Showing posts with label Market. Show all posts
Showing posts with label Market. Show all posts

Friday, October 24, 2014

Our Marketing Strategy

Within People, Ideas & Objects we have a unique Revenue Model that sources our funds where the money and the need for our services exist, at the producers. We will raise the necessary funds to fuel the developers, the user community and the cloud computer infrastructure to run our application from assessments on the subscribing producers. This is a fundamentally different Revenue Model than what has been used in the software development business, and one that has been developed to deal with the issues we have with our business model. Each of our revenue issues is a deal killer on their own and collectively make the project a non-starter. However, with our Revenue Model as it stands today we are able to overcome these issues and proceed with the project with the anticipation that the project will be funded based on the value proposition that we offer to the dynamic, innovative and profitable oil and gas producer. Had I ever mentioned that the value proposition that People, Ideas & Objects, the user community and the service providers provide the producers is valued in the trillions of dollars?

The first thing any software developer wants to do is to go out and raise some venture capital to fund their ambitions and bring the next great iPhone app to the world. When we knock on the VC’s door this is the world that they operate in. They are looking for innovative products that fit on an iPhone and require substantially less than $2 million in funding and will be sold at $2 to 4 billion people. When we say that our costs are $4 billion and our audience is a few hundred producers they naturally back away quickly and completely. We in no way fit within the scope of a VC’s business model. They are designed for the mass market and are designed to bring innovative products to that market quickly. Neither of which apply to us.

So if the producers are the ones to fund both the developments and the user community how come we haven’t received any funding? Good question. One of the reasons that we are going to the producers for funding is as a result of the games that were played by the producers in the 1990’s when there were an abundance of ERP software providers on the street. There were significant numbers of vendors and it was difficult not to bump into all of them. And all were big players backed by big companies looking to earn market share in the new “ERP” market space. So the producers played the “show me what you got” and “so and so will give me his stuff for free with just a maintenance contract” type of games. Needless to say I don't think any producer ever paid for an ERP system in the 1990’s. Those days are over. The costs are too high and the oil and gas industry isn't that large of a prize that anyone is looking to sell ERP systems, other than us that is. What’s that saying you reap what you sow. Having an operational ERP system running ready to be sold into the oil and gas marketplace would be a non starter today or any day in the near future. The producers will know that the market is small and they will collude with each other to ensure that you earn single digit percentages of lifetime revenues on your capital investment. They will put you in the poor house and make sure that you eat slop for the rest of your life. So now they will have to deal with the likes of the Preliminary Specification as literally their only choice, and pay for it. No one else is so foolish as to even think to be in this business.

Now technology is clearly able to bring value to the oil and gas producers. Did I mention our value proposition? In my discussions with industry they still want to play games like “call me when you have something.” Clearly understanding that when we have something it will be specifically designed not to fit in their organization. These are user community based software developments. If you don't participate directly in the development of the software, then the software will not fit within your organization when the time comes to operate it. If you want to make money in the 21st century you have to think differently as to how you will make that money. The first thing you have to do is understand that your organization is run on software and you had better be able to operate the software from the development team and user community on up in order to operate your company. That will be how the dynamic, innovative and profitable oil and gas producer will make money in the 21st century.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Thursday, January 31, 2013

Capabilities From Thicker Markets.


One of the areas that we conducted significant research for the Preliminary Specification was in the area of capabilities. Capabilities in the sense that the earth science and engineering capabilities of the innovative oil and gas firm were one of its key competitive advantages. And capabilities in terms of how the producer firm acquired field operations capabilities from the marketplace, or service industry. Today’s topic is about the acquisition of capabilities from the marketplace and specifically the boundaries between the producer firm and the marketplace. Now when we discuss the producer firm we of course include the Joint Operating Committee as it is the source of all operations in the oil and gas industry. And it is natural that the Preliminary Specification places special reliance on the marketplace to provide for the Joint Operating Committees field operations.

To conduct these field operations internally has never been a choice, so for the Preliminary Specification to choose the boundary of the firm and market in this manner is not contrary to the culture of the industry. What we are attempting to do is to apply Professor Langlois’ theories to the culture of the oil and gas industry and determine the appropriate way forward. I think however, that the conceptual model of transaction cost economics considers that there will be “thicker” markets and a greater volume of transactions contemplated between the producer firms or Joint Operating Committees, and the marketplace. Thicker markets then what is represented in the current industry configuration. The Preliminary Specifications Resource Marketplace module considers these “thicker” markets would develop as a result of the changes in producers actions from using People, Ideas & Objects software.

The conflict that currently exists between the producers and the service industry is at a very high level. We have documented how the producers have been dissatisfied with the costs of field operations, how they have not sponsored new and innovative ideas and firms, and as a result, been left with a somewhat static service industry offering. These issues have been addressed in the Preliminary Specification and the point that I want to make today is that it is for the innovative Joint Operating Committee to rely more heavily on the marketplace for their field operations in the future and to remedy these issues through participation in the Preliminary Specification. Remedies such as purchasing and operating drilling rigs and other field level operations will not help the oil and gas industry to mitigate the issues that we are discussing here. Participation in the marketplace is the only solution. Focusing on the core competitive advantages of the innovative oil and gas producer; of their land and asset base, and earth science and engineering capabilities are where the value is earned. Not in replicating the marketplace offerings. From Professor Richard Langlois.

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of co-operating individuals. p. 17

Of note and interest, having access to the same thick marketplaces as other Joint Operating Committees does not provide for the same costs or the same results. To achieve the same results one must replicate the competitive advantages in the earth sciences and engineering disciplines that others used. Coordination of markets is another area where there are distinct advantages that can be gained by the Joint Operating Committee. For further information on how the Preliminary Specification aids in the coordination of markets, please see the Accounting Voucher and Resource Marketplace modules ability to “design transactions.”

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints [or software] as one's competitors is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. p. 18

The end result of these thick marketplaces is what the innovative oil and gas producer must attain. To extend their capabilities in a manner far greater than what is possible through the current management's capabilities.

Moreover, by taking advantage of a range of capabilities far wider than the boundaries of what even the largest firm can encompass, a network of specialist suppliers and competitors is better able to exploit the value of a complex and potentially modular product architecture.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Monday, August 15, 2011

The Preliminary Specification Part III


Last week we began our series discussing the output that the community would produce during the Preliminary Specification. We noted the geographical scope and its representation, how technology was not an influence in the specification and that producers, service industries, society and individuals were part of the output. Today we are going to discuss the redefinition of the boundaries between the markets and firms. Where markets are comprised of the service industries and firms are the producers themselves. Where the current bureaucrats and managers are no longer able to micro-manage the industry as they once claim they were able to.

The Draft Specification redefines the boundaries of the market and the firm in the oil and gas industry. As controversial as that sounds, it is required in order for innovation to occur. Critical to this redefinition is the understanding that the key competitive advantages of the producer firms are their land and physical assets and their earth science and engineering capabilities. Acceptance of this fact is critical to the competitiveness of the producer firm. Management of all aspects of the industry are beyond the scope of what is now possible. The market must be relied upon to meet the needs of the field activities. That demands more and better information be communicated between market participants.

No producer would hold out that their drill bit technology as superior to another producer, or their rig as more capable, yet, field level innovations are held back until the marketplace for them is proven for the technology. This chicken and egg strategy has been exploited by the producers time and again because they hold the financial resources of the industry and will only release those dollars for “proven” engineering. Unfortunately the investment capital groups understand this and have decided not to play this game any longer and as a result their is little to no innovation in the field occurring. With no investment capital to fund the start-up ideas nothing is happening. The producers are now having to pay what they feel are exorbitant prices for field services as their are no field level innovations or new entrants. Well whats that saying “you reap what you sow”.

A good example of this holding off is reflected in People, Ideas & Objects. At no time has there been any assistance from industry. Yet on three occasions, in three significant ways they have attempted to circumvent this Intellectual Property. Each attempt has ended in failure. And each failure has only secured my claim by establishing that there is no other competitive offering. Bureaucrats don’t work with the service industry, they only take what they want without paying for it. Those days must end and with the modules in the People, Ideas & Objects application, that end is designed to happen.

When we talk about an industry that needs to do more with the same amount of resources this type of stand-off will not solve the problems the industry face. The problems that this industry faces will not be solved easily. Those with the ideas on how to solve them will not be willing to do it for an industry that will just hijack them. How this is resolved is through the Research & Capabilities Module that allows those with the ideas to publish, in a manner similar to a blog, their ideas and earn the rights to them. There they can have producers see them and have the producers sponsor them and build them for the benefit of those with the ideas, the producer and industry.

Once the ideas are generated and operational within the industry, then the Resource Marketplace module will enable all service providers with the ability to interact with producers to conduct the work needed. From preparation of budgets, AFE’s, work orders, billing, invoices etc the service provider will have accounting interfaces that enable them to manage their interactions with the producers.

In other words those with the ideas working with the producers, developing their ideas, getting funding from the producers to prove their ideas, developing their ideas into commercial products and then interacting with the industry participants to conduct their business. These are the actions that these two modules of the People, Ideas & Objects application are designed to support. These processes are what are needed to enable the market and firms to interact in a manner necessary for the industry to achieve the markets demand for energy. Field level innovations are a critical and necessary element of meeting that demand. The current bureaucrats and managers are unable to understand the information they have in front of them. It is therefore time to take the task away from them.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Tuesday, July 13, 2010

The Marketplace Metaphor

The Draft Specification includes three modules that employ what we call the Marketplace Metaphor. The Petroleum Lease Marketplace, Resource Marketplace and the Financial Marketplace Modules. Each of these modules create an environment that is similar in many respects to a marketplace in the “real” world. A virtual representation, and means for people to interact in marketplaces. Definitions of a marketplace include;

market: the world of commercial activity where goods and services are bought and sold; "without competition there would be no market";
The Petroleum Lease Marketplace (PLM) is a virtual market where partners can interact with each other to post and bid on petroleum leases, negotiate and execute agreements, buy and sell properties to name just a few of the many activities that can be carried out in the PLM. The PLM is designed to facilitate and support these transactions and activities, and capture the data and information necessary to manage the assets for the producers involved. 


The PLM is in many ways the beginning or initiation of the JOC. Since the JOC is the communication framework of the industry, many of the partners communications will be held within the Petroleum Lease Marketplace module. Mail ballots, AFE’s and agreements are initiated by the user while using the PLM module. 

The Resource Marketplace module creates a virtual representation of vendors, suppliers and the people who work within the oil and gas and service industries. Working closely with the Knowledge & Learning and Research & Capabilities modules, the Resource Marketplace provides the producer or JOC with the ability to interact within the Resource Marketplace to engage with vendors for the products and services that producers and JOC’s need. These interactions will include the capacity to contract, seek bids, billing, accounts payable and e-commerce capabilities. 

Recall in a recent post we documented how the Draft Specification facilitated a greater level of specialization and division of labor. These two economic theories being the source of all economic growth. That post documents that the process of “gap-filling” is how the division of labor is expanded. This “gap-filling” is part of the Resource Marketplace where producers and suppliers find one another in an effort to expand the output of the industry. 

Finally the Financial Marketplace module provides a virtual representation of the financial marketplace. Using the perspective of the Joint Operating Committee presents a different view of the oil and gas assets. Traditionally each producer has maintained their own financing of their oil and gas assets. What the Financial Marketplace module does is change the perspective, of how oil and gas assets are financed, from the producer firm to the Joint Operating Committee.

Each of these marketplace modules employ the People, Ideas & Objects user vision. The point of this post is to reinforce the use of the marketplace metaphor in the development of these systems. When we adopt the Joint Operating Committee as the key organizational construct of the innovative producer, we gain the ability to create this kind of software and methods of interaction within real and virtual marketplaces. 

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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Monday, May 17, 2010

Langlois, Economic Institutions Part II

Comparing the existing bureaucracies that operate the oil and gas companies to the industry standard Joint Operating Committee provides value to those that work in the oil and gas industry. This is not an exercise that compares two theoretical situations in a vacuum. Both organizational constructs (markets and firms) exist and the examples provided in this blog reflect today's issues. As frustrating as it is for me to deal in the context of what "could" happen in the future, I would prefer to be working on building that future, I can console myself on the fact that these arguments are not theoretical in nature and have a strong academic foundation. Langlois notes:
The set-up here is an instance of what Coase in his later writings (Coase 1964) would call comparative-institutional analysis. Rather than comparing the world we observe against an abstract theoretical model (a practice Coase derided as “blackboard economics”), we should set two real-world institutions side-by-side and compare their respective costs and benefits. From the point of view of prescription or policy analysis, Coase’s plea amounted to a salutary attack on the doctrine of “market failure.” It is meaningless to compare real-world institutions against a blackboard standard of perfection, and dangerous to imply (often tacitly) that government intervention is in order without specifying the precise institutional form of that intervention and scanning it thoroughly for “government failure” (Coase 1964; Demsetz 1969). But the doctrine of comparative-institutional analysis also operates at the level of explanation. Implicitly in Coase, and explicitly in Williamson, one explains an observed organizational form by comparing that form with hypothetical discrete alternatives in order to show that the observed form minimizes transaction costs. The thought experiment is to compare “the market” as an organizational structure with “the firm” as an organizational structure. pp. 2 - 3
Suggesting that the Joint Operating Committee be the key organizational construct of the innovative oil and gas producer has a rich substance in that it is the legal, financial, cultural, operational decision making and communication framework of the industry. To move forward as an industry requires retirement of the bureaucratic ways of the hierarchy and recognition that the industry is based on partnerships. It is these partnerships that are summarily ignored in all of the ERP systems that are operating today.

The Draft Specification defines the boundaries of the firm with clear "market" and "firm" organizational structures. In September 2007 I prepared this chart of the Primary (P) and Secondary (s) roles and activities to take place in each of these organizations.

ConstructMarketFirm
Joint Operating CommitteePs
Military Styled Command and Control (Governance)sP
Transaction CostssP
Production CostsPs
InnovationPs
Routine, compliance and accountabilitysP
Researchs


P
Development (the D in R&D)Ps
Financial FrameworkPs
Legal FrameworkPs
Cultural FrameworkPs
Operational Decision Making FrameworkPs

To the majority of people who have worked for a period of time in oil and gas. Will notice that these boundaries between the firm and market is a conceptual model of how the current industry operates! The difference is that the ERP systems that define and support the market and firm institutions only adopt a firm definition based on some theoretical example of a manufacturing firm (SAP). What is needed to fully explore and support the necessary innovation within the industry is that the ERP systems adopt these frameworks within the systems. A task that People, Ideas & Objects is providing with the Draft Specification. As Langlois stated above "we should set two real-world institutions side-by-side and compare their respective costs and benefits". Imagine how much better the industry might operate if our systems adopt the table above in comparison to SAP's determination of what a manufacturing firm might look like.

If we look at the table of how the Draft Specification defines the firm and market, we can ask how and where will the "gap filing" occur. Drawing on our example of a few days ago, in Transaction Design, we saw that the enhancement of some drilling technologies was the desire of some producers. Noting the needed capabilities were unavailable in the marketplace, the producers were able to approach a group of engineers who had done some extensive research into the problem. It was then incumbent on the producers to engage the engineers and fund and support the development of the capability. To who's benefit are these actions taken?
Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that 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 (Richardson 1975; Young 1928). p. 7
Based on the understanding put forward in yesterday's post. That Intellectual Property (IP) resides with those individuals, groups or firms that conduct the difficult work of solving problems and creating science & innovation. In yesterday's example the engineers will earn the IP and be able to market their skills and the developed capability to other producers that may have similar needs. The producers have benefited by either enhancing their reserves, increasing their technical capability, reducing their costs or increasing their production. Gap filling is a means of enhancing the division of labor.

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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Thursday, May 06, 2010

Langlois on Chandler Part II

Part II of our review of Professor Richard Langlois' paper "Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History". Today's post looks at capabilities development from an evolutionary point of view. Langlois notes his and Chandler's preference is to focus on evolution in the development of the firm and markets capabilities. One of the major problems with moving to use the People, Ideas & Objects Draft Specification is the radical or revolutionary nature of the necessary changes. The way in which most firms are operated today is substantially different then what is contemplated in the Draft Specification. In this post I argue these changes are evolutionary and bring the oil and gas producer closer to its more natural form of organization, the Joint Operating Committee (JOC).

During the 1960's systems capabilities were limited and their applications were quite crude. Organizational developments were therefore constrained by the limitations in Information Technologies. The focus of systems development was the firm itself, and that focus was driven primarily by the compliance and governance requirements of firms (Accounting, Tax, Royalty, SEC etc). The Joint Operating Committee was secondary to the demands of the compliance and governance frameworks of the firm. This systems thinking grew over a period of time in which it included several generations of people. Through this process the administration of oil and gas became more oriented to the compliance and governance frameworks and conversely more withdrawn from the five frameworks of the JOC.

It is my opinion that the Draft Specification is not revolutionary in it's move to the JOC, but evolutionary. Particularly from the point of view that we are moving towards the common-sense form of organization. Leaving this systems thinking perception behind is what is necessary for the innovative producer to attain the speed of operations necessary to compete in the oil and gas industry. Langlois notes;
Drawing on many of these ideas, Paul L. Robertson and I have proposed an evolutionary theory of what we call business institutions, that is, of markets, hierarchies, and the many hybrid forms that live between and around markets and hierarchies. What drives the theory are the costs faced by various business institutions of acquiring economic capabilities suitable to the profit opportunities they face. p. 360
With the escalating scientific demands contained within each barrel of oil, the key constraint is the number of earth scientists and engineers. Can we increase the volume of these key individuals at will? Of course not, and with the potential retirement of the senior levels, this issue will only become more acute as time passes. The Draft Specification deals with the limited engineering and earth science resources by addressing the bureaucracies need to develop 100% of their capabilities in-house. These silo's of capabilities built within each firm are designed to deal with every possible contingency. The building of individual silo's within each firm introduces a redundancy that is unaffordable in the current and future oil and gas industry.

There is also the issue of the means of organization of these resources. The hierarchy provides for an advanced division of labor, however, what is needed to expand the economic output of the oil and gas industry is a more detailed division of labor. The Draft Specification deals with the earth science and engineering demands by using the Information Technologies to pool the technical resources of each producer represented in the JOC. These technical resources are further enhanced by enabling a greater role of the service industries to provide a dynamic capability through the marketplaces that support the innovative oil and gas producers. These are reflected in the Draft Specification's  Military Command & Control Metaphor, Resource Marketplace, Knowledge & Learning and Research & Capabilities modules.

Please note as well, the Draft Specification places Intellectual Property (IP) development for the industry in the hands of those with incentives to earn their benefits. The producer firm's competitive advantage is derived from their asset base and application of the firm and markets scientific capabilities to those assets. Development of the IP necessary for multi-lateral fracing and other innovations is best left to the market. A market where those that have the ideas will benefit from their development. Simply the scientific issues that face the industry will not be resolved by a bureaucracy. The difficult and timely effort necessary to develop an idea will only be undertaken by those that deem some benefit in doing so. The Draft Specification therefore respects the IP rights of individuals and corporations that are able to expand the scientific capabilities of the oil and gas producer.

Professor Langlois notes three factors are important. Application of this framework to the methods used in the Draft Specification will provide an understanding of the choices that were made.
1. The pattern of existing capabilities in firms and market. Are existing capabilities distributed widely among many distinct organizations, or are they contained importantly within the boundaries of large firms? p. 360
2. The nature of the economic change called for. When technological developments or changes in relative prices generate a profit opportunity, does seizing that opportunity require a systemic reorganization of capabilities (including the learning of new capabilities), or can change proceed in autonomous fashion along the lines of an existing division of labor? p. 360
3. The extent of the market and the level of development of market supporting institutions. To what extent can the needed capabilities be tapped through existing arrangements, and to what extent must they be created from scratch? To what extent are there relevant standards and other market-supporting institutions? p. 360
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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Friday, February 05, 2010

All Roads Lead to Coase

I have had the opportunity to review this jewel of a video "Markets, Firms & Property Rights" by Professor Ronald Coase. Scratch the surface of any of the research that we review on this blog, and Coase's 1937 book "Nature of the Firm" will be there. He makes an interesting comment that I had not heard before. "Markets are creations" and that is what we are doing in the Draft Specification with the Petroleum Lease Marketplace, Resource Marketplace and Financial Marketplace Modules; creating markets.

Overall much of our research review has been on Transaction Cost Economics. Through building the Draft Specification we are able to automate many transactions, but also deal in the value generating activity of designing transactions. In a 1997 Reason Magazine interview Coase made the following comment.
Reason: People are very excited that transactions are taking place much more efficiently than ever before through new electronic means and better communication systems. Are you excited about these trends?
Coase: Yes, because I don't understand them. People talk about increases in improvements in technology, but just as important are improvements in the way in which people make contracts and deals. If you can lower the costs there, you can have more specialization and greater production. So that's what I'm interested in now. By improving the way the market works, you can produce immense benefits, not because it invents new technologies, but because it enables new technologies to be used. Without the ability to make efficient contracts, you can't use these new means. And a lot of effort is going, at the moment, into devising new ways of handling the problems, mainly by the lawyers.


We stand on the shoulders of giants. In Coase's case he won the 1991 Nobel Prize in Economics and celebrates his 100th birthday this year.



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Monday, November 23, 2009

Pemex makes the change.

The market for People, Ideas & Objects software application is the oil and gas industry in general. This includes the International Oil Companies (IOC's), National Oil Companies (NOC's), Independents and start-ups. All of which of course use the Joint Operating Committee (JOC) as the means to deal with their partners. All of these types of organizations have the same needs from the point of view of managing their oil and gas assets.

Each barrel of oil equivalent is on a steep upward curve in terms of the volume of science and engineering involved in bringing the products to market. It is this upward cost curve that challenges the bureaucracies to keep up. What they are finding is the pace of change and the demand for innovative thinking is beyond the capabilities of the hierarchical firm. This is the situation for most of the western based producers and service companies.

People, Ideas & Objects approach is particularly unique from the point of view providing the NOC's. Pemex, Saudi Aramco, Petronas and the China National Oil Company to name just a few. Traditionally they have been charged with developing the countries energy resources for the country itself. Whether that is for its internal consumption of energy, management of royalties and / or export. The challenge to them is similar to the IOC's and Independents in that the level of effort per barrel of oil equivalent continues to escalate.

Mexican firm Petroleos Mexicanos is now indicating they will change how they develop their energy resources. In the Oil and Gas Journal, an article documenting the change notes.
Mexico’s state-owned Petroleos Mexicanos and the Secretaria de Energia (Sener) are preparing risk contracts that will be offered to oil companies—international and domestic—in order accelerate the search for oil and gas, according to local media.
These risk contracts have been used with a multitude of other methods by the NOC's before. The one constant is the Joint Operating Committee (JOC) is the means to manage these contracts. Recall the JOC is the legal foundation of the oil and gas industry. This is on a systemic and global basis with IOC's, NOC's etc. Pemex establishes the following framework for these contracts;
Sener explains that it is urgent "to speed up the discovery of new oil fields and the incorporation of reserves, as well as increase Pemex's execution capacity, particularly through new contracting schemes so that specialized companies can support its activities."
Clearly indicating that the support they are looking for not only includes the producer firms but also the service companies. Pemex is one of a number of countries that are establishing this trend as a result of the new realities of the scientific developments of the oil and gas industry.

Evidence of this is reflected in the research of the Baker Institutes Energy Forum's Cases under the heading of "The Role of National Oil Companies in International Energy Markets". In particular I want to highlight the research that was completed on for Malaysia's Petronas NOC. Reading that document clearly reflects the conclusion resonates with the work being done by the People, Ideas & Objects community. It also resonates with Petronas' strategy, history and economic needs.
In 2005 a Vice President of Petronas speaking before the Asian Energy Forum presented the firms corporate strategy. He emphasized several elements including growth and maximizing returns for shareholders. Growth has brought the move towards a global strategy with the desire to be an overseas investor in upstream and downstream sectors as well as encouraging foreign investment in Malaysia, while maximizing shareholder profits; he also noted the company's efforts to benefit local needs through a long term program involving Malaysia, host countries and other firms.
He asserted that it is important for Petronas to work with credible partners for several reasons:
  1. Risks mitigation
  2. Access to market
  3. Access to proprietary technology
  4. Political strength
  5. Government to government relationship p. 21
In my opinion this strategy is wholly consistent with both the Community of Independent Service Providers (CISP) and People, Ideas & Objects. Why?, due to the activities and operations of Petronas and other NOC's, the IOC's, Independents and start up producers need to align their governance and compliance frameworks with the JOC's legal, financial, operational decision making, cultural and communication frameworks. This alignment brings a transparency  between the participants that increases the accountability of all oil and gas operations for all concerned, irrespective of the individual strategies employed by each participant in the JOC. The current situation where the corporate compliance and governance frameworks are focused only on the individual corporation is inconsistent with the legal, financial, operational decision making, cultural and communication frameworks and operations of the JOC of which they are party to.

By granting a concession, lease, risk contract or any other vehicle to establish these oil and gas operations, a JOC is created. It is therefore necessary that the systems and procedures of those participants to the JOC have the JOC identified, supported and implicit in the day to day and strategic operation.

Additionally, each NOC or government that is interested in optimizing their oil and gas operations, both from a royalty income stream or as an active explorer and producer, want to have their jurisdiction open and active with the remainder of the oil and gas industry. Having the capacity to operate on the same basis of the global oil and gas producers and suppliers provides synergies to all involved. Using a standard system, such as People, Ideas & Objects amongst all participants of the industry enables access to the resources of the service companies, producer firms and other groups that may be involved in the JOC and available through an application based on the Draft Specification.

This also works for Petronas and other NOC's from the point of view of their strategy of wanting to be involved in oil and gas operations on a global basis. They, with standard systems based on the JOC, can easily participate based on known methods and means of operation on a global basis.
This is not a case of nationalization, although nationalism was a factor in its original formation. It has been a generally solid and well-respected partner to both private and state entities around the world. While it has become involved in a wide range of agreements with other companies and states in which its equity percentages has varied, Petronas itself is 100% state owned. It has no present intention to privatize. p. 35
Involving NOC's in the future in this manner is also consistent with the activities of the Baker Institute with their governing objective.
The Baker Institute Energy Forum is a multifaceted center that promotes original, forward-looking discussion and research on the energy-related challenges facing our society in the 21st century.
This future needs to be backed up by a software development capability as provided by the Community of Independent Service Providers and People, Ideas & Objects application modules. Please join us here.

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Monday, October 12, 2009

Nobel to Oliver Williamson

The Nobel Prize was awarded to Elinor Ostrom and Oliver Williamson this morning. I can't think of anything that puts the People, Ideas & Objects community inline with the current thinking of the economic community. I am elated. I am not aware of the work of Elinor Ostrom and I will look into her work to see if it applies as directly as Professor Williamson's does. I have two blog posts on Oliver Williamson's work and the one paper I reviewed "Introduction to Transaction Cost Economics" which provided strong grounding for the Draft Specification. I also have 7 other papers of his sitting in the hopper waiting to be reviewed. I'll certainly bump these up in terms of priority as to when I will approach them.

Noteworthy among today's accolades are the following.

From CATO

Both Ostrom’s work on governance institutions and common-pool resources and Williamson’s work on governance institutions and the transactional boundary of the firm contribute meaningfully to our understanding of how individuals coordinate their plans and actions in decentralized, complex systems.
From The Wall Street Journal
“According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. When corporations fail to deliver efficiency gains, their existence will be called in question,” according to information on the research released by the Royal Swedish Academy of Sciences. “Large corporations may of course abuse their power. They may for instance participate in undesirable political lobbying and exhibit anti-competitive behavior. However, according to Williamson’s analysis, it is advisable to regulate such behavior directly rather than through policies that limit the size of corporations.”
and
Ostrom’s work also has something to say about regulation: “The main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders — both politicians and social scientists — have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.”
From the Calgary Herald
"Since we have found that bureaucrats sometimes do not have the correct information while citizens and users of resources do, we hope it helps encourage a sense of capacity and power," the professor told a news conference via telephone.
and this quote that takes People, Ideas & Objects to the mainstream and away from the "fringe".

"Over the last three decades, these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention," it said in a statement.
and
"Are there relationships between the Fed and the banking sector, on which it has such a significant influence, that haven't been thought through as fully as they might in organizational terms?" he asked.
Much of their theories were used to prove the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. Specifically noting that the natural "boundary of firm and market" is best represented in the JOC being the market. I'm dissapointed that I was only able to review one of Williamson's papers. My favorie quote from his paper is as follows.
Ronald Coase's 1937 paper on "The Nature of the Firm"expressly confronted an embarrassing lapse: whereas the distributing of activity between firm and market had been taken as given by economists, the boundary of the firm should be derived from the application of economic reasoning to the make-or-buy decision. pp. 15 - 16
Please join me here in this worthwhile, and now "mainstream" project.

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Saturday, September 12, 2009

The Prototypical Producer

"Build it like your going to operate it forever."
That is the expectation of the CEO of BlackPearl Resources Ltd. John Festival, who sold BlackRock Ventures Inc to Shell Canada in 2006 for $2.6 billion. As I mentioned in a recent post companies are being formed with the intent to sell them within a five to ten year window. These people are able to put together a firm and sell it for substantial gains.

Nonetheless the expectation is to "build it like your going to operate it forever". The oil and gas assets of the producer are the value that is being built. Why would anyone approach the building of those assets with anything but the long term perspective. The dichotomy is that you are building the company for a quick sale. A team can put together a valuable producer in a short 5 to 10 year period that can then be sold for multiples of the cost to build the firms.

I see in the BlackRock team the prototypical 21st Century oil and gas producer. The ability to find and develop the resources, build the assets and then sell them to start all over again. It is happening consistently on this grand of scale, it is also happening on a smaller scale where less "proven" teams are building their capabilities up with each successive start up and subsequent sale.

It is these teams that I have in mind as being the ideal candidates for both the People, Ideas & Objects Draft Specification and the associated Community of Independent Service Providers (CISP). My logic is as follows; why does a firm that is focused on developing a firm's assets, based on a team of capable leaders need to burden themselves with the overhead associated with systems, procedures or even the staff to manage the day to day. What if they could access the systems and people necessary to manage their assets development? What if they were to find their most profitable operations were best managed by the CISP and People, Ideas & Objects application modules.

From an outsourcing point of view people will have preconceived ideas of what works and what doesn't. To think of this as just outsourcing limits the opportunity for the producer and the industry as a whole. Adam Smith proved that the division of labor and specialization were the keys to organizational efficiency. Since these concepts were proven they have been the driving force behind all economic growth. Greater specialization and division of labor are what organizations have been able to do to improve their performance since the late 1700's. The Draft Specification considers this as a critical aspect of the systems means of providing the producer with increased speed, innovation and performance.

One of the key aspects of the Accounting Voucher Module is to provide the means to design transactions. A transaction for the purpose of this example is the drilling of a well. The work that will be undertaken by whom and when is defined in the Accounting Voucher as the value adding process. This process is not too much different today as it will be in the future. However, the number of people that would be involved in that transaction may total one thousand people when we consider the producers CEO all the partners staff and on up to the invoice clerk at the water hauling firm. Clearly the division of labor has already been used to good effect.

Now to enhance the capabilities of the producer and particularly the industry, will require a greater division of labor. Lets assume that this transaction in the future may involve triple the numbers of people to successfully complete the transaction. Already the Joint Operating Committee employs only a handful of these people. How many will need to be directly employed by the JOC in this future scenario? Will it be more or less? I think it will require sizable more individuals reporting directly to the Joint Operating Committee.

Many more individuals spending substantially less time then they do today, over a shorter period of time. How will this be handled by the JOC? The ability of having this larger number of people spending less time on a transaction will be one of the direct results and benefits of the Information & Communication Technologies. The ICT can handle this type of activity, and what I am suggesting here is that irrespective of the size of the producer, only the key team of CEO, COO and CFO would need to be in the office at all times. The thousands of people available when and where they are required, managed by the People, Ideas & Objects application modules and the Community of Independent Service Providers.

In this future scenario BlackPearl Resources needs to coordinate and manage the efforts of thousands of individuals who have a significant influence on their success or failure. Some of the key attributes of this is that the "transaction" must be flexible enough to have the influence of the decision makers involved intimately with the aspects of the transactions that they can influence the success of the transactions outcome. For the industry to increase the overall productivity of the people imputes the speed of these transactions will turn over much quicker. If the performance criteria is to drill X wells today, then tomorrow may require X3 wells drilled. Or it may be stated better by saying the engineering, geological and overall work required for each barrel of oil triples.

This is the only method I can see of how the fixed number of people working in the industry can become three times as productive. The market for energy is rewarding these firms with the pricing of the commodity which values all aspects of the producers operation. China, India and the rest of the world is joining the "Western World" and the demand for energy will only increase.

They key to the worlds energy demands being satisfied lies with these teams of people, as represented here by BlackPearl. The ability to do what they do is an intangible that lies in the minds of oilmen. This talent is very rare and very difficult. I don't think that without the motivation of the potential of a billion dollar payday, these teams would form. Which brings me to the point that I mentioned here a few weeks ago. Clearly International Oil Companies are buying most of these producers. National Oil Companies are yet to realize their value in developing their countries resources. What if Pemex were to use these teams to help maintain their production volumes? As I mentioned in that post the idea that these producers are closed behind some communist or dictatorial mindset has receded over the past few decades. The only thing that needs to be done is the IOC's, NOC's and teams fund the development of this software to make this real. And as a key component of the Community of Independent Service Providers, all you need to do is join me here.

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Tuesday, February 24, 2009

McKinsey on Creative Destruction

This article (click on the title of this entry) is a discussion with Richard Foster, a former McKinsey consultant and author of the book Creative Destruction: Why companies that are built to last under-perform the market - and how to successfully transform them".

Some time during the past few years we seem to have forgotten many of the lessons that we learned about the business cycle. That we were now sophisticated enough to suggest that the elimination of the down cycle was within our toolkit of economic control.

Let’s start by looking back. In the 1970s, we had the “Nifty 50”—invulnerable companies that couldn’t possibly lose, and of course they all did. It will be the same today; there will be surprising losers, and survival will come down to simple things, like cash and margins. If you’re a low-margin company without a lot of cash or perhaps with too much leverage, you will not make it. Someone will figure out how to do better.
In the oil and gas industry we have a lot of firms that are in the situation where they have leveraged themselves into losing propositions. We have the piggies, where I have highlighted these firms folly. These firms will fail. Companies like CNRL have incurred so much debt ($26 billion) the last time they reported and $3 billion in working capital deficiencies. How will they survive a long down draft of economic activity? They can't and that is what the process of renewal will undertake to do for the managers that deceived themselves about their control of the business cycle.
The market moves much quicker then the companies are able to change. A process of renewal is therefore necessary in order to make the changes demanded by the market moves. It is critical there be a clear definition of the market and firm in an industry. The Draft Specification designates a clear separation from the market and firms based on the research conducted by Professor Richard Langlois.
There can be periods—5, 7, 10, even 15 years—when that isn’t the case, [firm performance exceeds the market] but corporate performance always reverts to a lower level than the market because the economy is changing at a faster pace and on a larger scale than any individual company so far has been able to do without losing control. That’s the challenge: to create, operate, and trade—to divest old businesses and acquire or build new businesses—at the pace and scale of the market without losing control.
I have incorporated the ideas of Professor Langlois to define new organizational structures. These also require a new division of labor in order to expand the productivity and performance of the industry as a whole. We have limited resource and much to do, if we do not consider these important issues we might best leave the situation to the bureaucracies that exist today. Please review this research if you feel change is needed.

The renewal of companies within industries is well captured in the next quotation. I don't know why it is necessary for the current governments to stop these changes, but using the taxpayer money to prop up old zombie corporations is, to me, a waste.
New, young companies that have conserved cash and have solid and often expanding margins surge ahead. When this happened in the ’70s, companies such as The Limited, The Gap, Home Depot, and John Malone’s TeleCommunications Inc. sprung from the burned forest. After the crash of 1987, Microsoft, Oracle, and Amgen took off. Then in the ’90s, we had the Internet companies. Creation will happen again and will again leave behind the big guys trying to rely solely on operations.
It is also suggested that our economic systems have failed. Those with political agenda's are suggesting that something involving greater input by government is required. President Obama is also suggesting that he has the means to balance his budgets within his current term, clearly he sees things that are not there. Nonetheless the capitalist system is by far the best method of organization, one that deals with the failures and builds anew.
Equity was a very clever invention, and we are not going to give it up. This is the way people are. This is the way commerce works and will continue to work unless capitalism ends. And that won’t happen, regardless of what you read in the press.
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Wednesday, January 14, 2009

Louis V. Gerstner on MIT video

The Networked World: Are We Ready For It? (Click on the title of this entry to be taken to the video.)

Louis Gerstner brought IBM back from the brink of destruction. The firm had misplayed the transition from the mainframe to the PC and as a result had reduced their near monopoly power in the IT industry to an almost bankrupt company. Gerstner was instrumental in taking the firm in a new direction with profitability in software and hardware products. I think that was the right direction and the current Chairman Sam Palmisano has taken the firm toward a service based operation, which I think is a failed strategy.

Nonetheless, Gerstner's video is over six years old. The vision he lays out is exactly the same vision that most in the IT business subscribe too today. What happened? Why did this six year period pass without the changes that were obvious to industry leaders like Gerstner so many years ago.

The bureaucracy has interfered in making the organizational and technological changes necessary to see Gerstner's vision real. When the budget power resides in the hands of the bureaucracy, we see record volumes of business for the SAP application suite, because SAP is the bureaucracy. Innovation and change have been traditionally resisted by the bureaucracy, and with so much innovation and change necessary, the bureaucracy has been able to easily avoid it and hence delay its ultimate demise. It is not coincidental that this time also saw the management attain the greatest amount of control over their organizations at the expense of their key stakeholders. The bureaucracy winning is the natural outcome of this battle.

If we go back to 2002 and take the vision of Gerstner to the current point of time we can time the last six years as the point where the bureaucracy had successfully resisted the technological and organizational changes. This is also the time that the fleecing of their companies by the management, for the managements benefit began in earnest. It is reasonable to assume that at some point the methods of the bureaucracy would become to slow and too unresponsive for the needs of society. 

As I stated in the Preliminary Research Report, the collapse of the Former Soviet Union was a reflection of the demise of Russian society as a result of its organizations not able to provide for societies needs. People were unable to work when they were lined up at the bakery for food. We saw lineups of people waiting for their bread and food when the so called supermarkets were literally barren. To a large extent, as I suggested in the Preliminary Research Report, the current financial meltdown is as a result of the bureaucracies methods are unable to provide for the societies needs.

Waiting for the Great Obama to solve the financial meltdown is going to leave a lot of people disappointed. There is not enough money in the printing presses to overcome the inefficiencies of the bureaucracy. If we do not set out to build the organizations we need for the future deliberately, they will not come about. We are beyond the ability to have the corner store, where the supply and demand are local, satisfy the complexity in the economy. We depend on a globalized economy and the people that depend on each other have no understanding or appreciation who, what, where and when these interactions occur. Expecting this to generate itself is typical of the thinking that the market will provide the solution when the demand shows itself. It is clear from this video that the demand has been in existence for over six years now. The market will only provide it when action is needed and action is taken. We need to act now and make this software for the innovative oil and gas industry. Laissez-fair is no longer able to provide the types of spontaneous order that Frederick von Hayek suggested. Complexity demands that we need to act, please join me here. 

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Wednesday, November 26, 2008

The next 30 years.

I frequently watch the video's from FORA.tv for the surprisingly good content contained on that website. Think of it as the YouTube for the thinking. It is a compilation of videos from a 115 governments, institutions, universities, and leading publications. One can be lost in the sites content for weeks.

I was watching an Australian Broadcast Corporation (ABC) broadcast of Rupert Murdoch, Chairman and Chief Executive Officer of News Corporation. His Boyer Lecture entitled "A Golden Age of Freedom." During the broadcast he states in the next 30 years the world will welcome an additional 2 - 3 billion people joining the ranks of the middle class.

I am an optimist, although my recent rants on the economy may make it seem that I am pessimistic, I can assure you that there is nothing further from the truth. As I mentioned yesterday, the future holds new disciplines, new opportunities, new ways of organizing and living in a far better world with a much higher quality and quantity of life.

I leave you with the thought as to what the world will be like in 30 years. With a design of the People, Ideas & Objects Application and Modules fully operational in the marketplace for many decades, how the energy industry will have developed. The work that is being done in physics, nanotechnology, computer sciences, bio-chemistry, robotics, space and many other areas. Conducted on a global basis with the greatest possible number of people living a middle class lifestyle.

Our one impediment to making this happen is the ways and means of how we have achieved what we have to date. The bureaucracy or its more antiseptic name the structured hierarchy is the reason we are being held back. Change is violent and upsets too many things to be undertaken in a constructive manner. We know we should have moved away from the bureaucracies many years ago. The reason that we didn't is that bureaucracies still provided enough value as to not attract the necessary attention to there inefficiencies.

Now we have entered a time in our lives where everything happens so quickly. Our organizations, which can not accommodate any change, especially at today's pace of change are failing. Failure is what eventually happens, and we see that failure happening in business today. And we should welcome this change and move to the new forms of organization that will optimize the next 30 years. Please join me here in designing and developing these applications.

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