Langlois, Innovation and Process Part V

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

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

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

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

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

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

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

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

Technorati Tags: People's Langlois Innovation Community CISP
 

Langlois, Innovation and Processs Part IV

Today our review of Professor Langlois' paper "Innovation Process & Industrial Districts" will look at part 4., the negative effects of embeddedness. Embeddedness is defined as "the degree to which individuals or firms are enmeshed in a social network". Langlois "investigates the effects of social embeddedness on innovation". Noting that;

Furthermore, there may be a relationship between the degree of embeddedness in the industrial district and innovation. It has been suggested that innovation increases as embeddedness increases, up to a point, and that beyond that point further embeddedness results in reduced innovation performance at the firm level (Uzzi, 1997; Boschma, 2005).3 Thus, depending on circumstances, participation in an industrial district can either encourage or impede innovation.

Therefore certain levels of embeddedness in each community of practice is necessary. These communities of practice would consist of local, regional, national and international communities. With access and participation in each by those that work within oil and gas and the service industries. What Professor Langlois explores in this section of the paper is the extent that embeddedness can be under / overdone.

4. Negative Effects of Embeddedness

Oil and gas' difficulty is the escalating earth science and engineering effort contained within each barrel of oil. With finite human resources, the Preliminary Research Report suggested that the industry turn away from its "banking" mentality of providing fixed returns on investments, and focus on its scientific attributes to generate value. These scientific difficulties are understood through out the industry. Much is being learned by everyone by BP's actions in the Gulf of Mexico. It is this learning and sharing of information in each of the communities of practice that Langlois refers to as embeddedness.

Much of impetus behind innovation may nevertheless derive from events outside a district - as a result of innovations developed elsewhere and of shifts in consumer demand. The survival of firms, and of entire IDs, therefore depends largely on their ability to adjust to external development. Indeed, Piore and Sabel's (1984) championing of industrial districts was based largely on their contention that small firms with generic equipment are more flexible in responding to shifts in demand than large, capital intensive firms with substantial investments in dedicated equipment. p. 14

BP's current failures will benefit the industry as a whole. Many will ask why the Gulf has to be exposed to such environmental risk? Here I think that Langlois intimates at where some of the problem may lay.

Nevertheless, the factors underlying successful innovation in some industrial districts may turn out to be weaknesses depending on the broader innovation environment within a trade or industry. Firms in an ID may simply be slow to notice changes arising outside their district because they do not have good external channel of communication. As Marshall (Loasby, 1990) recognized, close relationships among firms and their workers could reduce their access to knowledge developed outside the district and their willingness to consider ideas from unfamiliar or distant sources. p. 15

and

Paradoxically this failure of firms is possible after their IDs have had a period of market leadership. they become over-confident and suffer from what Alberti (2006) calls "success myopia". The result is that trends in innovation (and not just innovation per se) in an ID tend to suffer from inertia - that once tendencies develop, they are harder to stop or to reverse than might be the case if knowledge were generally collected far and wide and if new knowledge were not generated to accommodate implicitly standardized local interfaces. this can lead to severe, perhaps fatal difficulties when the district is not at the leading edge or when consumer tastes have changed. p.15

Definitely sounds like the Gulf of Mexico. Those that are not familiar with the oil and gas industry are frustrated by the efforts of BP. Why not just turn the well off? Why didn't someone think of these problems and have them solved in case of this type of event? Why are actions being taken at such a slow pace? It seems so elementary and yet the industry never considered the possibility of a blow out preventer failing in 5,000 feet of water.

In defense of the industry, the science has become pre-eminent. The Gulf of Mexico shows exactly the extent of these difficulties and tomorrow will not be any easier. Looking at the logarithmic decline curve of a reserve report focuses the mind and in my opinion limits the risks of the possibility of overconfidence. However, the scope of the overall sciences is too great for the means of organizational structures being currently employed. The scientists are working as hard as they can, it's the organizational constraints of the bureaucracy that are causing these problems. Then I could be biased towards building systems to identify and support the Joint Operating Committee in a fashion as described in the Draft Specification. Langlois would suggest that the level of embeddedness is "not enough" for the situation in the Gulf of Mexico.

Boschma (2005) argues that "too much and too little proximity are both detrimental to learning and innovation. that is, to function properly, proximity requires" just the right amount of distance between actors or organizations. geographic proximity, for example, may enhance inter-organizational learning and innovation though in the absence of geographic proximity other forms of proximity may substitute for it. On the other hand, too intense proximity, geographic and otherwise, can result in lock-in. Proximity / embeddedness can evolve over time too, from not enough, to just enough, to too much, suggesting a link between the issues of embeddednesss and life cycle considerations. p. 15

I am not suggesting that a free-for-all of ideas being thrown at BP would have helped. Ideas developed without structure and governance are useless to any of the firms residing in any community of practice. This is an area where the Draft Specifications Military Command & Control Metaphor (MCCM) would enable the right type of ideas to percolate to the top. For example, if, the MCCM was in play in the situation in the Gulf of Mexico. Having everyone in the global oil and gas and service industries designated with a "name, rank and serial number" (etc.) would allow those ideas from participants who work in offshore oil and gas, who are senior engineers, who are intimate with sub-sea operations, be found instantly. In addition if there was a community of practice that existed with the MCCM implying some structure, would the social embeddedness of these individuals have thought of and possibly thought through some of the issues that would have arisen? I think so, but then again I am biased.

For instance, decentralized systems of innovation ( including industrial districts may be at a disadvantage in generating genuinely systemic innovations (Teece 1986), that is, innovations that require the development of new components as well as new ways of integrating components In such a case, the location of much of the relevant knowledge within a tightly coupled systems is likely to facilitate innovation. This need not mean a single vertically integrated firm, but it does mean that lead or coordinating firms - in modern terminology, systemic integrators - must possess a wise range of knowledge or capability and must indeed "know more than they do' (Bruisoni, Prencipe, and Pavitt, 2001). They also need to be powerful enough to force other firms to follow their lead. p. 16

Seeing who has been designated as the "Red Adair" in offshore blowouts would have helped before and after a situation like this. And maybe this individual foresaw the difficulties in offshore blow out preventer's. And allocated a small budget of his engineering firm to research the idea that these could fail. And maybe they would have been well on their way to solving the problem when the incident happened. The alternative today is that the engineering firm would have had to fully developed the solution and marketed it throughout the industry for the oil and gas firm to turn their thumbs down on the idea. As we see in the Gulf today, we can't work this way anymore. Langlois notes;

In addition, their reliance on local standards can impede efforts by firms in an ID to indigenize innovation form outside, again raising the costs of adjustment and the time required. Finally, firms with a mature ID that do develop innovations may not only find it difficult to generate interest within their ID but are poorly placed to market their innovations externally. p. 16

Without these communities of practice in place, where is BP today? The costs of this disaster may seriously impede the firm. BP could face costs in the range of $10 billion with additional damage to the wells reserves. All because management didn't foresee that the innovations of offshore drilling moved ahead of the science. In the scenario that I provided before, where the engineer proposed a solution to what he saw as faulty offshore blow out preventer's. In today's marketplace management will thumb its nose at these ideas. In the future it may solve the problem and eliminate these costs.

People, Ideas & Objects asserts in the Draft Specification that the oil and gas producer is concerned with their asset base and application of the scientific and innovation capabilities of the marketplace. This is represented in the Resource Marketplace, Knowledge & Leaning, Research & Capabilities, and Accounting Voucher modules and the Military Command & Control Metaphor being extended to the communities of practice. If BP adopted this strategy of focusing on their assets and capabilities, where would they be today?

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

Technorati Tags: People's Langlois Failure Management Community Innovation Science Military-Command Offshore
 

Professor Thomas Malone on Organization

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

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

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

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

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

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

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

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

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

and

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

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

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

and

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

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

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

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

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

Perez, Crisis and Innovation Part V

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Perez, Crisis and Innovation Part I

We begin our review of Professor Carlota Perez new paper "The Financial Crisis and Innovation: A view of technical change with the aid of history". I would find it difficult to choose whom has had a greater influence on People, Ideas & Objects, Professor Carlota Perez or Professor Richard Langlois. Professor Langlois has helped to define the Draft Specification with his research in Modularity, Boundaries of the Firm, Transaction Cost Economics and his "Vanishing Hand". Whereas Professor Perez has established the context of the economic times that we find ourselves in. Particularly what we can expect as a result of the Information & Communications Technology Revolution (ICTR). I am grateful for both of their work.

This February 2010 paper of Professor Perez' is quite probably the most important, critical and timely paper we could ever review. There are many new and valuable findings within the document and it is of particular value to what we at People, Ideas & Objects call our Community of Independent Service Providers. We will be reviewing this paper in detail in several parts, today being a fresh look at some of her past work.

Professor Perez begins with a summary that sets the tone for the document. Emphasis is mine.

This essay locates the current financial crisis and its consequences in a historical context. It briefly outlines the difference in patterns of innovation between the first two or three decades of each technological revolution –regularly ending in a major financial collapse– and the next two or three decades of diffusion, until maturity is reached. With this historical experience in mind, the essay discusses the opportunity space for innovation across the production spectrum taking into account the specificity of the Information and Communications Technology (ICT) paradigm and the increasing social and environmental pressures in the context of a global economy. Finally, there is a brief look at the sorts of institutional innovations that would be required to provide adequate finance to take full advantage of those opportunities. p. 2

There has been much we have reviewed of Professor Perez' work. This next quotation appears new to me, however, it is so obvious now that I think she needed to state it clearly for us to fully appreciate our situation.

Nevertheless, globalisation is a fact and the new emerging economies will change the shape of the world to come. p. 3

From an oil and gas perspective, our focus on demand is justified. The volume of supply of oil and gas will be a constraint to the global economy. The demand for innovation from the oil and gas producer will reach significant proportions. Operating within the global economy will also bring the full scope of the political, geographical, logistical and science based issues to the forefront of everyone in the industry. Organizing for this purpose is what we have been writing about, and preparing the communities for, at People, Ideas & Objects.

In the past I have shied away from the discussion of political points of view with respect to Professor Perez' work. I am a free market kind of guy and her views on the role of government in solving the economic problems have caused me difficulty. I think however, that I have been incorrect in not attributing the role of government to moving away from the casino atmosphere of financial capital, and the need for production capital to take the lead. This paper clearly states her values and the need for this transition to be aided by the role of government. The partisan nature of the discussion in the U.S. however, I think needs to adopt more of the attitudes and thinking of Professor Perez.

The other consequence of the bust, which could in some sense be defined as ‘positive’, is that by revealing all the crooked ways of the financial world during the boom, it has broken the myth of an ideal ‘free market’ and brought back the State into an active role in the economy. Such a come back is not limited to restraining the abuses of finance but extends to favouring the expansion of production and job creating activities over speculation and to spreading the benefits of growth more widely across society. p. 3

I highly recommend that everyone download this paper and print it out in hard copy. It is something that will be valuable as a frequent reference over the next number of years. Professor Perez' work has substantial value to anyone and everyone that will live in this globalized economy, this paper summarizes her work in a very substantial way.

To highlight the review of her theories and terminology I include the following definitions that frame our economic times. [Time frame]

This is the Installation period, [approximately 1971 - 2000] which begins in the midst of a mature economy in decline and ends with a frenzied prosperity characterised by the triumph of the new paradigm, the emergence of new giants and the development and collapse of a major financial bubble. p. 6

The second period brings to fruition all the potential opened up by the new technologies. It is the Deployment period [current to 2040?] when the new production giants serve as engines of growth. It is a time of ‘creative construction’ involving the expansion of both the new and the rejuvenated sectors and usually spreading the benefits of growth much more widely than during Installation. Production capital is then at the helm of investment decisions and finance adapts (or is induced to adapt) to serve those longer-term objectives and benefits from them. p. 6

The years between the bust and the unleashing of Deployment (from two years to as much as thirteen, as was the case in the 1930s) [2000 to current] constitute the Turning Point, referring to the shift in conditions and leading role from one period to the other. p. 7

In a previous post I quoted Professor Ralph Raico who stated the following about Professor Ludwig von Mises.

Back in the early 1700's there were slums, people were poor, people died, every possible plague. Mises says you cannot understand the industrial revolution without understanding the western world was undergoing an un-precedented population explosion. For example, England in 1750 had a population of about 6 million; by 1850 the population was 24 million. The question was how would these new tens and tens of millions of people survive? Mises said the industrial revolution was the answer to the population explosion. That's how they survived, by society becoming immensely more productive.

The industrial revolution was the solution to the population explosion and issues of the day. We now stand at a point in time where the benefits of the Information & Communication Technology Revolution are available to solve the problems that we face today. With the research of Professor Perez we can see clearly that now is the beginning of this trend, and the only thing that is stopping us is ourselves. From her paper.

In 2009 the world is going through the Turning Point and deciding the global and national context for the full Deployment of the ICT surge. Understanding the nature and direction of the changes required is a crucial input for designing institutional and policy innovation and increases the probability of taking best advantage of the new wealth creating potential of the new paradigm. p. 7

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

Technorati Tags: People's Perez Economics Change Management Innovation CISP Leadership
 

Lazonick on Chandler Part IIIb

This is our third post from Lazonick's paper "The Chandlerian Corporation and the theory of innovative enterprise." In our past two blog posts we have learned some interesting things that are directly relevant to People, Ideas & Objects. In the first post we noted the three generic activities that require alignment; strategy, organization and finance. How the Draft Specification provides for these three activities. And the differences between two corporate strategies defined as "optimizers" and "innovators". Noting that Lazonick defines optimizers as non-innovators. In the second post we determined that the business of the oil and gas business required substantial investment to attain the necessary innovative strategic footing. How today the current bureaucracies are unwilling and incapable of making these investments. And that the investors / shareholders in oil and gas have the opportunity to form their own new and revised organizational ways and means around using the Joint Operating Committee as the key organizational construct, and the People, Ideas & Objects software development capability.

In the Preliminary Research Report it is noted that the higher commodity prices are a reallocation of the financial resources to support innovation. It is the product revenues from oil and gas sales that fuel the innovations. Financing of innovation through debt, equity or profits would be too costly and would generally be inadequate in terms of affecting the performance of the industry. A much larger source of funding is required to fuel the type of innovation that the oil and gas needs. Innovation is a profit generating activity. This fact becomes clearer in today's review of Lazonicks paper.

2. The theory of innovative enterprise cont

In the first quarter of 2010 People, Ideas & Objects attempted to fund its budget needs for the calendar year. As we are aware, the total sum of these activities generated $0.00. This in direct contrast to the 30 compelling reasons supporting why we should be funded. I have pointed to this funding failure as a fact that proves the bureaucracy will never fund these developments. The point is that this environment needs to be created and supported. As Schumpeter noted "innovation drives economic development."

The optimizing firm may calculate, on the basis of prior experience, the risk of a deterioration of current market conditions, but it has no way of contemplating, let alone calculating, the uncertainty of returns for conditions of supply and demand that, because innovation is involved, have yet to be created. The fact, moreover, that the optimizing firm will only finance investments for which an adequate return already exists creates an opportunity for the innovating firm to make innovative investments that, if successful, can enable it to out compete optimizing firms. Indeed, in the future optimizing firms may find that the cause of the “poor market conditions” that they face is not the result of an exogenous shift in the industry demand curve but rather the result of competition from innovating firms that have gained competitive advantage while their own managers happily optimized (as indeed the economics textbooks instructed them to do) subject given technological and market constraints. p. 9

Therefore I see the existence of two fundamentally different oil and gas industries for the next 10 years. Those that are optimizing and atrophying, and those that are innovating and growing. A key difference is the use of the People, Ideas & Objects software that supports and defines the innovative oil and gas producer. The critical role of the Community of Independent Service Providers (CISP) in enabling oil and gas innovation. And the direct investments in innovation that are needed.

An innovative strategy, with its fixed costs, results from the assessment by the firm’s strategic decision-makers of the quality and quantity of productive resources in which the firm must invest to develop higher quality processes and products than those previously available or that may be developed by competitors. It is this development of productive resources internal to the enterprise that creates the potential for an enterprise that pursues an innovative strategy to gain a sustained advantage over its competitors and emerge as dominant in its industry. p. 10

Lets be clear, the costs of these software developments are minuscule to the costs of developing the innovative oil and gas industry. The global oil and gas industry is currently a $3.8 trillion / year industry. I see a significant portion of those annual revenues being dedicated to the processes of innovation. A critical enabling resource within the industry will be the Community of Independent Service Providers, they are the ones that will have the skills and resources necessary to support the innovative oil and gas producer. They are how the energy industry evolves and matches or supports the innovations made at the producer level. Achieving the CISP's overall objective of providing their producer clients with the most profitable means of oil and gas operations. What is needed for both the software and communities to develop is to have access to these financial resources.

Such development of productive resources, when successful, becomes embodied in products, processes, and people with superior productive capabilities than those that had previously existed. But the high fixed costs that such investments entail mean that in and of themselves these investments place the firm at a competitive disadvantage until such time that, by developing and utilizing these investments, it can transform the technologies and access the markets that can generate returns. An innovative strategy that can eventually enable the firm to develop superior productive capabilities may place that firm at a cost disadvantage because such strategies tend to entail higher fixed costs than the fixed costs incurred by rivals that choose to optimize subject to given constraints. p. 10

I can not for the life of me see the energy industry as it exists today changing to the one described in the previous quote. It isn't in their organizational DNA. The process of creative destruction, or as I have detailed the two oil and gas industries, one optimizing the other innovating, is the only means that change of this scale can take place. As the optimizing firms atrophy and their earnings decline, assets will be sold to the innovators, creating a substantial opportunity for the innovative producer through this process of renewal.

If the size of investments in physical capital tends to increase the fixed costs of an innovative strategy, so too does the duration of the investment required for an organization of people to engage in the collective and cumulative—or organizational—learning that is the central characteristic of the innovation process. p. 10

and

The revenues (and not just the profits) that the innovating firm generates can be critical to maintaining its organization intact. When the innovating firm generates revenues, it has financial resources that can be allocated in a number of ways. If the gains from innovation are sufficient, the firm’s revenues create the possibility for self-financing....For the innovating firm, financial resources not only fund new investment but also enable the firm to keep its “learning” organization intact. The innovating firm can use the gains of innovative enterprise to reward its employees for their application of skill and effort to transforming technology (unbending the cost curve) and accessing markets (shifting out the demand curve). p. 13

We have commented on this blog many times before about the mechanical leverage that man has achieved over the past century. 18,000 man hours of labor is contained within each barrel of oil. To convert this factor into the number of man years of physical effort that is offset each year for each American, that number is 385. That is; each American receives the equivalent benefit of 385 man years of physical effort per year. Truly surprising and something that has to be maintained by ensuring that the oil and gas is available to continue to provide the offset. The point in raising this is to ask the question, at what point in time do we achieve an equivalent level of leverage in terms of intellectual thought? And as importantly, how do we get there? I know the first two steps are to gain a software development capability and secondly begin the development of the Community of Independent Service Providers.

The innovation process, that is, can potentially overcome the “constrained-optimization” trade-offs between consumption and production in the allocation of resources as well as between capital and labor, and even between enterprise and society, in the allocation of returns. It is for this reason that innovation can form the foundation for equitable and stable economic growth, or what I have called “sustainable prosperity” (Lazonick and O’Sullivan, 2002; Lazonick, 2009a). p. 14

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

Technorati Tags: People's Chandler CISP Innovation Strategy Funding Ownership-Community
 

Lazonick on Chandler Part III

In the first post on Professor Lazonick's paper we discussed the differences between optimization and innovation in terms of corporate culture. How in oil and gas we need to move from optimization to an innovation footing. To do so requires a substantial investment for the oil and gas producers. An investment that begins with the development of the software defined in the vision of the Draft Specification. An investment that up until today, the oil and gas industry has been unwilling to make. What I think Lazonick makes clear in this second part of our review of this paper is that the means to which to make the changes are within our grasp. All that is missing is the willingness to make the necessary investments. That willingness is a product of the innovative firms corporate culture.

2. The theory of innovative enterprise cont

Professor Lazonick begins with a comparison between what he calls the neoclassical firm and the innovative enterprise. The role of the entrepreneur and the assumptions supporting each. In oil and gas I see the bureaucracy believing theirs is a management discipline that deals with all aspects of the industry. That their management capabilities are the critical resource to the profitability of the industry.Lazonick notes;

There are two assumptions of the neoclassical theory of the firm that limit its ability to understand innovative enterprise. First, the neoclassical theory assumes that the entrepreneur plays no role in creating the disequilibrium condition that triggers the reallocation of resources from one industry to another. In the theory of the innovating firm, by contrast, entrepreneurs create new profitable opportunities, and thereby disrupt equilibrium conditions. Second, the neoclassical theory assumes that the entrepreneur requires no special expertise to compete in one industry rather than another. All that is required of the entrepreneur is that he follows the principle of profit maximization in the choice of industry in which to compete. In the theory of the innovating firm, in contrast, the entrepreneur’s specialized knowledge of the industry in which he chooses to compete is of utmost importance for his firm’s ability to be innovative in that industry. p. 6

My experience in dealing with management of the oil and gas industry is accurately captured in Lazonicks text. What management has learned is they too can control the disruptive nature of the entrepreneur, by not allocating any resources towards it, and hence avoid the disequilibrium that is created. Or so they believe. This behaviour has become systemic and has the companies actively avoiding the necessary investments in the business of the oil and gas business. Optimization is the word that everyone marches to and any producer that makes the necessary investments ininnovativeness is deemed risky.

The limiting assumption here is that the entrepreneur does not choose the firm’s level of fixed costs and the particular productive capabilities embodied in them as part of his firm’s investment strategy. In the theory of the innovating firm, the level of fixed costs manifests strategic decisions to make investments that are intended to endow the firm with distinctive productive capabilities compared with its competitors in the industry. p. 7

I referenced this article from the Calgary Herald the other day. It suggests the National Energy Board has determined that Alberta Natural Gas production will decline to 8.5BCF / day in 2012 from 12.7 today. Are we as an industry unaware of the consequences of inaction in the investments necessary for innovation? AsLazonick notes the costs of optimization eventually turn to eliminate the profit elements. The oil and gas industry in Alberta is experiencing these increased costs, of which they attribute to greedy suppliers, and the declining production values. Why, in discussing this with Canadian management, it clearly is not their fault. Imputing they are only a small part of the market.Lazonick discusses this U-shaped cost curve of the optimizers.

The assumption is that the addition of variable factors of production to the firm’s fixed factors of production results in a declining average productivity of these combined factors (i.e., the firm’s technology, which is also the industry’s technology). In deriving the U-shaped cost curve, neoclassical theorists give two quite plausible reasons why productivity declines as output expands. Both reasons assume that the key variable factor is labor. One reason is that as more variable factors are added to the fixed factors, increasingly crowded factory conditions reduce the productivity of each variable factor as, for example, workers continuously bump into one other. The other reason is that as more workers are added to the production process, the entrepreneur, as the fixed factor whose role it is to organize productive activities, experiences a “control loss” because of the increasing number of workers that he has to supervise and monitor. p. 7

It is reasonable to assume that by 2012 the Canadian producers lack of investment in innovation, and the increased costs associated with the U-shaped nature of the optimizers fixed and variable costs, will eliminate them from the marketplace. As I have indicated here on this blog before, Canada, and that is all of Canada, represents a negligible 2 percent of the readership of this blog. I can say with almost 100% assurance, when the scope of the Preliminary Specification is determined by the users, that Canada will not be represented in the functionality of the People, Ideas & Objects application. Conversely, the U.S. makes up 88% of the total users represented here. Anyone want to guess where the innovative, or profitable, elements of the oil and gas industry will be located?

Hence organization—in this case the relation between the entrepreneur as manager and the work force that he employs—becomes central to the neoclassical theory of the firm. Within the theory of the optimizing firm, the constraining assumption is that the entrepreneur passively accepts this condition of increasing costs, and optimizes subject to it as a constraint. In sharp contrast, in the theory of the innovating firm, the experience of increasing costs, as shown on the left-hand side of Figure 2, provides the firm’s strategic decision-makers with an understanding of the limits of the initial investment strategy, and with that information they make additional new investments for the strategic purpose of taking control of the variable factor that was the source of increasing costs [for an elaboration of this argument, seeLazonick (1991: ch. 3, 1993)]. An innovating firm would not take a condition of overcrowding or control loss that results in increasing costs as a “given constraint,” but rather would make investments in organization and technology to change that condition. In effect, for the sake of improving its capability to develop and utilize productive resources, the innovating firm makes strategic investments that transform variable costs into fixed costs, which the firm, in order to innovate successfully, must now endeavor to transform into low unit costs. pp. 7 - 8

Therefore investment in the productive capacity of the oil and gas industry starts here. Development of the innovative organization is deemed a necessity due to the demands of the marketplace and the increased complexity in the underlying earth science and engineering disciplines. Today we live in a sophisticated marketplace that demands the changes to organizational structure be contemplated and built within the software first. This is only the beginning of the investments that are necessary. These investments are a significant undertaking for the industry, and they are past due.

An innovative investment strategy is inherently uncertain, and investments in innovation must be made despite the existence of uncertainties concerning prospective returns. Any strategic manager who allocates resources to an innovative strategy faces three types of uncertainty: technological, market, and competitive. Technological uncertainty exists because the firm may be incapable of developing the higher quality processes and products envisaged in its innovative investment strategy; if one already knew how to generate a new product or process at the outset of the investment, it would not be innovation. p. 9

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

Technorati Tags: People's Chandler Innovation Strategy Organization Failure
 

Comments from the Oil & Gas Journal

Some interesting comments are being made in an article from the Oil & Gas Journal. Comments that reflect that our revised approach may find an audience. Entitled "Shale gas plays seen reshaping research, relationships", the article notes elements in play in the oil and gas industry that are 100% consistent with the assumptions that went into the development of the Draft Specification.

Focusing on the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer provides many benefits. One is the ability to enhance the quality and speed of the decision making processes around the property the JOC represents. Each producer has the same motivation with respect to the property. Financial interests drive consensus. Suppliers are critical elements of the quality of operations. The Resource Marketplace Module recognizes these facts and builds a collaborative, transaction-oriented marketplace environment to enable the development of the earth science and engineering innovations. The Resource Marketplace Module is integrated with the Accounting Voucher Module to design the transactions between the producers of the Joint Operating Committee and the suppliers they choose. Transaction design is the future producers greatest source of value-add.

Comments from the Oil & Gas Journal:

Shale gas, said Jonathan Lewis, senior vice-president of Halliburton’s drilling and evaluation division, is “fundamentally changing the energy landscape in North America and is doing so with unprecedented speed.”

Other likely areas of technical and scientific progress he cited for shale development are basin-scale modeling, formation evaluation, drilling optimization, underbalanced drilling, borehole steering, multilateral completions, and collection of data in real time.

Lewis also predicted a “new generation” of numerical simulation techniques and said that, beyond science and technology, shale plays are encouraging new “operations optimization and collaboration” as operators seek ways to “drive waste and idle time out of the process.”

The efforts have increased collaboration between operators and service companies, Lewis said. They also have increased the use of packaged services, such as drilling and completion, and of incentives in contracts.

All of which are comments that show the direction of the industry and the Draft Specification resonate.

There is also the market that People, Ideas & Objects have identified for use of this software. The Joint Operating Committee is globally systemic. Start-ups, National Oil Companies (NOC's), International Oil Companies (IOC's) and Independents have all been targeted for use of this software. The Oil & Gas Journal has something to say regarding this changing dynamic as well.

G. Allen Brooks, managing director of the investment banking firm Parks Paton Hoepfl & Brown, said the restructuring results from expansion of activity by national oil companies, the “struggle” by international oil companies “to find a new business model,” the movement of gas into its role as a transition fuel, and politics and taxation.

Gone are the days where the NOC's were operating all elements of the industry themselves. They too need the oil and gas producer and service provider to enhance and optimize the resources of their countries. It's a new day where a new approach appeals to all countries.

If the IOC's are struggling to find a new business model, may I suggest they review the Draft Specification. This specification has the cumulative efforts of five years of research into using the industry standard Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. In an industry where the scientific and engineering demands in each barrel of oil produced, are escalating, People, Ideas & Objects provides the technical infrastructure and software development capability to mirror the energy producers innovations. Most importantly, this five years of research is reflected in the Draft Specification. And therefore, producers can re-capture this five year period by subscribing to People, Ideas & Objects.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 30 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

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

Technorati Tags: People's Innovation Specification Change
 

27, 28, 29, 30...

Adding to the list of compelling reasons for People, Ideas & Objects.

# 27, I am an unreasonable man.

Referring to George Bernard Shaw's saying.

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man."

Therefore, for the energy industry to progress depends on the unreasonable man. And that's me, just ask anyone.

# 28, 270 Billion Man Days per Day.

If every barrel of oil has the capacity to offset 18,000 hours of manual labor, then we have a dependence on energy. How far a fully loaded semi-trailer can travel on one barrel of oil? (Answer is 252 miles) How much effort would it take to move that product (80,000 lbs) that distance without the benefit of energy. At least 18,000 man hours. In yesterday's post I detailed the specific nature of this threat.

We're fooling ourselves if we think we can get along without petroleum based energy. With the Chinese, India, Brazil and other countries joining the middle class, the demand for energy will be significant. We need to solve this problem and that is what People, Ideas & Objects is focused on providing.

# 29, Collaboration facilitated around one vendor.

People, Ideas & Objects provides the oil and gas producers with a focused software development capability. This capability is universally available to all producers who use the applications. Enabling a quality of collaborations and communications that are not otherwise available.

If for example, Exxon were to be providing the software services of People, Ideas & Objects, then many producers would be hesitant to use the application as it provides too much information to Exxon. In the same way, each producer having their own systems would disable the opportunity of having the open collaborations that are available only when everyone is using the same systems. That is to say that different applications have different languages, protocols and methods. Communications are constrained and limited unless there are 15 IT people available to support the collaborations. Having everyone on the same system provides a means to facilitate enhanced collaborations.

# 30, Users and the Community of Independent Service Providers.

This one is so obvious, I almost missed it. It should really be number one, and will be in the final summary. Users are the critical aspect of making software work. Without users we end up with what we have today. Applications that users tolerate. This focus and drive towards the user will continue until the users feel the developers are reading their minds. That is what agile development methodologies can provide the user community. Anticipation of what the user will want.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 26 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

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

Technorati Tags: People's Funding Budget Innovation
 

22, 23, 24, 25, 26...

We continue on in summarizing the many compelling reasons for People, Ideas & Objects to be funded. The five additional reasons being added today provide more support as to why these developments should continue. The previous 21 reasons were summarized in blog posts here and here.

22 & 23 Draft Specifications boundaries of firms and markets. The Chandlerian Perspective

Much of the Draft Specification used Transaction Cost Economics (TCE), Modularity and the boundaries between firms and markets in its design. These provided the guiding principles in terms of how the specification deals with the issues facing the oil and gas industry.

We recently discovered Harvard Professor Gary P. Pisano and his analysis of Science-Based Businesses. Certainly oil and gas qualifies as a science based industry. Importantly Professor Pisano bases his analysis in the Chandlerian Perspective (Reason # 23) and its impact on science-based businesses.

The Chandlerian Perspective defines the value and benefit of this software development project to the producer firms. In his recent paper Professor Pisano provided us with a summary of Alfred D. Chandler's perspective.

• Technical Innovation & Organizational innovation are interdependent.

If we are to increase the volume of science and engineering involved in each barrel of oil equivalent. Then we must organize ourselves in ways to define and support these desired changes.

• New forms of business organization & Institutional arrangements are invented to solve specific economic problems.

In other words we need to act. This change will not occur on its own. We have to design the solutions to today's problems. This point should take on a greater sense of urgency from the point of view that we are standing on the shoulders of several generations of giants. Any fall in the performance of the existing bureaucracy could be far more severe then we assume. Moving back to manual systems is not an option.

• Organizational & Institutional innovation is an evolutionary process - nothing guarantees "we get it right every time".

People, Ideas & Objects is providing a software development capability. One that adapts based on input from the user community. This is not developing to a fixed point, but designed to hit a moving target. I foresee no time in which People, Ideas & Objects will not have substantial work to be done. And this level of work is just as applicable today as it will be 20 years from now.


24 Intellectual Property is focused on oil and gas innovation, and available to all.

The research that is reflected in the Preliminary Research Report, the Draft Specification and this blog make up the copyright that I have earned in the publication of these ideas. Users and members of the Community of Independent Service Providers add to this Intellectual Property (IP) base with their contributions in defining and building the People, Ideas & Objects software applications. Access to this IP is through the user signing the license which provides access to the original research and Draft Specification. Permitting the communities to contribute as if the IP was their own. In turn they assign the right to any of their ideas or developments back to the original copyright owner, where in turn, it is available to the entire users base.

This is done for a number of reasons. This method provides the base of understanding of the industry to innovate at the speed at which the IP can be developed, or instantly. There won't be 100 different people claiming ownership of one part of an application or IP; and the cross licensing and other legal tactics that can be used by those that might claim some ownership.

Secondly the concentration of IP allows me to focus the industries dollars on one solution. Breaking the scope of the People, Ideas & Objects down into a competitive marketplace would only dilute the offerings of many potential service providers. Cobbling together software solutions to meet the scientific and engineering driven demands of the industry is the last thing that is needed.

Third, users and particularly the CISP earn revenues from People, Ideas & Objects for their ideas and IP. (Through the license they are effectively selling their IP back to me.) They also are granted a non-exclusive license to generate, for their exclusive benefit, any revenues associated with any services they provide along with the People, Ideas & Objects software to their producer clients.

A focused software developer and user community must be supported and motivated to provide the producer with the most innovative environment in which to manage their operations. The focus of the CISP is to provide the oil and gas producer with the most profitable means of oil and gas operations. Management of the IP in this fashion provides these objectives are attained.

25 No finance related constraints with People, Ideas & Objects.

People ask why not fund People, Ideas & Objects by going public or with bank loans. These options are not open to companies that want to provide solutions to small markets like oil and gas ERP systems vendors. They may be open, but they are certainly not able to fund the type of developments that are needed. At some point the producers will need to make payments to those firms that may have been able to borrow or raise money. I say we just skip that first step and start with the revenue from the producers to fund the developments.

This provides People, Ideas & Objects with no bankers, no public stock offerings or exchanges to distract or compromise our focus on providing the best software development capability to the oil and gas industry. I think this makes for a compelling reason for the producers to get behind this project and start funding the budget. When added to our compelling business model, where the producers pay for the costs associated with developments plus an element of profit. The producers (as individual firms) are able to gain far greater value then what their software development expenses will be. The CISP and Users are also able to earn a handsome living by providing the producers with this software and their associated services. Leaving no stone unturned in supporting the innovative oil and gas producer.

26 Marketplaces.

The Draft Specification contains three "Marketplace" modules. (Petroleum Lease, Resource and Financial Marketplace Modules.) We recently learned from Professor Ronald Coase that Markets are creations. I am embedding his video "Markets, Firms and Property Rights" for your review. Creating markets in these modules will provide a more dynamic industry, better able to meet the demands of an innovative oil and gas producer.



March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 26 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

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

Technorati Tags: People's Budget Funding Pisano Innovation Management