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.

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Langlois, Innovation and Process Part...

Today in our third installment of Professor Langlois paper "Innovation Processes and Industrial Districts" we discuss Transaction Cost Economics (TCE). Which are an important element of the Draft Specification. In 2009 Professor Oliver Williamson of Berkeley won the Nobel Prize in Economics for TCE, reflecting the heightened importance of this topic. Wikipedia defines the term here. Of note, once we have completed our review of Professor Langlois we will be moving on to a review of Professor Oliver Williamson. [Professor Williamson has the majority of his material behind pay walls and therefore are not freely available. I therefore will not be able to provide access to the documents.]

Professor Langlois talks about his concept of "Dynamic Transaction Costs" which he describes in his paper "Transaction Cost Economics in Real Time".

This paper attempts to place the theory of the boundaries of the firm within the context of the passage of time. More precisely, it resurrects and places in a modern frame some of the insights of the classical and Marshallian theories of organization. The modern reinterpretation of those theories centers around the 'capabilities' view of the firm. Taken together with governance costs, the capabilities of firm and market determine the boundaries of the firm in the short run.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firms capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them.

Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at the firm and market as alternative -- and sometime overlapping -- institutions of learning. p. 99

This discussion of Dynamic TCE is important to the oil and gas industry. At today's energy prices the average upstream employee generates approximately $4.1 million in annual revenue. (Based on Total's production of 2.34 mboe / day, 16,005 employees and today's prices.) Oil and gas is a capital intensive industry. The number of people that are employed in the global oil and gas industry is small compared to most industries. It is this nature of the oil and gas business that brings the relevance of Langlois' theories. To be innovative, will be costly, to employ the style of marketplace dynamics discussed in this paper will also be costly. However, the ability to increase the productivity of the employees and Industrial Districts (ID) will require these investments, and the funds will not necessarily be a large percentage of the costs incurred in the oil and gas industry.

3. Life Cycle Considerations

To help us recall the terms of the discussion Langlois brings in this excellent summary.

Inspired by Adam Smith’s discussion of the benefits of the division of labor, a number of classic accounts of the life cycle have associated the development of decentralized production systems with an increase in the extent of the market (Young 1928; Stigler 1951). In Stigler’s version, for example, firms start out vertically integrated because small markets do not permit specialization. An increased extent of the market permits the spinning off of those stages of production that benefit from increasing returns, thus generating the potential for an industrial district. As an industry ages in Stigler’s account, declining demand for the industry’s output would lead to an eventual reintegration. It is the central insight of transaction-cost economics since Coase (1937), however, that production costs alone cannot determine whether the division of labor will be coordinated through markets (as in an industrial district) or internally within vertically integrated firms. Transaction costs also matter. And technological change is one important source of transaction costs. p. 10

The oil and gas industry is not subject to a decrease in demand and therefore provides no opportunity for reintegration. I would argue that the scientific demands of energy exploration and production are poorly served by the "integrated" bureaucracies. Moving to a greater market orientation, as in the Draft Specification, will marginally affect production costs, and materially enhance the value in designing transactions as the Accounting Voucher module provides.

I want to reinforce these points by pointing out that the majority of field operations are conducted by third parties. Designing transactions is currently done in standard oil well drilling contracts where the chairman of the Joint Operating Committee selects each element of the wells drilling will be provided / conducted by the oil well drilling firm or the producer. Designing transactions are not foreign to the earth science and engineering resources in oil and gas, they are foreign to the administrative or ERP systems that the producer uses. I consider the Draft Specification is aligning the systems to the culture of the industry. Langlois notes that this leads to.

Because ID's do not comprise an entire market, their role in the generation of technical standards is complex. The relatively close levels of association between firms in an ID can ease the setting of standards within the district because much of the agreement may be achieved informally and the limited number of firms within an ID makes it easier to bring the interested firms together. Furthermore when there are only a few integrators who are determining overall design, less discussion may be needed to achieve commonly accepted interfaces between components. The effects of concentration on overall industry standards are less clear-cut and an industry may fragment into a number of groups dominated by local standards without agreement being reached on an overarching set of standards because there is sufficient volume of output within each ID to allow for self-sufficiency. As a result, while ID's may accelerate innovation along certain trajectories, they may also encourage myopic behavior in the gathering, generation and use of new knowledge. pp. 12 - 13

In this discussion I hope that I have highlighted the nature of how the Draft Specification enables the greater market orientation. By moving closer to the cultural influences of the business, increased dynamic transaction costs will be minimal. That is to say the major impediments to the ways and means of the industry operating in a more innovative fashion. Is 1) management who are focused on the firm, and 2) the ERP systems that are designed from other industries or early stage technologies [SAP]. People, Ideas & Objects provides the industry with the opportunity for a greater innovative footing. By identifying and supporting the industry standard Joint Operating Committee and its culturally systemic ways.

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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John Hoffmeister

Former Shell Oil Company President John Hofmeister is in the news today and seems to be everywhere. Booz & Company have pre-released this article entitled "Why We Hate the Oil Companies". This article is a summary of his upcoming book by the same title, and it has some interesting points of view. Hofmeister is concerned, as we are at People, Ideas & Objects, about the demand side of the energy equation.

Total energy use in the United States has tripled in the six decades since 1950. Consumption has also shifted from manufacturing to residential and commercial use; much of this growth can be traced directly to the increased use of computers and associated servers, printers, and other devices. With the massive populations of the world’s emerging economies, the spiral of energy demand is accelerating. But both governments and the energy industry are dismally unprepared for a future of rapidly rising energy demand and insufficient sources of supply. pp. 2 - 3

And in a related article published by worldoil.com (Page 3).

More recently, despite the high oil price “wake up” call delivered to the US during the period 2005-2008, policymakers have been unable or unwilling to address the nation’s energy security, economic competitiveness that comes from affordable energy, and the potential jobs creation initiatives that a sound energy policy would and should deliver. Given the current trajectory of an aging infrastructure, decades of restrictions on drilling, failure to tackle the obstacles that prevent both more nuclear plant and clean coal plant projects, frittering at the edges of renewable energy, and avoidance of other energy “hard choices,” within the decade the nation faces an unprecedented energy abyss. p. 3

This is the clearest admission that we have seen about the energy supply situation in the U.S. Hofmeister puts the scope of the problem into focus for those, particularly the management of the bureaucracies, that deny the situation is as dire.

By 2020, there will be inadequate supplies of liquid fuels and electricity taking the nation toward inevitable gas lines, brown-outs, black-outs and extraordinary high prices. p. 3

We need to act. Spending more money to make the problems go away hasn't worked. In fact they have only wasted more time. We need to re-organize our approach to this problem. Re-organize around the Joint Operating Committee with systems and communities dedicated to supporting the innovative oil and gas producer. Otherwise.

The energy abyss will stick around for up to a full decade with all of the national insecurity, economic decline, joblessness and social malaise that accompanies energy shortages in third world countries. p. 3

I don't think that's the future we want to discover for the next twenty years. But if we leave it in the hands of the current management I think that future is certain. All that management have done is denied that the situation exists and avoided developing any solutions. After all, what harm would come to them if they had thrown a few dollars towards People, Ideas & Objects. The managements world is comfortable because they control the budget and therefore nothing can challenge their authority.

The energy industry, despite its technological, geological, chemical, physical, molecular, logistical, scientific and engineering expertise and capacity to deliver affordable energy in endless supply, given all of the natural sources of energy in this country, and the world, will be unable to supply the demand because of public policy constraints. Yet, it will bear the brunt of the blame for energy shortages. p. 3

Whether it is the fault of the public policy constraints as Hofmeister suggests, or managements inaction, either one will be the determining point. If management waits too long, and the public policy falls into line, then we'll know who the real culprit of any energy shortages is.

The nation has to come to grips with its energy future sooner, not later. The time is now not then. p. 3

I realize the tone and topic of this discussion is difficult. We however need to begin approaching these problems in a constructive manner, and that means building the Draft Specification. 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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Perez, Crisis and Innovation Part VII

Today we complete our review of Professor Carlota Perez' February 2010 paper "The financial crisis and the future of innovation: A view of technical change with the aid of history." We continue to discuss the concept of the Small Knowledge Intensive Enterprises (SKIEs) and the implications that will be faced in implementing them in oil and gas. People, Ideas & Objects as a software developer is a member of the SKIEs and we are dealing with exactly these issues here today. That is money and where it will come from. I continue to look to the $3.5 trillion in annual oil and gas revenues as the primary source of funding of all the software development costs and financial resources for the Community of Independent Service Providers.

My experience in having funding sourced from investment capital or banking has been very negative. Talking to bankers and investment houses in the Calgary area; the topic turns very quickly to the revenues that will ultimately be sourced from the oil and gas firms. If we are working to secure the revenues from the oil and gas firms as the first task in getting funding from investment houses, then why would I need the investment house? Without the oil and gas management buy-in to the overall concept, these groups generally don't bite. Therefore, little time has been wasted in trying to generate any investment capital.

Banks understand two attributes of a start-up. One is the revenues that the firm generates. The other, in the case of People, Ideas & Objects, is the intangible nature of the assets in the firm. Intellectual Property without revenues doesn't get you in the door.

I would expect the same type of responses would be provided to any of the members of the CISP, or in Professor Perez' SKIEs. The key point to remember for this project, is that nothing will happen until such time as these communities are supported financially by the oil and gas investors / shareholders themselves. Therefore, that is what I spend my time writing about. This blog has substantial leverage in terms of the number of people who visit it daily. Our growth has averaged a remarkable 25% per quarter in the past year. This is the most effective way in which to appeal to those interested parties that may be capable of support.

Recognising intangible value

Professor Perez notes the difficulty in trying to raise capital for intangible assets. I disagree that this would bear any fruit. However, that has been my experience, yours as a member of the CISP might be different.

Naturally, the most vulnerable of all SKIEs and innovative companies are the start-ups. In the absence of venture capital, they are also the least likely to be able to obtain loans from banks, given the intangible nature of what they can usually offer as collateral. That is one of the reasons why individual “angels” and venture capital funds are the most appropriate providers of funds in those circumstances. They are often as knowledgeable as the innovators in the field of endeavour and can evaluate the likelihood of technological success and the capabilities of the project leaders. They can also complement the entrepreneurial capabilities and judge the market risk and the likely returns. p. 32

The fact of the matter is that without direct revenues being invested by the oil and gas producers themselves, no software and no supporting communities will develop. It is incumbent on these producers to make the investments and develop the capabilities that they will need. Otherwise we will continue to see management in complete control, sort of.

But policy innovations may be needed for stimulating venture capital and/or providing some other forms of direct or indirect support for innovators. p. 32

and

Whichever solutions prove to be practical, as knowledge capital becomes more prevalent, society will have to find a way of evaluating and recognising it. p. 33

Until such time as the oil and gas producers actively support this project and its communities no work will be done. Asking these communities to "put some skin in the game" is a ridiculous request. If the producers can't see any value now, then adding some volunteered time from the community will do nothing to help their focus. Let me repeat, the oil and gas industry is a $3.5 trillion / year industry. That is our initial source for funding, and as far as I'm concerned, the only viable source of funding.

Providing continuity of support along the life-cycle

It is important to keep our eye on the main point of this, up until now, exercise. It is about innovation in the oil and gas industry. An industry that is constrained by its bureaucracies. An industry who's product is the life-blood of the global economy and who's scientific demands per barrel of oil are escalating in a non-linear fashion. Having a handful of people contribute some volunteer time will not solve this problem. The scope of the problem can't be solved by some investment house or gracious banker. This needs the full and willing support of the oil and gas industry in order to be successful.

It is true that innovation requires patient capital; it is equally true that it needs continuity of support. Although it has been shown that the linear model of innovation is not valid, that the continuous flow from science to technology to engineering to innovation only holds in a few cases, there is indeed a sort of “linear model” from innovation to stable success. p. 33

And here is where I disagree with Professor Perez. Only the oil and gas industry will benefit from these direct investments in software, software development capabilities and supporting communities. Only the oil and gas industry with their $3.5 trillion annual revenue streams have the resources necessary to approach solving their problems.

However, since many research directions are uncertain and there can be serendipitous discoveries, it would be unwise to insist on a direct industry interest in all possible research projects. pp. 35 - 36

and

In finance, in particular, both the private and the public sector will need to modify or create new instruments in order to tailor them to the nature of the changing needs of innovators. Viewing networks as valid interlocutors, recognising and learning to assess intangible value, providing adequate and continuous life-cycle support and strengthening local R&D for present and future needs is in the national interest of each country and in that of the business community located on that territory. p. 37

So here we stand once again. Within grasp of solving this paradox, or another 100,000 miles to travel. Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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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.

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Our review of Alfred D. Chandler

We have now completed our review of the material of Professor Alfred D. Chandlers work. These posts can be aggregated by selecting the Chandler label. This review has provided us with some interesting breakthroughs and shown that we are on the right path to solving the issues we face in oil and gas. With this post I want to mark the completion of our review of the primary research. Summarize what we have learned, and indicate that this review of Chandler brings us back to Professor Richard N. Langlois. Much of the Draft Specification is based on the research that Professor Langlois has conducted. A quick review of Langlois' work will provide us with an understanding of many of the key differences in the Draft Specification. We will emphasize his work on the "Vanishing Hand" and review his presentation slides.

What did we learn that is directly applicable to People, Ideas & Objects and the Community of Independent Service Providers. Here are a few points;

• "Strategy follows Structure". Therefore by establishing the Joint Operating Committee as the key organizational construct of the innovative producer, strategy can be set for each unique asset.
  
• Schumpeter "Innovation drives economic development". For our global economy to grow, greater supply of energy is required. To meet this demand the energy producers must innovate.
  
• Professor William Lazonick "The optimizing firm is not an innovating firm, indeed it can be characterised as an un-innovating firm."
• The costs of innovation are an investment. However, the source of the funds to support innovation are from revenues not profits, equity or debt.
• Professor William Lazonick's "Social Conditions of Innovative Enterprise".
• Winter "To me the really powerful things in his story are path dependence and the organizational embededness of competencies and capabilities".
• Velocity, or "organizational speed" enabled size. Size does not necessarily enable speed. 
• Capital Started everything. Chandler's review of corporate history shows the role of the merchants. Investing their capital and skills, merchants were the ones that started the ball rolling.
  
• Management have no stake in the firm. If a crisis were to strike a firm, the management would resume elsewhere. It is the investor and debt holders who will shoulder the costs.
  
• Management currently hold the reigns, and are mindful that their options may lay elsewhere. Ownership, in the same fashion as the Merchants needs to start over. Starting over begins with supporting People, Ideas & Objects and the Community of Independent Service Providers.
• Chandler noted that management have failed before. During the great depression, a time when government had to increase its involvement in the economy. Management may not see the more global picture, and therefore, may fail again.
  

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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Perez, Crisis and Innovation Part III

Continuing on with our review of Professor Carlota Perez new paper "The Financial Crisis and the Future of Innovation: A view of technical change with the aid of history". We begin to focus on the value of human capital in future organizations. The need to address the organizational structure and build systems to identify and support the Joint Operating Committee is due to a variety of issues developing in oil and gas. People, Ideas & Objects have asserted that the earth science and engineering effort per barrel of oil is escalating, and the current bureaucracies are unable to deal with the speed and the demands of the marketplace. Today the issue is evident in this BBC quotation regarding Royal Dutch Shell's 2010 first quarter earnings. "The average cost of a barrel of oil for the first three months of the year was $76. That compares with an average price of $41 a year ago." If Shell's costs have escalated 85% over one year, we are moving into our own crisis in oil and gas.

What is clear in the Shell report is that what they are doing is not working. If the trend in their costs continues and the prices remain stable, they will be losing substantial shareholder value. This is the reason that they were recently downgraded and stated in their report they were cutting staff. "Those poor results prompted Shell to announce plans to cut 2,000 jobs before the end of 2010, helping to cut a planned $1bn in costs." Essentially blaming the issue on staff shows the value of human capital is possibly lost on Shell's bureaucracy.

People, Ideas & Objects are user focused software developments. We value networked users in defining and developing the software defined in the Draft Specification. The value of human capital is also reflected in what we call the Community of Independent Service Providers (CISP). And these apply to all producers involved in oil and gas. That includes International Oil Companies (IOC's), National Oil Companies (NOC's), Independents and start-ups. Essentially any producer that uses the industry standard Joint Operating Committee. Professor Perez notes:

...but also that networks are the more adequate organisational structure to take advantage of the ICT technologies. Giant organisations –through the mediation of Internet– can now grow much larger than before but as relatively flat networks gaining all the flexibility and agility of small companies; small organisations in turn can gain the advantages of scale by joining with others to form dynamic networks. p. 12

Networks are one thing, having the software that ties together the human capital is necessary to bring the value to producers like Shell. That will only come when a software development capability as contemplated by People, Ideas & Objects is available to all producers.

Another major transformation is the new value placed on intangibles and human capital. Whereas in the previous four surges technology was usually embodied in tangible equipment or manufactured products, the area of intangible products, from services to information itself is now an increasing part of value added, of investment and naturally of innovation. The fact that the notion of human capital is replacing that of human resources is itself a signal of the deep change that has already occurred and is likely to intensify in the Deployment period. p. 12

What Professor Perez is noting here is that the changes that are occurring in the marketplaces are not part of the same old economy. Things have changed and the old approaches are not working. What is needed is a decidedly aggressive move to rebuild the industry, literally brick-by-brick and stick-by-stick around People, Ideas & Objects and the CISP's use of the Joint Operating Committee. The other solution is that Shell begins to sell unprofitable properties to groups of investors who see how the assets could be turned around. Investors that have answered the call to action and built the People, Ideas & Objects software application modules.

Thus, when there is a massive change in the prevailing technologies, there is an associated transformation not only in production and consumption patterns but also in the forms of organisation and competition, in the structure of markets and in the way the fabric of the economy is woven. p. 13

The fact of the matter is that it is Shell's management that needs to make the choice. Do they fund this software development, or begin handing over the assets to the shareholder groups in as little as a year. 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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Perez, Crisis and Innovation Part II

People, Ideas & Objects is about developing software that identifies and supports the energy industries standard Joint Operating Committee (JOC). The purpose in developing this software is to create the ways and means for the oil and gas producer to facilitate innovation in the expanding earth science and engineering disciplines. We are not about the latest version of Oracle's impressive database or some other technology. That is Oracle's business and we will implement these technologies in our software offering in innovative ways. The technology is not the critical element. We don't see significant levels of innovation being generated in the technology itself, they are mature and are not critical to the producers innovation. The innovation we are seeking is in the organizational methods that identify and support iterative development of the earth science and engineering capabilities of the producer firms and markets.

Installation and Deployment: different drivers of innovation

This difference between innovating on the Information Technologies and innovation in the producer firms is an important clarification of what we are doing. What I had not fully realized until reading Professor Carlota Perez' February 2010 paper is the clear distinction between the two types of innovation in the Information Technology & Communications Revolution (ICTR). With the two major phases of each "great surge of development" the "Installation Period" and the "Deployment Period", bring about two distinct types of innovation in the marketplace. Professor Perez notes;

Distinguishing between innovation in the core new industries themselves and in the industries or activities that apply the new technologies to innovate is important for understanding the main differences between Installation and Deployment as regards the rhythm and direction of technical change. p. 8

That we are innovating in "the industries or activities that apply the new technologies to innovate" is proof that we are in the deployment phase. This deployment phase is what Professor Perez compares to other golden ages and calls the "Sustainable global knowledge-society". A time when IT applied to traditional industries brings about the value creating activities that will sustain the globalized economy. Professor Perez contrasts the two periods.

The high and growing valuations of telecom and Internet-related companies during the NASDAQ bubble facilitated the completion of a global fibre optic network that has become the foundation of the globalisation process. p. 8

and

The deployment period is the time when the modernised companies across all sectors innovate using the power of the technologies of the revolution and of the new –by then, established– paradigm. It is a time of expansion, extension and multiplication of possibilities in the whole spectrum; it is also a time for social innovation in order to spread more widely across society the benefits of the vast wealth creating potential. p. 9

We have always considered, since the Preliminary Research Report, that high energy prices are the reallocation of the financial resources towards innovation. The investments in innovation by the oil and gas producers are not to be made through debt or equity or earnings but through the allocation of revenues to the appropriate areas. This reflects the high costs of innovation and the need to build capabilities within the producer firm and marketplace. Of note People, Ideas & Objects have developed a new classification of oil and gas workers that we call the Community of Independent Service Providers (CISP). These people are the critical resources that provide People, Ideas & Objects with the direction of our software developments. They are the ones that anticipate the needs of the producer firms they represent, and work with our developers to build the tools needed to support the user communities involved in oil and gas. It is the revenues of the producers that will go toward development of the capabilities within the producer firms, markets, the CISP and these software developments.

In sum, there is a changing of the innovation guard with the Turning Point. During Installation the innovation drivers are the new technological entrepreneurs and the financiers while the State has a service and facilitating role with a laissez faire attitude. During Deployment, the State comes back actively and serves as innovation driver together with production capital, which takes the helm of investment while financial capital serves as support. p. 9

I read "production capital" as the reallocation of the oil and gas revenues to the service industries to support the producers innovations. These are predominately service based businesses that provide a supporting role to the producers. "Production capital" denotes somewhat of an investment, whereas I see a long term relationship between the producers, their markets and communities. This restructuring of the oil and gas industry does not provide those, producers or otherwise, that may have invested "production capital" with any return. The continued expectation that the oil and gas industry will become innovative by the service industries investments and developments of technologies is fool-hardy. It may be debated whether that expectation is fool-hardy or not, but I can assure you that it is ridiculous when it is considered the oil and gas producers generate the entire revenue base of the producers, markets, service industry, CISP and People, Ideas & Objects. Continually squeezing the service industries for more has as much to do with the failure of the bureaucracies that control these financial flows, as the need for real reform in this area. I see the producers themselves spending this "production capital" on these markets and communities to support their own capabilities. Professor Perez has much more to say on this point later in this paper. We will revisit this point at that time.

The other process typical of the aftermath of technology bubbles that was already taking place during the second boom is the restructuring of one industry after another and the definition of new boundaries through mergers and acquisitions. p. 11

These changes in the industry structure underlay the revised focus on the demand for energy.

As will be discussed below, though, the hyper-segmentation of markets and the flexibility of ICT is likely to change the way of defining industries and the markets in which they compete, in order to focus on the demand sectors rather than on the supply ones. p. 11

If we are looking at this deployment period lasting another thirty years, re-structuring of the industry in some fashion to deal with these issues is necessary. And as I have noted in each of these posts, we will work with the producers and communities to determine which methods are the right ones and build the software on that basis. Professor Perez notes that these are consistent with the history she has studied.

Such sectoral redefinitions have occurred with every paradigm shift and the trace is kept –with delay– in the changes of statistical categories across history. Since such changes take time and occur as a result of trial and error strategies and competition, they can only be recognized in the statistics when they have already become the norm in practice. But being alert to these processes is crucial both for companies and for governments, because they provide important signals for innovation and growth paths. p. 11

and

But with Deployment comes a fundamental shift of focus. Rather than looking at the potential of technologies, the focus switches to the opportunities defined by markets and by growth possibilities. p. 11

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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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.

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Chandler The Role of Business in the ...

Professor Alfred D. Chandler published a document entitled "The Role of Business in the United States: A Historical Survey" in the Winter 1969 version of "Perspectives on Business" from MIT Press. This paper chronicles how the economy developed. I find it surprising in many of the things that are not generally known or understood about the role and function of finance in the early years.

For a paper on the historical role of business in America to provide a solid foundation for discussions of the present and future, it must examine a number of questions: Who were the American businessmen? How did they come to go into business? How were they trained? How broad was their outlook? And, of even more importance, what did they do? How did they carry out the basic economic functions of production, distribution, transportation, and finance? How was the work of these businessmen coordinated so that the American economic system operated as an integrated whole? Finally, how did these men and the system within which they worked adapt to fundamental changes in population, to the opening of new lands, resources, and markets, and to technological developments that transformed markets, sources of supply, and means of production and distribution? The answers to these questions, as limited as they may be, should help to make more understandable the present activities and future capabilities of American business. p. 23

I want to highlight the role of what has to be the key determinant in the development of the economy, the Merchant. Specifically, the role of the merchants in financing business development and trade. This enabled much of the development of the corporation, the separation of ownership and management and the speed, scope and scale of the structured hierarchy. Without the critical skills and capital of the merchants, it is doubtful that the hierarchy would have been able to rise to such prominence.

The colonial merchant was an all-purpose, non-specialized man of business. He was a wholesaler and a retailer, an importer and an exporter. In association with other merchants he built and owned the ships that carried goods to and from his town. He financed and insured the transportation and distribution of these goods. At the same time, he provided the funds needed by the planter and the artisan to finance the production of crops and goods. The merchant, operating on local, inter-regional, and international levels, adapted the economy to the relatively small population and technological changes of the day and to shifts in supply and demand resulting from international tensions. p. 24

and

Only a few of the great landowners and leading lawyers knew the larger world. It was the colonial merchants who, allied with lawyers from the seaport towns and with the Virginia planters, encouraged the Revolution, brought about the ratification of the Constitution, and then set up the new government in the last decade of the eighteenth century. p. 24

The Merchants were the key to the development of the economy. In this paper Chandler documents how effectively the Merchants expanded economic activity to the point where the scale and scope was beyond theirs and their extended families reach. How this eventually created the "Manager" and developed the concept of the separation of management and ownership. It is noted the professionalism of the managers and their development during this time. Management replacing direct ownership as the means to effective management. Yet what is clear in the history, and is plainly clear today, is that management have no financial stake in the firm. Interestingly Chandler notes this is not the first time that this has been an issue.

In many ways, the managers were more of an elite than the earlier businessmen had been. Even though this elite was based on performance rather than birth and played a critically constructive role in building and operating the world's most productive economy, its existence seemed to violate basic American democratic values. At the same time, its control of the central sector of the American economy challenged powerful economic concepts about the efficacy of a free market. After 1930, the managers came to share some of their economic power with others, particularly the federal government. Nevertheless, they were forced to do so not because of ideological reasons, but because they failed by themselves to assure the coordination and growth of the economy, the basic activities they had undertaken after 1900. p. 35

In 2010 it is clear the division between ownership and management is as great as it ever has been. Management hold the reigns of power and have advanced their concerns over the shareholders. Leaving the ownership generally dissatisfied. Government, particularly the Obama administration, believes they are the natural progression to takeover from management. I think networks, and particularly People, Ideas & Objects and the Community of Independent Service Providers provide the best alternative to the innovative oil and gas producer.

The Depression clearly demonstrated that the corporation managers alone were unable to provide the coordination and adaptation necessary to sustain a complex, highly differentiated, mass production, mass-distribution economy. The coming of the Depression itself reflected population and technological developments. p. 35

I think the eight hundred pound Gorilla in the room is that management have no stake in this game. If failure occurs then shareholders and debtors will pay the price and management will fend for themselves. Whether it is at another firm, or their vested pension that provides them with their continuity, either is satisfactory. The point is that with no skin in the game, what is keeping management at the table.?

They have proven unwilling to fund People, Ideas & Objects software developments, why do the hard work when a new pension statement has just arrived? We are foolish to expect anything more of management, they are there for the good times and their history shows they are incapable of bridging critical economic changes such as what we are facing today.

Just as the Merchants began the whole process. Applying their capital and skills to the economy. Future development of our economy is in the investor and shareholder hands once again. Society dictates, and I hear it in the Tea Party movement, that this process be renewed.

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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Focused on the Issue

Continuing on with a series of quick blog posts that summarize the 30 compelling reasons we developed during our 2010 budget drive. Compelling reasons for getting involved in People, Ideas & Objects. I have summarized these 30 reasons into eight "Focused on" summaries that started with the post Focused on the Energy Business. This will be our third post, with our second post, Focused on the User, being published yesterday.

The Issue

Since 2005 global oil and gas production has stalled. Energy prices reflect this fact, and are reallocating the financial resources to the innovative oil and gas producer. Each barrel of oil produced requires progressively more earth science and engineering effort. This trend in the increase in the scientific and engineering effort for each barrel will continue. Science and engineering is where the value in the industry is generated, and the capacity of the bureaucracy to keep up has failed.

We live in advanced societies where man has leveraged mechanical effort through the use of energy. We recently confirmed the calculation that each barrel of oil offsets 18,000 man hours of effort. This can also be restated by saying that we stand on the shoulders of several generations of giants. Energy is the lifeblood of our global economy. Any challenge in sourcing the required energy has a direct impact on our quality of life, and society will have far to fall if there is an energy shortfall. The bureaucracy in oil and gas assures us that there is plenty of oil, yet our production remains the same as in 2005. Resolution of this conflict may be as simple as management suggest, or it may be tragic.

Through research reflected in the Preliminary Research Report, the Draft Specification and this blog. The industry standard Joint Operating Committee (JOC) provides the innovative oil and gas producer with the necessary organizational construct to identify and support innovation in the earth science and engineering disciplines. The JOC includes the legal, financial, cultural, communication and operational decision making frameworks of the global oil and gas industry. Building the systems to define and support these activities is the necessary first step in beginning our approach to solve this issue.

Exxon has estimated that to meet the demand for energy, capital investments of $20 trillion will be required over the next 20 years. I believe we should approach a problem of this scope by first organizing ourselves. Otherwise we risk throwing money at the problem and getting no where. I believe we are beginning to see the beginnings of this issue affect the performance of the producers. Reporting that reserves and production continue to decline is the start of this process. After realizing the increases in prices for oil and gas, why would declines in production and reserves occur? Recently in the Calgary Herald, the Canadian National Energy Board predicts that Alberta's natural gas production will decline by 34% in the next two years. Clearly our organizations are failing society, and as the conflict reflected in our 2010 budget drive shows, bureaucrats are in control.

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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