Eliminating the Conflict

In the Preliminary Research Report, in addition to the advantages of using the Joint Operating Committee (JOC) we listed the disadvantages of the conflict between the JOC and the traditional hierarchy. What becomes clear in listing these disadvantages, is the overriding focus on compliance and governance by the hierarchy. Tax, SEC and Royalty requirements at times appear as the sole focus of the organizations. The operations within the JOC are a distant second in terms of dealing with the business of the producer.

I am speaking of course from the business perspective dictated by the use of the ERP system of the producer, not the technical perspective of the earth science and engineering production operation. The separation between the administration and the earth science and engineering focus within the producer is something that is being eliminated in the Draft Specification. Lets call this well known phenomenon of “no one reading from the same page”.

Oil and gas operations are unique based on their geographic and geological makeup. Applying blanket corporate strategies to these operations was possible in the easy energy era. In today’s marketplace the need to have unique operational strategies for each oil and gas property is a necessity and is accommodated in the Draft Specification. What is not needed is the conflict and confusion within the producer that is as a result of no one reading from the same page.

One of the breakthroughs from the research People, Ideas & Objects has conducted is that the differing operational strategies that are employed by each of the producers in a JOC are possible and appropriate. Each producer has a unique make up of assets and strategies and those can be enabled through the use of People, Ideas & Objects Draft Specification. Without the systems needed to support these differing strategies, the confusion and conflict will only grow, potentially in exponential ways.

The conflict between the separation of the compliance and governance of the hierarchy and the five frameworks of the JOC are reflected in each of the following points.

Introduces political and bureaucratic conflict.

This is the first and most damaging aspect of no one reading from the same page. When strategy, operations and administration are all moving in different directions within the organization, conflict is the result. The solution in the Draft Specification is provided by moving the compliance and governance from the hierarchy and aligning them with the legal, financial, operational decision making, cultural and communication frameworks of the JOC.

Compromises and muddles internal decisions.

What may be ideal strategy to optimize the property may be unknown to many of the decision makers within the producer firm. The operational decision making resides with the JOC. The decisions made by these organizations are not communicated effectively through the producer firm. Time necessary to make decisions and the bureaucracy have the effect of slowing the capacity of the producer.

Lacks the direct support from the hierarchy.

When no one is reading from the same page, it seems that the administration is moving in different directions from the technical groups. For cost reasons, having everyone reading from the same page isn’t a luxury but a necessity.

Successes and / or failures are not identified, shared or learned explicitly by any of the participating organizations. Knowledge is held tacitly, limited amounts of knowledge is codified or make explicit.

As decisions and strategies are confused, the ability to learn from the decisions is lost. Innovation is an iterative process based on the success and failure and the history of the property. In a science and applied engineering business that requires more scientific effort for each barrel of oil produced, the decision history and understanding of the underlying knowledge of the property become necessities.

Eliminates initiative and innovation. No tolerance for risk taking or experimentation that is required for innovation.

Building on the previous point regarding success or failures, when no one is held accountable for the decisions that were made, initiative and innovation fall to the sidelines.

No regulatory or internal financial reporting requirements.

The standard reporting of an interest in a JOC is fairly standard. People, Ideas & Objects have published a Technical Vision of how Information Technology will change in the near future. This Technical Vision foresees a substantial increase in the volume of data that is available to a producer. With the Performance & Evaluation and Analytics & Statistics modules, the producer can expand their use of this data in innovative ways.

The hierarchically based organization is an impediment to future progress.

This has been discussed by many. Although People, Ideas & Objects subscribe to this thinking, we are offering a viable solution by recognizing the Joint Operating Committee and developing an alternative governance structure in the Military Command & Control Metaphor in the Draft Specification.

Capacity to replace reserves has become logistically, operationally and organizationally constrained.

The long term perspective of a producer firm is reflected in their reserves. To expand their reserves a producer has a scientific capability, that in addition to their reserves, are its critical competitive advantages. These capabilities are the differences between success and failure.

Capacity to meet the market demand is diminishing.

The overall effect of these points is that the ability of the industry to expand its productive capability has stalled. As the world has more people entering the middle class, the lack of market supplies of energy will bring significant societal issues to all concerned.

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

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Military Command & Control Metaphor - Innovative?

Last week in research question # 1 we asked if the hierarchy’s value had expired. Suggesting that elimination of the hierarchy would require an alternative governance framework to replace the tried and true hierarchy. Recall that the alternative framework we developed in the Draft Specification is what we call the Military Command & Control Metaphor (MCCM). It might seem a contradiction to suggest that the military chain of command enables innovation at the producer level. The military is known for its strict adherence to command and control, how is this going to assist the innovative producer? And isn’t the use of the MCCM going to cause the Joint Operating Committee to be less responsive as a result?

First is the fact that the strict level of adherence is a reflection of the command and control that is implemented. We are attempting to impose an organizational structure on to the various members of the producer firms that have been seconded to the specific Joint Operating Committee. These resources are being sourced from a multitude of organizations, they also continue to have responsibilities to the individual producer that they represent. Therefore imposing this structure allows them to interact, respecting the equivalent military chain of command used, in a manner that is expected of them in both the JOC and at the producer firm that employs them.

Second is the innovative footing that we are striving to provide to both the producer and the JOC. This innovative footing seems counter to the military command and control expectations. Victor Davis Hanson is a well known military historian. In this video at around the 33:00 minute mark, he makes the interesting comment noted just below the video.

I still can’t believe as a military historian that we came up with the idea that a flying fortress was going to go over daylight at about 200 miles an hour and supposedly at 30,000 feet knock out the strategic capability of Germany. And depend on a few 50 calibre machine guns to save this lumbering plane that had as few as nine crew members and they were going to be fighting against the finest fighter pilots in the world in ME-109’s and they think they can pull it off when the British had tried it and had already assumed that it was impossible. And we did that of course and we lost 25,000 Americans, six times more then in the Iraq war, on that flawed concept. But that's the nature of war, live and learn. And out of that we learned what. You could stack formations to increase fire power. You could create drop tanks and have Thunderbolts and Mustangs escort them. You could use radio signals, you could use chafe. And by that trial and error counter response, response, counter response by 1945 the B-17’s were taking a lethal toll on German society and industry. And that is what usually happens in war.

And at 1:01 minutes, based on his experiences Professor Hanson states;

There is more free speech in the military then there is in a university campus.

In this example I see two characteristics at play. The first is the ability of the higher command to maintain the focus on a difficult and costly job for the long term. Secondly, the ability to innovate in the use of the resources to achieve the long term goal, success in its mission. Compare this, or any other military operation, against the capabilities of the hierarchy and I think we can see the use of the Military Command & Control Metaphor will enhance the JOC’s and producers that use, prospectively, People, Ideas & Objects software applications.

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

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Research Question # 4

In our fourth and final installment of the Preliminary Research Report’s research questions. We asked “Does the industry need to change from a “banking” to a “science and engineering” based mindset?”

Much of current infrastructure of the oil and gas industry has been developed during a time when the costs associated with exploration and production were reasonable. A time when the efforts of the producer firm could be quantified by determining a reasonable return on investment in oil and gas. This generated what could be considered to be a “banking” mindset that sought to exploit a resource based on a specific return on investment.

That of course is the reasonable approach that any industry will take to the business at hand. To do anything other then approach the business from the return on investment would be foolhardy. What the question being asked is, will the approach of a guaranteed return on investment be capable of dealing with the complexity of a science based business in a resource constrained environment.

With the earth science and engineering disciplines expanding at a significant pace, where each barrel of oil produced requires progressively more science and engineering. With the supply of scientists available to producers being somewhat fixed. To expect this environment to produce a reasonable return on investment with no change in approach from the “easy” energy era will lead to disappointment.

I think the answer to the question is clear. The industry needs to change in order to meet the markets demand for energy. Since the time the Preliminary Research report was published and today, the world energy production has remained static. At a time when a large percentage of the worlds population is moving towards the middle class, the static or potentially declining world oil production is a serious problem for society. It is therefore reasonable to assume that high commodity prices will be with us for the long term. Prices are the reallocation of financial resources to facilitate innovation. Therefore it is also reasonable that the producers with the most innovative capability will have the highest return on their investments.

But lets be clear, changing the stripes on a Tiger is not easy. As we progress into this review we will see that this level of change may not be able to be managed by the current oil and gas producers. Some times the changes occur from an attrition of the existing firms and replaced by new and innovative producers. Either way, People, Ideas & Objects and our Draft Specification are designed to identify and support the successful innovative oil and gas producers.

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

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Research Question # 3

The Preliminary Research reports third research question builds on the probable positive outcome of the second question. That being, if innovation can be reduced to a quantifiable and replicable process “Will the Joint Operating Committee facilitate the means to innovate?” In addition to having the scope and understanding of the processes of innovation quantified and replicated. The breakthrough from this research question is that the Joint Operating Committee is the ideal organizational construct to facilitate innovation. I will highlight two key points in this post, and follow up with much more detail throughout our ongoing review.

The two key points are simply ideas and decisions. Two elements that can not be handled by computers. Ideas and decisions are the higher level work that humans need to be involved in, with computers taking over the repetitive and transaction oriented activities.

When we consider the changes in the oil and gas industry, particularly from the point of view of an expanding understanding in the earth science and engineering disciplines. The Joint Operating Committee is designed to generate ideas and make the decisions for the producers represented, making it the ideal organizational construct to support the successfully innovative oil and gas producers. Building ERP systems like People, Ideas & Objects Draft Specification that identify and support the JOC are what’s required to facilitate that innovation.

In terms of idea generation, collaboration is the ideal means in terms of identifying and solving problems. Contrasting the difference between collaboration and consensus is an important point. Consensus is when the majority can agree on a certain decision or direction. Collaboration is when the best solution is being sought by those with a mutual interest. I see the JOC using collaboration as a means to find the innovative solution and making the decisions based on a consensus of understanding.

The operational decision making framework of the industry is with the Joint Operating Committee. What becomes very clear in reviewing Professor Dosi’s paper is that decisions play a critical role in innovation. Professor Dosi states that not all efforts are successful, many fail, and from the failure sometimes the most important lessons are learned, and everyone inherently understands this. The ability of an industry to learn through their collective efforts will mitigate the subsequent similar failures and their costs, and enhance the success over a larger population of companies.

Some of the advantages of using the Joint Operating Committee that were listed in Preliminary Research report were;

• All participants are motivated equally. Financial opportunity drives consensus.
• The JOC is the legal, financial, operational decision making, cultural and communication frameworks of the oil and gas industry. All the internal processes tacitly support this fact.
• The participants in the JOC hold significant technical and managerial capabilities.

The scope of the operational authority of the JOC is constrained by the participants financial interest in the property. The JOC’s formation is traditionally formed around a geographical area, is traditionally limited in its geological and areal extent. This naturally limits the focus of the committee to that facility. The JOC is therefore financially motivated, has the appropriate level of focus, has the operational decision making authority and brings together the collaborative idea generation and consensus building needed of an innovative organization.

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

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Research Question # 2

The second research question within the Preliminary Research Report was, Can the scope and understanding of the process of innovation; be reduced to a quantifiable and replicable process?

The short answer to this question is yes, most definitely. Which is significant news to most people. People, Ideas & Objects has consistently stated that high commodity prices are the reallocation of the financial resources to enable innovation. We stand at a point in time where the oil and gas industry will change to an innovation based and focused industry. Fascinating times.

It would be difficult to summarize the entire answer to this research question in one post. During the next few months of our review we will be better able to answer this question. Readers in the mean time can also review the Preliminary Research report.

The paper that was used to answer this research question was Professor Giovanni Dosi’s “Sources, Procedures and Macroeconomic Effects of Innovation” September 1988, Journal of Economic Literature, Volume XXVI pp. 1120 - 1171. If you have access to JSTOR or other databases I would highly recommend that you download and review the paper.

Professor Giovanni Dosi makes the statements that,

“The search, development and adoption of new processes and products in market economies are the outcome of the interaction between”:

• “Capabilities and stimuli generated with each firm and within the industry of which they compete.”

The capacity to enhance reserves of oil and gas is significantly more challenging than as little as five years ago. Exploitation is generally expected to continue, however, an enhanced role for various degrees and types of exploration is expected to commence. The energy frontier brings many new risks and complexity in the area of technical, political and the environment. These account for much of the changes in stimuli and capability that Professor Dosi states are required to facilitate further innovation.

Secondly, the microeconomic trends associated with changes in the relative prices of outputs. Oil and gas prices are beginning to reflect the scarcity, importance and value of these commodities to society.

Dosi notes the second influence to enhanced innovation is;

• "Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.”

Innovation and science are iterative upon each other. As the pace of development in earth science and engineering innovations increase, these will have an accelerating effect on the development within the sciences which of course, will lead to further innovations.

These points are only the tip of the iceberg. Professor Dosi’s 1988 paper is renowned for its impact on business innovation. Over the next few months as our review of the Preliminary Research Report and Draft Specification progresses. We will be spending a significant amount of time in Professor Dosi’s paper.

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

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The Joint Operating Committee is Critical

Starting with today’s post we will begin a process of reviewing the data, information and ideas that makes up People, Ideas & Objects and the Draft Specification. This will provide readers with a thorough understanding of the elements that make up this project. These posts can be aggregated by selecting the Review label.

People, Ideas & Objects began with the Preliminary Research Report’s hypothesis asking “if the Joint Operating Committee (JOC), modified with today’s information technologies, provides an oil and gas concern with the opportunity for advanced innovativeness.” The critical breakthrough in the research’s conclusion is the “industry standard JOC is the “natural” form of organization for oil and gas where the participants of the committee are supported and augmented through the diversity and availability of the remaining organizations team members. A greater alignment to this conceptual model would facilitate the desired innovation.”

So if this is how the industry operates why does it need People, Ideas & Objects Draft Specification, its software development capability and associated user communities? The difficulty is that today’s ERP systems do not recognize the existence of the Joint Operating Committee. This stands in contrast to the fact that the JOC is the legal, financial, cultural, communication and operational decision making framework of the industry. Every internal and external process of a producer tacitly recognizes these frameworks. However, the organizational focus has become centered on the compliance and governance frameworks of the royalty, tax and SEC requirements of the producer firm. What the Preliminary Research Report determined, and the Draft Specification implements, is the movement of the compliance and governance frameworks into alignment with the five frameworks of the JOC.

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

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McKinsey Ten Technology Trends Part I

McKinsey are once again focusing on the impact that technology will have on organizations. This new article entitled “Clouds, Big Data and Smart Assets: Ten Tech-Enabled Business Trends to Watch” and sub-titled “Advancing technologies and their swift adoption are upending traditional business models. Senior executives need to think strategically about how to prepare their organizations for the challenging new environment.” For the past while I have been closing these blog posts with the comment that management are conflicted and will not make the necessary changes to financially support these developments. Here McKinsey is putting the decision to move to adopt these technologies at the foot of senior executives.

As the worlds premier consulting firm, McKinsey have added substantially to the discussion of applying technology to organizational change.

The ways information technologies are deployed are changing too, as new developments such as virtualization and cloud computing reallocate technology costs and usage patterns while creating new ways for individuals to consume goods and services and for entrepreneurs and enterprises to dream up viable business models.

Again, prospective users of People, Ideas & Objects, and members of the Community of Independent Service Providers will be at the forefront of these major trends.

For senior executives, therefore, merely understanding the ten trends outlined here isn’t enough. They also need to think strategically about how to adapt management and organizational structures to meet these new demands.

1. Distributed co-creation moves into the mainstream.

Recall that we are working to detail “Phase Two” of this project. The purpose of Phase Two is to develop the Preliminary Specification which is proposed to generate a system design consisting of 100 man-years of effort. These developments will be generated from one thousand or more contributors and the entire prospective user community reviewing and influencing the output. A design such as the Preliminary Specification, which of course has not been done before, has also never been possible before.

In the past few years, the ability to organize communities of Web participants to develop, market, and support products and services has moved from the margins of business practice to the mainstream.

Producers need to be a part of this process. Determining the geographical, functional and process scope of the application are part of the Preliminary Specifications deliverable. Ensuring that the specification addresses the producers needs is the responsibility of each producer.

The time for producers to begin their involvement in these communities and developments is now. With the Revenue Model providing significant financial incentives for early participation and the ability to influence the output of these developing communities, delays in a producers participation could be costly.

2. Making the network the organization. 

Using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer is only possible as a result of the advanced networks and Information Technologies. Networks enable and facilitate the interactions between JOC partners and service providers.

We believe that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

Management orthodoxies still prevent most companies from leveraging talent beyond full-time employees who are tied to existing organizational structures. But adhering to these orthodoxies limits a company’s ability to tackle increasingly complex challenges. 

As the research that has been conducted here at People, Ideas & Objects shows, the use of the Joint Operating Committee provides a solution to many of the key issues that the industry faces.

3. Collaboration at scale.

To suggest that the oil and gas industry is already engaged in a high level of collaboration would be an understatement. The Joint Operating Committee by its definition is a collaboration. These interactions have been conducted throughout the industry for many years. What is needed is for the Information Technology systems the industry uses to capture these collaborations and embed them within the ERP systems used in the industry. That is what People, Ideas & Objects is working to provide. By adopting the advanced IT infrastructure and enabling the collaborations to be handled through the technology, the industry will be able to scale their activity and innovations to the level necessary to meet the market demands for energy.

Despite such successes, many companies err in the belief that technology by itself will foster increased collaboration. For technology to be effective, organizations first need a better understanding of how knowledge work actually takes place. A good starting point is to map the informal pathways through which information travels, how employees interact, and where wasteful bottlenecks lie.

A process that is part of the work being proposed to be completed in the Preliminary Specification. Recall as well, that tacit knowledge, the understanding of how things get done, can not be captured. It exists only in the minds of the users, Community of Independent Service Providers and employees of the firms involved in oil and gas. What we can do is design and build the tools that enable the people in the industry to use their tacit knowledge.

4. The growing “Internet of Things”.    

McKinsey highlighted their concept of the Internet of Things a few months ago. These concepts were covered in a blog post that ties McKinsey concept to the People, Ideas & Objects Technical Vision.

5. Experimentation and big data.

Experimentation is the way in which innovation in oil and gas will expand the sciences. One of the keys to exploiting the experimentation and “big data” in the industry is the Joint Operating Committees operational decision making framework. When we align these organizational decision making processes to the systems used by the innovative firms, then we will be able to use these new and valuable tools.

Using experimentation and big data as essential components of management decision making requires new capabilities, as well as organizational and cultural change. Most companies are far from accessing all the available data. Some haven’t even mastered the technologies needed to capture and analyze the valuable information they can access.

We will address the remaining McKinsey technology trends in a future blog post. McKinsey close their paper with the following comment.

The pace of technology and business change will only accelerate, and the impact of the trends above will broaden and deepen. For some organizations, they will unlock significant competitive advantages; for others, dealing with the disruption they bring will be a major challenge. Our broad message is that organizations should incorporate an understanding of the trends into their strategic thinking to help identify new market opportunities, invent new ways of doing business, and compete with an ever-growing number of innovative rivals.

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

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More on our Business Model

The business model and value proposition of People, Ideas & Objects are fundamentally different then any other software provider. Based on a number of assumptions that involve the use of the Joint Operating Committee (JOC) and the cloud computing delivery model, this post details some of those elements of this software development project.

Using the Joint Operating Committee presents some interesting opportunities and difficulties. Providing producers with a software development capability, and software applications that support start-ups, Independents, International Oil Companies and National Oil Companies is necessary as the partners within a JOC could and will be formed from any and all of these types of producers. Partners within a JOC need to have the same systems in order to optimize the interactions between themselves. Having only one producer working off advanced collaborative systems like that proposed in the Draft Specification, severely limits the value realized by each and every one of the producers. 


Take for example the situation that deals with the decision making authority of the JOC. Participants are asked to approve a course of action to increase natural gas production. AFE’s and a proposed team to undertake the program are voted on by the members of the JOC. Seventy six percent of the working interest ownership agrees with the program, surpassing the 75% necessary for a decision to pass. Since all members of the JOC are using the same software, the AFE’s become active within the system, and the individuals calendars and tasks are updated with the approved program. The speed in which the program is approved and implemented is facilitated by the collaborative elements of the People, Ideas & Objects systems. 


Each member of a JOC will be able to participate virtually through their mobile / desktop device. These systems will be recording the key decisions and initiating the actions that are decided upon in these virtual meetings. In the future, the oil and gas industry participants will need to be able to decide and implement plans of action on a much faster basis then today. The speed and volume of the decisions that will be needed within the innovative oil and gas producer, I expect will grow in the near future. It is my opinion that the speed of the decisions being made today are the reason for the poor performance of the oil and gas companies. Poor performance in terms of reserve replacement and production increases. This is because the decisions that are being made are not at the Joint Operating Committee level, the JOC has the authority, but these processes are obstructed by the internal decisions being made within each producer (management). 


When each of the participants are supported by the same systems and software development capability, each are able to collaborate and implement the decisions based on the outcome of the voting. Accessing this type of operational efficiency is one of the inherent values that People, Ideas & Objects provides the producer firms. When we discuss the value proposition of People, Ideas & Objects, this type of value is one of the benefits that producers earn from using the Draft Specification. 


Additional value is generated when we realize the costs to the producer, to have this software application available to them, is allocated over the entire population of oil and gas production profile. The industry as a whole is being assessed the costs to develop the software, once. Compare this to the current model of purchasing software from a vendor who’s key asset, the software application, is sold to each producer. People, Ideas & Objects competitive offering is based on a software development capability, not on the software code itself. A competitive offering that is not constrained to one static piece of software code, a competitive offering that mirrors the incremental changes in the innovative oil and gas producers.

Another assumption that is inherent in the value proposition of People, Ideas & Objects is the determination of what an innovative producers competitive advantage is. That is the oil and gas leases, the physical producing assets and the earth science and engineering capabilities applied to those assets. These are the attributes of the producers unique competitive offering. Having SAP or any other accounting system, including People, Ideas & Objects, is not the basis of competitiveness of the producer firm. What we can do, and is the competitive offering of the Community of Independent Service Providers, is provide the producer with the most profitable means of oil and gas operations. That is to say that the system will not make a silk purse out of a sows ear, only that the most efficient means of operations will be attained by using People, Ideas & Objects and the CISP. 


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

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McKinsey on Global Rebalancing

McKinsey have published an article that I think provides a good understanding of how our economy will be functioning in the near term. Entitled “Globalizations Critical Imbalances” it talks about the necessary adjustments in world trade and their implications. Coming from the point of view of the energy industry, I think this document shows the demand for energy will continue to increase substantially in the near term. Prices will be the means of allocating these finite energy resources and therefore the rewards to the innovative oil and gas producer will be substantial. McKinsey notes.

To some extent, the rebalancing of global economic activity from developed to emerging markets simply reflects economic laws of gravity. In a world where ideas can flow freely and countries are at different stages in adopting modern modes of production, communication, and distribution, less developed nations should grow more rapidly than their counterparts in the West as they catch up.

China, India, Brazil and others are providing substantial increases in the quality of life for their citizens. This naturally imputes greater volumes of energy will be consumed by these countries. Competition for energy resources will be extreme. How much of an increase in consumption and energy pricing is reflected in this next quotation.

The structural issue facing developed-world nations is that the amount of high-quality, high-productivity labor that will be mobilized over the next decade in Brazil, China, and India (not to mention Mexico, the Philippines, and Thailand) is likely to be measured in the hundreds of millions of people. By comparison, the entire US labor force comprises 150 million people. This is a wonderful trend for humankind and would be a boon for everyone in the world if emerging-market employment were directed largely toward production for domestic consumption. The challenge for developed-world governments and citizens seeking jobs, however, is that a significant fraction of this emerging-world labor displaces jobs that would otherwise be created in Europe, Japan, and the United States. This may be the underlying reason why unemployment in Europe, Japan, and the United States is becoming more structural rather than cyclical and may get worse over time no matter how much public stimulus is provided. Certainly, the job losses of the Great Recession look quite different from those of past recessions.

We are clearly not out of the woods in terms of the Great Recession. One of the best indicators of the world economies health has been the Baltic Dry Index. The costs to ship dry goods has fluctuated wildly during the last few years. Although the index has stabilized over the past few quarters, it remains substantially below the highs recorded prior to the beginning of the recession. (Note the recent decline in the index has been substantial.) McKinsey notes the difficult situation these global imbalances will cause various governments.

It is very difficult to say how these issues will play out. The global rebalancing that is needed is obvious: developed-world countries need to save more, consume less, become more fiscally disciplined, and run current-account surpluses (or at least be neutral). Emerging-world countries need to let their currencies rise until PPP rates are closer to financial-exchange rates. They need to consume more, save less, run current-account deficits (or at least be neutral), and continue investing, with some of the capital provided by outsiders. If major national governments work proactively together to rebalance and coordinate their fiscal, monetary, trade, and foreign-exchange policies, the adjustment process could be gradual.

The implications of this “rebalancing” may appear dire to those in the developed economies. I think the opportunities will be substantial and the challenges significant. Those that are able to innovate, and particularly the oil and gas producers, will realize many benefits. Realization that we are no longer in the “low cost” era of the energy industries past. Changing from this past mindset to one that can profit from these types of economic forces requires the changes that are contemplated in the Draft Specification.

The underlying global economic processes under way are very powerful, and the profit opportunities will be enormous as four billion people in emerging markets triple or quadruple their incomes and wealth over the next 20 years.

McKinsey are specific on how companies should position themselves for these changes. Oil and gas firms need to adopt these and other recommendations. It is foolhardy to think that these economic challenges and opportunities can be handled by the existing bureaucracies. Innovative oil and gas producers need to begin the process of addressing these opportunities by acquiring the software development capability of People, Ideas & Objects and begin the development of these software applications.

These suggestions represent specific applications of the more dynamic management approach I have urged companies to adopt in the past. The hallmarks of that approach—heightened awareness, greater resilience, more flexibility, and the timely alignment of leadership around needed adjustments—will be invaluable for companies as they navigate the choppy waters of global economic rebalancing. This process will continue and perhaps even accelerate in the years ahead, not despite, but because of the structural adjustments that are needed to put the global economy on a more sustainable trajectory.

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

Technorati Tags: People's McKinsey Economics Change China Innovation Strategy

Energy demand in 2030

An interesting comment is made on the BBC regarding the projected 2030 demand for energy.

Oil found in deep waters is needed because the world will need 45% more energy by the year 2030, BP's chief of staff, Steve Westwell, earlier told the World National Oil Companies Congress.

The past five years has seen the global production of oil stall at around 85 million barrels per day. And in 2010 we know that global oil production has declined by one million barrels. Therefore it would seem this comment appears rather optimistic.

How will producers increase production by 45% in the next 20 years when they haven’t been able to sustain 2005 production volumes. Is it expected that the bureaucracies will suddenly begin to substantially outperform their recent past?

The appropriate thing we need to do is to begin the development of systems that define and support the innovative oil and gas producer.  Systems that use the Joint Operating Committee in the manner that is described in People, Ideas & Objects Draft Specification.

To approach a problem of this magnitude, of meeting the markets demand for energy, without first organizing ourselves for the challenge will only lead to disaster.

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

Technorati Tags: People's Energy, failure, Innovation, organization

The CISP is a marketplace.

If we were to have name tags on each of the birds in this picture. The mother bird of course would be the oil and gas industry. And the others would be PriceWaterhouse Coopers, IBM, Delloitte & Touche, EDS, Accenture, CapGemini etc. To sustain this type of "environment" would not be in the best interests of the innovative oil and gas producers. I see many of the types of services that are provided by these vendors to be in direct conflict with the members of the Community of Independent Service Providers. It is in our best interest to ensure that we don't replicate this relationship in the future. This post explains how the CISP will replace these service providers with value adding services to the innovative oil and gas producers.

Please note that I see the CISP providing much more then the services that are provided by just these firms. Recall some of the key areas where members of the CISP will be providing value include software definition and development with People, Ideas & Objects developers, software installation and integration using Oracle Application Integration Architecture, Accounting Service Provider, Representatives of user group, and conference planner to name just a few. To detail the list of services that are provided by the CISP runs the risk of limiting the imagination of what they can provide the innovative oil and gas producers.

What we are creating in the CISP is a market of self organizing individuals, groups and firms. Participation within the CISP is not limited to anyone, and is open to whomever wants to join. The only requirement is to follow this procedure. Once the license is signed and the summaries are posted, then the individual is free to develop their firm in the best interests of the People, Ideas & Objects software and the innovative oil and gas producer. This membership process would also be open to the named groups at the beginning of this post, if they desired to and believed they could make some money at it.

To eliminate the possibility that the CISP or market of self organizing individuals, groups or firms are precluded from the oil and gas firms business. (As reflected in the above picture.) People, Ideas & Objects needs to implement a policy change in the license that is granted to those licensees of the CISP . That change is to assess a royalty of 40% on any revenues in excess of $5 million to be payable to People, Ideas & Objects. Revenues that are subject to this royalty calculation are those that are derived from working with the People, Ideas & Objects developers and the associated CISP client producer firm.

We are doing this to provide any member of the CISP with an unconstrained $5 million revenue stream. Companies such as those named above, far exceed that threshold and therefore would find the royalty too onerous to be able to compete. This royalty is being implemented to ensure that the members of the CISP remain a market of self organizing individuals, groups or firms.

We have seen the level of innovation and ideas being generated from those named at the beginning of this post. Little if nothing has been generated in terms of implementing new and value adding ideas or technology to the oil and gas industry. Having a market of providers, that is unlimited in terms of who can participate, and financially penalizes the large firms is in the best interest of the innovative oil and gas producers.

Firms that are generating $5 to $10 million in gross revenues (net revenues of $5 to $8 million)  will still be able to generate significant value for their owners. That assumes they are able to build value for their clients, the innovative oil and gas producers. Instead of focusing on quantity, they can focus on the quality of the services they provide and continue to accelerate the specialization of the services provided and the industry division of labor.

Our policies are designed to motivate the members of the CISP to enter and prosper in building value for the innovative oil and gas producer. To develop this resource it is necessary to ensure that these people are free to pursue their business without the risk that they will be eliminated from the market by those mechanisms that are in play in the picture that is reflected above.

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

Technorati Tags: Community CISP Ideas Innovation Organization Value-Proposition
 

Langlois Progressive Rationalization Part I

We now have the opportunity to review Professor Richard N. Langlois book "The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy". Written in 2006, this is the book for which Langlois was awarded the 2006 Schumpeter Prize. This first post deals with the first of five chapters and is called "Progressive Rationalization".

One of the areas that we will be concentrating on in this review is the firm. By the firm I mean the oil and gas producer who holds a variety of interests in multiple Joint Operating Committee's (JOC's). These are the firms that own the oil and gas leases, facilities and production. The organizations that have the specialized engineering and earth science talents that are focused on building value through expanding their oil and gas reserves and deliverability. We will continue to focus on the market, particularly with the concepts of Industrial Districts, Small Knowledge Intensive Enterprises, Business Groups or our Community of Independent Service Providers however, I want to balance this discussion across both the firm and markets. To begin, Langlois starts off with an appropriate quotation from Joseph Schumpeter.

As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the doors of the large concerns – which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector – and a shocking suspicion dawns upon us that big business may have had more to do with creating [the modern] standard of life than with keeping it down. (Schumpeter 1950 [1976, p. 82].) p. 2

This statement has certainly been the case in the oil and gas industry. Without the size and scale of the current large International Oil Companies (IOC's) we would not produce the volumes of energy we produce today. To list the number of $1 billion plus projects currently being undertaken in oil and gas is impressive. This is the nature of the industry, and to a large extent it will continue on in this fashion. To drill a well in the Gulf of Mexico may require the market capitalization of $20 billion or greater. So how is it that I reconcile these facts with the abundant criticism that I have tossed in the direction of management and the bureaucracy.

My argument is more about the velocity at which these firm's can move. Their pace is too slow and cumbersome to meet the market demands for energy. Particularly in the very near future. Just because the industry has such large scale and scope does not mean that it has to be slow and pondering. The large IOC was developed in an era that was consistent with the time frame of Professor Schumpeter's quotation, in 1950. That was several generations ago, and although the quotation is still valid today, it does not preclude us from developing innovative forms of economic organization.

Through our review of Langlois' paper on Business Groups. We learned of the "gap filling" that is the discovery mechanism for new and innovative product and services. Filling gaps is the way that people can rely on their entrepreneurial skills to provide the product or service that is needed. We also discovered that the mechanism that is necessary for filling gaps is a strong governance model. And the Draft Specification provides that governance mechanism through the Military Command & Control Metaphor (MCCM). It is through the implementation of the Draft Specification and the MCCM that the large oil and gas firm will be able to continue on with the development of their large projects. However at greater velocity and innovativeness, due to the fact that each one of these projects is a Joint Operating Committee.

Institutions may be the ultimate drivers of economic growth, but organizational change is the proximate cause. As Smith tells us in the first sentence of The Wealth of Nations, what accounts for “the greatest improvement in the productive power of labour” is the continual subdivision of that labor (Smith 1976, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Young 1928; Richardson 1975). p. 3

I can also legitimately argue that the economic output of the oil and gas industry has stagnated since 2005. Commodity prices have accommodated for the lack of supply growth. As the global economy continues to demand more energy production to fuel its growth, will these large producers have the velocity and innovativeness to provide those markets? If not, who will voluntarily reduce their energy consumption? Although our large firms have the capacity to undertake the scope and scale of large projects, they are failing us by not meeting the demand for energy. Langlois points out that;

Economic growth is about the evolution of a complex structure (Langlois 2001). p. 6

The status quo is failing because there is no evolution from the Chandlerian corporation! The bureaucracy is inefficiently efficient and is poorly designed to meet the demands of the prospective energy consumer. We also know in our advanced organizations, software defines and supports the organization. Therefore to change the organization requires that we change the software first. Management have distorted this knowledge by realizing, if they never changed the software, their domain would never be challenged. Langlois notes this general trend.

History is never kind to historicists, of course; and the facts of the last quarter century have made life uncomfortable for those who would project the Schumpeter-Chandler model into the present. It has become exceedingly clear that the late twentieth (and now early twenty-first) centuries are witnessing a revolution at least as important as, but quite different from, the one Berle and Means decried and Schumpeter and Chandler extolled. Strikingly, the animating principle of this new revolution is precisely an unmaking of the corporate revolution. Rather than seeing the continued dominance of multi-unit firms in which managerial control spans a large number of vertical stages, we are seeing a dramatic increase in vertical specialization — a thoroughgoing “de-verticalization” that is affecting traditional industries as much as the high-tech firms of the late twentieth century. In this respect, the visible hand, understood as managerial coordination of multiple stages of production within a corporate framework, is fading into a ghostly translucence. p. 7

and

Schumpeter and Chandler have given us triumphalist accounts of the rise of the large corporation. But what to do with triumphalist accounts of something no longer triumphant? The menu of intellectual alternatives is short. One could reject the account as having been wrong from the start. One could deny that the large corporation is less successful and superior today than it was in the past. Or, most interestingly, one could attempt to reinterpret Schumpeter and Chandler in a way that preserves the essence of their contributions while placing those contributions in a frame large enough to accommodate both the rise and the (relative) fall of the large managerial enterprise. This last alternative – if done right – has the great advantage of preserving many of the insights of these remarkable and profound authors while at the same time extending our understanding of economic growth and of the economic theory of organization. pp. 7 - 8

People, Ideas & Objects, through our review of Langlois and others, have determined that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. It is the legal, financial, operational decision making, communication and cultural framework of the industry. None of the existing ERP vendors even recognize that the JOC exists. Their systems are focused on the compliance to royalty, tax and SEC requirements that have nothing to do with the business of the oil and gas business. Compliance is a fall out as a result of conducting the business. By adopting the Draft Specification People, Ideas & Objects are suggesting that the industry move towards its culture of partnerships. Recognizing those partnerships within the ERP systems and aligning the business and technologies to facilitate velocity and innovation.

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

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Langlois, Economic Institutions Part IV

This will be our last post on Professor Richard Langlois July 2009 paper "Economic Institutions and the Boundaries of the Firm: The Case of Business Groups." Langlois analysis of Business Groups (BG) follows on our review of his work on Industrial Districts (ID's), Professor Carlota Perez' Small Knowledge Intensive Enterprises (SKIE) and People, Ideas & Objects Community of Independent Service Providers (CISP). What ever we may call these "institutions", they all seek to build the "market-supporting" infrastructure of an industry. Although there is a strong service sector supporting the oil and gas industry, it does not have the market-supporting institutions necessary for it to qualify as a BG, SKIE, ID or CISP. What is needed, critically, is an ERP styled software development capability that supports these communities. A capability that supports the innovation that is occurring in these communities. Langlois helps to further define the decentralized nature of the concept that I am referring to: (For the remainder of this post I will use communities to describe ID, SKIE, BG or CISP.)

So far I have talked generally about vertical integration and disintegration, not specifically about business groups. And I have yet to engage the third level of contingent facts, political institutions. I now propose to argue that business groups and political institutions are closely related; indeed, in some of their forms, they are the same thing.

Scholars generally distinguish business groups from more loosely arranged structures like business networks. “When ownership and control are more centralized and organizational subunits enjoy limited autonomy, the commonly used term is business groups. When subunits enjoy more autonomy with respect to ownership, control, and operations, interfirm network is the correct term. In other words, business groups are more centralized and closely held, while interfirm networks are more decentralized and loosely held” (Fruin 2008). Indeed, in some eyes, the “groupness” of a business group is orthogonal to its structure of corporate governance. Mark Granovetter (1995, p. 95) considers business groups to be “collections of firms bound together in some formal and/or informal ways, characterized by an ‘intermediate’ level of binding.” Purely anonymous market relations don't qualify in Granovetters definition; but neither do American-style conglomerates, whose wholly owned divisions have little connection with one another and are but modular pieces on the financial chessboard. But a variety of governance structures, from hierarchical and structured chaebols on the one hand to Marshallian industrial districts (Marshall 1920, IV.x.3) on the other, would qualify as business groups in Granovetter’s sense. p. 21

Therefore, providing a governance model is a necessity for these communities. The Draft Specification implements the Military Command & Control Metaphor (MCCM) to provide a governance structure. Originally conceived to provide a pooling of the resources of each producer within a Joint Operating Committee, the definition was expanded to include the necessary technical resources that can be sourced from the communities as reflected in the Resource Marketplace Module. This enables a JOC to cobble together the necessary people to implement their plans. Each of these people are able to quickly determine theirs and others qualifications in terms of their experience, training and skills. Once assigned their role in completing the tasks, they can also see how others are able to interact within the process. Gaps will begin to show. And the innovative solutions necessary to fill those gaps will begin. Without a global industry wide governance model as contemplated in the Draft Specification, innovation will remain the domain of the bureaucracy.

Explaining the existence of business groups in Granovetter’s sense is arguably easier than explaining the mantle of ownership and governance those groups take on. “Intermediate” linkages are essential to the process of gap-filling. Links among entrepreneurs, whether formal or informal, permit the sharing of information about gaps and encourage the coordination of necessary complements (Kock and Guillén 2001). p. 22

As a result of implementing this governance structure, there is an increased potential of innovation within the community! I am making the connection that the market-supporting institutions the oil and gas industry needs are the MCCM and the Draft Specification.

There may yet be another explanation. Even in developed open-access societies, pyramidal business groups may exist because they play a gap-filling role. In this case, the issue is not vertical integration but governance. In developed economies – which increasingly means one integrated global economy – markets are relatively thick and market-supporting institutions relatively abundant, making it possible to coordinate complementary activities in a decentralized way. But there are still gaps: new products, new processes, new ways of organizing, new profit opportunities to seize. p. 27

The gap's that need to be filled become more obvious as a result of implementing the MCCM governance structure over the community. As gaps are filled, more gaps become noticeable. The capacity to change is highly dependent on the software that these communities will use. If that software is static, then their will be only one iteration of gap filing. What the industry needs to do is to iterate on the earth sciences and engineering disciplines, and innovations based on those sciences.

But even in “developed” economies, novelty and change creates the sorts of gaps that call for business groups, including less-formal sets of “intermediate” relationships, as, for example, in geographic (or, increasingly, “virtual”) industrial districts. In this sense, the economics of organization generally can learn from the literature on business groups outside the developed world. The problem of gap-filling in highly developed economies differs from that in less-developed economies because the path ahead is cloudier, which suggests that more-decentralized organizational structures may be more successful at the cutting-edge of technology. p. 29

In today's energy marketplace we see many examples of how the industry is failing. I believe the expectation that today's oil and gas company can transform themselves into these communities is unreasonable. An expectation that will lead to disappointment. With the debt crisis about to play out across the global economy, I expect those producers that are carrying even reasonable amounts of debt to be severely constrained in the short to mid-term. This during a time when the industry needs to be as innovative as it can just to keep its costs under control. Whether the industry as it stands today will look the same in ten years isn't the point. The point is that we need to enable these types of capabilities within the industry irrespective of the oil and gas companies actions. The industry will need to be built brick-by-brick and stick-by-stick to enable these types of attributes to become the norm. The bureaucracies have chosen not to participate. It's now up to these communities to begin this process by starting with People, Ideas & Objects.

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 Governance Military-Command Innovation Capabilities Community CISP
 

Langlois, Economic Institutions Part I

Next up in our review of Professor Richard N. Langlois work is a paper he wrote in July 2009. "Economic Institutions and the Boundaries of the Firm: The Case of Business Groups". This paper provides another interesting perspective on how businesses within an industry can be organized. In our review of "Innovation Process and Industrial Districts" we learned of the close approximation of Langlois "Industrial Districts" (ID) and Professor Carlota Perez' Small Knowledge Intensive Enterprises (SKIE) to People, Ideas & Objects Community of Independent Service Providers (CISP). How ID's, SKIEs and the CISP were a direction that the industry should move toward building and supporting. In this paper we learn of Business Groups and their application. Business Groups are more common in the developing economies, however, I think that they have some important attributes that we can learn from. These Business Groups are best described in this paper by Koo Cha-Kyung a former chairman of the well known LG Group:

My father and I started a cosmetic cream factory in the late 1940s. At the time, no company could supply us with plastic caps of adequate quality for cream jars, so we had to start a plastics business. Plastic caps alone were not sufficient to run the plastic molding plant, so we added combs, toothbrushes, and soap boxes. This plastics business also led us to manufacture electric fan blades and telephone cases, which in turn led us to manufacture electrical and electronic products and telecommunication equipment. The plastics business also took us into oil refining, which needed a tanker shipping company. The oil refining company alone was paying an insurance premium amounting to more than half the total revenue of the then largest insurance company in Korea. Thus, an insurance company was started. This natural step-by-step evolution through related businesses resulted in the Lucky-Goldstar group as we see it today. (Aguilar and Cho 1985, p. 3.)

Notice that the “natural step-by-step evolution through related businesses” involved both spreading excess resources over similar activities and calling forth dissimilar complementary activities. p. 10

The process being described in the LG example is one of "Gap Filling" as is described below.

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6

In the example that I posted on Friday entitled "Transaction Design" it was noted the need to have the producers work with a group of engineers to bring about an innovation to enhance the industries capabilities. How the oil and gas producers, with 100% of the revenues of all industries associated within oil and gas, need to develop and maintain the industries capabilities within the ID's, SKIEs or CISP. This is "Gap Filling" as described in the paper.

Oil and gas is certainly a sector that is undergoing systemic change. And we are witnessing the oil and gas companies expectation that field level innovations will spontaneously exist, yet expend none of the money necessary to bring those innovations to market. In their opinion that is the responsibility of the investment capital groups. Well let me be the first to explain to the oil and gas companies management, the investment capital groups became tired of the thumbs down they received for any and all efforts that they undertook. They have left the industry, and I would suggest will not be back. Expecting others to fulfill your needs when you need them, without financial support, just isn't going to work.

This same issue is the paramount issue that People, Ideas & Objects is facing. With no support from the industry, how and why would anyone get behind this project on a speculative basis? Management have made their opinion known and are clearly uninterested in sponsoring a competitive means to manage the industry. What is clearly necessary in 2010 is not only the ID's, SKIE's and CISP. But also the market supporting software necessary to identify and support the market. Without People, Ideas & Objects any attempt at organizing the development of further capabilities will be futile. And that is why management have refused to fund these developments.

The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3

In thinking through the points of discussion that have been raised in the past few weeks. I notice that something is missing that is critical to making the ID's et al work. What is the motivation in spending the time and effort necessary to make producers reserves and production more prolific? There has to be something in it for the one that is developing the science or innovation that will sustain them above and beyond the producers desire to have the capabilities. That is the Intellectual Property belongs to the individual or group that developed it. In the example that I provided on Transaction Design, the IP would be the property of the engineers. This is the manner that the Draft Specification in the Knowledge & Learning, Resource Marketplace and Research & Capabilities modules provides.

I have implied this handling of IP in many of the previous posts. I am now stating it explicitly. The only way that the oil and gas industry is going to solve the scientific and engineering problems that it faces is through those with the ideas earning the rights to those ideas. I have consistently argued that the producer firms are focused on their competitive advantages of their oil and gas assets and the necessary earth science and engineering capabilities applied to their assets. This applies to where ever those capabilities are located. How a firm may manufacture drill bits is of absolutely no concern to the producer firm that purchases or rents drill bits. The same can be applied to all aspects of the industry.

This management of Intellectual Property is counter to the attitudes present in the oil and gas industry. Until, and only when, those that do the hard work of solving the problems in oil and gas, earn the rights to their efforts, will we move forward from here. Intellectual Property rights must reside within the firms and individuals who make up the Business Groups, ID's, SKIE's and CISP.

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

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