to have a direct correlation to the overall performance of the firm! McKinsey goes on to say;

"The need to move forward is both substantial and urgent."

High levels of tacit interactions were consistently shown to have built substantial competitive advantages. These advantages were difficult to be replicated by competitors as their "power lies in the collective company specific knowledge that emerges over time."

McKinsey goes on further to state that these require a;

"New Management Science"

and

"Require changes in every facet of business, from hatching strategies, to organization, to managing talent, and leveraging IT."

The Genesys systems will be developed with the joint operating committee as the organizational construct and focus. This will enable high levels of tacit interactions and collaboration throughout the enterprise, the partnership in which the JOC is represented, the industry as a whole and the individual professional groups.

Consistent with the need to revisit all aspects of the firm, McKinsey believes the role and purpose of strategy and its development take on a higher importance than they once did. This becomes the critical task of senior management to provide the overall scope of interactions and their derivative innovations. This implies that innovations occur at the front lines of the business, not in the management ranks. The means that companies use to enhance the volume and value of tacit interactions is captured in the following;

"Tacit interactions reduce the importance of structure and elevate the importance of people and collaboration. Some of these changes are already underway. In many companies people now come together in project teams, address an issue, and disassemble to start the process again by joining other informal teams. In fact this approach is common in certain professional services and engineering firms, so their organizational charts rarely reflect what is really happening in them. Hierarchy busting has been a theme in the business press for years, but the pace of change has been slow and its effectiveness questionable."

The technology that companies will need to employ is fundamentally different from those used today. In addition to the enhanced communications, these technologies needs to be brought into context for the next ten years that McKinsey suggests these changes will occur. This proposal provides a technical vision that is necessary for these interactions to grow in unpredictable ways. Key will be the asynchronous process management and its ability to mirror the unpredictability of events as they occur.

Technorati Tags: Genesys, McKinsey, Tacit-Organizations, Creation-Nets

Calls to Action

More text that will make up the soon to be published proposal to industry.

There have been a variety of what I refer to as "Calls to Action" regarding the organizational structure of companies. Suggestions are made for companies of all sizes, but particularly for larger firms. These calls echo the message that I published in the preliminary research report "Plurality Should not be assumed without necessity."

Harvard Publishing

The expiration of the use and function of the organizational hierarchy is being discussed by members of the academic community. Harvard has published a book "Winning at Collaborative Commerce" (ISBN 0750678178) which addresses the need for organizations to use the collaborative tools currently available to eliminate the negative attributes of the hierarchy. Here is a summary written by a Harvard editor:

"More than ever, companies are sharing data, processes, and even employees with their customers and vendors to increase speed and efficiency. So what is collaborative commerce? The authors, who first introduce the concept in this book, suggest that just sharing information is not enough—new business models and organizational structures must be built around this open-door policy to reap maximum benefit."

Harvard's book is directly on topic with its introduction of what they define as "collaborative commerce". They note that the speed of innovation, and increased competitive advantages are at hand for the companies that implement these systems and procedures. they also note that collaborative commerce provides long term sustainable competitive advantage.

Harvard notes the need for:

"commitment and change across a number of areas: governance, strategy, process design, information technology infrastructure, people management, culture and change, and measurement."

The Harvard Book summary is available here. http://hbswk.hbs.edu/book-review.jhtml?t=organizations&id=5108&wkrss=y

McKinsey Consulting

McKinsey Consulting have published an article which is right on point with its focus on systems. Entitling the publication "The Next Revolution in Interactions" this ties into the "Enterprise 2.0" discussion which many people have branded the concept, and is consistent with Harvard's "Collaborative Commerce". Providing the entire article in a down loadable podcast was a good idea and I highly recommend listening.

On topic comments include:

"Technology and organizational strategies are inextricably conjoined in this new world of performance improvement."

"This shift toward tacit interactions upends everything we know about organizations. Since the days of Alfred Sloan, corporations have resembled pyramids, with a limited number of tacit employees (managers) on top coordinating a broad span of workers engaged in production and transactional labor. Hierarchical structures and strict performance metrics that tabulate inputs and outputs therefore lie at the heart of most organizations today."

"But the rise of the tacit workforce and the decline of the transformational and transactional ones demand new thinking about the organizational structures that could help companies make the best use of this shifting blend of talent. There is no road map to show them how to do so. Over time, innovations and experiments to raise the productivity of tacit employees (for instance, by helping them collaborate more effectively inside and outside their companies) and innovations involving loosely coupled teams will suggest new organizational structures."

These selected excerpts provide support for using the Joint Operating Committee as the organizational focus in oil and gas. The comments by McKinsey were written in December of 2005 and were the first to discuss these formerly taboo subjects. One interesting difference between what McKinsey writes about, and the oil and gas industry, is that the Joint Operating Committee can fulfill the objectives they note in this article. Unlike some industries that need to take a clean slate approach to the organizational construct, the oil and gas industry already has the joint operating committee to provide all of this value.

McKinsey - The next revolution in interactions. http://www.mckinseyquarterly.com/article_page.aspx?ar=1690&L2=18&L3=30&srid=17&gp=0

Massachusetts Institute of Technoloy

MIT Video records MIT's president Susan Hockfield as calling for this prestigious university to lead the charge to solve the global energy problems. This frames MIT's role as not dissimilar to what their role was during World War II. Stating that Energy has entered a "perfect storm" in which demand is rising, supply is constrained and environmental concerns continue as issues for the industry.

Although during the video there was a belief that generating sufficient supply of renewable or bio-fuels was part of the solution. the video’s focus is on sustaining the energy demands of the world throughout the 21st Century and ensuring that economies were able to source the volumes of energy demand. MIT is forming an Energy Research Council to guide the various faculties in their research.

Link: http://mitworld.mit.edu/stream/349/

The Oil and Gas Journal
The next call to action is from The Oil and Gas Journal. The article is entitled "Innovation lacking in high-tech world of oil: New technologies needed to develop unconventional resources." They have identified the demands of quarterly performance as the reason why the energy industry has not resumed its role in addressing supply and pricing issues. Nonetheless they are stating that the demands for more energy are significant and it is critical for the producers to innovate. I consider it a must read article.

On page six the authors summarize many of the areas they suspect that innovation will be of value. They also point to the potential of higher prices leading to a reduction in demand. Nonetheless the scope of the suggestions covers all areas of conventional and unconventional oil and gas. They effectively state what is needed, but are lacking in the article as to how it is to be provided.

It is necessary for the industry to re-organize themselves for this challenge. A revised organizational structure that addresses the performance of an innovative producer is needed. That is why selecting the joint operating committee as the key organizational construct around which systems are to be built. By joining the hierarchy’s accountability framework with the four frameworks of the joint operating committee, performance will increase. Software defines the organization, and changing the organization requires that software be built to define the new organization.

Link http://ogj.pennnet.com/Articles/Article_Display.cfm?Section=HOME&ARTICLE_ID=229822&VERSION_NUM=2&p=82
Oxford Analytica.

Their website reflects;

"Oxford Analytica is an international, independent consulting firm drawing on a network of over 1,000 senior faculty members at Oxford, and other major universities and research institutions around the world. Founded in 1975 by Dr. David R. Young, Oxford Analytica has built an international reputation for seasoned judgment on and analysis of the implications of national and international developments facing corporations, banks, governments and international institutions."

Oxford Analyticas explicit conclusion to this article is stated as:

"Technological lead will prove critical in the efficient exploitation of frontier oil provinces. Upgrading portfolios means majors will divest assets that provide material opportunities for small and medium-sized independents.

Link http://www.alacrastore.com/storecontent/oxford/DB126086

Securities and Exchange Commision.

The Wall Street Journal contained an excellent article regarding the accountability framework of the Securities and Exchange Commission (SEC). This article is about the relatively new SEC Commissioner Mr. Christopher Cox discussing a revised method of compliance to the SEC's accountability framework. By using XML (Extensible Markup Language) and specifically XBRL (Extensible Business Reporting Language) he is defining the meta data necessary for automation of the accountability framework.

The preliminary research report stated the purpose was to build software to manage the accountability framework. Then by using the Joint Operating Committee as the organizational construct, this would achieve an alignment with the financial, legal, operational decision making and cultural frameworks. The report noted that these four frameworks are defined and constrained by the Joint Operating Committee, and that when accountability and operational decision making were separate, administrative difficulties creep in. Therefore when accountability is in line with the financial, legal, cultural and particularly the operational decision making framework these administrative issues would subside and innovativeness would increase.

Chairman Christopher Cox is interested in doing the same for the entire world's financial trading markets, which as SEC commissioner is his responsibility. By making the types of comments that Commissioner Cox states in the WSJ article it is clear to me that he is not only on the right track but will resolve the largest administrative nightmare, that being Sarbanes-Oxley, of the public company reporting process.

It would generally be concurred that the legislation known as Sarbanes-Oxley is too onerous for companies to comply with. How this issue gets resolved from here is difficult due to the mixed messages any revisions would send. To make any major amendment to Sarbane's Oxley would make it appear as the framework has become unmanageable and invite the Ken Lay's and Jeffry Skillings back for more hollowing out of investor’s wealth.

How the Sarbanes-Oxley legislation, in addition to the other SEC requirements, are maintained and the difficulties are removed from the process is by eliminating the need for the 800 plus forms and replacing them with a handful of standard tags in the Extensible Business Reporting Language. I can only thank that the Commisionner understands the technological capabilities and can apply it to the SEC.

The demise of the bureaucracy is what the Commissioner is saying here. He is laying the groundwork and infrastructure of how investors will be able to manage their assets in the future. Genesys, through this research has adopted the SEC's XBRL tag library and therefore will be compliant with the SEC's regulations. In August 2006 the SEC has issued an RFP to build this system.

http://www.opinionjournal.com/editorial/feature.html?id=110008404

Mr. Olivier Appert, Chairman and CEO of IFP.

Mr. Appert has written a fine conclusion that leads me to a subsequent comment.

"In order to meet the world's needs and demands for energy, while simultaneously observing our current energy supply and protecting the environment, the oil and gas industry will have to solve many complex technological problems in the coming decades and continue to innovate as it has done since its inception."

"Recent scientific and technical advances, the fruits of collaboration between the worlds of research and industry, have led to a profusion of promising emerging technologies and represent key assets for preparing for the future, particularly in terms of managing the energy transition from oil and gas to new energy sources."

"In the face of increasingly fierce competition, it is imperative these new challenges become integral to our research and innovation strategies. Developments will play a crucial role in guaranteeing genuine sustainable development for the world."

It is imperitive that the oil and gas industry does not fail in this critical task. That new and more innovative organizational forms are required for the 21st century. The joint operating committee being the global cultural manner of the oil and gas industry, is also the financial, legal and operational decision making framework as well. As noted, SEC Chairman Christopher Cox understands that the way to redefine the accountability framework is through the Extensible Business Reporting Language, and the SEC's tag library. What the oil and gas industry therefore need to do, first and foremost, is build the software to define and support the joint operating committee as the natural form of organizational structure. Until we do this, these calls to action are only words that will soon fade in their meaning in the face of the angry energy consumer who wants to know why they can not drive their car or heat their home.

Link http://www.worldenergysource.com/articles%2Ftext%2Fappert_WE_v9n1.cfm

Mr. Murray Edwards

Mr. Edwards of Calgary, at 46 years of age he has amassed a fortune of several billion dollars and is currently holding down the following roles.

President, Edco Financial Holdings Ltd.Vice-Chair, Canadian Natural Resources Ltd.Chair, Ensign Energy Services Inc.Chair, Magellan Aerospace.Owner, Resort of the Canadian Rockies Inc.Co-Owner, Calgary Flames.Mr. Edwards is quoted in the May 2006 issue of Alberta Venture, in which he is the cover story "Who Cares About Respect"

"We're really big proponents of flat organizations where people have a sense of ownership."

The Calgary Herald

A further call to action was contained in an article in The Calgary Herald. The article states that the junior oil and gas producers and royalty trusts are having difficulty making money. Peter Knapp of Iradesso Communications states

"Everybody thought it was going to be easy to make a lot of money and that just isn't the case".

With natural gas prices down almost 50%, they are also finding their costs are too high. They also clearly and unanimously feel that the gas price will rise after June 2006.

So how is this a call to action? The suggestion is that a solution to this problem is to innovate and move with the science. Not that this hasn't or isn't being done, it is just that we have hit a critical period in which the science is changing quickly. The capital being generated from higher prices is a reallocation of societies’ resources to fuel innovation. In the future a profitable energy firm will collaborate with a greater population of all resources to determine the most effective ways and means of exploration and production.

This is the role and responsibility of the joint operating committee. And for the "business" end of the oil and gas business to continue to ignore the joint operating committee in its organizational structure and systems, the industry I suggest, will begin to fail in making money. A subsequent failure will also occur in that the industry will be unable to deliver the appropriate amount of oil and gas to the market.

Institute for International Economics

In an article entitled "Accelerating the globalization of America" the authors made two interesting comments in the Executive Summary.

"Innovations not implemented because resources cannot adjust forfeit some of the potential of the economy." p.xviii

"Two additional links between productivity and international trade are that trade in technologically sophisticated products is associated with higher productivity and the industries that have invested heavily in IT have a greater propensity to export." p. xxi

The bureaucracy is slowing us down, (a given) and innovations that would otherwise benefit the economy are now having their value forfeited. The market demands for energy continue to outstrip supply. Whether we are at the peak of production or not is not the question. The question should be, how much are we giving up economically by not proceeding with this Genesys Software development project?

I highly recommend downloading the entire document. It is a substantial work in terms of its findings.

Link: http://bookstore.iie.com/merchant.mvc?Screen=PROD&Product_Code=3900

Energy Secretary Samuel W. Bodman on MIT video.

This video is on MIT World and is at almost 60 minutes but is time well spent. Recall that MIT has declared that energy is the great challenge of the next 50 years and describes it in terms that are best summarized as a "perfect storm". MIT has arranged as part of their Energy Research Council, U.S. Energy Secretary Samuel W. Bodman to speak on "Our Energy Future: Why American Science and Technology Must Lead the way."

Many of the things that Dr. Bodman speaks of are directly pertinent to the topics and thoughts within this research. Quoting liberally from his speech:

"Science and Engineering can and should be used to advance the public good. To solve complex problems and to help our society and economy to adapt in a complicated global environment."

and

"A time for breaking down the walls that could limit our future economic growth. And in many cases the tools that we use to do this will be found in breakthroughs in science and engineering."

and

"At a time of increasingly aggressive global competition America must do what we have always done best. We have to take risks, we have to lead, we must invent, we must innovate."

That last quotation is directly in line with the justification for using the joint operating committee, and direct support for these software developments. Today science and technology are constrained by the organizational conflict and bureaucratic interference that limit speed and innovation.

Bodman notes that the majority of his funding for the scientific research and technology has been as a result of a reallocation of resources under the Presidents "American Competitive Initiative"(ACI). He goes on to state that the:

"scientific disciplines are increasingly being linked."

And that the effort of the energy department and the ACI go to the

"future economic well being and security of our country".

Also noting that he is expecting more than just the development of new knowledge from these government funded research programs.

Although the research that he mentions in his "Advanced Energy Initiative" is on ethanol, hybrids, fuel cell, solar, wind, nuclear and clean coal. It is fair to assume that he is fully aware of the demand of the U.S. for gas and oil is, and will remain high. His approach currently seems to be limited to establishing some of the alternatives as viable enhancements for the long run in the U.S. and he noted as such the expectations of the market makeup of energy sources.

"Science and Technology must lead the challenge to provide good, clean and abundant energy."

Some noted targets, facts and objectives: Ethanol production = 5% of the current U.S. supply and uses 14% of the U.S. corn crop. The department of energy expects that Ethanol supply will grow to 5 million barrels / day in 20 years. Needless to say based on these projections the expectation of the US is to continue to use fossil fuels as its primary source of energy. Secretary Bodman sees the parallel between these energy related difficulties as similar to those in the cold war inspired space race. Having the Secretary of Energy making these types of comments adds some real urgency to the issues at hand.

Link: http://mitworld.mit.edu/video/364/

Energy Secretary Samuel Bodman in Calgary.

U.S. Energy Secretary Samuel Bodman was in Calgary recently. After a quick tour of the heavy oil facilities in Fort McMurray Secretary Bodman stated that;

"The U.S. is ready to work with Canada to remove roadblocks facing Alberta's oil sands sector."

and

"Suppliers of oil in the world have really lost control of the market."

The question that seems to be answered by Secretary Bodman's visit is that the oil sands are a critical part of the U.S. energy security. Declaring the oil sands a "world resource" certainly puts the energy issues into context, and puts their development on a higher priority.

If it was only so easy. The problem comes in the area of infrastructure. There are not the basic necessities to support the current $100 billion in investment being made in Fort McMurray. The mayor of Fort McMurray has stated that the ability to sustain the current pace of development is in jeopardy. There are not enough people, 75,000 in Fort McMurray, to assess as a tax base to begin to even address the current issues, let alone the future oil sands developments. By all measures this is a pretty serious situation for any city to handle.

What we need from Secretary Bodman is help with our problems here. There were indications that the kind of help that may be provided from the U.S. was the U.S. based refineries and pipelines be upgraded to handle the oil sands output. First, that is not the problem, and secondly Alberta, irrespective of our leaders opinions of the situation, is not a hewer of wood and drawer of water. Now is not the time for our leaders to suggest that foreign groups develop the infrastructure necessary for heavy oil development. Invest here in Alberta where the problems exist. Don't move the raw material into the final market, essentially ignoring Alberta as a second class citizen.

The areas that we need help in are in the development of the appropriate civic infrastructure in Fort McMurray. What we need is engineering and knowledge on how to build the super refineries, pipelines and associated infrastructure for full development. Let’s work together to solve the energy needs of the continent. That is what is possible and that is what we are ready to do with our very good friends, the U.S., however, we will not limit the market for our production to the North American continent exclusively, why would we?

Sir John Browne Group Chief Executive BP p.l.c. on MIT video

Another MIT video, this one of Sir John Browne, Group Chief Executive BP p.l.c. An excellent speech entitled "The Purpose of Business".

Sir Browne developed his meaning or purpose of business as:

"We are fulfilling our purpose by supplying goods and services at a price people can afford and in a manner in which makes the activity sustainable."

In his speech Sir Browne documents the long lead times in oil and gas operations. In Azerbaijan BP has spent $15 billion and over 15 years to bring on production. Although it took this long to develop these assets in Azerbaijan, BP probably would not have been able to accomplish what they did in Azerbaijan in North America any sooner! The scope and scale of this business is such that the lead times are ridiculously long.

Sir Browne talks at length about the time in which BP went into Azerbaijan in the early 1990's and developed their offshore resources. These Offshore resources probably would have still been untapped if it wasn't for the perseverance of Sir Browne and BP. To invest $15 billion over 15 years without seeing any revenue, and to have the investment risked due to the political instability of the region shows the lengths that producers have taken in order to access the commercial fields. As he notes, supplies of oil and gas are concentrated in Russia, The Middle East and Africa.

Sir Browne talks about the things that he has to do for the future.

"And perhaps most important of all we need new ideas and knowledge, we need the advances in sciences which we as engineers can apply."

Again comments that are consistent with the objectives of this research, and the use of the joint operating committee as the organizational focus. How can it be expected that the bureaucracies will be able to keep up to the demands of the changes in sciences. Layer on the political risks and operational difficulties and one can see the complexity of the business is systemic in all areas of operation. The bureaucracies are doing the job today, but at what speed? Is it fast enough to provide the market with their demands for energy?

Link: http://mitworld.mit.edu/stream/363/

John Hagel III and John Seely Brown

I was able to incorporate much of Brown and Hagel's research within the preliminary research report. This was the culmination of much of Hagel and Brown's work up to the time of the preliminary research publication. Since then they have compiled further work that helps establish their leadership position in the business impacts, opportunities and issues of technology. Dealing with the "edge," both are asking some particularly challenging questions of management. Such as this from Seely Brown's website.

"It is not just corporate training that is important but rather rich participation with partners who are at the edge. Ask: how do you learn as much from a partner as you learn from creating something yourself? How does distributed collaboration around the world become a critical strategy for survival? What are the most effective ways to convert your existing global supplier networks into new nodes of innovation?"

Today they have published one concept that I want to mention here as a call to action. The idea addresses the three types of businesses that fall within this new classification system of theirs.

• Infrastructure Management Businesses.
• Customer Management Businesses.
• Product Innovation Businesses.

How I foresee the future application of this thinking in oil and gas is: companies such as this software development proposal will fulfill the role of “Infrastructure provider business”. Secondly, the "Customer "Management Business will fulfill the requirements of the downstream marketing and refining businesses. And finally the traditional oil and gas industry will be seen as the "Product Innovation business". A business that is something that the traditional upstream oil and gas industry needs to and eventually will fulfill.

Links to John Hagel http://www.johnhagel.com/index.shtml
Links to John Seely Brown http://www.johnseelybrown.com/

Newt Gingrich in the Wall Street Journal.

The Wall Street Journal published an editorial written by Newt Gingrich entitled "Bush and Lincoln". An article that parallels the strategic mistakes that both presidents appear to be making regarding the war's they were dragged into.

The particular points in the article that I see as a call to action are these quotations:

"The president should insist upon creating new aggressive entrepreneurial national security systems that replace (rather than reform) the current failing bureaucracies. For example, the Agency for International Development has been a disaster in both Afghanistan and Iraq. The president should issue new regulations where possible and propose new legislation where necessary. The old systems cannot be allowed to continue to fail without consequence. Those within the bureaucracies who cannot follow the president's directives should be compelled to leave."

"We see these first two factions today. The Kerry-Gore-Pelosi-Lamont bloc declares the war too hard, the world too dangerous. They try to find some explainable way to avoid reality while advocating return to "normalcy," and promoting a policy of weakness and withdrawal abroad."

"Most government officials constitute the second wing, which argues the system is doing the best it can and that we have to "stay the course"-- no matter how unproductive. But, after being exposed in the failed response to Hurricane Katrina, it will become increasingly difficult for this wing to keep explaining the continuing failures of the system."

and,

"The first and greatest lesson of the last five years parallels what Lincoln came to understand. The dangers are greater, the enemy is more determined, and victory will be substantially harder than we had expected in the early days after the initial attack. Despite how painful it would prove to be, Lincoln chose the road to victory. President Bush today find himself in precisely the same dilemma Lincoln faced 144 years ago. With American survival at stake, he also must choose. His strategies are not wrong, but they are failing. And they are failing for three reasons. "

"We have to be honest about how big this problem is and then design new, bolder and more profound strategies to secure American national security in a very dangerous 21st century. Unless we, like Lincoln, think anew, we cannot set the nation on a course for victory. Here are some initial steps:"

System failures, bureaucracies that need to cease, muddling along as a strategy. These points are all music to my ears. It strikes me as odd is that here is a candidate to be the next president of the United States expecting the bureaucracies to do the honorable thing and fall on their sword. If the U.S. government is actively debating these points, the time for the energy industry to act surely must be at hand.

http://www.opinionjournal.com/editorial/feature.html?id=110008905

Summarizing these calls to action.

These calls are coming from a variety of academic, business, government and other voices. These voices have now been heard. The time for action in dealing with these issues and opportunities is now. This proposal makes the first in many steps that the industry needs to take to approach the tasks and difficulties ahead. The only thing that is missing, in my opinion, is the industries sense of urgency about these points.

In the Wall Street Journal article of Newt Gingrich's, he noted the three possible avenues that can be taken to solve a problem.

1. To cower from the effort necessary to achieve victory.
2. Muddle along and get through it.
3. Approach the problems with new thinking.

Muddling along is not an option, as it appears to me that this is the strategy that the energy industry has employed. It is time to start anew with fresh thinking about the problems that the industry faces.

Technorati Tags: Calls-to-Action, Genesys, Proposal

Executive Summary

It was in May 2004 that I published the preliminary research report entitled “Plurality should not be assumed without necessity”. (Readers are encouraged to revisit the preliminary report to assist in the context of this report.) The main thrusts of that document were its two primary research findings. The first finding was that the key organizational construct of the oil and gas industry is the joint operating committee. The joint operating committee is the legal, financial, cultural and operational decision-making framework of the industry. If the industry were to move the accountability framework in line with the four frameworks of the joint operating committee it would achieve greater organizational speed and innovativeness. The other research finding was that the software the firm uses defines the organization. Noting “SAP is the bureaucracy” it is apparent that to change the organizational construct requires that systems be developed to support the proposed organizational change.

The preliminary report also contained a project management proposal to build these systems around the joint operating committee. This budget was in the $70 – 85 million range and would require four years to complete. The budget of that system may remain within that scope; however, this final research report recommends that the industry pursue a proof of concept. This proof of concept is to build a Petroleum Lease Market application to start the organizational transition to the joint operating committee. This application’s scope has been budgeted at $2.6 to $3.5 million.

The four cornerstones of a technical vision.
Critical to the success of any prospective software development would be the impact of any future Information Technologies (IT). I am including a technical vision consisting of four key technologies, and describe how the future may be affected by these technical changes.

IPv6 (2 to the power of 128 in terms of addressing space.) enables the elimination of the technological model known as client – server. Replacing it with static IP addresses that can identify anything and everything. Enabling any electronic device that is connected to the Internet to be monitorable and controllable. I believe the engineers and geologists can and will do with this level of static addressing is unlimited.

The second element of the vision involves Java and the incremental nature of typed, object oriented programming languages. Where the predictability and control of systems is achieved through the strong implementation of strict typing.

Java is also enabling the exception handling capabilities and asynchronous process management that is critical to handling intra-partner transactions and interactions.

And finally wireless Internet through Wifi and soon Wimax, enabling electronic devices to be connected at low costs and high speed and in turn eliminating the “last mile” issues of technological access.

These four technologies will be revolutionary when applied over the joint operating committee as the organizational focus. This technical vision provides the industry with the organizational capability to facilitate rapid innovation in a controlled and managed environment.

Partnership Accounting.
I will then go on to discuss "Partnership Accounting" and how an algorithm can capture the unique and demanding accounting and reporting needs of the producers represented in the joint operating committee.

A new accounting dynamic is introduced by using the joint operating committee. This accounting dynamic enables the interactions to be quantified in an algorithm that although complex, addresses the accounting related issues that traditional ERP systems can’t handle.

The Partnership Accounting difficulty comes when all participants of the joint operating committee have been contributing people, financial and technical resources, and direct costs on behalf of themselves, and / or, with other members of the joint account. Through the JOC each producer’s collective resources are pooled to attain the highest level of technical capability, management and tactical deployment, which is sourced from the partner companies.

These costs and resources are being incurred on each producer’s behalf and may not be shared, but may be eligible to offset their obligations to other partners, be distributed equally among the producers interests, or need to be recognized by the joint operating committee irrespective of their source and nature. This is further complicated by the fact that many of the internal charges and overhead allowances that have traditionally been charged to the joint account also become redundant. These overhead styles of costs are replaced by the specific costs that were directly incurred by the producer, as represented in the joint operating committee. The system will capture these components as they are incurred by the employee / worker / investor / consultant / producer in an active job costing state as the user is logged on.

The nature of the oil and gas business is unique in many ways and this Partnership Accounting discussion will capture many of the issues that an oil and gas system needs to address. For example:

• Daily and monthly production volumes.
• Differing currencies of producers.
• Differing currencies of operations.
• Currencies that relate different accounting issues based on the criteria of one being balance sheet vs. income statement accounts.
• Spec vs. raw products and by-products.
• Processing and gathering fees based on (non) ownership,
• Imperial vs. metric reporting standards.
• Nominations and or commingling of gas.

Providing an unlimited set of possible reporting scenarios for each working interest owner. The partnership Accounting module’s algorithm needs to capture and deal with these nuances within this system.

Military Command.
I then by way of analogy, will note the traditional military command structure of corporals to generals as a replacement to the regular hierarchy. It is foolhardy to eliminate the hierarchy and lose some of the attributes of a control structure. I discuss how a similar military command type of structure can be used to enhance and augment the managements’ control apparatus. This also allows the human resources to be deployed in a greater diversity of situations, and have their tasks outlined and issued from a variety of producers as represented by the JOC as their employers.

This military command structure will draw a parallel to the interactions of various military groups interacting under NATO. Where an army major of a branch of the U.S. military may have Canadian, French and / or British soldiers under his direct command. With these military personnel changes happening in a fluid, dynamic and ad-hoc basis.

Linear historical perceptions vs. the logarithmic and exponential future possibilities.
Stanford University Economist Dr. Paul Romer has captured what the future economical progress can be. In a world of limited resources it need not be a zero sum gain. The use of ideas has potentially logarithmic or exponential value creating capabilities. Progress and growth can be better attained through application of intellectual property within an industry.

Innovation is the beginning of this process. And to attain the highest level of innovativeness, the Joint Operating Committee has been proven by this research to be the ideal organizational model for the producers. This will not happen however, until such time as the systems are developed and in place, and the system developers’ capability becomes an inherent part of the capability of the industry.

Genesys value proposition.
In addition to all of these topics of discussion I will reiterate the Genesys value proposition. A value proposition that is similar to Google's, where the costs of development are allocated over a larger base of users. Each user benefiting from the collective users purchasing power, demands and capabilities.

Google is proving this is the nature of software. The value of this proposition is something that I don't believe has been fully implemented or realized by the producers. It is my supposition here that the Oracles and SAPs realize this latent value. It is therefore my assertion that the oil and gas industries overall costs of systems development would decline under this proposed model.

Who would Henry Ford hire?
I also want to ask a question of the people who work within the oil and gas industry. That question is, whom today, would Henry Ford hire? A question that is just as pertinent today as it was 100 years ago.

Just as Ford needed a new "type" of worker for his assembly line invention, so will the prospective oil and gas producer. What type of employee will the producers need in this dynamic networked environment? What type of skills and capabilities should the oil and gas worker obtain to be optimally deployed in the future oil and gas industry?

Calls to action.
Last if not least this proposal will note and discuss the numerous calls to action from:

• Oxford Analytica.
• Harvard University.
• MIT.
• Energy Secretary Bodman.
• McKinsey Consulting.
• SEC Chairman Christopher Cox.
• Sir John Browne of BP.
• John Hagel III and John Seely Brown
• and many others.

These have become predictable in their message and their frequency. Many of these messages noting the time to act is now. And that is this proposal's message to industry.

This proposal is a clean slate proposal. There are no constraints in terms of existing code or client base to deter from the focus of these developments. The attainment of this type of software and software development capability must be built from the start. It is therefore expected that this proposal will be accepted and funded as required.
Technorati Tags: Executive-Summary, genesys, research

The plan

With the 200+ entries into this blog, I see that a theme has developed. Two articles that I read last week were the trigger to realizing this theme, and now a plan has emerged. Senator John McCain in Fast Company wrote on the subject of courage. Stanford Economist Paul Romer writing on the topic of economic growth. It is clear to me now, the time in which the oil and gas industry builds these systems is now.

In the next month I will be writing a new proposal that incorporates the plurality document as its appendix. This new proposal will take a number of themes that I have written in the past six months, relate them all and publish them for distribution to the industry to consider and act upon.

This proposal will of course focus on the joint operating committee as the central organizational focus of the software. This is a theory that deserves to be fully tested through its adoption by industry. It is an idea that provides a sound foundation for the effective management of oil and gas assets. An idea that is based on facilitating the earth science and engineering disciplines greater innovativeness. An idea that can augment a producers capability and speed in this difficult time for oil and gas.

I will also be including the four cornerstones of the technical vision. How the impact of these technologies will affect the oil and gas market. IPv6 enabling the elimination of client - server and replacing it with static IP addresses for everything including your toothbrush. What I believe the engineers and geologists can and will do with this level of static addressing is unlimited. The incremental nature of typed, object oriented programming languages like Java, our chosen language. Java enabling the exception handling capabilities and asynchronous process management that is critical to handling the intra-partner interactions. And finally, Wifi enabling everything to be connected at low costs and high speed. These four technologies will be revolutionary in the oil and gas industry when layered over the joint operating committee as the organizational focus.

With this technical vision layered over the joint operating committee, I will then go on to discuss this blogs entries regarding "Partnership Accounting". How an algorithm can capture the unique and demanding accounting and reporting needs of the producers as represented in the joint operating committee.

I will then note the military command structure as a replacement to the regular hierarchy. It is probably foolhardy to eliminate the hierarchy and to loose some of the attributes of a control structure. In this blog I have discussed the military command type of structure to augment the managements control apparatus. This also allows the human resources to be deployed in a greater diversity of situations, and have their tasks outlined and issued from a variety of producers as their employers. This military command structure will draw a parallel to the interactions of various military groups interacting under NATO.

I will then want to highlight the historical perception of linear thinking and contrast it to the logarithmic and exponential futures. Stanford University Economist Paul Romer has captured what the future economical progress can be. In a world of limited resources it need not be a zero sum gain. That the use of ideas have potentially logarithmic or exponential value creating capabilities.

In addition to all of these topics of discussion I will reiterate the Genesys value proposition. A value proposition that is not dissimilar to Google's. Where the costs of development are allocated over a larger base of users. Where each user is able to benefit from the purchasing power and capabilities of the entire population of users. This is the nature of software and the value of its proposition is something that I don't believe has been fully implemented or realized by the producers.

I also want to ask one of my favorite questions of the people within the oil and gas industry. That question is, who would Henry Ford hire? A question that is just as pertinent today as it was 100 years ago. Just as Ford needed a new "type" of worker, so will the prospective oil and gas producer. What type of employee will the producers need in this dynamic networked environment. What type of skills and capabilities should the oil and gas worker obtain to be optimally deployed in the future oil and gas industry?

Today's news that BP has shut in their Alaskan production due to pipeline leaks is evidence of the tight balance between supply and demand. The market demands for energy can not sustain too many large fields being shut in. Companies are already being questioned by the cynics and those that can least afford the higher prices.

Last if not least this proposal will note the 12 + calls to action. Oxford, Harvard, MIT, Energy Secretary Bodman, McKinsey Consulting, SEC Chairman Christopher Cox, Sir John Browne of BP, John Hagel III and John Seely Brown and others. These have become predictable in their message and their frequency. Many noting the time to act is now. And that will be the proposal's message to industry.

technorati tags: Genesys, proposal, call-to-action,

A new McKinsey Strategy Series, Part I

The title of this entry will lead you to a series of McKinsey articles that provide some pertinent material for this blog. The majority of the focus of these articles is the transition from the technology induced forces that are active in business today. Within this series is a copy of the John Seely Brown and John Hagel III article "Creation Nets". I would point the key reason for this entry is to highlight how the article relates to this blog, as in this quote;

"Change is a constant in today's global business environment: new consumer preferences, innovative attackers, and technological discontinuities can challenge current leaders suddenly. This issue of McKinsey on Strategy examines three ways for companies to embrace the challenge of continual change. One is to reconcile the conflict between executing in the present and adapting to the future. Another is to embrace new knowledge and information trends that can make talented workers more effective and to look outside corporate boundaries for ideas, knowledge, and technology. The third is to counteract the common psychological biases that make executive hang on to failing businesses and products."

I can't think of a better summary of this blogs purpose and role. I have introduced significant change paradigms to the way that oil and gas companies are structured. I have noted that to change the structure requires that systems be built to define and support the new organizations, or as I have noted, SAP is the bureaucracy. And I have attracted significant resistance and as have stated before, and McKinsey is saying in this series, resistance is futile.

I will take each article and break them down into separate entries over the next few days. The first is the results of a Survey McKinsey conducted and their 10 trends.

An executive take on the global business concerns. A McKinsey Survey.

"Macroeconomics Trends"

"1) Centers of Economic activity will shift profoundly not just globally but also regionally."

Clearly China and India are having significant influence in the globalized economy. This trend will continue and bring with it the increase overall demands of energy. Underestimating the overall demand for energy is a fault of the energy producers. Thinking that prices are temporarily high is based more on past events then the globalized economy.

McKinsey notes that these trends are going to be with us for 20 years. The overall changes will be in concert with regional changes that are as dramatic. Noting that Europe and Asia may equalize in their economic size and influence.

"2) Public sector activities will balloon, making productivity gains essential."

This trend notes the demands in health care and other areas of the government will increase in the near future, and that increase has to be met through the enhanced productivity of the public sector. There simply won't be enough people to deal with the demand.

However, this trend is also in play in the oil and gas industry. Retirement of the brain trust will occur in the next 20 years. Methods of sustaining the reserve base requires more active science and engineering. These will have to be done as the fields get older and the targets smaller with less people then what are involved today.

"3) The consumer landscape will change and expand significantly."

Possibly intimating that the west will be the only one market of consumers, when India and China's middle classes continue to expand, the market for all products will be much stronger then the west is accustomed too. The energy sector is also directly affected by the consumer markets.

"Social and Environmental Trends"

"4) Technological connectivity will transform the way people live and interact."

Offices need to be designed to accommodate the new methods of completing work. The ability to conduct business anywhere, anytime is quickly becoming a reality. Telecommuting I think is a bad example of how this change will occur. Contact with a much larger population of workers and their regions will demand that the traditional methods of working needs to be considered.

"5) The battlefield for talent will shift. (Global labor and talent strategies)"

Dove-tailing with the technological connectivity trend, having people scattered in various regions will become commonplace. The ability to conduct operations where ever they are required is augmented by the capability to seek and source talent from remote areas.

"6) The roles and behavior of big business will come under increasingly sharp scrutiny."

Particularly in the energy industry. The Kyoto, CO2 emissions and general nature of the energy industry attracts those that have a strong environmental focus. Big business is also known to hog the lions share of consideration. The competitive and strategic advantages of size may become oriented to the smaller firms.

"7) Demand for natural resources will grow, as will the strain on the environment."

Well stated. McKinsey suggests that energy demand may grow by 50% in the next two decades. For me this certainly puts in perspective the scope and size of the problem in energy. Without energy, there is nothing. It is the lifeblood of an economy. If we intend to continue to develop these energy demands must be met. High energy prices are not a temporary pricing aberration from the conflict in the Middle East.

"Business and Industry Trends"

"8) New global industry structures are emerging."

Due to the proliferation of technologies and regulation like Sarbanes Oxeley, new business models are emerging. Here in Canada the development of private capital and trust conversions have dominated the energy sector. These business models were of limited use as little as 6 years ago.

"9) Management will go from art to science."

This trend is suggested as big businesses savior. The ability to continue on with size requires that the firm employ technologies throughout the organizations. Such that automated decision making replaces the current management structure of organizations. Read the McKinsey article if you have difficulty believing this.

"10) Ubiquitous access to information is changing the economics of knowledge."

This trend indicates to me that the real value in the future is intellectual property. Knowing is one thing, have access and authority to use many of the innovations in the future will be based on a completely different structure in industry. Who knew what and when will be more the deciding factor in creating value. Making licensing and publication more important elements of all businesses, but particularly energy.

I will continue on tomorrow with the next section of this series "The Adaptable Corporation."

technorati tags: Genesys, McKinsey, Trends, Energy, Change

Vaporware vs. Clean Slate

It could be argued that the focus of this blog is a software product that falls within the classification of vaporware. It could be argued this because that's what it is, vaporware. I would put some spin on the classic definition of vaporware and call this a clean slate approach to oil and gas systems. The situation that this "product" is in is difficult to define and therefore difficult to build without the express support of the oil and gas industry. This blog is communicating these concept far and wide and is finding its audience.

I am articulating a vision of what a new approach could do in the systems area. It certainly is vaporware as no group or company has ever approached the joint operating committee as the central organizational focus. How can I, as I am reduced to one individual, do all this work in order to make a viable system for the producers? The clean slate approach has to be communicated in the way that it could and should be built in order to accurately describe the features.

Two points that present the future difficulties I see in oil and gas systems. Partnership accounting and the Genesys technical vision that are the foundation of this solution. All these aspects of software systems have to be addressed and neither SAP, Oracle or IBM have a solution or vision for it.

To be more specific, the perspective of using the joint operating committee brings new and better ways of managing an oil and gas enterprise. From a systems point of view oil and gas has ignored and avoided the joint operating committee as it conflicts with the underlying purpose of the bureaucracy.

This project was originally proposed to the industry in 2004 as an $85 million software development project. As a producer I have to ask, isn't it more appropriate to keep your options open. What if SAP and Oracle continue to provide their current offerings, will those be adequate in the future?

Is there an expectation or belief that the bureaucracy and its use of last centuries technologies can hold a candle to this vision? These technologies and the forces of change in all areas of the economy have to be addressed. Oil prices are up almost 300% reallocating the financial resources to support innovation. Organizations are constrained in their speed and innovativeness due to the bureaucracy and its refusal to accept the joint operating committee as the explicit form of organization.

We have consistently seen successful companies that were able to integrate technology into their strategy and form strong competitive advantages. Companies such as HSBC. Homogenization on SAP is not a competitive strategy. I have now counted 12 calls to action that Harvard, Oxford Analytica, MIT, McKinsey, John Hagel III and John Seely Brown, Secretary Bodman, SEC Chairman Christopher Cox and a variety of others. Add to these calls the demands of the consumers. The time to act and put these software developments into play is now.

technorati tags: Call-to-Action, Vaporware, Technical-Vision, Genesys,

Hagel & Brown, Pull Models, Part II

Continuing on with the review of this fine paper from John Hagel III & John Seely Brown.

Exploring the layers of pull platforms.

This paper continues on discussing the various layers of pull platforms. Needless to say these points have what the authors call a "High Tech Focus." A technological envrionment where the community of oil and gas workers and producers can and will be supported by the various frameworks. The implementation of these communication technologies creating the communities of users that aquire more elaborate and sophisticated capabilities.

Summarizing the information within a table provided by Hagel & Brown;

Infrastructure Layers

1.) Communications Networks

Facilitate the basic movement of information and goods.

2.) Service Grids

Provide enabling services to create more robust and tailored connections.

Performance Fabric Layers

3.) Technology enablers

Create more flexible ways of organizing and mobilizing resources.

4.) Social networks

Increase willingness and ability of people to share resources, especially knowledge.

Creativity Framework Layer

5.) Aggregation networks

Create metadata to help connect participants and resources.

6.) Process networks

Orchestrate capabilities to create new products and services.

7.) Networks of creation

Establish collaborative environments to generate new practices.

(Please note items 1 - 7 are verbatim recreations of a Hagel & Browns table.)

The activities within the pull platform are augmented by "Find, Connect, Innovate and Reflect in each layer of pull platforms." Hagel and Brown go on to further define the categorization of the layers in Infrastructure, Performance Fabrics and Creativity Frameworks. I highly recommend downloading this article and reviewing the details closer.

A key attribute of these Networks and Frameworks is to provide enhanced capabilities to all those within the pull systems. Reflecting on the oil and gas industries potential use of these networks. There could be such a rich environment to operate within. An environment in which the desire and capability of each individual and producer are enriched by their potential of employing resources in this optimal pull manner.

An environment where the limitations of participation are reduced to the lowest common denominator. Where anyone and everyone who has value can contribute. To open a much larger dialog where the collective knowledge and capabilities of larger communities are applied in the most efficient manner. And as Hagel & Brown say

"These communities can also amplify the power of reflection and accretion by bringing together a diverse and often distributed set of participants." p. 38

Or what I foresee is the elimination of the bureaucracy that invades, restricts and limits the potential of companies and individuals. A bureaucracy that has fullfilled its role in enabling the communications and technology markets to be built. A bureaucracy that must now fall on its sword as opposed to fight for its inevitable elimination.

In addition of the bureaucracy stepping aside Hagel & Brown suggest the core capabilities of the company will need to reassess its purpose and role within the community. Companies that limit their role to the "Innovation, Learning and Capability" realize these can be achieved through other intermediaries then command and control. Enabling "each other to reach new levels of awareness and understanding".

Hagel & Brown also suggest as companies begin to adopt these communities of practice the performance tragectory will accelerate quickly, such that companies that choose to maintain command and control will have fewer competitive advantages in the marketplace. I foresee Genesys impacting the performance tragectory of oil and gas firms such that it would be very difficult to maintain any current competitive advantage without its use.

"In a world of pull platforms, the rationale for the enterprise itself must be re-examined. Enterprises will continue to add value in one of three ways; accelerate capability building within communities of practice; orchestrating capabilities across multiple enterprises in process networks or aggregating so that they can be more conveniently found and accessed by other participants in pull platforms. Ultimately, the success of these enterprises will depend on their ability to master different approaches to talent development, including the deployment of more flexible IT support systems to develop talent." p. 42

In oil and gas the reality of this environment is what Genesys provides. The joint operating committee as the key social and organizational construct is the only logical choice. With the legal, financial, operational decision making and cultural influences reflected within oil and gas operations over the past 100 years, how could their be a more effective means in which to define and build software to support the producer.

Technorati Tags: Genesys, Hagel&Brown, Innovation, Energy

Hagel & Brown, Pull models, Part l

John Seely Brown and John Hagel lll have written another excellent paper entitled "From Push to Pull, Emerging Models for Mobilizing Resources." (October 2005) These two researchers continue to impress me with their leadership capability in this new technology frontier. As I have stated here before, they have been pushing these themes now for over 5 years that I am aware of and continue to be the leading edge thinkers.

The final paragraph of the introduction captures much of what I believe and write about in this blog.

"By mastering the techniques required to make this new model work, companies will be well positioned to create substantial value. Those who adhere rigidly to the old model will likely destroy significant value." Hagel & Brown p.4

Contrasting the efforts of Petro Canada in this blog is designed to provide a real life example of what this blog is attempting to solve. If the "pull" model of innovation and creativity were operational in the oil and gas industry, this commentary would have achieved its objective. However, there is ample resistance to these changes. Many vested interests have aligned against these ideas and Petro Canada to me provides the greatest contrast to what this blog is not proposing. If by reviewing this Hagel and Brown document, we can gain additional insight from these two top notch researchers it will be well worth the effort.

Forces that are driving the search for alternative mobilization models, Hagel and Brown identify 5 forces that undermine the push model.

• Increasing uncertainty.

Push models require stable environments. "In today's environment it is harder to deploy resources in anticipation of demand." p.14 Oil and gas producers seem to be unable to agree on why the high energy prices persist. I believe they are a fundamental reallocation of the financial resources to encourage and reward innovation. The companies themselves seem to believe they are a temporary aberration.

• Growing abundance.

With bigger markets, involving more competitors and shorter product cycles. China and India have joined the Former Soviet Union and eastern block countries in consumer based economies. The production from these areas is substantial and the markets are immense. All of these markets will demand greater volumes of energy.

• Intensifying competition.

Outsourcing of secondary tasks like accounting. Push models are overwhelmed "by extended business processes." p.17 The authors are essentially noting the interdependent nature of the supply chains are growing longer and more diverse. I fundamentally believe that the joint operating committee configured with the proper software is the best way for the industry to deal with these "extended business processes". The complexity of the supply chain, the diversity of the offerings leads to greater opportunities for innovation.

• Growing power of customers.

Hagel & Brown cite iTunes and other applications that are effectively disintermediating large portions of distribution channels. Due to the oil and gas industry being capital intensive I don't see the risk of disintermediation, however, the efficiencies that can be had with better systems is something that the industry needs to consider today.

• Greater emphasis on learning and improvisation.

Training is replaced by coaching and apprenticeship. The retirement of the oil and gas industry veterans will need to occur after their tacit knowledge is captured.

Pull Platforms.

I believe it is a testament to both Sun Microsystems and Dr. James Gosling that so much effort and time has gone into providing Java with superior exception handling capabilities. It is not by accident that pull platforms are identified by Hagel and Brown as heavily relying on exceptions to the standards.

"Pull platforms are designed from the outset to handle exceptions, while push programs treat exceptions as indications of failure." p. 22

and then go on to say;

"Because of loose coupling of modular design, pull platforms can accommodate a much larger number of diverse participants. The more participants, the more valuable the platform becomes."

Although this may currently run against the more secretive culture of the oil and gas industry. The demands for energy are now insatiable and remove the competitive nature of the industry. This competitiveness is, I think, going to be replaced by coopetition.

Pull platforms have the following characteristics which work to encourage creation and use.

• Find

All the necessary resources are available at the critical time they are needed. The authors note WSDL (Web Service Description Language) an XML description of a resource. Just as I have noted the value in XML tags here before, WSDL provides an automated manner of discovering new resources.

• Connect

With other participants of resources as required through elaborate networks. The technologies that are available today are designed to provide greater participation. Participation with like minded groups that are able to identify and resolve issues in the oil and gas industry.

• Innovation

Provide a more flexible environment to innovate with the resources made available to the producers.

• Reflection

Recombine and improvise with much more rapid feedback regarding their impact.

I will cut the conversation at this point and pick up the rest of this document in another post starting with "Exploring the layers of pull platforms."

Technorati Tags: Genesys, Hagel&Brown, Innovation, Energy

Competition vs. coopetition.

A very good friend noted the nature of the oil and gas business is not one for the sharing of intelectual property. Competition is the predominate culture of the industry. When anyone talks about culture and change we know that in any organization the two traditionally have not mixed. How cultural change occurs is usually by extreme forces that compel the culture to be dealt with. So how are these ideas of Brown and Hagels "Creation Net" able to function in the competitive culture of the oil and gas industry. Please don't hesitate to comment. This issue needs a vigourous debate to get to the ultimate solution. Here are a few thoughts of mine.

Here in Calgary we are on a two week supply of concrete. Monstrous trucks used to mine coal and heavy oil are having difficulty in sourcing the volume of rubber necessary to meet their tire wear demands. Caterpillar is selling most of its production into Asia which is creating shortages of adequate industrial equipment. And please don't even ask for a Waukesha Engine. This is not an environment that competition can prosper in. Just as President Ronald Reagan revolutionized economics with policies that define and support what globalization is, new economic forces are beginning to grow and redefine the supply / demand trajectories. These new economic forces, in my opinion, are not linear, but logarithmic and possibly even exponential to yesterday's performance.

Company's that want to participate in this new economic reality have to address their sphere of influence and increase their capacity through the "Creation Nets" that Hagel and Brown define. Their three key components for effective creation nets were defined as;

Uncertain demand for goods and services.
When your customers are down the block, servicing their demands was relatively easy. Today your customers are global and their demands unknown and unpredictable. Your ability to secure methods to control production, demand management and inventories are tools that are unable to deal with the real issues in this very near future.

A need for the participation of many different specialists if creation and innovation are to occur.
Expanding your sphere of influence to include groups that would have previously been considered your competition provides two benefits.

• Increase the volume and quality of brains towards the problems at hand, facilitating and spreading innovation.
• Allocate the finite resources to optimize the most efficient production on a global basis.

Rapidly changing performance requirements in the marketplace.
As I suspect, starting with the second quarter of 2006 Petro Canada's financial performance will shock everyone. How could a firm in this energy environment do the things that they have done, to have caused so much destruction? The evaluation criteria for success and failure will need to be redefined. That Petro Canada and Enron have both reported "earnings" has nothing to do with reality, or the future.

Conclusion:
If we don't align ourselves to solve these problems and address these cultural issues, then we are destined to suffer unnecessarily. The hierarchy and bureaucracy are in complete control. They are the most self serving and destructive forces in this new business environment. They exist to serve the powerful few and must be stopped.

In my plurality thesis I have defined that the software is either a constraint or facilitator to organizational performance. The culture of the oil and gas industry is derived from the joint operating committee. Its key value creators, the engineers and earth scientists are born of a sharing and collaborative academic culture. I don't want to change the culture of the industry, I want to realign it to where it belongs.

However, after a century of big business models. Models that enabled substantial organizational performance, those models have failed. Its now time to say goodbye to the bureaucratic culture and re-align the oil and gas industry to its more natural cultural influences of the joint operating committee and scientific roots. To meet the customers energy needs for the long term requires we build the software to support these "Creation Nets".

Unfortunately the financial resources necessary to build these applications are firmly held in the tight fist of the bureaucracy, so lets start cooperating.

Technorati Tags: Adaptability, Bureaucracy, Creation-Nets, Genesys, Hagel-Brown, Intelectual-Property, Petro-Canada, Plurality, Thesis

John Hagel III and John Seely Brown

McKinsey Consulting is providing free access to a recent publication of John Seely Brown and John Hagel regarding innovation. Entitled "Creation Nets: Getting the Most from Open Innovation" and it's available by clicking on this title.

A little background, much of what Hagel and Brown have been writing about over the past 5 or 6 years is web services. Call them what you like, Web 2.0, Service Oriented Architectures, Software as a Service, Hagel and Brown have been on topic for many years. Of all the business consultants and bloggers, these two individuals have best defined the needs and effects of these developing and critical technologies. Much of their work is available for free at their respective websites and I highly recommend a thorough review.

• John Hagel's Edge Perspectives.
• John Hagel's website and blog.
• John Seely Brown.

I was fortunate enough to find their discussions early enough to make them a solid part of my thesis. I am grateful for their efforts and see that they have continued on with their theme and have released another "free" paper of significance. So lets dive in.

"Creation Nets: Getting the most from open innovation."

"When companies look outside their own boundaries they can gain better access to ideas, knowledge, and technology than they would have if they relied solely on their own resources."

Defining what they are calling Creation Nets with this excellent quote, Hagel and Brown go on to define the two extremes of "distributed innovation" which is

"difficult to manage / control"

or

"may seem to be mostly about narrowly defined joint ventures or transactions to acquire IP created by others."

Hagel and Brown admit the business models proposed are not mainstream and answer the question

"why companies must visit the patterns that emerge across very diverse domains". Why do creation nets matter? "The case for creation nets has its foundation in the speed of change in today's global economy."

Today speed is the critical component that is needed in oil and gas. The decline of reserves from exploitation requires a speedy solution to what MIT presidents Susan Hockfield's calls "Energies Perfect Storm".

Joint ventures are what the Joint Operating Committee (JOC) represents in its organizational form. The "Genesys Software creation Nets" are global populations of oil and gas workers available to provide information and knowledge to the JOC. The JOC being virtual in the Genesys system, these workers availability and value are readily available to be deployed to apply their knowledge, understanding and most of all their imaginations for innovation.

Creation Nets, or open innovation's virtual nature, permit and facilitate greater exposure to larger bodies of knowledge tacitly held by engineers and geologists as sub populations of all oil and gas workers. Exposing issues and opportunities to larger groups of scientists to achieve a speed and quality the hierarchy can not, and never will attain.

Hagel and Brown note this "broader set of participants brings with it a number of practical difficulties: Trust can be difficult to establish" noting that "in fact the more diverse the participation the thornier the issues."

Hagel and Brown state "the institutional mechanisms of creation nets help overcome these very real difficulties and provide for the diverse kind of collaboration needed to support sustained innovation in a world of far flung knowledge and talent".

How creation nets work.

"Creation nets work by mobilizing hundreds or thousands of independent entities in the pursuit of distributive, collaborative and cumulative innovation."

Mobilizing such a range of participants requires a precise set of institutional mechanisms to make clear who assembles the network, who can participate in it, "how disputes will be resolved and how performance will be measured."

Genesys fills this role for the developments, this blog is the starting point. On one side are the producers who need the software, the users who seek to provide the work for the producers and explain their needs to the developers. Motivated by long term incentives creation nets align the resources for innovation.

Building and Participating in Creation Nets.

Consider the diversity of skills and experiences their networks requires and tailor the approaches accordingly. Balance local innovation with global integration. Three primary challenges are

• Accessing and developing highly distributed talent.
• Provide the proper contexts for the participants to come together and engage in collaborative experimentation, tinkering and innovation.
• Effectively integrating the creations of diverse participants into shared releases.

Innovation is not the point or the focus of this. Creating the innovative oil and gas producer by defining and building the software to support the innovative users and producers.

Finally Hagel and Brown state three necessary components need to be in play for creation nets to be effective.

• Uncertain demand for goods and services.
• A need for the participation of many different specialists if creation and innovation are to occur.
• Rapidly changing performance requirements in the marketplace.

In summary Hagel and Brown note that creation nets "Provide the ability to mobilize dispersed and diverse talent for innovation in flexible ways, whatever the scale."

I will be writing more about Creation nets in the months to come. The important take away from this discussion is that the long term investments made by many participants needs to get started, and therefore, I will prepare the final attributes necessary to make this so.

[Creation-Net] [Innovation] [Java]